Category Archives: Business and Economics

Are the BRICS Crumbling?

Are the BRICS Crumbling?

The BRICS (Brazil, Russia, India, China and South Africa) are five of the world’s leading economies; a bloc of developing nations that famously grouped together to help develop their respective economic power. However, the last year has seen huge political and economic upheaval within the BRICS and this uncertainty threatens their position as global economic leaders.

Brazil

Brazil should be riding high on a wave of soft power and economic growth. After hosting the World Cup, attention has returned to Brazil as it prepares for the Rio Olympics. These two events were meant to signal to the world that Brazil was now a global player; culturally, economically and diplomatically. However, in what should be a celebratory year, Brazil has been plunged into political uncertainty. Mass protests, political infighting and investigations into corruption have all led to the impeachment process of its once highly popular President, Dilma Rousseff.

The woman who has guided Rio towards its Olympic spotlight is unlikely to be attending the event as President. Once considered a steady and reliable set of hands to guide the economy and continue on the social reforms of her predecessor, President Lula da Silva, her popularity ratings have plummeted as she has become embroiled in a corruption case relating to state accounts.

But it is the larger scandal that may truly engulf Brazil. Her Vice-President is also being investigated for corruption and faces impeachment proceedings. The Speaker of the Lower House is accused of taking bribes worth over $5 million and the Senate Speaker is involved in a corruption investigation relating to the state oil company, Petrobras. The ruling coalition has collapsed and trust in the government is at an all time low. It does not look possible for the current government to emerge successfully from this controversy and with it may go international trust and millions of dollars of investment.

This has all occurred on a backdrop of an ever-deepening recession in Brazil with mounting debt and rising unemployment. Brazil currently does not have an answer and the crisis is only likely to deepen over 2016.

Russia

Russia continues to suffer under the international embargoes and trade restrictions placed on it by, largely Western, nations. Ever since the Crimean crisis the Russian government has had a very tricky relationship with its counterparts across the globe. This has limited trade and business opportunities and it has blackened the image of its leader, President Vladimir Putin. Coupled with a dramatic fall in the price of oil, a vital commodity for the Russian economy, these two factors have impacted heavily on the economic outlook of the country and international investors are less inclined to put their money in Moscow.

Alongside Russia’s economic woes, corruption allegations surround Russia’s political elite (including Putin himself) and the huge political controversy caused by Russia’s continued military interventions in Ukraine, the Caucasus and Syria, has meant that Russia has struggled to be the world political and economic leader it could be.Put simply, the world doesn’t want to work closely with Russia at this point in time. Its neighbours, Turkey, Poland and the Baltic have all backed away from Russia and have continued to look West, towards Europe, for economic development and support.

Russia is increasingly isolating itself, with only the continued internal support for Putin maintaining the country’s stability. The economic and political impact of this isolation are long-reaching and could continue for many more years if Russia maintains its aggressive foreign policy.

China

China was the undisputed king of the BRICS. The largest economy with a huge political and military influence. However, China’s great growth was always going to be hard to maintain and it has begun to show signs that it is no longer a stable economy. Public debt has risen, unemployment has too, as demand has fallen. Internally, this is starting to put pressure on the government to stimulate economic growth but the impact across the world has been even more dramatic.

Much of the global economy was underwritten by Chinese demand and with that demand falling it has caused uncertainty in many corners of the world’s financial markets. The currency markets, in particular, have been hit hard by a lack of faith in the strength of the Chinese Yuan. The Chinese economy is so important to the global economy that any instability here can wipe billions of dollars of the value of commodities and companies worldwide. For the BRICS, it is a symbol that the years of unrivaled prosperity are beginning to slow down.

This has caused great problems for China’s leader Xi Jinping, who is also facing a continuing challenge against corruption within the Communist Party. Ever since he became leader, XI has worked hard to bring many senior politicians to trial for corruption. However, recent revelations from the Panama Papers, have forced the government to react against corruption and an often worsening public image.

China’s economic future is critical for China, the BRICS and the global economy, but with greater volatility likely to come the future is an uncertain once.

South Africa

South Africa is the smallest and least influential of the BRICS, but it is still one of Africa’s largest economies and a critical political player in the region. However, it has always had to deal with continued social and economic problems that stem from the country’s huge wealth inequality. Under the ANC these problems have been put at the centre of the country’s future development, but there are many who are starting to doubt the ANC’s ability to deliver the progress South Africa needs.

Much of this is to do with a growing question over the conduct and role of its President, Jacob Zuma. He is at the centre of a corruption scandal relating to public finances used to build his home complex; undue influence over the Presidency regarding his close friends, South African millionaires, the Gupta family and historic allegations of corruption relating to a state arms deal.

Although Mr Zuma survived an impeachment vote this month, opposition to his Presidency, and to the ANC, is mounting and Mr Zuma may find his position increasingly difficult to defend. If the opposition is successful in challenging the ANC then the political and social upheaval could draw away focus for the need for grassroots economic development.

In all of this I have not mentioned India, the last of the BRICS nations. This is because, unlike its counterparts, it has enjoyed great economic growth and political stability. After the upheaval of the last general election, Prime Minister Narendra Modi, has managed to demonstrate India’s economic and cultural strengths to the world. India is now perceived as one of the leading economies to invest in, thanks, in part, to trade liberalisation and the growing affluence of India’s middle class.

There are some economists that have argued that with historically high growth rates, a booming social development programme and the freedoms of democracy, India could challenge China as Asia’s leading economic power.

So, although for most of the BRICS nations, 2016 has marked a period of economic and political instability there is still a belief, best demonstrated by India, that their continued economic, political, social and cultural influence on the world will ensure their continued importance in the global economy. The BRICS may show signs of crumbling, but there is always a chance to rebuild.

By Peter Banham

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