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BRICS: The 2012 New Delhi Summit

Building BRICS: from conceptual category to rising reality

Jim O'Neill, Goldman Sachs

From "BRICS: The 2012 New Delhi Summit, edited by John Kirton and Marina Larionova with Yoginder K. Alagh,
Published by Newsdesk Media, 2012
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It is now more than 10 years since I had the good luck of dreaming up the odd acronym 'BRIC' to describe the rising economic importance of Brazil, Russia, india and China. To celebrate this anniversary and to explore what might lie ahead for the world under an increasing BRiC influence, last december I published The Growth Map: economic Opportunity in the BRiCs and Beyond. in it, I discuss many of today's challenges, especially as they relate to global economic governance and the role of the various Gs.

By the end of 2011, the BRIC economic story had been much more powerful than I had proposed back in 2001, as well as compared with 2003 when we first looked at the potential for these four countries in 2050. In the most optimistic of four scenarios drawn in 2001, I suggested a combined BRIC share of 14 per cent of global gross domestic product (GDP). In 2003 it was close to 20 per cent. By 2011, it had gone way beyond.

Outstripping the United States

The final details of all four's nominal GDP are still to come, but their collective GDP is likely close to $13 trillion. This means that within the next three years, their combined size will become bigger than the United States, which will remain important geopolitically as well as in terms of issues such as collective voting rights at the international Monetary Fund (IMF) and the role of special drawing rights (SDRs).

All four countries, including Russia, have surpassed my initial expectations – especially China, which has overtaken Japan some six years earlier than I anticipated, and is already almost double the size of Germany. At the end of 2011, its economy is already at $7.3 trillion, which, astonishingly, increased by $1.4 trillion in just 12 months. As I am fond of saying, in the context of the current european crisis, China creates the equivalent of another Greece every 12 weeks. in 2011, it created half the equivalent of a United Kingdom in just one year, or close to the equivalent of two Australian economies.

Brazil, helped by the surge in the value of the real, became bigger than italy 10 years earlier than I expected. Russia has been disappointing only if one focuses on the country since 2009. in fact, if not for decline of its economy since then, Russia was heading to outperform its four BRIC partners relative to my 2001 expectations.

The decade ahead promises to be extremely interesting for the relevance of the BRIC countries. Barring a disastrous shock that would affect them all – particularly China – their combined GDP is likely to exceed that of the US by 2020, if not sooner. That will certainly carry much symbolic weight.

As they get larger, by definition their contribution to global growth gets bigger. According to some basic analysis, and contrary to persistent and widespread western pessimism, global GdP growth is likely to be between 4.0 and 4.5 per cent this decade, almost exclusively because of these countries, so surely they should expect to have more influence.

Growing financial influence

in this context, it increasingly seems inevitable that their role in the IMF needs to rise even more, along perhaps with the other so-called non-developed G20 economies, especially Korea, indonesia, Mexico and Turkey, and perhaps South Africa (although, in economic terms, South Africa joining the BRiC economies makes little sense).

it also seems more and more likely that the SDR will be quite different by 2015, when it is next due for a revision to its constituents. it would be ridiculous for the renminbi not to be a critical part, and it is conceivable that including the rouble will be justified. in fact, Russia is already close to meeting the rigid definitions stipulated by the IMF. whether the SDR will become more than an accounting currency for IMF transactions remains to be seen, but with these two currencies, it would be much more likely that it will.

As for BRICS as a political group, I do not believe that it has a permanent role – especially given my scepticism about South Africa as a member. The four BRIC economies are so big that soon they will be among the 10 largest – but beyond being big, having large land masses and lots of people, they share little else.

Unlike the G7 countries, their wealth is quite different, ranging from $15,000 per capita in Brazil and Russia to below $2,000 per capita in india. South Africa is about one-fifth the size of Russia and india, and tiny compared to China. And, of course, the BRICS countries do not share similar ideological goals.

Despite questioning the political aspirations of the BRICS club, there is a case for a smaller new G grouping under the overall umbrella of the G20. The Korean- and French-hosted G20 summits have been general disappointments, partly because of the depth of economic challenges that coincided, but more so probably due to the passage of time, and the simple fact that the G20 (let's not forget that nearly 30 countries attend) is too unwieldy. We need, within the G20, a new, more representative G7/8-style group that can deal with the most pressing, globally systematic issues.

The case for Germany, Italy and France to be individually represented is weaker than ever, especially if they want the world to believe that they are committed to sharing a common monetary and fiscal framework. what better way to demonstrate such a commitment? Beyond that hurdle, the case for keeping the UK and Canada within a modern, effective G7 – by size – would weaken immediately. Along with Japan and the US, the euro area would be joined by each of the four BRIC countries. Canada and the UK would no doubt resist, but given the pain involved in trying to get their european cousins to meet as one, that should be manageable, not least as it would not mean an end to their influence, as they would remain effective members of the G20.

It has become time to acknowledge the importance of the BRIC countries in a more substantive way than them having to meet on their own once a year to be noticed.

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