The BRIC Road to Growth. Jim O'Neill
on the rest of the world, as well as the changes they were experiencing for themselves. The first decade of that period, as I have described elsewhere,1 turned out to be even more dramatic than I had anticipated, but as we move further into the second decade, there is evidence of slower economic growth in each of Brazil, Russia, India and China. Some observers are now suggesting that the tailing off of BRIC growth means that the whole phenomenon was overhyped2 and was never a great investment proposition anyway.3 It is true that the BRIC economies are currently growing by less than in the past decade, but it is not clear whether this is a structural slowdown or just a cyclical one. For reasons I outline below, it was highly unlikely that they would have continued to see GDP growth at the same rapid pace.
Moreover, while it is interesting to look at their collective economic performance, it is also clear that there are big differences between the four economies. China is of particular importance, as the next chapter will discuss in more detail.
Table 1.1 shows GDP growth for each of the BRIC countries by decade, going back to the 1980s, along with my 2010 forecast for the ten years to 2020, and actual growth rates in 2011 and 2012. The figures tell the story of a decade of unusually strong growth, followed by a return to a less astounding, but hardly disappointing, growth performance. It is clear that the decade 2001–10 was a particularly good one for the BRIC economies. In some ways, it may have been unusually fortunate, maybe even a ‘perfect storm’ for rapid growth. In particular, nothing went badly wrong in any of the four countries, which was spectacularly lucky given their diversity in terms of their economies, societies and vulnerabilities to external influences. This is one of the main reasons (as I explained in The Growth Map1) that real GDP growth during that decade far exceeded expectations.
Table 1.1. BRIC real GDP growth by decade.
| 1981–90 | 1991–2000 | 2001–10 | 2011 | 2012 | 2011–20 | |
| China | 9.3 | 10.5 | 10.5 | 9.3 | 7.8 | 7.5 |
| India | 5.6 | 5.6 | 7.5 | 6.3 | 3.9 | 7.5 |
| Brazil | 1.6 | 2.6 | 3.6 | 2.7 | 0.9 | 5.2 |
| Russia | – | –2.1 | 4.9 | 4.3 | 3.6 | 5.4 |
| BRICs | 5.3 | 5.5 | 8.1 | 7.7 | 5.8 | 6.6 |
Source: IMF and Goldman Sachs Asset Management (GSAM).
Perhaps to the casual observer a further acceleration in growth after the 2000s might have seemed inevitable. To those of us with experience in these economies, and in studying long-term growth trajectories in general, it seemed highly likely that the growth of the BRIC economies would slow down. The Goldman Sachs (GS) forecast for this decade was 6.6% on average, which would seem to be a more sensible benchmark than the extremely rapid growth of the previous decade. Anything lower would count as disappointing. If growth now starts to slow either to less than this figure, or even to less than the previous thirty years together, the adjective ‘overhyped’ would be justifiable. (As it turns out, average BRIC real GDP growth for the three decades 1981–2010 was also exactly 6.6%.)
As can be seen, primarily because of China’s importance, BRIC growth in 2011–12 has been 6.7%. Although slightly higher than the past thirty-year average, it is, of course, well down from 2001–10. At the time of writing, consensus forecasts for 2013 and 2014 are 6.6% and 6.9%, respectively. So while the BRICs’ real GDP growth this decade might be disappointing compared with the surge of 2001–10, it has actually slightly surpassed my initial expectations.
The detail obscures an extremely important point. Even with slower GDP growth in the next ten years compared with the previous decade, the impact of the BRIC economies on the world is still increasing. Figure 1.1 makes this point, which is vastly underappreciated by so many people, powerfully.
Figure 1.1. (a) The size of key economies in 2011. (b) Change in USD GDP. Source: IMF.
By the end of 2011, the aggregate size of the BRIC economies stood at around $15 trillion, not far off the size of the US economy. Remarkably, in just one year (2011) the rise in the dollar value of their GDP was $2.3 trillion, equivalent to creating between seven and eight new Greek economies a year, or to adding another Italy to the global economy in a year. In the West, people think about the BRIC countries as economic powers of the future. The point is that this future is already upon us. They are the powers of the present.
The message of this book is that even though their growth rates may be slowing down, Western policymakers must take on board the lessons of the adaptive capitalism adopted in a wide range of economies, from China to Nigeria, and must allow these Growth Markets their proper status in international institutions, for effective governance of the global economy.
The BRIC countries differ greatly from the other Growth Markets, but the common theme is that they have been pragmatic in adapting capitalism to their own situation and needs. This book describes some of the key similarities and differences between them. They need to become more Western in some of their own policies and practices, as described below. However, the West, post crisis, needs to adapt too.
I have spent much of the past eighteen months trying to explain to business people and investors around the world that, hard as it might be for them to believe, the European financial crisis is not the biggest issue facing the world economy. The biggest single issue is the continuing growth of the BRIC countries, and some other rapidly growing economies. As I will discuss in a geopolitical and policy context, they will soon outweigh the United States in terms of GDP, which, among other things, will mean that as a group their influence on the world is set to rise dramatically.
Labelling economies
In the past few years the label BRIC has, for political rather than economic reasons, become BRICS with the inclusion of South Africa. Economically this is a bit odd, as South Africa, with a total GDP of around $400 billion, is not much bigger than Greece. Its size is dwarfed by the four original BRIC countries, and, indeed, by the four other emerging economies4 that I refer to here as Growth Markets (Mexico, Indonesia, South Korea and Turkey). They are each two or three times the size of South Africa. While the BRICs and the Growth Markets are the main subject here, as I will show in Chapter 3, Africa as a whole is already showing promising signs of growth and its potential is certainly quite BRIC-like. What is more, the growth of trade and investment between Africa and the BRIC countries is an important aspect of the transition into a mainly non-Western world economy – a story that is currently underappreciated. Nigeria is the continent’s leading contender for growth economy status. Still, if South Africa can help to both represent Africa as a continent and use that platform to positively encourage the growth of infrastructure and trade between African countries, then its membership of the club is more justifiable.
Still driving global growth
Table 1.2 is probably the most important table in the book because it shows that, although BRIC growth is going to be slower this decade than last, global GDP growth this decade could accelerate compared with the past three decades, because the BRIC countries and other rapidly growing emerging world economies now have so much more weight in the global economy.
Table 1.2. Global growth: last three decades and next decade.
| 1981–90 | 1991–2000 | 2001–10 | 2011–20(forecast) | |
| US | 3.3 | 3.4 | 1.6 | 2.5 |
| UK | 2.8 | 2.5 | 1.4 | 1.5 |
| Euro area | 2.4 | 2.3 | 1.2 | 1.5 |
| Japan | 4.6 | 1.2 | 0.7 | 1.0 |
| China | 9.3 | 10.5 | 10.5 | 7.5 |
| India | 5.6 | 5.6 | 7.5 | 7.5 |
| Brazil | 1.6 | 2.6 | 3.6 | 5.2 |
| Russia | – | –2.1 | 4.9 | 5.4 |
| BRICs | 5.3 | 5.5 | 8.1 | 6.6 |
| Growth |