“Broken BRICS: why the rest stopped rising”

 

 

 

 

 

 

 

BROKEN BRICS: WHY THE REST STOPPED RISING

 

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Introduction

Over the last few decades, the concept of the rise of the rest has been the most talked-about trend in the global economy. This was driven by what has come to be perceived as the rise of the economies of many developing countries to the same par with the economies of their more developed peers. According to (Sharma, 2012, 56), the prime movers of this new club has been the four worlds emerging market countries popularly referred to as the BRICs and they include Brazil, Russia, India, and China. According to the school of thought on the experience of these nations, the world is witnessing a once in lifetime shift and the perception is that, the key players in the developing world are economically catching up with or even surpassing their counterparts in the developed world based on the different forecasts that took the developing world’s relatively higher growth rates since the middle of the last decades. The projections seem to extend them right into the near future in comparison with the predicted sluggish or stagnant economic growth in the developed countries as evidenced by the Unites states as well as other advanced and industrialized nations, especially in the western Europe.

For example, such exercises supposedly proved that china was definitely on the verge of overtaking the US as the world largest or leading economy. In fact, already there are emerging schools of thought that feel that China has already overtaken the US as the world’s largest economy even though the US economy is still more than twice as large while in the perspective of the per capita income it is as seven times as high. According to  (Rodgers, 2016, pa. 112), the notion is given prominence by the previous straight line projections of economic trends as the earlier forecasts in the 1980s that projected that Japan would be sooner than later become the world’s number one economy. However, this eventually turned out to be equivalent to throwing cold water on such extravagant predictions. For instance, since the year 2009 when the world economy began to experience its worst, the Chinese economic growth has slowed down sharply from double digits to seven % and at times even less while the rest of the BRICs have also tumbled since the year 2008. In the year 2008, the annual growth of the Brazilian economy has been on the decline from 4.5 % to two percent, India from 9 % 6 % while Russia has slid from 7 % to 3.5 %. None of this can be surprising since it has always been hard for any nation to sustain a rapid growth for more than a decade and the unusual circumstances of the last decade did not make it easy either for any of the nations. Moreover, all these nations were coming off a crisis-ridden decade of the 1990s that was coupled by a general global flood of easy money owing to the emerging markets that fueled a mass upward swing that made each economy virtually a winner. For example, by the year 2007, only three economies in the world recorded a negative economic growth as the prevailing global economic climate made that all recessions were cleared out of the international scene.

However, at the moment, the emerging markets are facilitating less flow of foreign money forcing the global economy to rerun to its normal state of churn under which many laggards prevail alongside a few winners that re rising from unexpected places. The combined fact of this has been a striking shift under which an economic power is brewing and thus a flow of money is channeled towards the rising stars which are projected to create a new reshape of the global balance of economic power.

The “Broken BRICS: why the rest stopped rising”

First, according to some reliable schools of economic thought, the notion of a wide-ranging convergence between the developed world and the developing world may, after all, be a wild goose myth. For example of the 180 world nations tracked by the international monetary funds, only 35 of them can be correctly classified as developed while the rest constitute emerging or developing markets. However, the majorities of these nations have remained over the category of emerging or developing nations for many decades and look set to remain in the same position for many more years or decades to come. This reality has been well captured by a Harvard economist, Danni Rodrik well through his demonstration that, before the year 2000, there was no foreseeable convergence between the emerging markets and that of the developed world. This was clearly evidenced by the per capita income gap that existed between the advanced nations and the developing nations that keep on widening from the 1950s to the year 2000. During this period, there were very few countries if any that shown real signs of catching up with the developed economies from the developing economies.

However, this aspect was not applicable to the oil states within the Gulf, the southern Europe nations after the World War II as well as the economic tigers of the East Asia. However, it was not until after the year 2000 that the emerging markets as whole begun to show some signs of catching up. However, it was unfortunately that after the year 2011, the per capita income gap or the difference between the rich and the developing nations had grown back to where it was during the 1950s decade.  Nonetheless, this should not be treated entirely as a negative read but rather as a simple historical representation of the economic state of the emerging markets. Since then, however, the course of any given decade since the 1950s has on average witness only a third of the emerging markets grow at an annual rate of at least 5 % or more though less than one-fourth of them have kept the growth rate for more than two decades while alone tenth for at least three decades. However significantly it is notable that only Malaysia, Taiwan, Hong Kong, Singapore and South Korea have kept this growth rate for more than two decades. Based on this statistics, the odds were against the Brazil experiencing a full decade of a sustained growth rate of over over 5 % long before the current signs of a slow down over the BRICs while Russia was also affected.

Several other emerging markets have not been able to gain any momentum for a sustained growth while others have had their progress stalled soon after reaching the model income status. For example, both Malaysia and Thailand appeared rightly on the course to make the cut for rich nations but could not owe to the Asian economic meltdown of 1997 to 1998 occasioned by crony capitalism, excessive debts in addition to other economic factors such as overpriced currencies. Due to these, their growth rates have been disappointing since then. On the other hand, during the later 1960s Myanmar, then Burma, the Philippines as well as Sri Lanka appeared on the verge of emerging as the next Asian economic tigers but soon falter badly and could not even reach the middle-class average income of $ 5,000 in the prevailing dollars terms. Instead, they failed over the general rule, to sustain this growth which is most likely set to reassert itself over the coming decades.

Nonetheless, during the opening decade of the 21st century, the emerging markets, in general, emerged as the celebrated pillars of the global economy at a rate that makes it hard to forget the functioning of the new concept of the emerging markets within the financial world (Coffey, 2013). For example by the mid-1980s, the wall street had already begun tracking them as distinct asset class referred to as the exotic which saw many emerging markets on their stock markets to foreigners for the first time. For example, Taiwan did in 1991, India in 1992, South Korea in 1993 while Russia in 1995. This saw the rush in of foreign investors who unleashed a boom of over 600 percent over the emerging markets stock prices between 1987 and 1994 measured in dollars. In addition over this period, the level of money invested in the emerging markets rose from less than 1 % to close to 8 % of the whole global stock market value.

Nevertheless, this decade was ended with an economic crisis within the nations of Mexico and Turkey between thaw years 1994 and 2002 while in general, the entire markets of the developing markets lost over half of their value as it shrank to below 4 % of the total global stock value. In addition, between the year 1987 and the year 2002, the share of the global GDP in the developing countries fell from 23 % to 20 % with the exception of China which doubled its share to 4.5 % thereby reducing the issue of hot emerging global; markets into a story about one country.

All was not lost and by 2003, a second global boom began to rise within the emerging markets when their markets began to again take off a group and their global share of the GDP began to rise rapidly from 20 % to 34 % that is represented today and is attributable to the role played by the rising value of their currencies as well as their share of the global stock market that rose from a total of less than four percent to more than 10 %. In addition, this was partially attributed to the recovery in the year 2009 of the huge losses that were incurred during the global financial crash of the year 2008 and which has since been on a slow recovery path. In addition, all the emerging markets have been undergoing a period defined by moderate growth over the general developing world characterized by the return of the boom bus cycle as well as the breakup of the herd behavior within the emerging market countries which is taking shape.

For example, even in the absence of the easy money and the further forms of the blue optimism that helped to fuel the global investments of the last decade, the stock markets in the developing countries, in general, are poised to deliver more measured though uneven returns. For example within these markets, capital gains averaged 34 % between the  year 2003 and 2007 and look poised to pick to at least 10 5 over the coming decades when the general earnings in growth rates and other exchange rate values over the large emerging markets attain a limited scope for additional improvements following the last decades strong performance.

In the dynamics of the entire global economy, no other idea has been a subject of more muddled thinking as the issues of BRICs. First, the concept represents the largest economies in their respective regions while the big four emerging global markets have very little in common. For example, they generate their economic growth in entirely different and at times competing for ways. For instance, while Brazil and Russia are major consumers of energy that leads to benefits from high energy process, India as high energy consumer suffers from them. As a result except in prevalence of unusual circumstances, such as those witnessed over the last decade, the BRICs are unlikely to grow in unison. For example with the exception of china, the other members of the BRICs family have very little ties in terms of political strategic interest or common foreign policy interest.

However, they find themselves lumped together in a common thinking acronyms which once it catches on, it may mislead analysts in a general worldview that may soon grow obsolete. For example in the words of (Nesterov, 2016, pa. 45), in recent years, Russia’s economy and stock market has been among the weakest within the emerging global markets due to undue dominance by an oil-rich class of billionaires who control a combined assets equaling over 20% of the nation’s GDP which was by far the largest share held by a super-rich class in any wolf major economy. None the less, though deeply out of the balance, Russia remains a member of the BRICs through this may be attributed to less meaningful roles such as making the name sound better. There is a greater need for both analysts and investors to remain more flexible  as well as historically in the use of the name since other countries in the developing and emerging world such as the Venezuela in the 1950s, Pakistan in the 1960s as well as Iraq in the 1970s  have always shown the capability to post an economic growth of that can be sustained for a decade or two  but their stability has always been elusive since they have always been tripped by one threat or another such as war, financial crisis, poor and bad leadership as well as general complacency.

However away for the BRICs, though they are not entirely excluded, the current fad in global economic forecasting needs a further projection into the future which no one can authentically claim they will be around to provide the account. this glim approach seems likely to say; for example during the 17th century, when combined china and India could account for half of the entire global GDP and the world was then seemingly poised to welcome an approaching Asian century, with a reasserted preeminence, it eventually proved that the longest period that one can assertively find a clear economic pattern within the global economic cycle is reasonable around a decade. Therefore it may be that far all typical business cycles emerge and last about five years beginning with the bottom of one downturn to the beginning of the next which most of the investors adopting a limited perspective to either one or two business cycles.

In this regard, (Ikenberry 2017, pa. 109), advances the view that, most pundits have adopted the view that, beyond such global economic cycles, forecasts are basically rendered obsolete by the unanticipated appearance of new competitors, the emergence of new technologies as well as the emergence of new political environments. For instance, the world over the majority of the CEO and other major investors still limit their strategic plans and strategies to three or five or to utmost seven years before judging the results over the same time frames; Based on this, in the forthcoming decade, it’s correctly projected that the United States, japan, and Europe may most likely suffer a slowed growth. However, this stagnation may be less bad in comparison with the entire state of the overall global economy which will be much slower as a growth rate of relative three to four % a slowdown which is already underway in china and perhaps much deepens for such economies as they continue to mature.

Currently, china’s economy is enjoying the benefits of a reasonable bigger population which is simply too big as well as gain too fast for the economy of the country to remain on the fast economic growth that is as rapid as it has been. In addition, the country has me that over half of the population moving into the urban cents driving the country closer to the economic point that economists generally referred to as the Lewis turning point. This is a point at which a country’s surplus labor movement into the urban areas from the rural areas is complete exhausted.

According to (Kees 2014, pa. 67), The Lewis point of any countries can be occasioned by tow main points; a heavy migration into the cities over a span of two decades or the shrinking of the general workforce such as produced by the policy of one child in china. Eventually, this makes sense in the perspective of the many Americans today that Asian juggernauts are swiftly overtaking the US market performance largely owing to the country’s periodic cycles of paranoia that can only be comparable to the hype that drove the Japan’s ascent in the 1980s. therefore as an economic growth takes root in china’s as well as in the more advanced and industrialized world, such countries are projects to begin to buy less from their export driven peers such as the brazil, Malaysia, Taiwan, Russia and the Mexico thereby significantly impacting on the world economic boom that has been booming over the last decade leading to the tripling of the average balance of trade within the emerging markets to a whopping 6 %.Based on the GDP, Nonetheless, this has been declining since the year 2008 to the normal rate of 2 %. As a result, the mainly export-driven emerging markets need to find a new way for achieving and driving strong growth as the investors recognize that reality of this that many will most likely not do so.

Over the first half of 2012, the distribution of the value between the best performing and the worst performing major emerging stock markets around the world shot up sharply to over 35 %. However, over the next few years, the likelihood of the new normal growth rates within the emerging markets to resemble those of the 1950s and the 1960s are much higher when the general global growth rates averaged 5 % in a race that left many nations lagging behind. However, this did not necessarily imply the reemergence of the 1970s period emerging nations that were overly characterized by uniformly underdeveloped nations. First, in the words of (Beckley,2009, pa. 67), over those years, some of the emerging markets such as Taiwan and the South Korea were beginning to generally experience a boom in their economies but their success was however overshadowed by the poor performance of the larger economies such as India. This does not necessarily lead to a differentiated economic performance over the emerging market countries since experience has proved that it is always easier to grow fast from a low starting point, therefore, making sense to make the comparison between different income classes.

For instance, among the countries with a general per capita incomes in the range of $ 20,000 to $ 50 000, only two have this far recorded a good chance in matching or exceeding 3 % growth rate over their annual economic growth sustained for over the next decade.

 

 

Bibliography

Sharma, R. 2012. “Broken BRICS: Why the Rest Stopped Rising”, Foreign Affairs, 9(16).

Rogers, Z., 2016. Responsibilities in International Relationship: US foreign Policy Perspectives.

Kees van der Pijl. 2014. The Eurasian Union and the BRICs under attack, (Online) Available at: http://www.academia.edu/31325882/The_Eurasian_Union_and_the_BRICS_under_attack

Ikenberry, J., 2017. International Politics, (Online) Available at: http://scholar.princeton.edu/sites/default/files/gji3/files/wws_541_2015_final.pdf

Nesterov, A., 2016. Why Russia needs the BRICs, (Online) Available at: http://www.academia.edu/6843037/Why_Russia_needs_the_BRICS

Coffey, J., 2013. The Great Convergence, (Online), available at: http://www.unc.edu/depts/diplomat/item/2013/0105/bk/book05_coffey_convergence.html

Beckley, M., 2009. American Primacy, (Online) Available at: http://as.tufts.edu/politicalscience/sites/all/themes/asbase/assets/documents/syllabi/2015spring/ps189-19.pdf

 

 

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