BRICs set for dramatic transformation

Brazil, Russia, India, and China are rapidly rising, and changing the world

In 2003, Dominic Wilson and Roopa Purushothaman of Goldman Sachs produced a research paper that sparked the spread of a new acronym throughout the world. Called, ‘Dreaming with BRICs: The Path to 2050’, the paper explored the potential for Brazil, Russia, India and China to expand their role and influence in the global economy.

“By 2050, the combined economies of the BRIC countries could be larger than that of the countries that make up today’s G6,” says Nelson Cunningham, Managing Partner, Kissinger McLarty Associates. “This would create a new G6, comprising Japan, the US and the BRICs, and excluding the UK, Germany, France and Italy.”

The Goldman Sachs paper remains the document of reference for most subsequent research grouping the BRICs together. The key assumption underlying the report’s projections is that the BRICs maintain policies and develop institutions that are supportive of growth. “Each of the BRICs faces significant challenges in keeping development on track,” says the study.

SWIFT's strategy is to support BRICs

SWIFT traffic flows reflect economic growth and import-export activity in the BRIC countries, as well as the deployment of domestic payment systems and securities infrastructures. SWIFT plays an important role in supporting the development of a stable and robust financial system in these countries, while providing access to the global financial community – currently extending to 204 countries.

“The challenge,” says David Pryce, Head of Commercial Channels and Developing Markets at SWIFT, “is to define the role that financial institutions will play, and how SWIFT will support these fast-moving developments in the BRIC countries.”

“Developing markets are increasingly important to the global financial services industry,” he concludes. “SWIFT will continue to focus particular effort on Brazil, Russia, India, and China, which represent formidable opportunities now and in the years to come.”

Growth as common denominator

Each of the individual BRICs is identified with different primary growth drivers. India has already built up a formidable reputation for its service industry, both in terms of outsourcing and high-tech R&D. China is seen as a manufacturing powerhouse and huge market in its own right. Russia is resource-rich, while Brazil is expected to benefit from a large, low-cost workforce, substantial natural resources, and its closeness to the US. Whatever the basis of the growth strategies pursued, a set of core factors – macroeconomic stability, institutional capacity, openness to trade and investment, and education – are necessary conditions for that potential to be achieved.

BRIC countries – 2003
	Population (millions)	GDP* (billions)	GDP per Capita, PPP*	Average Annual GDP growth
				1960-2003	1990-2003
China	1,290	$1,400	$4,720	7.7%	9.3%
India	1,064	$544	$2,730	4.7%	5.6%
Russia	143	$307	$8,270	n/a	(1.6%)
Brasil	177	$620	$7,360	4.5%	1.8%
USA	290	$10,300	$35,600	3.3%	2.9%

According to Richard Brown, Managing Director, Regional Cash Management Head and COO, Asia Pacific Global Transaction Services, Citigroup, “Challenges to continued economic growth are political and social instability and the threat of complacency among those that have developed a stable banking structure, but are still going through dramatic growth, including China and Russia.”

Peter Wong, Group General Manager, HSBC, says the pace of fiscal reform in China has been staggering. China made a conscious decision to liberalise its economy 20 years ago. Government policy has been driving growth ever since. “Economic growth is integral to urbanisation,” he says. “The Government wants urbanisation to continue, so it will continue encouraging business to grow.” Before 2004, the attitude of Chinese banks towards strategic partnerships with foreign investors was: ‘we’ll take your money, but we don’t need your management’. By 2004, however, they were appointing foreigners to their key departments. This new approach to strategic partnerships involved patience and the willingness to learn about other cultures and history. Partners do have uncertainties, though. “They are afraid the economy might be over-heated,” says Wong. There is also a severe lack of expert talent in China, which has led to escalating salary costs and a high turnover. He warns that there would be ups and downs, but banking reform will continue. “New opportunities will emerge in asset management and securities,” he believes.

G. Padmanabhan, Chief General Manager-in-Charge, Reserve Bank of India, observes that India’s liberalisation was different to China’s. India avoided financing external debt through internal borrowing. India’s GDP grew by 6.9 % in 2005, making it the fastest growing economy in the world, after China. “Its strength is shown by the fact that every time there is an oil shock it has no effect on India’s development,” he notes. Indian foreign exchange reserves have increased from USD 1 billion to USD 140 billion, making it a creditor to the IMF, not a borrower. Infrastructure remains an issue to be looked at. “Managerial skills to manage risk management systems are lacking, and education remains top of the agenda,” says Padmanabhan.

“Corporates in Russia have great access to capital markets,” says Oleg Viyugin, Head, Federal Financial Markets Service. “Russia has had a robust and sustainable economic growth since 1999, based on a trade surplus and prudent fiscal policy,” he says. “IPOs rose substantially in 2005, and on the demand side there has been substantial growth in the accumulation of investment resources, pension fund reserves, mutual and investment funds and activities.” It will only continue, he argues, “if proper regulation is in place to enable the utilisation of oil and gas.”

“The biggest problem Brazil faces,” says Amarilis Prado Sardenberg, COO, Brazilian Clearing and Depository Company, “is high interest rates, which is related to the prolonged period of high inflation.” Corruption is still an issue, she admits, but “society now wants to punish the corrupt.”