Case Study on "Economy of the BRIC Countries"

Case Study 10 pages (2753 words) Sources: 10

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Economy of the BRIC countries

The term BRIC is an acronym used to describe economies of Brazil, Russia, India, and China. These countries are described as emerging markets because of their developments and reforms in their economic transitions from closed economy to market economy while building accountability in the system, (Heakal, 2009). He argues that such an economy is an economy with low to middle income and constitutes approximately 80% of the global population, and represents 20% of the world economies.

Katz,(2010) shares the same view that these emerging markets, BRIC countries, accounted for a full 40% of the world's population and an estimated 25% of GDP in the year 2009.

Description of the BRIC economies

Brazil

Brazil is the biggest economy in the Latin America and is a major energy exporter. In view of economic watch,(2010), the economic and political problems experienced in the 1980s forced the then ruling government to introduce the " Plano Real," a set of economic measures designed to bring down the high inflation rate which became a very successful policy measure.

On the eve of millenium, the demand for Brazilian commodities increased tremendously and Brazil recorded a growth of 8.48% in GDP in 2004,6.02% in 2005 and 7.34% in2006. A further increase of 9.21% and 7.46% in GDP was recorded in the year 2007 and 2008 respectively.(economic watch,2010).

However this trend of economic growth was threatened during the global financial crisis of 2008 when the GDP grew by only 0.27% but the economy recovered very fast as compared to other countries that were also hardly hit by this crisis.

Brazil is a member of World Trade Organization (WTO) and being a member makes her to access other markets of member countries without too much trade restrictions. 60% of her total exports are made up manufactured and semi-manufactured goods with China as her largest export market. Primarily, Brazil exports Soy, ironore and steel to China.

In terms of economic geography, Brazil is the 5th largest country in terms of area size covering a total area of 8.5 million square kilometres. Out of this, 6.9% is an arable land producing agricultural products such as sugarcane, coffee, tropical fruits, and frozen concentrated orange juice (FCOJ). Agriculture contributes to 6.1% of the total country's total GDP and employs 20% of its total labor force. The country is also endowed with natural resources which includes; bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, uranium, petroleum, hydropower and timber. It's the 9th largest oil producer in the world and just lags behind the United Arab Emirates at 2.572 million barrels per day. Hydropower accounts for 69% of the total power generation and nuclear power plants contributes 4%.

The country's population is 203.4 million people and a labor force of 103.6 million people. The unemployed constituted a percentage rate of 7% in 2010. With this kind of population, one of the social problems the country faces is poverty. The country has a social welfare program which according to Central Bank of Brazil has helped 20.5 million people to get out of poverty.

Brazil has well developed industries in Latin America and covers wide range of manufacturing from automobiles and parts, machinery and equipment, textiles, cement, computers, aircrafts, steel and petro chemicals which contributes 26.4% of the nation's total GDP and employs 14% of its total labor force.

Another sector that also contributes to the growth of GDP is the service sector. This sector contributes about 67.5% of the total GDP and employs nearly 66% of the total labor force especially in telecommunications, banking, energy, commerce and computer sect

Russia

Russia is also another major exporter of oil and other commodities.In 2000, Russia GDP had more than doubled climbing from 22nd largest in the world to eighth.(katz,2010).The bureau for European and Eurasian affairs,(2011) reported that Russian economy recorded a GDP of $1.477 trillion in the year 2010 and a growth rate of 4% in the year 2011.

The Russian economy went through a serious economic metamorphosis moving from a centrally planned economy to free market system.Russia sits on an area of 17 million square kilometres about 1.8 times the size of the United States and its endowed with vast natural resources such as natural gas, timber, furs, precious and nonferrous metals. Her major export earner is oil and minerals. In 2010, her exports amounted to $376.7 billion in petroleum and petroleum products, natural gas, woods and wood products, metals, and chemicals, consumer goods, medicine, meat, sugar, and semi-finished products.

The fiscal reforms were adversely affected by the crisis of 1998 and later after recovery the country continued to record sustained growth averaging about 7% due to devalued ruble, implementation of key economic reforms, tight fiscal policy, and favourable commodity prices. Just like other countries, the economic crisis of 2008 affected the growth of real disposable income and only grew by 1.9% in 2009 and the wages fell by 2.8% during the same period.

Russian population is estimated to be 142.9 million whose labor force amounts to nearly 76 million workers according to 2010 statistics. When economic crisis hit this country in 2008, the government embarked on a program to bolster wages, pensions, and other benefits helped reduce the poverty rate in 2009 by about 14%. By the end of 2010, World Bank estimated this rate to be 13.1%, but this rate jumped upwards to stand at 14.9% in 2011 as recorded by the Russian statistics.

In the industrial sector, Russia is one of the most industrialized of the former Soviet Republics. It has developed large manufacturing capabilities in metals, food products and transport equipments besides its resource based industries.

Out of an area of 17 million square kilometres, Russia rests on, 9% is an arable land with abundant fresh water for the growing of grain, sugar beets, sunflower seeds, meat, and dairy products.Grain production is concentrated on the European Russia with domestic grain consumption being grown in non-Arctic Russia. Russia is the third world largest exporter of wheat, but livestock production in beef, poultry, and milk has been in decline from 1990 to 2006.

Another contributor to GDP of the Russian economy is Foreign Direct Investment (FDI). Although this investment had fallen in 2009 to less than $40 after reaching an all time high of $75 in 2008 and over the years this has reversed the FDI downturn due increasing Russian inflows from abroad. In 2010, the net FDI inflows rose to $43 billion. In banking arena, private deposits grew by 31.2% and corporate deposits accounted for 16.4%.

Russia recorded an overall trade surplus of $112 billion in 2009 as compared with $180 billion in 2008 and $129 billion in 2007. In 2010 the trade surplus showed an impressive increase to $152 billion and continued to grow in 2011 to reach $118 billion by July 2011 (versus $96.4 billion at the same time in 2010), which is as a result of increased U.S. imports from Russia from 2009 to 2010.although import growth was beginning to outpace export growth. World prices continue to have a major effect on export performance, since commodities particularly oil, natural gas, metals, and timber comprise almost 90% of Russian exports. (Bureau of European and Eurasian affairs,2011)

India

India on the other hand is a global leader in manufacturing including service based industries. That's why technological and customer support programs and operations have been outsourced by many corporations due to low cost of labor.(katz,2010).

India is the fourth largest economy by purchasing power parity (PPP) and is based on social democratic-based policies but with time the economy has moved to market-based economic system with economic trade liberalization beginning in the year 1991.This economic reform accelerated FDI investments, to a level of becoming one of the fastest growing economies of the world. It's also projected that by the year 2035, India will become the third largest economy of the world after U.S. And China. (maps of India,2010).

In the agriculture sector, India ranks second in the world in agriculture and plays a major socio-economic development in the country employing 60% of the total population.agriculture and forestry, logging and fishing comprised 16.6% of the total GDP of the country. She is also the world's producer of tea, turmeric, black pepper, ginger, milk and cashew nuts but comes second in production of wheat, rice, groundnuts, sugar and inland fish. 10% of the world fruits comes from India. Suprisingly, India is the world's major consumer of silk and at the same time the producer.

Textiles manufacturing comes in second after agriculture constituting 26% of the manufacturing output. 27.6% of the total GDP comes from the industrial sector employing 17% of the total population.23% of the population are employed in the service sector which recorded a growth rate of 7.5% from 1991 to 2000 due favourable economic reforms accounting for a GDP of 55% in the fiscal year 2007.

The service sector especially the information technology contributed to 7% of the GDP in 2008. The annual revenues obtained from outsourcing activities amounted to… READ MORE

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