Jim O’Neill: BRICs’ rapid growth tips the global balance
My only regret on the first BRICS analysis of 2001 is that we weren’t bolder.
Between 2001 and 2010, the BRIC economies’ GDP rose much more sharply than I had thought possible even in the most optimistic scenario.
Moreover, their citizens’ wealth showed equally remarkable increases, bringing hundreds of millions of people out of poverty. Their GDP per capita, the best indication of individual wealth, collectively trebled.
China started the decade as the biggest of the BRICs and has remained so.
Brazil was the second big surprise for us, at least in monetary terms. Including it among the BRICs was my biggest gamble, but by 2010 it had overtaken Italy to become the seventh largest economy in the world, with a GDP of $2.1 trillion (£1.3 trillion).
I never imagined Brazil could grow so big so fast. Our [analysis] did not suggest that it would reach that stage until after 2020.
India and Russia also surpassed my forecasts for nominal and real GDP growth.
Some commentators claim these observations overstate the impact of BRIC growth, that it was the product of a freakish and unrepeatable set of circumstances: rapid export growth, the commodity boom and unsustainable US demand.
Yet if the numbers are viewed from a demand perspective, rather than GDP, and omitting exports, then an even stronger picture of BRIC growth emerges.
While there is no doubting China’s remarkable export progress in the last decade, this is not the whole story. More significant is the rise of the Chinese consumer.
Even the conservative official Chinese data indicate that personal consumption rose by $1.5 trillion between 2001 and 2011, the equivalent of creating another UK.
China is no longer just a low-cost labour phenomenon. Its people are rapidly rising up the income ladder and spending.
The BRICs’ role in world trade is also expanding faster than we first thought and certainly much faster than world trade overall.
Trade within the BRICs has accelerated sharply, largely because Brazil and Russia supply so many of the commodities needed by China and India.
This pattern looks set to continue in the next decade and beyond, forcing adjustments to these countries’ foreign exchange policies.
BRIC leaders are already discussing alternatives to using the US dollar as their main trading currency.
The BRICs, notably China and Brazil, have become powerful magnets for foreign direct investment.
Moreover, they have also been piling up foreign exchange reserves. By the middle of 2011, China alone held more than $3 trillion in foreign exchange reserves, close to 50pc of their own GDP, vastly larger than any other country in the world.
It is striking how much has changed in just a decade, but also how little the original BRICs’ framework has altered.
In all my analysis of world economies, amid all the information and hype, I have stayed focused on the benefits of an expanding, more productive workforce.
While the 2001 paper turned out to be the beginning of years of research and analysis on those themes, and my colleagues and I have subsequently refined them, the framework itself has stayed the same.
Even though I had always known it from my basic economics training, I had not fully appreciated the simple but critical importance of demographics and productivity.
Simply applying the most credible estimates of long-term demographic trends, especially for the working population, is the intellectual cornerstone of the argument for the BRICs’ potential.
Between them, the four BRIC countries are home to close on 3 billion people, not far off half the world’s population.
In some ways, it shouldn’t be that much of a surprise that anyone should think they would be the potentially largest economies. The world’s largest populated nations probably should have the biggest economies.
Certainly, for their people to enjoy the wealth that many throughout the rest of the world enjoy, they would need to have big successful economies.
As the late Angus Maddison, a recognized expert on the history and analysis of economic growth and development, has shown, the two most populous countries, China and India, in the past constituted a much bigger share of global GDP.
In his path-breaking analysis of economic history, Maddison showed that China dominated the world between the tenth and fifteenth centuries in terms of size and wealth.
For centuries until then, India was the dominant economy and at times, the two countries’ combined share of global GDP was above 50pc.
Why couldn’t it happen again? I believe it will.
Given the BRICs’ success, it should be no surprise that many other countries are now vying to be dubbed the next BRIC.
In 2005, my team at Goldman Sachs tried to determine which would be the next group of developing countries to follow in the BRICs’ wake.
We came up with a group that we called the ‘Next Eleven’, or N-11 for short. They are Bangladesh, Egypt, Indonesia, Iran, (South) Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.
Although we thought no N-11 country was likely to grow to the size of any of the BRICs, we predicted that Mexico and Korea had the capacity to become almost as important as the BRICs.
The N-11 concept has become an important framework used by many, from investors to global policymakers, to interpret the changes in the global economy.
The BRICs and the N-11 don’t explain everything, but they have proved useful and enduring models to help our understanding of what is happening in the world’s economy and markets.
In early 2011, I decided that the term emerging markets could no longer be applied to the BRICs and four of the N-11: Indonesia, Korea, Mexico and Turkey.
These are now countries with largely sound government debt and deficit positions, robust trading networks and huge numbers of people all moving steadily up the economic ladder.
For investors to understand the scale of the opportunity here, and for policymakers to grasp what is changing in the world, they must see these countries apart from the traditional emerging markets. I decided that a more accurate term would be Growth Markets.
This article introduces you with another term called N-11. You might have heard it before but not for me, there are just too many terms and groups out there, and they classified it based on different factors. The article above talks about BRIC and how the countries in the group have been developing economically so far. Indonesia or even South Africa was once voted to be one of the members of BRIC group, rumor said it has for South Africa, but at the end of the day, people still recognized the BRIC as BRIC, not BRICS or BRIIC or BRICI.
Are you expecting any more new terms and groups coming up soon?