The Yekaterinburg BRICs and a closer look at their global reach

Today, Russia is hosting a summit of the BRICs, the emerging markets that seem to have only one thing in common, namely to have been lumped together by Goldman Sachs in 2001. The countries will discuss the global financial architecture and  their role in it. There’s lots of talk about them in the media. Let me pick up on two articles published in  Business New Europe today (subscription required), of which some abstracts below.

A first article reports on a map that was just developed of the actual global integration (investment, trade and migration) of the BRICs with the rest of the world:

“Consulting company Maplecroft has just produced the Emerging Powers Integration Index (EPII), which tries to go beyond the usual comparisons of GDP growth or trade and assesses just how dependant the rest of the world already is on the BRICs.

Maplecroft is a risk, responsibility and reputation specialist […]. It produced a series of six indices and maps covering the integration of Brazil, Russia, India, China and South Africa with the global economy that are composites of data on world trade, foreign direct investment (FDI), portfolio investment and migration set against more than 150 countries. The resulting map is painted shades of red where dark red is “extremely integrated with the BRICs” down to the light pink of “low level of integration.”

(…) The first thing that the map shows is how the integration process is still in its early days. The list of countries most integrated with the BRICs is topped by: Angola, Congo, Yemen, Singapore, Kazakhstan, Kyrgyzstan, Mongolia, DR Congo, Malaysia and Liberia. This is not exactly a “Who’s Who” of global power brokers, however, the map also shows that the integration with the BRICs is already on the radar for many developed countries.

Maplecroft’s Rebecca Jackson, who put the map together, says that the importance of each of the BRIC countries has already moved beyond its borders and they already dominate their respective regions. Russia is already a key player in emerging Europe and Central Asia and, unsurprisingly, those countries that lie in the nexus between Russia and China – namely Kazakhstan and Mongolia – are extremely integrated with their two BRIC neighbours. However, going the other way, most of Central Europe, right through to Germany, are also highly integrated with Russia. Trade relations are an obvious dependence, but less well acknowledged is that for the last decade or so Russia has been a net exporter of capital, investing far more in the countries of the “near abroad” than is invested in it by international companies. And, more recently, Russia has been investing further afield – the deal to buy Germany’s Opel carmaker being the most recent example. Like it or not, Russia is already a significant player in the European economy.

Asia is already tightly integrated around China, with Singapore, Mongolia, Malaysia, Thailand and Vietnam listed among China’s 20 most integrated countries. Australia is also “highly integrated” again because of Chinese exports. All these countries have been roped into the Chinese production machine, assembling component parts of manufactured goods, which are then exported to the US and Europe.

But the map also shows that integration has already moved on from them being simply big in their own neighbourhoods. With its rich mineral resources and recognisable problems, Africa has been the first port for both China and Russia after they leave their backyard. Congo, Sudan and Angola are especially advanced where both Russia and China have made big investments. “Resource rich countries and export destinations. Countries all across the globe are being drawn into economic relationships with the BRICs, particularly China and India. The index shows that integration among the BRICs themselves is as yet a smaller trend but an emerging one,” […]

One of the more surprising features of the map is the fact that the US and UK both have the red of “medium” integration with the BRICs, but the countries of China, India and Brazil are the light pink of “low” integration. “Actually, the USA is ranked as 61st most integrated, while Russia is ranked 79th most integrated,” says Jackson. “That the USA is reasonably integrated reflects various factors. One important one will be the fact that the USA imports a lot from China (and it comprises a significant proportion of USA’s total imports), while it exports a smaller amount to China. Similarly, Russia imports quite a lot from China.”

Another reality that needs to be emphasized is that of all the BRICs, the real riser is China. And this is what Markus Jaeger from DB Research has been highlighting:

The “rise of the BRICs” thesis has received much criticism – some of it deserved, some of it undeserved. There is little doubt that major change is afoot, but the thesis is somewhat misleading, as it discounts what will be the most momentous development of the first half of the 21st century: the rise of China.
years. Over the past decade, real GDP growth averaged 10% in China, 7% in both India and Russia and 3.3% in Brazil; and China will continue to grow faster than its peers. A high savings rate, a low level of urbanisation, low per capita income (considerable “catch-up” potential) and, importantly, a successful export-oriented, manufacturing-based development strategy underpinned by strong investment in infrastructure and education will combine to sustain China’s superior economic performance. China will also soon become the world’s largest economy (by 2025-30). Albert Keidel (until recently at the Carnegie Endowment for International Peace) even projects the Chinese economy to be twice the size of the US economy by the middle of this century! (…)

China will be facing challenges, ranging from gradually deteriorating demographics and questions about environmental sustainability up to potential international trade frictions. Sooner or later economic growth is set to slow from current levels. But the short and medium-term outlook remains favourable relative to the other BRICs and, of course, even more so relative to the advanced economies. Investment ratios in Brazil remain very low. Russia is overly dependent on hydrocarbons and is facing very adverse demographic developments. India will have to overcome domestic opposition to growth-enhancing and growth-sustaining economic reforms and it is not clear yet that the leap-frogging “services revolution” will turn out to be an economically and politically viable development model. For all these reasons, China will continue to outperform the other BRICs over the next couple of decades.

None of this is meant to suggest that the “rise of the BRICs” is not a significant development. It is, but it pales by comparison with the rise of China. China is the 800-pound “panda” in the room.