Back in 2001, Goldman Sachs’ Jim O’Neill coined the term BRICs to describe the key fast growing developing economies of Brazil, Russia, India and China. But a dozen years later, is the focus on the BRICs misplaced? Indeed, is the group “broken,” as Morgan Stanley’s Ruchir Sharma has suggested?
“Although the world can expect more breakout nations to emerge from the bottom income tier, at the top and the middle, the new global economic order will probably look more like the old one than most observers predict,” Sharma wrote earlier this year. “The rest may continue to rise, but they will rise more slowly and unevenly than many experts are anticipating. And precious few will ever reach the income levels of the developed world.”
Each day this week, a leading analyst will assess the prospects of a BRIC nation and weigh in on whether it still deserves its place in a group of economic high flyers. Today, Paulo Sotero, director of the Brazil Institute at the Woodrow Wilson International Center for Scholars, looks at the prospects for Brazil.
By Paulo Sotero, Special to CNN
Editor’s note: Paulo Sotero is director of the Brazil Institute at the Woodrow Wilson International Center for Scholars. The views expressed are his own.
The alleged demise of the BRICS is viewed in Brazil with the same caution diplomats and foreign policy experts greeted the group’s emergence in the global scene a decade ago. At best, the BRICS were seen by Brazilian diplomats and scholars as a useful mechanism to project Brazil internationally in a rapidly changing global landscape. However, as the economies of Brazil, Russia, India, China and South Africa lost speed and altitude over the past two years, the difficulties of articulating their conflicting interests in some sort of common vision became more evident.
President Dilma Rousseff’s decision to forgo this year’s New Delhi summit of IBSA, a subset of the BRICS formed ten years ago by its three democracies, is a good indication of the loss of interest for this sort of arrangement. Clearly, the role and relevance of the group will depend not only on the economic performance of its members countries in the years ahead, but also on the United States and Europe’s growth and the paths China and Russia follow in dealing with growing internal tensions that could lead to years of instability and disharmony. Syria is an obvious case in point.
Opinions regarding the BRICS’ relevance for Brazil span the spectrum. They range from the dismissive posture of the traditional establishment, which views the grouping as a largely inconsequential forum of countries with little in common, to those who have warmed to the notion of the BRICS as a useful informal arrangement that helps Brazil pursue its international interests in a rapidly changing world.
The slowdown of China and India’s economies, and the halt in Brazil’s growth in 2012, has inevitably affected Brazilian perceptions of the BRICS internal dynamics.
BRICS skeptics in Brazil are quick to reference the failure of the Doha Round at the World Trade Organization, which was unsuccessful in large measure due to India’s and, to a smaller extent, China’s refusal to expose hundreds of millions of its subsistence farmers to competition from efficient agriculture producers in Brazil, the U.S. and the European Union.
Seen at first as a brand looking for a purpose, the BRICS were dismissed by Brazilian policy makers as a clever acronym created by a Goldman Sachs economist in 2001 to attract investors to a higher risk class of assets. As the global economic impact of China grew and the country overtook the U.S. as Brazil’s largest trading partner in 2009, the group’s potential gained political space. But so did its limitations. A major one is the modesty of intra-BRICS trade and investment flows and the concentration of its member’s commercial relations with countries in their own regional spheres of economic preponderance. Critics are also aware of the poor quality of trade flows among the BRICS, made up mostly of primary products, in the case of Brazilian and Russian exports, and manufactured goods, in the case of exports from China and India. Trade flows are significant only in the bilateral relations of Brazil, Russia, and India with China; which accounts for 16.6 percent, 9.8 percent and 10.2 percent of total trade flow for each country, respectively. With that in mind, it is not surprising that the proposed creation of a BRICS investment bank has not made much progress since it was first presented two years ago.
It took a cataclysmic event – the 2008 Wall Street meltdown and the ensuing global crisis – for the “BRIC/BRICS” concept to be embraced by the Brazilian government and academia.
The advent of the BRICS was welcomed by Brazil’s former president, Luiz Inacio Lula da Silva, as an ideal platform to project his charismatic persona and Brazil’s presence and interests on the world stage. For a while, it worked to advance the G-20 led reform of the International Monetary Fund and the World Bank. But as the global financial crisis temporarily eased in 2011, the reform lost impetus – and so did the interest in the BRICS as a political platform.
It has been obvious from the start that the BRICS do not see eye to eye in the realm of peace and security. The statist orientation of its member countries is music to the ears of the Workers Party, which has led the government in Brazil since 2003. It is evident to all, however, that individual BRICS countries have different viewpoints and influence in the international arena, with three of them being nuclear nations and two permanent members of the U.N. Security Council. Brazilian naiveté about China and Russia’s broader strategic interests in the Security Council vis-à-vis the United States led President Lula to commit his biggest diplomatic miscalculation in the 2010 attempt to mediate between Teheran and the international community regarding Iran’s nuclear program. In a separate incident five years earlier, China – not the U.S. – had blocked the process of Security Council reform initiated in 2004, frustrating a central foreign policy objective for both Brazil and India.
With such episodes in mind, Brazilian experts say that it would be simplistic to expect the BRICS to function as an effective framework for cooperation on key global political, economic and security issues, as there is not a common set of goals among all five countries beyond the stalled global financial architecture reform. “BRICS is an important concept, but Brazil should not organize its foreign policy around it. BRICS is a concept of limited utility,” wrote Rubens Ricupero, a highly regarded former diplomat.
This sober view extends into the Brazilian government. After a careful review of the 2009 Joint Declaration issued by the group’s first summit, Valdemar Carneiro Leão, Brazil’s “sherpa” to the BRICS until his appointment to ambassador in Beijing in early 2013, noted the absence of a “clear set of common objectives” beyond the predictable statements of “support for a more democratic and just multi-polar world order based on the rule on international law, equality, mutual respect, coordinated action and collective decision making (…) for political and diplomatic efforts to peacefully resolve disputes in international relations (…) commitment to multilateral diplomacy with the United Nations playing a central role in dealing with global challenges and threats.”
Looking ahead, the BRICS will remain a useful mirror that reflects back to Brazilian comparisons with China and India in regards to economic factors that drive productivity and competitiveness in an increasingly integrated world economy. In this context, overcoming current obstacles to higher sustainable growth, such as a deficient infrastructure and education, and tax and regulatory disincentives for foreign direct investment will likely pressure Brazil to look for closer relations with the United States and Europe, while at the same time attempting to make the best use of the BRICS to advance its long term interests.