What is BRICS? We explain in detail

16, Jul - BLOG

It all started in 2001 when Goldman Sachs investment bank economist Jim O'Neill coined the acronym "BRIC" for Brazil, Russia, India and China and predicted that these countries could become the world's leading economies by 2050 due to their rapid economic growth. Already in 2006, these countries decided to join forces and create an economic union, which South Africa joined four years later, adding the letter "S" to the acronym.

Ten years have passed and the facts prove him right: despite the fact that their economies have very different characteristics, these countries have experienced rapid economic growth in recent decades. In 2024, the BRICS' share of GDP in the global economy reached 35%, surpassing that of the G7 (29.7%).

The rapid rise of the BRICS countries

Between 2000 and 2008, the BRICS countries grew at a much higher rate than the developed economies. However, growth in these countries slowed down, reaching a low in 2009, with Russia's growth of 7.8% and China's falling from 14.2% in 2007 to 9.6% in 2009. Among the BRICS countries, China has had the highest growth rate for about twenty years. Since 2014, the economic situation in Russia, Brazil and South Africa has deteriorated significantly, mainly due to falling commodity prices.

However, the role of the BRICS countries in the global economy continues to grow. In 1990, they accounted for only 10% of global GDP, and in 2024 they will already account for about 35%. In addition, the countries of the alliance together have a population of almost 3.1 billion people - that's 42.1% of the world's population.

This economic and demographic potential is confirmed by the place currently held by the BRICS countries in the ranking of the world's most powerful countries, compiled annually by the International Monetary Fund (IMF). In 2018, China ranks second (after the US), followed by India (7th), Brazil (9th) and Russia (12th). South Africa is ranked 32nd.

Based on a wide range of indicators, some economists predict that these countries will reach a similar level of development to Western nations by 2050.

Growth in the BRICS countries in terms of financial markets

Until 2007, indices tracking emerging market equities, which include the BRICS countries, outperformed traditional indices. However, over the past three years, the MSCI Emerging Markets index, in which the BRICS alone account for over 40% (out of 24 countries), has stagnated, while the S&P 500 index, which reflects the performance of the 500 largest U.S. companies, has gained nearly 20%. Emerging market indices are also more volatile.

The global effects of the 2007/2008 financial crisis have softened the indices, making the dynamics of their stock indices more or less similar to those of the financial markets of developed countries, and even less favorable during the crisis period.

What can explain the economic dynamism of the BRICS countries?

While Western countries are shifting to a service-oriented economic model, the BRICS countries ensure their growth at the expense of a powerful industrial complex and huge raw material resources.

At the initial stage of their economic growth, this power was stimulated by government policies: investment in education, training, infrastructure, etc., which was particularly evident in China. These policies led to a redistribution of factors of production in favor of the most productive sectors of the economy, especially manufacturing, which led to an increase in the productivity of capital and labor in these sectors. Against this backdrop, growth in the BRICS countries has been driven by a huge increase in exports. The numbers speak for themselves: between 1997 and 2018, China's exports grew 13 times, India's 7 times and Brazil's 3 times.

In 2010, China became the world's leading exporter of goods, surpassing the United States. Russia, India, Brazil and South Africa are consistently ranked among the top 30 global exporters of goods.

The importance of the BRICS countries in international trade is growing, but their export specialization differs. China exports manufactured goods, India exports services, Russia exports energy, Brazil exports agricultural raw materials, and South Africa exports minerals. With Iran, Egypt, UAE and Ethiopia officially joining BRICS in 2024, the alliance also boasts huge oil reserves.

In addition, the low cost of production in China, India and Brazil has become a real magnet for foreign direct investment from the rest of the world. For example, the amount of global capital received by China has quadrupled since the 2000s (through the creation of foreign companies or the acquisition of local companies). The scale of this phenomenon has led a number of Western countries to claim unfair competition, resulting in a massive relocation of activities.

Another driver of dynamism is a young and dynamic population, especially in China (where the population will nonetheless age rapidly), India and Brazil. As they catch up with developed countries, these demographic characteristics may allow them to maintain a stable level of growth in the long term.

Economic or social development?

In general, the economic growth of emerging economies has helped to reduce poverty in their territories. However, there is still much to be done in the areas of inequality reduction, social justice, education, etc.

Between 1990 and 2018, the number of people living on less than two dollars a day fell in all regions of the world. The decline was particularly pronounced in East Asia, Latin America and South Asia. China, India and Brazil made significant contributions, so that the proportion of people living below the poverty line in these countries fell significantly.

The reduction in poverty is reflected in the evolution of the Human Development Index (HDI), which rose in China from 0.5 in 1990 to 0.75 in 2018 (Norway, the highest ranked country in the world, has an HDI of 0.95).

The overall decline in poverty is reflected in changes in life expectancy. China, Brazil and India have seen a steady increase in life expectancy. Russia, however, is stagnating, and South Africa is experiencing instability due to its particular political situation.

Competition for the West?

Analysts believe that the expansion of the economic bloc could change the way international finance works.

"This global union will become stronger, with a much larger GDP," Isa Abdullahi from the Department of Economics at the Federal University of Kasher in Nigeria told TRT Afrika.

There is a view that the BRICS expansion is meant to challenge the economic dominance of Western powers, particularly the US. This is believed to be one of the explanations why the bloc seeks to include as many countries as possible. On the other hand, experts note that the BRICS are currently very far from really catching up with the G7. The main reason is the bloc's underdeveloped common institutions, which are limited to the New Development Bank headquartered in Shanghai. Nevertheless, the alliance continues to build its power on a global scale and is becoming increasingly attractive to many states.