Emerging market economies and development in BRIC countries

Economy of the BRIC countries

The term BRIC is an acronym used to describe economies of Brazil, Russia, India, and China. These countries are described as emerging markets because of their developments and reforms in their economic transitions from closed economy to market economy while building accountability in the system, (Heakal, 2009). He argues that such an economy is an economy with low to middle income and constitutes approximately 80% of the global population, and represents 20% of the world economies.

Katz,(2010) shares the same view that these emerging markets, BRIC countries, accounted for a full 40% of the world's population and an estimated 25% of GDP in the year 2009.

Description of the BRIC economies

Brazil

Brazil is the biggest economy in the Latin America and is a major energy exporter. In view of economic watch,(2010), the economic and political problems experienced in the 1980s forced the then ruling government to introduce the " Plano Real," a set of economic measures designed to bring down the high inflation rate which became a very successful policy measure.

On the eve of millenium, the demand for Brazilian commodities increased tremendously and Brazil recorded a growth of 8.48% in GDP in 2004,6.02% in 2005 and 7.34% in2006. A further increase of 9.21% and 7.46% in GDP was recorded in the year 2007 and 2008 respectively.(economic watch,2010).

However this trend of economic growth was threatened during the global financial crisis of 2008 when the GDP grew by only 0.27% but the economy recovered very fast as compared to other countries that were also hardly hit by this crisis.

Brazil is a member of World Trade Organization (WTO) and being a member makes her to access other markets of member countries without too much trade restrictions. 60% of her total exports are made up manufactured and semi-manufactured goods with China as her largest export market. Primarily, Brazil exports Soy, ironore and steel to China.

In terms of economic geography, Brazil is the 5th largest country in terms of area size covering a total area of 8.5 million square kilometres. Out of this, 6.9% is an arable land producing agricultural products such as sugarcane, coffee, tropical fruits, and frozen concentrated orange juice (FCOJ). Agriculture contributes to 6.1% of the total country's total GDP and employs 20% of its total labor force. The country is also endowed with natural resources which includes; bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, uranium, petroleum, hydropower and timber. It's the 9th largest oil producer in the world and just lags behind the United Arab Emirates at 2.572 million barrels per day. Hydropower accounts for 69% of the total power generation and nuclear power plants contributes 4%.

The country's population is 203.4 million people and a labor force of 103.6 million people. The unemployed constituted a percentage rate of 7% in 2010. With this kind of population, one of the social problems the country faces is poverty. The country has a social welfare program which according to Central Bank of Brazil has helped 20.5 million people to get out of poverty.

Brazil has well developed industries in Latin America and covers wide range of manufacturing from automobiles and parts, machinery and equipment, textiles, cement, computers, aircrafts, steel and petro chemicals which contributes 26.4% of the nation's total GDP and employs 14% of its total labor force.

Another sector that also contributes to the growth of GDP is the service sector. This sector contributes about 67.5% of the total GDP and employs nearly 66% of the total labor force especially in telecommunications, banking, energy, commerce and computer sect

India

India on the other hand is a global leader in manufacturing including service based industries. That's why technological and customer support programs and operations have been outsourced by many corporations due to low cost of labor.(katz,2010).

India is the fourth largest economy by purchasing power parity (PPP) and is based on social democratic-based policies but with time the economy has moved to market-based economic system with economic trade liberalization beginning in the year 1991.This economic reform accelerated FDI investments, to a level of becoming one of the fastest growing economies of the world. It's also projected that by the year 2035, India will become the third largest economy of the world after U.S. And China. (maps of India,2010).

In the agriculture sector, India ranks second in the world in agriculture and plays a major socio-economic development in the country employing 60% of the total population.agriculture and forestry, logging and fishing comprised 16.6% of the total GDP of the country. She is also the world's producer of tea, turmeric, black pepper, ginger, milk and cashew nuts but comes second in production of wheat, rice, groundnuts, sugar and inland fish. 10% of the world fruits comes from India. Suprisingly, India is the world's major consumer of silk and at the same time the producer.

Textiles manufacturing comes in second after agriculture constituting 26% of the manufacturing output. 27.6% of the total GDP comes from the industrial sector employing 17% of the total population.23% of the population are employed in the service sector which recorded a growth rate of 7.5% from 1991 to 2000 due favourable economic reforms accounting for a GDP of 55% in the fiscal year 2007.

The service sector especially the information technology contributed to 7% of the GDP in 2008. The annual revenues obtained from outsourcing activities amounted to $60 billion in March 2009. Banks in India are required to provide 40% of their net credit to other sectors like agriculture, retail trade, small scale industries and business.Net assets of the banking sector are held by private banks which holds 18.2%, 75% by public sector banks while the 6.5% are held by foreign banks.

China

China is the largest economic powerhouse of the BRIC countries by both population wise and GDP. It had an estimated foreign reserve of about $2 trillion in 2009. China has become a destination of choice to many multinationals keen to establishing a firm and solid manufacturing base for global competition. The economywatch (2010) describes that China's agricultural sector is driven by a sharp rise in the procurement and semi-privatization of agriculture. In 2010, the agriculture sector accounted for 10.9% of the total GDP while 48.6% and 40.5% came from industry and service sectors respectively.

China's total population totals to 1.341 billion. 39.5% of this population is employed in agriculture, 27.2% in the industry and 33.2% in the service sector. China ranks first in production of cotton, tobacco and red meat. Other products include oilseeds, silk, tea, ramie, jute, hemp, sugarcane and sugar beets.

According to the UN World Food Program, China fed 20% of the world's population with only 7% of the word's arable land. (Bureau of East Asian and Pacific Affairs, 2011). China is the most important market for U.S. markets and in 2010 exports to china reached an all time high of $91.9 billion with agricultural exports totalling to $17.9 billion. Agriculture alone contributes to about 10.3% of China's as recorded in 2009.

In the industrial sector contributes about 46.8% of the China's GDP with major industries concentrated in the mining and processing of ore, steel, aluminium, machinery, textile textiles and apparel; armaments; cement; chemicals; fertilizers; consumer products including footwear, toys, and electronics; automobiles and other transportation equipment including rail cars and locomotives, ships, and aircraft; telecommunications equipment; commercial space launch vehicles; and satellites.

According to the Bureau of East Asian and Pacific Affairs report (2011), China overtook Japan to become the world's second-largest economy in terms of gross domestic product in 2010 just behind U.S. In the same year, China's economy was $5.88 trillion over one third the size of the U.S. economy.

China is also a net exporter of oil. Her rich coal deposits are important sources of energy which makes up about 71%. The International Energy Agency estimates that China will contribute to 36% to the projected growth in the energy use with its demand rising by 75% between 2008 and 2035. This is because China's electricity is expected to rise to 10,555 billion kilowatt hour by 2035.

Export trade is a major driver of China's economic growth. For this reason, China has embarked on economic reform policies to foster rapid development and attract Foreign Direct Investments.Once the government introduced legislations and regulations that are designed to encourage foreign investment. This has made china one of the leading FDI recipients in the world, receiving a record of $105.7 billion in 2010 as recorded by the Chinese Ministry of Commerce. More so, the chinese government to the establishment of a social safety net, reduction of income gap between the rich and the poor and protection of the environment including other strategies of privatizing un profitable state owned enterprises. The government has also reduced bureaucracy aiming to attract the presence of more FDI in the country.

Reasons why BRIC countries are growing in importance.

BRICs are the fastest growing and largest emerging market economies.As the U.S. maintains its superpower, its facing an increasing challenge from the BRICs countries whose powers and economic might have become influential in decision making of global matters. The BRIC countries offer an environment that is attracting multinationals to heavily invest in them. Their growing importance comes from the fact that these countries are expected to become major economic players by 2030 all around the globe making the current economic giants unable to compete with BRICs. This shift in economic power will also be accompanied with realignment of political power.(globalization report,2011).

South Africa joined BRIC membership in December 2010 and South Africa hopes to use the influence of BRIC powers to steer growth and development in the whole of Africa (Badasie,2011). According to IMF report, BRIC countries recorded a combined GDP of R. 18 trillion in December 2010.

China and India has continued to cement ties with Africa through establishment of investments in different parts of Africa through trade and economic cooperation.(Makwiramiti,2011).China in particular has invested across African continent to secure access to natural resource needed to sustain its rapid economic growth and they while maintaining a bilateral agreement with African countries to help build infrastructure such as roads, power plants, telecom system, industries, hospitals and schools thus a mutual friendship.

The four BRIC countries have a great potential of a new economic club of their own even without the presence of U.S., France, Germany, Italy, Japan, United Kingdom, economic giants of the world currently. The U.S. has tried to push G20 powers to BRICs to join the rich man's club. This is because BRICs poses a great economic threat to existence of the rich man's club that characterised by individual selfish interests in the global trade.(economist,2010)

The prediction that 93% of the global middle class will come from the emerging markets by 2030, has accelerated the growing importance of the BRICs. All roads will lead to BRIC countries instead of Washighton as other institutional investors based in developed markets will be eyeing BRICs markets which as a group has much lower volatility than individual markets.(Karz,2010).

BRICs significance to the world economy is undisputed. The original four are among the largest accumulators of reserves accounting for 40% of the world's total. China is the largest among the four with $2.4 trillion which can buy NASDAQ quoted companies and is the second largest creditor after Japan. If BRICs can set aside only 1/6 of their reserves, they have the potential to create a fund the size that of IMF.

Another growing importance of the BRICS is that they are expected to change the global economic order and their economic performance. When this happens, a shift in the global economic power is expected to change drastically from the developed countries to the developing emerging countries. The shift in economic power will also be accompanied by realignment of political power meaning that BRIC countries will continue to act as powerful engines for global economic growth.(Makwiramiti,2011).

In conclusion, the BRICS bilateral relationship is meant to increase south-south ties but they seem not to cooperate on issues like energy policy, and they are wary of each other's leadrship in global market. This tendency may delay them from achieving a common goal of becoming the next economic powerhouses in the world.