In less than 40 years, the economies of the BRICs—Brazil, Russia, India and China—could generate more economic output than the G6 combined (the United States, Japan, the United Kingdom, Germany, France and Italy), according to Goldman Sachs' projections. What does this mean for your business?

In this era of globalization, expanding internationally is increasingly important to achieve long-term growth. And choosing the right foreign markets to pursue is imperative, a subject covered in our first issue of Commerce Trade Finance Advisor. With the rise of the BRICs, U.S. companies are wise to include this powerful engine of world demand in their long-term global strategy, especially since only two G6 members, the U.S. and Japan, are likely to be among the six largest economies in 2050.

Brazil Likely To Overcome Challenges, Finally

Brazil generated relatively weak gross domestic product (GDP) growth over the past decade. According to a McKinsey study, this primarily was attributable to slow productivity growth, and to a lesser degree, on burdensome regulations, infrastructure limitations and the country's large informal economy.

But higher growth rates are projected. As a result, Brazil's economy likely will overtake Italy's by 2025, France's by 2031, and the UK's and Germany's by 2036, Goldman Sachs says. These estimates assume Brazil, the world's 12th largest market whose population of 188 million will swell to 228 million by 2050, will continue to make progress on macro economic stabilization, according to Goldman Sachs.

Russia Hits Bumps, But on its Way

In the recent past, Russia struggled to pay wages while attempting to mitigate financial crises. Today, Russian growth is robust. Enriched by surging oil prices and flush with cash, Russia has reached a new level of confidence not seen in decades.

On January 1, 2006, Russia became the chair of the G8 (includes G6 plus Canada and Russia). With greater involvement in the organization, the unrealized hope was Russia would lock in democratic reforms. This is reflected in Russia's 2006 Freedom House ranking of 6 on political rights and 5 on civil liberties. The independent organization that supports world freedom utilizes a scale of 1 (most free) to 7 (least free).

In March 2006, President Vladimir Putin accused the U.S. of hampering Russian World Trade Organization's (WTO) accession talks. Sticking points include U.S. market access and intellectual property protection. Once secured, however, Russian WTO membership will almost certainly re-energize its reform process and better integrate the former communist country into the world economy.

India Is Almost There

In less than 30 years, Goldman Sachs projects India's economy to become the world's third largest after the U.S.' and China's. This tremendous ascent is primarily due to India's service-led growth strategy which focuses on business process outsourcing and information technology.

This is reflected in India's increasing ability to attract foreign direct investment (FDI) in research and development (R&D). According to a United Nations investment survey, in 2004 India was the sixth largest destination for foreign R&D investment. By 2009, it is expected to move up to third place after China and the U.S. To fill new R&D positions, more Indian scientists and engineers are staying in or returning to India to perform related activities. Overall, the U.S. Census Bureau estimates that India's population will exceed China's by 2034.

India's manufacturing sector also is expanding. But India's infrastructure and government support are poor. And although the country continues to implement economic reforms, more needs to be done. Nevertheless, India is projected to continue developing global business expertise and efficiencies, positioning the world's largest democracy for an extremely exciting future.

China Is Already There

Reported in the second issue of Commerce Trade Finance Advisor, China already has become one of the world's global economic powerhouses. In fact, it is likely to become the world's fourth largest economy by 2010, according to the Organization for Economic Co-operation and Development. And China could overtake Japan by 2015 and the United States by 2039, Goldman Sachs estimates.

China's GDP growth rate has been among the world's highest. Like most other BRICs, it is anticipated to decelerate, but still achieve the high rate of 5.4 percent by 2050. Rising inbound investment, a large labor force, and continued economic and political reform will continue to reshape the world.

Study the Big Picture

Approximately one-third of BRIC projected growth is based on currency appreciations, Goldman Sachs reports. And although its economic output will surpass the G6, BRIC per capita incomes will not, except for Russia's. Goldman Sachs projects that by 2050, per capita incomes likely will reach $17,366 in India, $26,592 in Brazil, $31,357 in China, and $49,646 in Russia.

When selecting markets to pursue, per capita incomes need to be considered in context. For example, in 2005, GDP per capita income was $1,340 in China and $620 in India. Yet, China has approximately 200 to 300 million consumers and India has approximately 200 million consumers with purchasing power similar to America's middle class.

This article appeared in July 2006. (CM)
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is CEO of World Trade Center BN, chair of the Upstate New York District Export Council, and founder of The Manzella Report and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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