The Trend Analysis and Future Income Levels in BRIC Countries - Term Paper Example

? BRIC Countries Contents Introduction 3 Country Profiles 3 Brazil 3 Economy Review 4 Russia 4 Economy Review 5 India 6 Economy Review 6 China 7 Economy Review 8 In-depth Economic Analysis 8 Economic Indicators and Statistics 8 Brazil 8 Russia 9 India 9 China 10 Global Market Share 10 FDI Statistics 11 Domestic Markets 12 Growing Disposable Income 12 Introduction BRIC is an acronym that refers to the group of four gigantic, growing countries of Brazil, Russia, India and China. These countries are considered to be the most promising and fastest emerging market economies of the world. They are prominent in contrast to other budding economies because of the fact that they not only hold economic potential to become the world’s most powerful economies in the modern era but also possess demographic strength to become world leaders in a few decades. The term BRIC was in a way, created in the year 2001 by Jim O’Neill. Since then, the term BRIC has rather evolved into a concept which refers to economic growth. Each of the four emerging nations owns most of the components required to attain superior economic development in the world of today (“EconomyWatch”, 2010). Country Profiles Brazil In terms of country area, Brazil is the fifth largest country in the world with the country size being 8,514,877 sq km. The estimated population of Brazil in 2012 is 205,716,890; which is also fifth largest in the world. The rate of population growth hovers around 1.1% while 87% of the country’s population resides in urban areas. The age structure of Brazil illustrates that 67% of the inhabitants lie in the age bracket of 15-64 years, which is a healthy sign for any growing economy. The literacy rate, which stands at 88.6%, is pretty encouraging. Portuguese is the state’s official language. As far as the division of population on the basis of religion is concerned, 73.6% of the population is Roman Catholic while 15.4% is Protestant. Brazil achieved independence in the year 1822, after more than three hundred years of Portuguese rule. The country continued with a monarchical government system up till the abandonment of slavery in 1888, followed by a declaration of a republic in 1889. The coffee exporters used to politically control the country until Getulio Vargas assumed power in 1930. In the year 1985, Brazil acquired freedom from military and populist rule. Ever since, it has set itself on the expedition of industrial and agricultural development. Economy Review The economy of Brazil revolves around hefty and well-managed sectors of agriculture, manufacturing, mining and services; which have made Brazil an economic leader in South America. Since the year 2003, Brazil has gained strength on a macro-economic basis, with the piling up of foreign reserves in addition to betterment of debt position. Brazil has been one of the initial economies to demonstrate a recovery after the 2008 recession. By securing the position of the world’s seventh biggest economy in 2011, Brazil has been able to comfortably outshine United Kingdom (“CIA”, 2012). Russia Russia enjoys the first position with respect to country size in the world, as it has a total area of 17,098,242 sq km. The country’s estimated population in 2012 is 138,082,178, which is ninth highest among all countries. The rate of population growth has been a negative 0.48%. 73% population is located in urban areas. With reference to economic standpoint, the age structure is a promising one with almost 71% of the country’s people in the age category of 15-64. The literacy rate is very high at 99.4%. With respect to religion, 15-20% of the population is Russian Orthodox while around 10-15% is Muslim. However, Russia is known for a large number of nonbelievers primarily because of the legacy left by the Soviet era. Russian has always been the official language of the country. After 2 centuries of Mongol rule, the Principality of Muscovy was established in the 12th century. Up till the 19th century, numerous territorial acquisitions were undertaken which expanded the Russian Empire to what it is today. However, military failure in the World War 1 and the atrocious reign of Stalin, combined with the emerging popularity of Lenin resulted in Communist Rule in Russia, which ultimately came to an end with the splitting of USSR into Russia and 14 independent countries. Since then, Russia has strived for a central semi-authoritarian country on democratic lines. Economy Review Ever since the downfall of the Soviet Union, Russia has been aiming at becoming a market-based and internationally competitive economy. Though privatization was carried out in the 1990s, yet the private quarter bears significant intercession from the state. Russia emerged remarkably after the 1998 Russian financial crisis, as its economy displayed 7% growth in the following ten years. Though Russia was hit quite badly by the 2008 crisis, however, it has moved onto the recovery path by recently becoming the largest producer of oil in addition to reducing inflation and unemployment in a calculated manner (“CIA”, 2012). India India’s country area is 3,287,263 sq km., which is seventh largest across the globe. The country’s population of 1,205,073,612; holds the second position on the overall population list. Population augmentation rate is on the higher side: 1.31%, while literacy rate is around 61%. Urban population accounts for only 30% of the total population. An encouraging signal from economics perspectives is that almost 65% of the country’s people fall in the age domain of 15-64 years. Considering religion, 80.5% are Hindus while 13.4% are Muslims. English is the official language of the country. India’s history initiates with the era of Indus valley Civilization around 5000 years ago which resulted in the mingling of Aryan and Dravidian tribes to result in the conventional Indian culture. This phase was succeeded by the Maurya Empire which reached its peak under Ashoka. Then, Islam promulgated in India as the Mughals ruled in the country for more than three centuries. They were overtaken by the British, who finally left India after the movement undertaken by Gandhi. In 1947, two states, India and Pakistan emerged on the world map. Over the course of time, the two countries have been involved in three wars. Today, India is a nuclear power and also a developing economy, with plenty of potential. Economy Review With economic liberalization, industrial deregulation and increased privatization, India is moulding itself into an open-market economy. Since 1997, its growth rate has been more than 7% every year. India’s economy is very rich and diverse entailing farming, agriculture, small and big industries along with multitude of services. Though 2011 was not a profitable year due to corruption and rising fuel prices, but the Indian economy demonstrated its potential and resilience when it recovered from the global financial crisis through high local demand (“CIA”, 2012). China China’s total area is 9,596,961 sq km., fourth largest across the globe. China has the distinction of being the most populated country in the world with a total population of 1,343,239,923. The population growth rate has been a low of 0.48% while urbanization accounts for 47% of the population. Literacy rate is an admirable 92.2%. Demographical data illustrates that 73.6% of the population lies in the age cluster of 15-64 years. With regard to religion, China has officially been declared as an atheist state though Buddhists, Muslims and Daoists exist in small numbers. Standard Chinese is the declared official language, though scripts are different in different regions of the country. China is known for one of the most renowned historical civilizations, namely Chinese civilization. The 19th and 20th centuries witnessed civil unrests, military losses and natural disasters as well. After World War 2, Mao Zedong stepped in with the mission to bring China back on track. In recent times, China’s political situation has improved a great deal and the living standards have risen too. Economy Review Since the later quarter of the 20th century, China has expanded into a globally market oriented economy. With measures such as gradual liberalization of prices, enhanced independence for state businesses, development of a sophisticated business system, and growth of stock markets alongside private sector in addition to decentralization of fiscal policies has boosted China’s economy tremendously. In 2010, it became the largest exporter. Being such a vast country, China has always faced issues in various areas, however the economy has proved its worth and resilience time and again through robust rebounds (“CIA”, 2012). In-depth Economic Analysis Economic Indicators and Statistics Brazil As of 2011, Brazil’s GDP (purchasing power parity) has been recorded at $2.282 trillion which is eighth in the overall list. The GDP Real growth rate has temporarily declined to 2.7% from 7.5% due to inflation and rough international economics. On the other hand, GDP per capita has augmented up to $11,600. On composing by sector, services’ share to the GDP is highest with 67.3%. The unemployment rate has dwindled from 6.7% to 6.0% during the last year. Meanwhile, the inflation rate has risen up to by 1.5% to 6.5%. While external debt has increased by around $65 billion; the foreign exchange reserves and gold have also gone up by almost $70 billion. The total value of exports for Brazil has jumped from $201.9 billion to $250.8 billion with its main export products being transport tools, coffee, footwear, iron ore along with autos. Russia In 2011, Russia’s GDP (purchasing power parity) has been recorded at $2.38 trillion which is seventh in the overall list. The GDP Real growth rate has remained stable during the last year at 4.3%.While GDP per capita has moved up to $16,700. Composition by sector reveals that the share of services to the GDP is largest with 58.9%. The unemployment rate has diminished by o.7% to 6.8% in the last fiscal year. However, the inflation rate jumped by 2% to 8.9%. External debt has decreased by around $19 billion to $519.4 billion and the foreign exchange reserves and gold have amplified by around $44 billion. The total value of exports for Russia has astonishingly boosted by almost $100 billion with its chief export commodities being petroleum and related products, natural gas, wood, metal in addition to chemicals. India In recent times, India’s GDP (Purchasing Power Parity) has sky rocketed, currently around $4.46 trillion, which is the 4th highest in across the globe. However, during the last year, the pressure of international economic troubles was faced by India as well as its real GDP growth rate plummeted from 10.1% to 7.8%. Nevertheless, this has been offset with GDP per capita moving up to $3,700. GDP sector composition discloses the growing trend in India’s economy with services accounting for more than 50% of GDP. The unemployment rate has slightly gone down to 9.8%, which is certainly a promising omen. The fall in the inflation rate has been quite exceptional as it has gone down from 12% to 6.8%. External debt has risen by a margin $16 billion. The total value of exports for India has amazingly advanced by nearly $73 billion with its principal export merchandise being petroleum products, machinery, stones, iron and steel alongside vehicles. China At the moment, China’s GDP (Purchasing Power Parity) is the third highest in the world, around $11.29 trillion. Displaying a trend similar to other BRIC countries, international economic fiasco resulted in China’s real GDP falling from 10.5% to 9.2%. However, the heartening sign for the country is the growth in GDP per capita from $7,500 to $8,400. The sector composition of GDP suggests that unlike the other three BRIC countries, industry occupies the largest share with 46.8%, with services at second position. Yet, the unemployment rate has increased by 0.4% to 6.5%. Though it seems a temporary change, however, the inflation rate has moved up by 2.1%. External debt has also enhanced by almost $150 billion. This change has been altered through an increase in foreign reserves by around $3.5 trillion. China’s combined value of exports presently stands at $1.898 trillion, an increase of around $0.300 trillion over the last year. The primary export goods entail electrical and related machinery, iron and steel, equipment involved in data processing apart from textiles and medical equipment (“CIA”, 2012). Global Market Share As far as the global market share is concerned, BRIC countries are expected to gain a total international market share of 40% in the coming four years. Currently, Russia’s petroleum industry is performing quite effectively with a global market share of 12%. BRIC countries, mainly due to the medical equipment industry of China, collectively occupy a 14.3% share in the global medical equipment industry (“BCCResearch”, 2012). China’s machines, especially ships possess a 41% share in the global marketplace. On the other hand, Brazil’s coffee industry has always had a substantial international market share. India enjoys a 11% global market share in the stone industry. Thus, each of the BRIC countries has global market shares in different industries (Roberts, 2012). FDI Statistics Foreign Direct Investment (FDI) Statistics suggest that Brazil’s stock of direct foreign investment (at home) has increased from $368.4 billion to $426.4 billion. On the other hand stock of direct foreign investment (abroad) has gone down from $128.9 billion to $113.9 billion. Russia’s stock of direct foreign investment (at home) has jumped from $297.4billion to $343.4 billion. While stock of direct foreign investment (abroad) has gone up from $274.6 billion to $314.6 billion. The third BRIC country, India has witnessed its stock of direct foreign investment (at home) move up from $188.6 billion to $225 billion. Likewise, stock of direct foreign investment (abroad) has augmented from $91.86 billion to $114.2 billion. Finally, China has experienced its stock of direct foreign investment’s (at home) escalation from $578.8 billion to $776 billion. However, the stock of direct foreign investment (abroad) has increased only by $4.8 billion to $322 billion. Thus, the FDI statistics imply that the attractiveness of these countries in the eyes of the investors have improved significantly over the last few years, which indicates the secret behind the growth of the BRIC countries (“CIA”, 2012). Domestic Markets As explained in the earlier section of the paper, China has the largest population in the world followed by India. Consequently, the demand of goods and commodities in these countries is also on the higher side. Growing population and increasing workforce have been crucial factors in the rise of China and India as emerging markets. The demand of products such as electrical goods, petroleum and related products alongside machinery, vehicles, iron, steel and textile; is amplifying on a daily basis in China and India. Moreover, most of these products are manufactured domestically by both of these countries which results in greater consumption and consequently greater investment (“Forbes”, 2012). Growing Disposable Income The above figure, obtained from Global Sherpa, displays the trend analysis alongside future analysis of income levels in BRIC countries. It is visible from the figure that BRIC countries’ income levels have substantially increased in the period 2000-2010. This has mainly been due to economic boom and booming capital markets which have raised the income brackets of the people in these countries tremendously. In fact, as the figure suggests, if the trend continues, then the BRIC Countries, led by China and India, will surpass the G7 countries with respect to middle class income bracket (“Global Sherpa”, 2012). References BRIC Countries – Background, Latest News, Statistics and Original Articles. (n.d.). Retrieved from: http://www.globalsherpa.org/bric-countries-brics BCC Research. (2012). Global Markets and Technologies for Home Medical Equipment--Focus on BRIC Countries. Retrieved from: http://www.bccresearch.com/report/bric-home-medical-equipment-markets-hlc122a.html CIA. (2012). The World FactBook. Retrieved April 7, 2012. Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/ EconomyWatch. (2010). The BRIC Countries: Brazil, Russia, India, China. Retrieved from: http://www.economywatch.com/international-organizations/bric.html Roberts, D. (2012, April 5). China’s Export Machine Goes High-End. Bloomberg BusinessWeek. Retrieved from: http://www.businessweek.com/articles/2012-04-05/chinas-export-machine-goes-high-end Roubini, N. (2009, June 18). The BRICs: An Analysis. Forbes.com. Retrieved April 7, 2012. Retrieved from: http://www.forbes.com/2009/06/17/bric-brazil-russia-india-china-renminbi-yekaterinberg-opinions-columnists-roubini.html Read More