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- In less than 40 years, the BRICs economies could be larger than the=
G6
in USD terms.
- China could overtake the US as the world’s largest economy in=
a
little over 30 years.
- Of the current G6, only the US and Japan may be among the six large=
st
economies in 2050.
- New demand from the BRICs economies could rival the current G6 with=
in a
decade and dwarf it by 2050.
- Individuals in the BRICs are still likely to be poorer on average t=
han
individuals in the G6 economies, except in Russia.
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- The BRIC (Brazil, Russia, India, China) countries will be 40% of the
world growth and 30% of the total global economy by 2025 *
- The middle class in BRIC will be 800 million in 2010*
- Greater than the combined population of USA, Europe and Japan
- BRICs nearly 3 times the population size of the OECD
- The BRICs will produce 200 million new high-income people
- The BRIC consumer will be a driving force of the world economy
- Mutual funds are the ideal investment vehicle for this investor gro=
up
- Source: * Goldman Sachs BRIC study & World Bank, World Developme=
nt
Indicators Database April 2005
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- Most investors in the fastest growing economies invest locally
- BRIC countries have restrictions on foreign investing
- Even in developed countries about 75% of investments are local
- Local financial institutions do not have mutual fund expertise
- Local asset management provides opportunity for selling additional
products
- The obvious: the locals know more about their markets
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- 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 pressu=
re
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- BRAZIL:
- One of the world's largest commodity exporters
- Home to the largest iron ore supplies
- Exports also include coffee and soya
- RUSSIA:
- Home to the largest supply of natural gas
- Detained 15% of the world's crude oil reserves
- Country debt awarded investment-grade rating in 2005
- INDIA:
- Highly skilled workforce
- Key centre for international companies looking to outsource
- Large infrastructure programs
- CHINA:
- Ranked 5th largest exporter of merchandise
- Huge domestic consumption
- Host of the 2008 Olympic Games
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- 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; United Kingdom and Germany by 2036.
- CRITICAL ISSUES:
- 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.
- Foreign and public debt constraints; Infrastructure; Openness to tr=
ade.
- Despite the considerable efforts to secure macroeconomic stability,=
the
Brazilian government have failed to convince foreign corporate
decision-makers.
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- 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; Uni=
ted
Kingdom in 2027 and Germany in 2028.
- Critical issues: What would be the Political and Economic life after
Putin; The Transition from Oil.
- Dreaming or not with Russia
- Oil and gas prices major positive factor
- Only (too?) slow progress on structural and democratic reforms
- Environment for Foreign Direct Investment far from perfect, instabi=
lity
of security and corruption
- Yields in local markets unattractive in comparison to several Weste=
rn
EU economies
- RUB should appreciate, but CBR has its own agenda
- Despite Russia's abundant energy supplies, internal political
uncertainties seem to deter foreign direct investors.
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- India’s growth rate remains above 5% throughout the period.=
li>
- Ernst & Young conducted on 2007 a survey of 809 managers from
various industries in Europe, America and Asia about their investme=
nt
preferences. In=
dia popularity
appears to be increasing fast. While 11 percent of investors cited
India among their top three preferences in 2004, it has risen to 26
percent in 2007
- 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
- any other
BRICs countries.
- Critical issues: Openness; Basic Education; Policy Coherence.
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- China’s GDP growth rate falls to 5% in 2020 from its 8.1% gro=
wth
rate
projected for 2007.
- By the mid-2040s, growth slows to around 3.5%.
- Even so, China becomes the world’s largest economy by 2041.=
li>
- 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).
- Per OECD China is already bigger than 2 of G7 – Canada and
Italy
By 2010 China will be 4th largest economy after =
US,
Japan and Germany- “If China were cut off from foreign trade =
and
investment its growth would be just 1-2% p.a. less.” *
- Critical issues: Financial System Reform; Political Transition
- * Source: Professor Lucas, University of Chicago – Sunday Tim=
es
25thSeptember 2005
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- Can Brazil cope with ‘resource authoritarianism’ in Lat=
in
America?
- Can Russia revive its non-commodity industries and develop more sta=
ble
politic system not undermined by personality politics and cronism?<=
/li>
- Can India diversify from regional imbalances, poverty, Anglophone
services and bureaucratic and central state planning?
- Can China make the transition from central politics, environment
hurdles, internal poverty and from ‘state mercantilism’=
to
consumer markets?
- What is the future of=
oil
and commodity prices?
- How can the United States of America or the European Union compete?
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- The best contacts and resources to help you get it done.
- Start with the report that launched it all, Goldman Sachs, the global
investment bank, got the BRIC discussion going by suggesting that th=
ose
four economies in development would add up to do more than the entire
"developed" world combined by 2050. Yet few U.S. and Europ=
ean
companies are seriously into any of them -- yet.
Download a PDF copy of the Goldman paper http://www2.goldmans=
achs.com/insight/research/reports/report6.html
.
- The bank has thoughtfully boiled the relevant points down into a
- flash presentation: http://www2.goldmansachs.com/insight/research/re=
ports/report32.html
,
- and it issued a follow-up report in early 2005 http://www2.goldmansa=
chs.com/hkchina/insight/research/pdf/BRICs_3_12-1-05.pd
f.
- One way to track which companies are driving the BRIC economies is to
read up on the investment funds which claim to offer a way to put mo=
ney
into the far-flung geography. Some key investment vehicles include, =
of
course, GS BRIC Fund http://www2.goldmansachs.com/client_services/as=
set_management/mutual_funds/u_s_funds/funds_information/5499.html
- DWS Invest BRIC Plus http://info.dws-belgium.com/be/nav_info.nsf/fra=
meset/RHAE-5UBLKN?OpenDocument&ContentURL=3D/be/content.nsf/doc/RHAE-6B=
TBNQ?OpenDocument&siteidentifier=3Dbe&box_2=3Ddws_invest_bric_plus#=
top
- Allianz Global Investors http://www.bricstars.co.uk/literature/index=
.html#10_general
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- The Goldman Sachs global economics team released a follow-up report =
to
its initial BRIC study towards the middle of October 2004.
- Goldman's view, is that China and India will be producers of value-a=
dded
goods like electronics, while Brazil and Russia will come to dominate
raw materials production. Getting involved is a huge BRIC step, but
there are ways to build the right BRIC move.
- Just as the initial report focused on the growth potential of the
so-called four BRIC (Brazil, Russia, India, China) economies, the new
report takes the analysis one step forward focuses on the impact of
these economies on global commodities (using oil as a proxy), demand=
for
consumer goods (using automobile sales to make the point), and the
impact on global capital markets.
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- The main conclusions of the Report are:
- Over the coming years =
the
strong growth profile of the BRIC economies;
- Their increasing importance will push up trend global growth to over=
4
per cent, compared to the trend of the past 20 years of 3.7 per cent=
;
- An increase in the glo=
bal
trend growth rate of this magnitude has enormous positive implicatio=
ns
for the entire world;
- The BRIC economies' sh=
are of
world growth could rise from 20 % in 2003 to more than 40 per cent in
2025;
- Their total weight in =
the
world economy will also rise from approximately 10 per cent today to
more than 20 per cent within 20 years.
- While the main conclusions of the report are quite dramatic, one must
keep in mind that these results need first validated by the current
growth that is not yet matching the high rates projected in the init=
ial
report.
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- According to the Goldman Sacks Report on the BRICs, the number of pe=
ople
with an income over $3,000 (approximation of middle class) should do=
uble
within three years in the corresponding economies, and within a deca=
de
over 800 million people will have crossed this earning level.
- Within 20 years, there could be approximately 200 million people in =
the
BRICs economies with incomes above $15,000 (as a point of reference =
that
is more than the population of Japan).
- This optimistic look is paradoxical to the reality of these BRIC
countries where programs against poverty have not even reduced the g=
ap
among the lower classes in terms of earning.
- Despite this, the Goldman Sacks advanced projections and analysis th=
at
never before has this type of scale been observed in terms of gross
addition of numbers to the ranks of the consuming class. In terms of sheer numbers, =
it is
equivalent to the addition of a new America and Europe to the global
consumer class.
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- Goldman Sachs estimates that by 2025 the income/capita in the G-6 wi=
ll
exceed $35,000, only about 24 million people in the BRIC economies w=
ill
have similar income levels.
China and India will emerge as the world's largest car markets
over time. Withi=
n 20
years, China most probably will have overtaken the US as the world's
largest car market. India will also displace the US about 10-15 years
later.
- Highlighting India's greater inefficiency in energy use, the data
indicate that within 15 years India's contribution to global oil dem=
and
growth will overtake China's. India's share of actual global oil dem=
and
will also peak near 17-18 per cent, similar to China's.
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- The Report (source: Goldman Sachs) makes the point that the emergenc=
e of
the BRIC economies has already had an impact on global commodity
markets, namely the impact of China. The huge price run-up in most
industrial commodities is attributed to strong Chinese demand.
- The next stage will be the impact of the huge emerging middle class =
in
the BRIC economies on consumer goods demand, and finally longer term
will be the impact on financial markets.
- The share of these economies in global capital markets is currently =
3.5
%, and depending on the extent of capital market development, they c=
ould
account for anything between 10 and 17 % of global equity markets by
2020.
- Market capitalization in the BRIC economies is projected to increase=
by
four times or $4 trillion, approximating the size of the European wi=
thin
15 years.
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- It could be that your company's best way forward into BRIC-driven gr=
owth
is through labor capacity. &nb=
sp;
Do you want to be pre-emptive and anticipate this money shift=
or
join the party later, when it becomes more accepted as conventional
wisdom? Every institution has to make up its own mind.
- Join a major company investing in these regions, likely as a supplie=
r or
contractor. Retailers like Wal-Mart will not ignore future foreign
growth and will need specific quality goods to sell. Heavy equipment
makers like Caterpillar will continue to do well in emerging heavy
industries, as will personal care companies like Proctor & Gambl=
e.
Or, browse companies in your sector at Selectory.com.
This can vary dramatically by geography and sector, but certa=
inly
it has been shown that India's technical elite is very good sources =
of
cheap financial and back-office labor. A much-talked about guide to
sourcing in the BRIC region is Mark Kobayashi-Hillary's Building a
Future with BRICS
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Peruse leads databases for a clearer sense of whether you bel=
ong
in this arena.
The U.S. Commerce Department has a pay database of live trade
leads calls Globus. The Federation of International Trade Associatio=
ns
runs a leads database.
- Some other active leads databases include GLOCENTRA, TradeZone, Alib=
aba,
and TradeXPro.
- Part of the big change for the developed world will be the flood of
management and technical talent. China alone is graduating tens of
thousands of engineers a year.
A great overview of the challenges ahead can be found at the =
BBC's
web site (click on the box in the text for each of its four parts).<=
/li>
- =3D A good discussion of U.S.-China trade issues is here;
- =3D Brazil-U.S. business relations at the U.S. Department of State;<=
/li>
- =3D India, a good starting point is the Indian Embassy;
- =3D Russia is detailed by the USInfo site.
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- Part of the investment attractiveness of the BRIC countries is the
enormous geographical size of each, and the dreamed vision of huge
demand and large “new rich class” of consumers. While li=
kely
it will slow with the surge of stagflation in the developing world, =
the
rising cost of living, the dramatic and continuous increase of the o=
il
price and the heated world wide competition and war ragging drive to
control its sources will all have an impact on the growth of long-term export planning a=
nd
development strategies implemented by liberal economies.
- Macro statistics should be treated with caution and stock markets do=
not
necessarily reflect economic production. The BRIC thesis is pretty m=
uch a
theory -- but with some compelling early evidence, such as India's r=
ise
as a talent pool and China's turn as the world's factory floor. Keep=
ing
tabs on these big two is likely most of the game for now.
- Further helpful advice for making the most of these BRICs Markets,
contact us:
- saidcherkaoui@sbcglobal.net
- Office contact: East Bay Center for International Trade Development<=
/li>
-
Berkeley City College, Berkeley, California
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- Glo=
bal
Center for Trade - GLOCENTRA - has helped several companies to condu=
ct
an evaluation of their export and import potentials and how to incre=
ase
their international trade operations.
-
Our strengths:
- Through our proven and internationally acclaimed training modules =
and
recognized expert consulting services. The related modules
programs have benefited several companies, organizations and
foreign trade delegations from United States, Mexico, Brazil=
, Egypt,
France, Morocco, Algeria, Tunisia, China, India and Vietnam.<=
/li>
- A broad understanding of the local business structure and situatio=
n.
- Being part of the global and local culture.
- A high level of local expertise with cross and multicultural
experience.
- The support by a large network of partners and acquaintances.
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