The BRICS - A decade on, the economies are no longer the reliable powerhouses of growth they once were

The BRICS - A decade on, the economies are no longer the reliable powerhouses of growth they once were

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Executive Summary

The BRICS - A decade on, the economies are no longer the reliable powerhouses of growth they once were


The BRICS economies were touted as the leading new countries for growth and the primary shift towards these countries and away from the traditional affluent countries was said to be beginning. To an extent this has happened and countries like China and India have been potent engines for world economic growth over the last decade. However, in 2017 the five economies of the BRICS are starting to look run down and some serious cracks have appeared in the theory that all these countries will come to dominate world economics. All five have begun to slow down and some have even dropped into recession in recent years. There are some problems which have affected all five, such as scandal and corruption, and some conclusions can be drawn about the future of other emerging economies as they try to develop into western style democratic economies and shed the traditions of old. We look at the economies of Brazil, Russia, India, China and South Africa to examine just what the problems are and if there are resolutions to be found.

Key Highlights

Both Brazil and India brought some comfort to the success of the BRIC acronym: both are democracies which have embraced the virtues of western style capitalism rather than the government controlled model pursued by Russia and China. Yet over recent years the luster has gone.

China is the world's second largest economy and the world's most populous country. Ever since the country started to liberalize its economy, there have been astonishing levels of growth which have pushed the country to ever greater heights, with many expecting the eventual catching" of the US economy in GDP terms within the century. However, the slow down experienced in China and the government's push to try and maintain high levels of growth is looking like an increasingly uphill struggle.

After the collapse of the Soviet Union, Russia was supposed to reform and become a major, market led, economic power. Only with the election of Vladimir Putin as president did economic fortunes for the beleaguered nation improve. Yet improving prosperity and rising living standards ceased some time ago. No longer is the average Russian gaining wealth - indeed, most are poorer now than several years ago.


Looking at the key economies of the BRICS and seeing why their economies are faltering

What has caused these slow downs and are they preventable

What does this mean for the future of the global economy

Is there anything that can be done to solve these problems

Reasons to buy

Why is Brazil suddenly unable to produce the growth it has achieved in the past?

What is the nature of Russian economic problems and are they systemic?

Is the future positive for India and can it escape its huge debt burden?

Can China effectively transition to a consumer economy and if it could is that even desirable?

Why is the South African economy unable to take advatange of good potential for growth?

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Ankur Gupta, Head Marketing & Communications


Table of Contents

Executive summary 2

Brazil: A faded success story striving to recover 2

Russia: Threatened by endemic economic problems 2

India: Massive debt & public bankruptcy have restricted economic growth 2

China: The world's growth engine begins to stall 3

South Africa: The late BRIC entrant with multiple economic issues 3

Brazil: A faded success story striving to recover 8

Recession has shaken faith in Brazilian progress, but some bright signs have emerged 8

Poor governance resulted in high inflation, high debt and high interest rates - instability must not be allowed to repeat it 9

Petrobras scandal still lingers on, but government action is positive and could have wider impact 11

Major reforms to spending have occurred due to recession, but tax reform must also follow 12

Russia: threatened by endemic economic problems 14

Corruption is rife and hampers the ability of the Russian economy to function 14

Economically, oil and gas dominate, creating a need for diversification 15

Living standards are falling for most, leaving Russia struggling to fulfill early BRIC predictions 17

Sanctions still hurt, highlighting the need for change post-recession 18

India: Massive Debt & Public bankruptcy has Restricted Economic Growth 20

India's debt is still sizeable when compared with neighboring economies 20

Government spending could be much more generous 22

India's government spending is low in comparison to the rest of the BRICS nations 23

Tax revenues are being spent on paying back debt as opposed to developing key sectors 23

Tax receipts are used to subsidize many industries to push for better living standards in India 25

Less room for the public sector, more room for private 26

State-owned-firms are left with losses larger than Zimbabwe's GDP 26

Some firms do not comply with regulations breeding governance issues internally 27

China: The world's growth engine begins to stall 28

Current Chinese growth targets are the lowest for a quarter of a century 28

Demand and production between the west and China is crucial 29

China has been trying to move to a consumer based model 30

The west should be cautious about urging China to move to a consumer economy 31

China has learned from the recession of 2008 systemic risks 32

Too much reliance on surging economies worldwide 32

Supplier economies are particularly hard hit by this over reliance on Chinese growth 33

Trump's protectionist threats are not helpful for the BRICS or US 33

China needs to make some crucial changes but not in a western model 33

South Africa: The late BRIC entrant with multiple economic issues 34

Mining economy problem is reducing but not being replaced 34

Cut in interest rates to desperately avoid a recession 35

Downgrades from the ratings agencies as a result of instability 35

Solutions to the problem require long term investment in people 36

Political instability is a further risk in the country 36

Unemployment needs addressing to help improve consumption and spending 37

Points of interest 38

Appendix 39

Further Reading 39

Ask the analyst 40

About MarketLine 40

Disclaimer 40

List of Figures

Figure 1: Brazil GDP 2001-2016 ($tn) 8

Figure 2: Brazilian public debt 2001-2015 ($bn) 10

Figure 3: Brazilian exports of petroleum oils and oils obtained from bituminous minerals, crude ($bn) 11

Figure 4: Brazil public expenditure 2001-2016 ($bn) 12

Figure 5: Transparency International Corruption Index Rankings, 2016, G20 Countries 14

Figure 6: Millions of Barrels of Oil Equivalent (oil and gas combined) produced by Russia, 2006-2016 16

Figure 7: Average wages in Russia ($000's) 17

Figure 8: GDP per capita in Russia, 2006-2016 ($000's) 18

Figure 9: India's Debt to GDP % has been falling over the years 21

Figure 10: India's neighboring countries debt to GDP ratio (%) 22

Figure 11: BRICS government spending in 2016 % of GDP 23

Figure 12: BRICS Interest payments as a (%) of revenue 24

Figure 13: Interest, Subsidies and Defense Expenditure of Indian Government (INR ten million) 25

Figure 14: Thousands of miles of agricultural land in India is available for farmers to produce 26

Figure 15: Air India is still very popular domestically, not so much internationally 27

Figure 16: Qingdao Port, China 28

Figure 17: Chinese GDP annual growth (%) 1984-2016 29

Figure 18: US trade with China, 2010-2016, $bn 30

Figure 19: Private consumption versus investment GDP Growth 2000-2030 31

Figure 20: China debt to GDP ratio 2003-2014 32

Figure 21: Leading African economies by GDP 2016 ($m) 34

Figure 22: South African GDP 2004-2016 35

Figure 23: South African unemployment and poverty rates 2017 37

List of Tables

Table 1: South African credit rating from Moody's, Fitch & S&P 36

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