BRICS – Potential, Opportunities and Challenges – Dr AI Moolla

1. BRICS – Potential, Opportunities and Challenges – Dr AI Moolla

2. The Emergence of BRICS • In 2001 Goldman Sachs executive Jim O Neill in his article “The world needs better economic • BRIC’s” clustered countries at a similar stage of rapid economic development whose assets • were worth investment. • He discovered that Brazil, Russia, India and China fell into this category and accordingly • coined the acronym BRIC. • He did not expect the BRIC countries to form a political and economic club to play a role in • global governance. • He however did not support the inclusion of South Africa in the BRIC summit believing that • the South African economy was not big enough to join the emerging economies club. • South Africa was nonetheless officially admitted into the club at the BRICS summit in Sanya, • China on 13 April 2011. Emerging powers were not terribly concerned with GDP as a • qualification. It was concerned in developing the world economic and • political situation and realised that South Africa was • the gateway to Africa.

3. The Emergence of BRICS • While there are many critics that claim that the BRICS initiative is overstated, it cannot be • denied that the BRICS economics are having a huge influence on the world economy. • Over the past 5 years, more than a quarter in world growth has emerged from the BRICS • economies. • It is also projected that by 2050 the BRICS economies will lead world GDP even though they • may not be leaders in GDP per capita • BRICS accounts for more than: • 40% of the world’s foreign • exchange reserves; • 40% of the world’s • population; • 25% of the world’s land area. Source: BRIC model projections

4. GDP and GDP per capita projections - 2050

5. Economic gravity shifts to Asia

6. China set to take pole position

7. Share of the world Source: Goldman Sachs * South Africa not included

8. Growth in middle class in the next decade Number of People with income over $3000 in the BRICS Billions Growth by fourfold Source: BRICS Model Projections

9. Future Predictions

10. BRICS exchange rates BRICS Exchange rates could appreciate by close to 300% by 2050 Spectacular Potential Source: BRICS Model Projections

11. Brazil “The Jaguars” • Over the next 50 years, Brazil’s GDP growth rate averages 3.6%. • The size of Brazil’s economy overtakes Italy by 2025; France by 2031; UK and Germany by • 2036. • Challenges: lack of openness, lower education levels, lower savings and investment, higher • public and foreign debt. • Lower convergence rate at first, then catch-up with China. • Critical issues: Foreign and public debt constraints; Infrastructure; Openness to trade • “The Brazilian economy is booming. It is hotly tipped to achieve the prestigious Investment Grade as early as next year, and by 2050 Brazil is predicted to have grown into one of the world's largest economies, alongside China, the US, India, Japan and Russia” – Goldman Sachs

12. Russia “The Bears” • By 2050, Russia’s GDP per capita is by far the highest of the BRICs. • Demographic dynamics drive GDP per capita path. • Russia’s economy overtakes Italy in 2018; France in 2024; UK in 2027 and Germany in • 2028. • Critical issues: Life after Putin; The Transition from Oil.

13. India “The Tigers” • India’s growth rate remains above 5% throughout the period. • India’s GDP outstrips that of Japan by 2032. • India could raise its income per capita in 2050 to 35 times current levels. • Still, India’s income per capita will be significantly lower than other BRIC countries • Critical issues: Openness; Basic Education; Policy Coherence; Environmental issues

14. China “The Dragons” • China’s GDP growth rate falls to 5% in 2020 from its 8.1% growth rate projected for 2003. • By the mid-2040s, growth slows to around 3.5%. • Even so, China becomes the world’s largest economy by 2041. • High investment rates, tapers off though projection period. • China’s per capita income could be roughly what the developed economies are now • (about US$30,000 per capita). • Critical issues: Financial System Reform; Political Transition, Environmental issues

15. South Africa “The Lions” • Remains principal gateway to Africa • Continent's leading economy • Sophisticated financial and legal system (ZAR currency highly traded) • Better placed structurally / cyclically than developed countries to weather financial crisis • South Africa’s financial system remains intact, no bailout required

16. Development stages • India and China • + 1 billion people; $2 - $5 trillion; GDP 8% - 10% • growth potential • Geographical size – inconceivably massive, 2 out of 4 already major nuclear powers – present a major future world presence / dominance • Russia and Brazil • Russia : 120 million people, Brazil :190 million people; • Economies + $1 trillion, GDP growth 5% - 6% • South Africa • 50 million stagnant population, $0,3 trillion economy • and 3,5% growth potential Adult Puppy New Born

17. Africa • The Emerging GIANT • The African continent has a total annual GDP of US$1.6 trillion in 2008 (McKinsey & Co) – a little higher than Brazil or Russia • $860 billion combined consumer spending in 2008 • In 2009 it recorded an estimated 5% growth and thus added US$70 billion to the World economy; • The African continent has over 1 billion people • The continent is more democratic than ever before Africa’s GDP has doubled in the last century Trade between Africa and BRICS has been double the global average A large continent with 54 countries and 922 million people. It has an enormous variety of cultures, industry sectors, business drivers, trading partners, historical connections, religions and political parties. It is blessed with considerable natural resources

18. Africa • BRIC countries have long recognised Africa as the next economic frontier – the region with the fastest growth after China and India • One billion people making an impact on consumer markets • Unexploited mineral wealth • 60% of the worlds uncultivated agricultural land • The youngest age profile of any continent • Functioning and reforming democracies • The literacy rate is at an all-time high • South Africa’s accession to BRICS means that Africa is now also represented and will have its voice heard

19. Financial Stability Political Stability Food Security Economic Stability Poverty Crisis Health Crisis Energy crisis Skills shortage Climate change Current Challenges African System Courtesy Dr. C. Nonkwelo

20. Africa in 30 years • Nigeria will become the largest economy in continent in less than 20 years time. • The African continent will have over 2 billion people in 40 years • The African economy will be more integrated • The levels of democratization will be greatly expanded • The number of educated people will be much more than today

21. Opportunities in South Africa • Investment and trade • Private companies will find easier access into BRICS countries • Partnership opportunities • South Africa already biggest emerging economy • SA companies active in at least half of all African countries • Increase competitive edge / ranking • Government increased commitment on infrastructure spend • Education receives the biggest budget • SA corporate – strong levels of cash flow • SA business now expanding to the USA and Europe

22. What has South Africa to offer • Sophisticated financial markets • Soundly regulated and well regarded banking system • Clear intellectual property adherence rules • A stable and democratic government • Forefront of Africa’s regional integration efforts (AU) • Far easier to do business in South Africa than in BRIC – World Bank Study • The biggest investor on the African planet “BRICS will actively promote trade and investment, which enhances industrialization and promotes job creation – From BRIC to BRICS is the better future for all” – Jacob Zuma “South Africa is a major growth market in its own right and I do not hesitate to recommend it to other investors” – Richard Branson

23. BRICS Impact • The BRICs Impact on Global Markets: A Transforming Event • A sequence of pressures: crude, cars then capital • The growth of a BRICs middle class could be a key market dynamic • The timing of impact varies across the BRICs • The next decade is likely to be the peak period for resource pressure

24. To ensure growth as predicted • Sound, stable macroeconomic policies • Strong, stable political institutions • Openness • High levels of education • ‘Miracle’ conditions are not needed.

25. Implications of the rise of BRICS • A (further) shift in economic power away from west . • The rise and reshaping of regional networks. • Changing consumption and production patterns. • A flow of capital back to the BRICS as the world rebalances. • Appreciation – through exchange rates or through prices? • The need to reshape international institutions.

26. BRICS – Projections and initial targets • The BRICs Projections • The motivation: understanding shifts in global spending power • The goal: a 50-year roadmap of growth and incomes • The model: two parts to getting richer • The results: a dramatic change if things go right • The risks: conditions for converting potential to reality • BRICs Initial Targets • Explore : security issues • Reform : Support the reform of the IMF • Joint research : Economic and trade issues • Cooperation: in sports • Promote: scientific, technological and innovation cooperation

27. In conclusion “Over the next 45 it is possible if BRICS countries pursue good economic policies that their economies collectively could become the biggest in the world” “It that is true, it will have an enormous influence on every aspect of our societies and it will provide for those that have invested in the BRICS dream pretty spectacular returns”

28. BUT WHATS REQUIRED • Call for business ethics • Liberalization of markets and political institutions • Corporate social responsibility • Sustainabledevelopment • Partnership of women and men • A new paradigm of work • Consultation in decisionmaking • Value-based leadership • Information technology explosion • Destabilization of our ideas of management • and leadership

29. “Education is the most powerful weapon which you can use to change the world.” Nelson Mandela

30. THANK YOU