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BW Businessworld

The BRIC Nations

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Following is a look at the economic prospects of the bloc, and the risks to optimistic growth scenarios:

Economic Outlook

The Goldman Sachs research papers that launched the concept of the BRICs stressed that they were not making definite predictions, but were setting out scenarios of what could happen if the four countries realised their growth potential.

In a 2003 forecast, "Dreaming with BRICs", Goldman said the four nations' economies could be half as big as the combined G6 -- the United States, Japan, Britain, Germany, France and Italy -- by 2025, and could overtake the G6 by 2039. It said China could become the world's largest economy by 2041.

Goldman says that since 2003, combined BRIC performance has exceeded even its most optimistic scenario. Jim O'Neill, global head of economic research at Goldman Sachs, says China may now take the number one spot as early as 2027, with the BRIC bloc overtaking the G6 within the next 20 years.

"On the contrary to the rather pitifully thought out views by some a few months ago that the BRIC 'dream' could be shattered by the crisis, their relative rise appears to be stronger," he said.

Goldman now predicts growth rates between 2011 and 2050 of 4.3 per cent a year for Brazil, 5.2 per cent for China, 6.3 per cent for India and 2.8 per cent for Russia.

Most analysts agree that the figures provide a relatively conservative estimate of the growth potential of the BRICs. The key issue is whether they can live up to this potential, or whether they will be derailed by some of the following factors.

Political Risk

Perhaps the biggest risk to the growth scenario is that political change or geopolitical conflict undermines the growth prospects of one or more of the BRICs. Multi-decade forecasts are notoriously unreliable, particularly when it comes to politics.

"The BRIC story has one fundamental flaw," wrote Eurasia Group's Ian Bremmer and Preston Keat in their 2009 book on political risk, 'The Fat Tail'.

"To combine so many complex variables into such a long-range forecast (Goldman) had to make several questionable assumptions. The largest is that the governments of these four countries would exist in pretty much the same form for the following 47 years."

Rapid growth often leads to increasing income inequality within a country. This could spark social unrest and divisive internal conflicts, particularly in India and China.

China also faces the possibility that growing affluence leads to popular pressure for democratic reforms, possibly miring the country in a lengthy and even violent political conflict.

For Russia, there is deep uncertainty about what would happen if Prime Minister Vladimir Putin was to lose his grip on power.

"The nature of any political system that concentrates as much power in a single individual is that it is vulnerable to an unquantifiable level of risk from entirely unexpected events -- including mortality," Goldman wrote in a 2007 report.

The prospect of one or more BRIC nations being involved in a potentially devastating war cannot be ruled out -- a particular risk for India, which could face nuclear conflict with Pakistan.

Environmental Constraints

Environmental degradation is potentially a critical risk to the economic rise of the BRIC nations. Global warming could have a grave impact on rural incomes, particularly in India, Brazil and China. Urbanisation, industrialisation and intensive agriculture will put huge pressure on each country's environment.

Many of their major cities, such as Shanghai, Mumbai, Rio de Janeiro and St Petersburg, are vulnerable to rising sea levels. Nearly a quarter of the population of the BRIC countries lives near the coast. And all have significant agricultural sectors.

Even if the BRIC nations avoid catastrophe, they may find themselves bound by environmental pacts which limit their growth.

Resource Issues

Brazil and Russia are resource-rich commodity exporters, but China and India depend upon imports to fuel their growth. If growing shortages and competition for resources drive up commodity prices, their growth models will be undermined.

Conversely, if technological advances reduce dependence on conventional energy sources and/or commodities, Russia and Brazil will face reduced prospects for growth.

Demographics

India has robust population growth, while the population of Russia is in decline. Brazil and China are forecast to face declining populations in coming decades -- in China's case partly due to the 'one family one child' policy. Population decline and ageing could be a significant constraint particularly for Russia and China, though China could remedy this by relaxing the rules.

Structural Constraints

All the BRIC economies have structural issues that need to be addressed. Brazil saves and invests too little. India needs significant economic reforms. And each country needs to ensure it invests enough in infrastructure to maintain growth.

General Uncertainty

The longer the forecast horizon, the more uncertain it is.

"The fundamental problem with 50-year political predictions is that virtually no one gets them right," say Bremmer and Keat of Eurasia Group. "We simply cannot know how leaders in Brazil, Russia, India and China will define their political and economic interests half a century from now."

(Reuters)