News | 01.09.2011

The BRIC economies

As well as comprising 40% of the world population, the BRIC economies (Brazil, Russia, India and China) currently have a collective GDP of $18 trillion. Experts predict that in the future, these economies will grow strongly (especially in the fields of manufacturing, energy, resources, currency relationships and trade flows) and enter the top rank of global economies. With this in mind, UKTI recently organised a conference in Leeds featuring specialist speakers to give companies an overview of how to best exploit these markets. So what are the opportunities and challenges that each region poses for UK companies? Below is a brief overview of the main aspects of the different BRIC economies. To watch the short video of the event, including excerpts of the key speakers, please see video below

[youtube]https://www.youtube.com/watch?v=QWqsXST-OWY[/youtube] 

BRAZIL:

Overview

  • Used to be seen as the weak link in the BRICs – no longer
  • Held up well in the downturn compared with previous crises
  • Benefiting from Asian demand for its food and mineral exports
  • Further boost from large new deep-sea oil fields to come on stream.

Risks

  • Currency appreciation hits manufacturing
  • Recent success breeds policy hubris

Strengths

  • Market Opportunities – huge, diversified economy
  • Political stability
  • Low legal risks – keen to encourage foreign investment

Weaknesses

  • Infrastructure – increasingly inadequate, investment limited by budget constraints
  • Financing – equity market underdeveloped, long-term financing hard to obtain
  • Taxation – complex and costly system

RUSSIA

Overview

  • A worthy BRIC? Only by weight, not growth performance
  • Hard-hit by global downturn, but now recovering robustly
  • Structural constraints mean growth will not return to pre-2008 rates.
  • Modernisation agenda requires FDI

Problems

  • Over-reliant on oil and gas
  • Dire demographics

Strengths

  • Market Opportunities – large, relatively wealthy middle-class
  • Labour force – good skill levels, despite some deterioration

Weaknesses

  • Corruption and poor rule of law
  • Low government effectiveness – weak institutions
  • Lack of competition – concentration of economic power in massive conglomerates

INDIA AND CHINA

Overview

  • India and China will be the two fastest growing major emerging markets over the next decade
  • The continental sized nature of both economies means that they have decoupled from developed markets to some extent
  • China has become an outsourcing story in manufacturing and an increasingly important global source of demand for a range of products
  • India has become an outsourcing story in services and is playing catch up with China as a major global economic player

The opportunities are similar:

  • High income and population growth, along with rapid urbanisation, are creating sales opportunities for consumer groups
  • Economic liberalisation is further opening up potential new revenue sources for both domestic and foreign companies
  • Infrastructure remains inadequate and, along with industrial development, will continue to provide a market for commercial groups
  • The continental sized nature of both economies means they are offering a diversified market
  • A relatively abundant labour force and improving supply chains are making it easier to outsource operations from both countries.

The risks differ:

India

  • Coalition politics will prevent rapid progress on economic reforms
  • Poor public finances will prevent much-needed public infrastructure investment
  • The legal system often works better in theory than in practice

China

  • The government’s desire to maintain control means big bang reforms are unlikely
  • Reversals in economic policy remain possible
  • The legal system remains opaque and favours state or local enterprises

A long term risk factor in both relates to demographics and income disparities, which have socio-economic and political implications.

For further information on the BRIC economies, please do not hesitate to contact Adele Baig at UKTI ([email protected]) who will pass your details on to the relevant country specialist.

Source: Aidan Manktelow, Kilbinder Dosanjh (Economist Intelligence Unit). For more information, visit www.ukti.gov.uk


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