The idea of BRIC emanated from an investment bank which had conjectured a theoretical possibility of four countries in the developing world, i.e. Brazil, Russia, India and China, taking on the role of engine to growth for the world economy. This concept gained more relevance after the financial crisis set in where it was believed that the emerging markets were decoupled from the developed ones and were thus driving the world economy.
This also seemed true for the next 5 years or so where the emerging markets performed distinctly better than the developed nations. At this stage, South Africa also joined this club making it the BRICS nations. These nations are now together as the BRICS group formally where the goal is to actually take on the might of the G-7 nations and offer a viable option to the present growth model in the world.
The Summit being held in Xiamen, China is significant as it comes probably at a very crucial time when the world economy is in a state of introspection. The ethos of collaboration has gotten diluted with the US talking openly of unequal agreements with which it is associated and wants to systematically withdraw from them. The Brexit decision is also based on similar grounds. In the past it has been observed that globalisation has led to an increase in the volume of trade and investment which has been a win-win situation for all nations. However, with countries more worried about the employment fallouts of the process of globalisation, there has been a tendency for the US and UK to look more inwards.
The present summit also has some observer nations present which includes Thailand, Mexico, Egypt, Tajikistan and Guinea – which seem to well spread across the continents from where the original BRICS nations are located. It may be conjectured that at a later stage these nations would also get subsumed in this group which will help fostering the process of economic integration.
There are basically three areas which would benefit from such closer ties. The first is trade. Given the size of the economies of the BRICS nations and their geographic spread the potential of expanding the frontiers are high. The whole idea is to create ‘global value chains’ for various products and services which can help these nations to integrate faster and push each one along continuously. By leveraging on the comparative advantage of each nation, the others too could benefit in either being the recipient of the product or becoming part of the value chain. Hence, trade led growth is an opportunity which exists. The challenge will be to traverse the physical distance as the BRICS nations are situated far apart unlike say the NAFTA where the nations are contiguous as is also the case with ASEAN nations.
The second economic tie-up would be through investment. Presently the major flow of investment is from the developed to developing countries. This can change now if surpluses in these nations are invested in each other’s countries. The external balances of these nations vary from surpluses to deficits and by having such flow of funds through more liberalised entry policies there are mutual benefits to be gained. This can set in a secondary chain of foreign investment circles, which will bring about a more symbiotic growth process.
The third area which is already being worked on extensively is finance through the New Development Bank. The whole idea is to create a financial institution analogous to the World Bank which can raise funds and lend in the member countries for infrastructure development. As it matures the same can be used also for the development of private sector industry. This is a very important initiative taken as funding is a major problem for developing economies which have major lacunae in infrastructure. Cheap funds are required to grow these structures and presently the funds which come from the western multilateral agencies come with conditions which come in the way of independent policies being pursued by the respective governments. By having this bank without any inbuilt prejudice, there can be freer flow of funds to the member nations.
While the talks have been on for long, it is really time for these agreements to be signed especially on the trade and investment fronts so that the process of integration can begin immediately. The New Development Bank is already active and the same needs to be hastened on the other fronts.
While the concept of BRICS economic cooperation sounds pragmatic as it provides an alternative route for growth for all the member countries, it must be realised that the five nations involved have different political structures, levels of governance, internal policies and inherent strengths. The political relations between these countries have to be straightened out first before real integration takes place. The present border issues of India and China have to be resolved to move meaningfully forward. Further, there needs to be a common minimum agenda that is drawn up and implemented so that countries can start working on the trade front.
There is potential for all the members to accelerate growth process through strong economic agreements and show the way to other nations too. The ultimate test will be against time as they need to get their acts together fast, as the world economy takes a turn for the better.