BRICS effect on global capitalist economy
The debates about the increasing role of emerging economies became more vigorous since the global financial crisis that became a start for a new global framework with the developing countries surfacing as a major hub. The most attention is given to the economies of Brazil, Russia, India, China and the South Africa (BRICS) that had demonstrated high growth during the last decade against the global recession. The future dominance of the BRICS may shift the economic center towards the multipolar model. Changes in the matrix of competitive forces (finance, resources, technology) lead to a decline in the economic, political and military power of some actors (the U.S., the EU), and rise of geopolitical ambitions of others, providing an ongoing spatial shift in global capitalism (Singh P. 2008). The countries have essential natural recourses, production, human and intellectual potential, demonstrating growth during the last fifteen years. The uniting factor of BRICS is the compatibility of economies, promoting mutual advantageous synergy. The BRICS are the most attractive destinations for foreign direct investment as well as, in turn, they have grown as investors in their regions. The key difference of the BRICS from other institutes is the conception of partnership instead of donor-recipient, by welcoming infrastructure and energy development without imposing debt program and interference on developing countries.
Figure 1- BRICS growth rate in comparison to the world growth 2001-2014
Source: The World Bank
The rapid rise of the BRICS caused debates about the economical and environmental implications to the capitalist economy. The countries have demonstrated stable growth during the last 15 years (see fig.1) and proved to be steady in comparison to developed economies and the average world indicator. China and India are assessed as the most active drivers with the highest growth rates. India was able to reduce its productivity gap and to recover throughout the period. In 2016 the forecasts estimate India soon to overcome China in terms of economic growth. Meanwhile, Russia, a valuable actor in the group, has less stable fundament (see fig.1). Brazil, Russia and South Africa have shown the lowest growth and the largest losses in manufacturing in the 1980-2013 period and have not been able to narrow the gap (Nassif A., 2015, p. 34).
Source: The World Bank, The UNCTAD Statistics
The share of cumulative GDP of five states in the world exceeds 21%, with the forecasted increase for the last 15 years. The BRICS’s international trade comprises a quarter of the world trade, and the territory of five countries contains 42% of the world population (see Table 1).
If to compare the economy of the BRICS to the developed economies of the United States or the European Union,t the GDP of the United States exceeds the BRICS by only 2 per cent ($17,419 trillion), and the GDP of the EU amounts $18,51 trillion that is 9% higher the BRICS (The World Bank, 2014). Thus, the BRICS economy has approximately the same size as the United States and the European Union so that the group performs as a possible counterpart for the leading economies.
China performs as the most active driver of the economic growth in the BRICS. Although the South Africa remains far behind, its volume of trade and investment has increased and fastened partnership between the South Africa and the private sector of the BRICS. The South Africa remains a key actor in negotiations with the rest Africa, maintaining diplomacy, peacekeeping and political influence in the region (Africa-BRICS Cooperation, 2013, p. 18-19).
Foreign direct investment (FDI) directly affect the economic growth by contributing to capital accumulation, structural transformation and technology transfer. It enhances the employment by labor training and skill acquisition and brings new management practices.
Source: The UNCTAD statistics
The volume of inward investment in BRICS has exceeded 2,6 trillion dollars and comprised about 10% of a world FDI. At the same time the amount of outward FDI stock reached $1,7 trillions (7% of total outward FDI).
Though the South Africa has a small share in FDI, it is perceived to be the world’s second attractive region for foreign investment from capitalist economies. In 2014 a half of FDI (51.8%) was attracted to the most competitive sectors – technology, telecommunication, financial services and retail (Africa’s Attractiveness Survey, 2015, p. 5, 12). FDI builds infrastructure, creates jobs, develops skills and reduces poverty in Africa. The EU comprises a quarter of African international trade. The second largest partner is China (12,8%), and the USA presents 6,8% (The trade with the South Africa 2015, p.8).
China, the most contributing actor, has more than 40% of BRICS’ investment. The key areas are manufacturing, retail, rent and business services. The exported Chinese capital builds the infrastructure abroad (trade, financial, serving) in pursuing the idea of expansion of Chinese companies. The largest China’s trade partner is the EU that comprises 14,3% of the Chinese trade. It is followed by the USA (12,8%), Japan and the South Korea, having 7,2 and 6,8 percent relatively (International trade with China, 2015, p. 8).
Indian projects are focused on the ICT, business services and financial services. Infrastructure is developing along with defense and aerospace manufacturing. Investors also found opportunities in automotive design, assembly and components, pharmaceuticals and food processing. India is supposed to become a hub for innovation and manufacturing in the coming years. Indian companies seek to get not only access to the new markets, but also to technologies and know-how. The country is transforming from the job seeker into a job creator by providing more than 100 million jobs by 2022 through the “Make in India”, established by the government. The program will increase the bilateral trade and investment and also provide benefits to other capitalist economies: Germany, Japan, the USA (India’s Attractiveness Survey, 2015, p. 16-17). India was placed to the group of the most resistant emerging countries to possible debt crises (The Economist, 2015). 30 percent of investors estimate India as the most attractive financial market, and 60 percent placed it among the top investment destinations (India’s attractiveness Survey, 2016, p. 41). The IMF expects 7,3% pace, so that India can become a new growth locomotive in future. Low oil prices contribute a lot, as India imports 80% of its energy consumption. The most valuable trade partner is China (11%), than come the USA (9%), and the UAE (7,7%) (India’s department of commerce, 2016).
Brazil specializes in manufacturing exports, industrial commodities and import of natural resources-based goods. The largest investment industries in 2014 are the motor industry, commerce, telecommunications and oil and gas. Brazil is going to become one of the top host economies by 2017 (World Investment Report, 2015, p. 60, 26). The country maintains trade with the EU (19,6%), China (17,1%), the USA (13,8%) and Argentina (6,3%) (International Trade with Brazil. 2015, p. 8).
Russian investment has very manufacturing specialization with the oil and gas predominating. Having a strong industrial approach, Russia keeps close relations with China. However, a great number of military and defense projects with Brazil as well as aerospace and technological projects with India make Russia the key actor in the BRICS. The largest Russian trading partner in 2014 remains the EU, that covers a half of trade (48,2%), then comes China – 11,3%, Turkey and Belarus comprise both 4%. (International trade with Russia, 2015, p. 8).
The investment activity of BRICS is the main indicator of the impact on the capitalist world. The American report in 2013 shows only 1,5% of BRICS’ FDI. (FDI in the U.S. Report, 2016 p. 6). Japan, one of the largest economies reported 0,58% BRICS’ stocks in 2014 (Japanese trade and Investment statistics, 2016). One of the most significant BRICS partners - the European Union reported 14 % of total stocks in 2012, the third of them was settled in China and the other third - in Brazil. Russia and China remain the main donors and recipients in the EU investment (FDI between the EU and BRIC, 2014). China announced more than 300 projects in Europe and reaching 8 % in Europe’s FDI (European attractiveness survey, 2015, p. 22). Russia’s investment in the EU is focused mostly on low-tax zones (Cyprus, Netherlands, Luxemburg), so that, the money does not contribute to the infrastructure and economic development. While forecasts seem to be prosperous, the real impact of BRICS on the capitalist economy is not so remarkable as countries maintain trade and investment with their main counterparts – the U.S and the EU. The developing countries have very small share of BRICS relations, and this cooperation exists mostly in regional aspect. The internal BRICS cooperation remains still nothing but annual meetings.
The oil-era is coming to an end causing a need for a new non-capitalist socio-economic model to meet challenges of a multipolar world. The three dominant crises - the financial collapse, the oil price slump and the food crisis have resulted in a shift in global capitalism and caused the need to find an alternative model based on the principles of ecological sustainability, social justice and democratic participation. (Singh P., 2008, p. 36). The most crucial implication of BRICS economies is a dangerous impact on the environment. Pritam Singh summaries the ideas of Brenda Longfellow, that “the global climate crisis is a result of the ruthless exploitation of natural resources by big corporate entities in an unequal world” (Singh P., 2010 p. 29).
In 2011 the BRICS were included in the top 15 countries in the ranking of the total CO2 emissions from fossil-fuel burning, cement production, and gas flaring, with the China emitting 28%, Russia and India both emitting 6% (US Department of Energy, 2011). The highly rising manufacturing inevitably creates extra demand for energy sources (particularly, raw materials, oil, electricity). The direct impact of the growth of the energy consumption can be proved by comparing the indicators provided by the Global Energy Statistics Yearbook 2015. In 2000 China's annual energy consumption was 1161 Mtoe, and it nearly tripled during the last 15 years to 3034 Mtoe in 2014. India is the third country in the world, consuming 872 Mtoe in 2014, that is twice as more compared to 453 Mtoe in 2000 (Total Energy Consumption, 2014).
The ecological footprint per capita in China has tripled since the year of 1980. Meanwhile, China, India and the South Africa are considered as bio-capacity debtors, the Ecological Footprint in these countries exceeds the available bio-capacity of the population (Ecological Wealth of Nations, 2014). Taking into account the 40% world’s population of the BRICS their common environmental impact per head is threatening the ecology of the entire planet.
The rapid economic development led to significant improvements in human development, however, improved standard of living was followed by increasing consumption. The rising prosperity has led to an increase in the global food shortage, that as significantly the result of decline in food output as a result of the decline in land area used for food cultivation (Singh P. 2011, p. 88). The industrialization in China has decreased available farming land from 127.6 to 121.7 million hectares, according to figures from the Ministry of Land and Resources (Lantier A., 2008). The FAO estimates the food consumption to grow twice as fast in developing world compared to rich countries. Particularly, China's and India's huge proportion of the population causes as dramatic implications in terms of the increase in the food and energy consumption and the waste (Singh P, 2010 p. 31).
The current ongoing global crisis is examined within the interlinked three global “dimensions” – finance, food and fuel. The global capitalist system caused these crises feeding on each other and putting the whole system in turmoil (Singh. P. 2015, p. 2).
As a result, the BRICS’ influence made the countries responsible for the environment care. In 2014 China became the major contributor to the renewable energy by investing $83.3 billion. Brazil, India and the South Africa were in the top 10 of investing countries of the advance in renewable energy, investing $7.6 billion, $7.4 billion $5.5 billion relatively (Global trends in renewable energy, 2015, p. 15).
In addition, due to the emergence of the BRICS a huge amount of waste has been traded, while there is still much to improve. Russia and India ranked 89 of 157 countries in terms of Waste Intensive consumption, China is 53rd and it performs better because the great number of employees contribute a lot to the waste consumption. In 2010 China imported more than seven million tonnes of plastics waste and around 28 million tonnes of waste paper and over 5.8 million tonnes of steel scrap (Globalization and Waste Management, 2012, p.8). The South Africa ranked 82 and Brasilia has the worst indicator of waste intensive consumption– 108 (Waste Atlas).
In the fifth joint meeting the countries have established the BRICS New Development Bank that was supposed to be a powerful institute for financing infrastructure and sustainable development projects in the agricultural sphere. The United Nations consider that agricultural investment is five times more effective in poverty and hunger, reducing than other sectors (The World Food Program, 2016). Besides, the group is aimed at creating the Basic Agricultural Information Exchange System of BRICS in order to intensify cooperation in the areas of agricultural science, technology, innovation and capacity building.
In conclusion, it is important to highlight that the BRICS’ implications are very contradictory. In terms of economic growth, the group acts as a new economic power, rich in resources, human capital and manufacturing base. The BRICS perform well as infrastructure investors and at the same time act as recipients of the capital. The rapidly growing activity of BRICS promotes them to the top positions in terms of investment attractiveness and international trade. However, the pace of development has caused inevitable environmental implications both to the BRICS and to the whole global economy, starting from their contributions to the climate change, the CO2 emissions and continuing with the common industrialization and urbanization that damage native ecosystems through pollution, land destruction and massive biodiversity loss. Economical and environmental implications and the BRICS’s power and ability to influence processes rise significantly its role at the high table of international diplomacy. At present BRICS are even more responsible for dealing with the environmental challenges, renewable energy recourses and global food crisis than any other player from the industrialized world. Although the BRICS are not the sole contributors to the environment implications, the global actions against the climate change, hunger and pollution cannot be successful without their involvement. The countries possess the necessary potential to ensure the technology transfer, financial resources, skilled and intellectual labor forces to meet challenges of the environmental threats and to expand mutual advantageous synergy. A combination of a strong inner policy of low-consumption along with infrastructure investment to the agriculture, green projects and new energy sources would be efficient for the world and, at the same time, attractive to the BRICS, particularly, as thus they have a chance to promote their participation and accomplish the mission of the ecological sustainability.
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