Ayse Oge
Ayse Oge is a published author and global trade marketing expert. She is the author or the book Emerging Markets. Ayse’s Corner is a periodic feature for the World TradeWinds eZine’.
“Instead of changing the world through revolution, we can change the world through innovation.” — Juan Andres Fontaine, Former Chilean Minister of Economy
BRIC (Brazil, Russia, India, and China) has always shown solid economic growth and definitely changed the landscape of global business over the past ten years. Just a few years ago, China was growing at an average rate of 10% a year, India averaged 8%, Russia 5%, and both Brazil and South Africa around 4% while the G-7’s economies (which include Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and the European Union) each expanded at an average rate of less than 1.4% over the same time frame.
However, since 2011, the factors that made BRIC an economic powerhouse have all reversed. Weak global trades, a steady decline in commodity prices, and tightening global financial conditions have reduced the banks’ willingness to extend trade finance with BRICS. This led to two of the current BRICS countries – Brazil and Russia – into recessions and caused a huge amount of investors leaving BRICS and pulling out $500 billion over the past year alone. The IMF indicates that emerging economies around the world are going through their fifth consecutive annual slowdown as prices for their raw material exports tumbled.
The strong dollar is weighing on these economies, especially those who borrowed against the dollar while interest rates were still low and have yet to pay back their debts. As Brad McMillan, Chief Investment Officer at Commonwealth Financial Network, states: “The problem is when your currency gets cheaper and the currency you borrowed in gets more expensive, you have to come up with a lot more of your own local currency to pay back that debt. And that’s what we’re seeing systematically across the emerging markets.”
Other Major Challenges Facing BRICS in 2016:
Russia
Russia’s ongoing conflict with Ukraine and sanctions imposed by the West, combined with falling oil prices, has resulted in a deep recession that shows no signs of easing. Moscow must roll out deep economic reforms to pull the economy out of this severe recession and generate much-needed growth.
Brazil
Brazil’s economy, currently the seventh largest in the world, is impacted by a high inflation rate of almost 10 percent. In addition, corporate profitability and the consumer’s purchasing-power have declined. A corruption scandal involving some of the highest government officials is preventing policymakers from putting together reforms aimed at boosting growth and restoring confidence.
India
Investors have been pleased by President Modi’s efforts at economic revitalization. India is the fastest-growing BRIC, and is what Ian Bremmer, a political scientist, referred to as “the last BRIC standing.” Despite the bright outlook of India, it still needs to accomplish major reforms, open up its economy, and invest in a stronger infrastructure.
China
The Asian giant is expected to post its worst annual growth rate of 7 percent this year after growing at an average of 10 percent a year for three decades straight. China is undergoing a challenging structural transformation from an economy based heavily on investment and manufacturing towards one focused more on consumption and services.
South Africa
Johannesburg is facing a tough road ahead, having to earn back investor confidence after a series of political unrest, dealing with debt problems, and major infrastructure bottlenecks. A record drought and China’s diminishing demand for the platinum and iron from South Africa’s mines will cut growth by another 1/10 of a percent this year, the IMF says.
The leaders of these five countries collectively account for about 40 percent of the world’s population. Substantial natural resource reserves need to focus on overhauling their economies to make them more productive and competitive. The solutions are different for each country, but they range from increasing private-sector investment, undergoing labor-market reforms, and providing stronger protection for intellectual-property rights.
Ayse Oge is President of Ultimate Trade, International Trade Consulting, Speaking and Training. Ayse Oge is Regional Director of Business Education Statewide Advisory Committee in Los Angeles, CA. She is also Board Member of California Business Education Association and Program Chair of CBEA Annual Conference, November 15-17 in San Diego, CA.
Ayse Oge is President of Ultimate Trade, International Trade Consulting, Speaking and Training. Ayse Oge is Regional Director of Business Education Statewide Advisory Committee in Los Angeles, CA. She is also Board Member of California Business Education Association and Program Chair of CBEA Annual Conference, November 15-17 in San Diego, CA.
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