Why it is time to rename the Bric nations the Bics
IT HAS been clear for some time that global growth for the foreseeable future will not be driven by Europe and the US, but rather by the so-called Bric countries of Brazil, Russia, India and China. This group of countries, representing around a third of the world’s population, now form a loose but increasingly vocal economic alliance that is challenging the old post-war order. To be a Bric country is to be part of the future.
But many commentators see an anomaly. How can Russia, with its ageing population and its reliance on commodity exports, be ranked alongside economic dynamos such as China and Brazil?
Goldman Sachs’s Jim O’Neill, who famously coined the term Bric back in 2001, sees no such contradiction. In his view, Russia’s large population gives its economy the potential to grow bigger than Germany’s over the next 20 years.
And judging an economy based on its reliance on commodity exports is a meaningless way of predicting future economic performance – compare, for instance, the relative fortunes of Australia and Norway with Nigeria and the Ukraine.
Meanwhile, other Bric countries like Brazil depend to some extent on commodity exports. And while these countries continue to grow there will be plenty of demand for Russia’s main exports of energy, metals and agricultural produce for years to come.
Russia suffers from a major corruption problem, ranking 143 in Transparency International’s 2011 global Corruption Perceptions Index. But its Bric confreres also languish fairly low down this index, all scoring less than 4 out of 10, where 10 is very clean.
However, critics of Russia’s membership of the Brics club do have a point when we consider the underlying structure of its economy.
Most obviously, Bric countries draw much of their growth from large pools of labour, underpinned by young and growing populations. Russia, by contrast, has an ageing population that is shrinking overall, which makes it closer to countries such as Italy and Ireland.
Second, the likes of China and India still have a long way to go before they are fully urbanised and industrialised. Russia completed this process 50 years ago and is rapidly becoming a post-industrial economy. Its dominant energy and metals sectors are undergoing privatisation and modernisation, while its banks are beginning to compete globally. The development of Russia’s answer to Silicon Valley near Moscow should see Russia competing in high tech industries such as IT, biomedical sciences and energy-efficient technologies. Russia’s agriculture sector is applying modern technology and practices, allowing it to build on this comparative advantage.
Finally, Russia’s relatively wealthy GDP per capita of $17,000 (£10,845) makes it the odd one out in a group of countries that still suffers from extremely high levels of poverty and economic inequality.
Russia is further down the road to development than other Bric countries. For investors, perhaps more useful comparisons should be drawn with countries like Poland, also well on its way to becoming a developed market economy. That may not be as glamorous as being a Bric, but it is perhaps a better place to be.
Alexey Moiseev is head of macroeconomic analysis at VTB Capital.