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The BRIC Countries in 2010 and Beyond

by Juan Pablo Cuevas, Senior Vice President, Latin America Regional Executive,Bank of America Merrill Lynch and Fiona J. Deroo, Senior Vice President, Sales ExecutiveInternational Subsidiary Banking & Business Development, Bank of America Merrill Lynch

As companies jockey to benefit from the changing dynamics of globalisation, a handful of emerging economies are enjoying an ever-expanding sphere of influence. Brazil, Russia, India, and China —  widely referred to as the BRIC countries — now carry significant clout on a global scale. Russia and Brazil can thank their resource-rich good fortune, among other reasons, while China and India have emerged as preferred locations for manufacturing and services outsourcing. All four countries have a burgeoning middle class and a rapidly growing consumer base, particularly India and China where the raw demographic numbers are simply staggering.Together, these four nations, while not formally aligned politically, have emerged as important locations for aspiring businesses in all industries. It may not be long before virtually every company will do business with the BRIC countries, either buying precious resources, outsourcing manufacturing and services, or selling their goods to an increasingly voracious consumer. Naturally, this has enormous ramifications and brings with it many new challenges from a banking perspective.

China

Since embarking on the path towards a free market economy some three decades ago, China is firmly established as one of the most important cogs in the global economic wheel. Fuelled by modern finance and technology, the ongoing transformation from a state-run economy, and the subsequent speed of industrialisation, has been astonishing. 

China’s position as the world’s manufacturer has resulted in unprecedented urban migration and created massive employment, essential for the largest labour force in the world, which in turn is spawning a growing consumer class. Consequently, domestic consumption of goods and services is rising quickly, and with a potential middle class of several hundred million people, the opportunity for multinational companies seeking new opportunities for growth is clear. Until recently, China’s primary appeal to foreign companies was its potential for low-cost manufacturing and cost savings, but increasingly, the greater opportunity is its enormous and largely untapped domestic market for goods and services. 

Chinese GDP growth exceeded 11% before the crisis, and even in 2008 and 2009, growth remained at 9% or above. With total 2009 GDP estimated at US$4.9trn, China is now the world’s third largest economy, and second in terms of oil consumption. Increasingly, the fortunes of the commodities market, such as in base metals, are losely linked to the ebb and flow of demand in China. Although projections vary, it is widely believed that China will rapidly become the world’s largest economy.

One factor that has contributed to rapid yet controlled growth in China in recent years is the Chinese government’s ability to implement economic reforms at its own pace in order to protect the interests of its economy and currency. While the speed of reform was modest, it has accelerated in recent years, and in early 2009, the government embarked on an ambitious economic stimulus programme with the launch of massive infrastructure projects, impacting the construction and services industry and commodities markets. This programme was also significant in its objective to reduce China’s reliance on exports to western countries and develop a stronger internal economy.

India

There are several similarities between China and India, primarily due to the two countries’ scale, such as its huge labour force. Since the 1990s, India has been developing gradually as a free market economy, but not at the same speed as China, which has been one of the factors hindering its growth, with several coalition governments in recent years which have found it difficult to unite various factions to push through reform. Furthermore, the lack of physical and banking infrastructure and prevalence of bureaucracy remains a challenge to doing business. Nevertheless, assisted by a highly educated, English speaking workforce, a commitment to transparent business and accounting practices, and growing investment in technology and communications infrastructure, India has continued to grow strongly at 9% before the crisis and above 7% since 2008.

India has proved a natural location for services outsourcing with a proliferation of call centres, software development and accounting, with over half of its economic output in services and a third of its workforce. As in China, one of the outcomes of urbanisation and the development of high-tech industries is the development of a large consumer class with increasing buying power. India is a country with considerable potential that would be disastrous for companies to ignore, even though it is taking longer to reach fruition than China. For example, in GDP terms1, India’s economy is larger today than that of every individual European country.

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