Daily Times

Jim O’Neil, global economist at Goldman Sachs, first coined the term ‘BRIC’ back in 2001. Brazil, Russia, India and China, four of the world’s largest emerging economies, make up the BRIC bloc. They represent 40 percent of the world’s population, 15 percent of the global GDP and are reckoned to be the next economic powers. The acronym now indicates the shift in global economic power away from the developed G-7 economies towards the developing world. It is expected that the BRIC economies will eclipse most of the current richest countries in the world by 2050.

BRIC, as an aggregate, are likely to surpass the US by 2018. The Brazilian economy will be larger than Italy’s by 2020 and India and Russia will individually be larger than Spain, Canada or Italy. All four will account for a third of the global economy measured in purchasing power parity (PPP) and contribute about 49 percent of global growth. They will account for almost 50 percent of the global equity markets by 2050.

The Goldman Sachs study further reveals that BRIC contributed 36.3 percent of the world’s GDP growth (in PPP) and made up about a quarter of the global economy during the first decade of the century.

Over the next decade or so, the incomes of the middle class in BRIC economies are likely to grow further and hence the consumer spending base is going to shift from rich countries towards BRIC with startlingly changing patterns of international trade. They will likely be buying more hi-tech value added goods instead of typical low quality consumer goods.

For instance, 70 percent of global car sales growth is likely to come from the BRIC economies, with China accounting for 42 percent of this increase. In the last decade alone, the number of people earning incomes greater than $ 6,000 and less than $ 30,000 has seen exponential growth, which has resulted in increasing standards of living for the citizens of BRIC along with falling poverty rates. Goldman Sachs predicts that China and India will be the dominant global suppliers of manufactured goods and services respectively, and Brazil and Russia will dominate the world’s raw materials market.

To sum up the above discussion, the following are the main factors that contributed to the BRIC success story: macroeconomic stability, institutional capacity, openness and education. Macroeconomic stability reflects effective use of fiscal and monetary policies to ensure economic growth with price stability.

Institutional capacity is linked to the input and output ratio. More efficient institutions work with fewer resources but with a high level of output, and low performers do the opposite. Empirical studies suggest that the legal system, functioning markets, health and education systems, financial institutions and the government bureaucracy make up the definition of ‘institutions’. Openness to trade and FDI refers to access to imported inputs, new technology, larger markets, policies related to import substitution and employment creation, export promotion and generally favourable terms of trade liberalisation.

To match the BRIC growth rates, what should we be doing if we want to improve the quality of life of our people? Well, first we should revisit our economic governance framework. The most important indicator of economic governance is the way economic decisions are made. Pakistan’s economy has been a victim of poor quality decision making most of the time because decisions are made for short term political gains, thus the success stories recorded have been ephemeral in nature.

The situation is compounded further when the economy is seeing a steep fall in both local as well as foreign direct investment due to surging terrorism-related incidents, energy shortfalls, political uncertainty and the increasing cost of doing business. Sadly, our spending on education is one of the lowest in the world and socio-economic indicators, instead of improving, are further deteriorating.

A two-pronged approach is to be followed now. To achieve macro-economic stability on the external front, dependency on lending institutions must be reduced steadily. How can we do that? Here is the answer: we should try accelerating exports and home remittances simultaneously and provide a conducive environment for foreign investment (the three main sources to earn foreign currency and build foreign exchange reserves). The higher the foreign exchange reserves in hand, the less the chances are that we will approach foreign lending institutions for help and accept their pressure. Also, at the same time, a deep cut in the imports of luxury items should be considered to ease pressure on the Balance of Payments and on our reserves.

On the domestic front, improvement in tax collection and economic governance across the economy, a deep cut in unnecessary government expenditures, merit-based appointments at key posts, effective utilisation of natural resources available such as the Thar coal reserves and privatisation of public sector enterprises or improvement in their efficiency are some tough decisions that the government must take now.

The domestic entrepreneurship model should be encouraged across the country and a better environment ought to be provided for this purpose. To encourage transparency and the rule of law, the discriminatory approach of ‘show-me-the-face-and-I-show-you-the-rule’ should be strongly discouraged by all the stakeholders.

All the above can be achieved if both nation and government have the vision and the will, or else our future is no different that that of Rwanda, Ethiopia, Honduras, Haiti, Togo, Ghana, Sudan and the Ivory Coast, etc.

It is true that the BRIC economies have not used any rocket science to achieve such impressive growth and Pakistan can also benefit from their success stories if the highly charged emotional blame game approach is replaced by a brick-by-brick building of the blocks with a clear vision approach to lay solid foundations for the economy.

“We have to build up the character of our future generations, which means the highest sense of honour, integrity, selfless service to the nation and sense of responsibility” — Quaid-e-Azam Mohammad Ali Jinnah.

The writer is an analyst and can be contacted at syed311@hotmail.com