A TERM PAPER ON:BRICS AS A MAJOR DRIVER OF GLOBAL ECONOMIC GROWTH IN 21ST CENTURYSubmitted To:Prof. De MeuterFaculty of International EconomicsMaster of Business AdministrationApplied Science University of Würzburg – schweinfurtSubmitted By:Nirav kananiWürzburgDate:31/01/2018INDEXPAGE NO.1. OVERVIEW 31.1 INTRODUCTIO 31.2 BRICS AFTER FINACIAL CRISIS 2008 – 2009 32. GROWTH OF BRICS 32.1 GDP OF BRICS AND THE WORLD 32.2 RISE OF CHINA AND INDIA 53. IMPORT AND EXPORT OF GOODS AND SERVICES 63.1 EXPORTS OF GOODS AND SERVICES 63.2 IMPORTS OF GOODS AND SERVICES 74. GROWTH IN FINACIAL SECTOR 74.1 IMMERGING FINACIAL MARKETS OF BRICS 74.2 FDI POLICY 85. ADVANCEMENT IN TECHNOLOGY 96. HUMAN RESOURCES 107. OTHER FACTORS AFFECTING THE GROWTH OF BRICS 107.1 POLITICAL INSTABILITY 107.2 CORRUPTION 117.3 ISSUES BETWEEN CHINA AND INDIA 117.4 INFLATION RATE 118. INITIATIVES TAKEN BY BRICS 119. CONCLUSION 1210. BIBLIOGRAPHY 121. OVERVIEW1.1 INTRODUCTIONBRICS is an association of five major emerging national economies: Brazil, Russia, India, China and South Africa founded in June, 2006. Originally the first four were grouped as “BRIC” (or “the BRICs”), before the induction of South Africa in 2010. (www.wikipedia.com, n.d.)As of 2016, the five BRICS countries represent over 3.11 billion people, or about 41.8% of the world population and it covers 27% of total land. (BRICS by the numbers: BRICS population in 2016, 2017). The five nations have a combined nominal GDP of US$16.6 trillion, equivalent to approximately 22% of the gross world product, combined GDP (PPP) of around US$37 trillion (www.wikipedia.com, n.d.).1.2 BRICS AFTER FINANCIAL CRISIS 2008-2009Financial crisis has affected growth of BRICS to some extent, but after the economic slowdown BRICS has been rising consistently and it has created new demand. Especially in China and India, significant growth has been seen and both have sustained the growth, which has opened a door of new opportunities. Higher growth in these economies could offset the impact of increasing populations and slower growth in today’s developed countries.In the era of globalization, which was started after the economic slowdown, BRICS can be divided into two groups – (1) those that took advantage of globalization to integrate themselves into global supply chains (primarily India and China) and (2) those that took advantage of globalization to sell their huge natural resources ( primarily south Africa, Brazil and Russia ). (Bremmer, 2017) 2. GROWTH OF BRICS2.1 GDP OF BRICS AND THE WORLD Two major economy in the world china and India, which are vital pillars of BRICS growing with average GDP growth rate of 6.8% and 7% respectively. Now, China has become the second largest economy in the world by GDP after the US. It is estimated that, if China will sustain the growth than it will overtake US within the next few years. India is also growing at faster rate, recently in 2016-17 two major reformations (i.e Demonetization, GST) in financial sector happened in India. These reforms has affected India’s economic momentum. However, these reforms will help India for the long-term growth and as per the World Bank forecast; India will grow with average growth rate of 7.8% in next 5 to 6 years.As on 2017, world GDP was 75.84 $ trillion with GDP growth rate of 2.3%. (downloads, GDP (Excel), n.d.). As per the data from the world bank growth rate of south Africa, Russia, and Brazil will remain near to the estimated growth rate of world GDP. Therefore, with current driving force from China and India, World is likely to grow from the current level in next few years. 2.2 RISE OF CHINA AND INIDAChina is continuously rising in manufacturing sector. In 1990, China produced nearly 3% of the world’s manufacturing output in terms of value; by 2015, it produced roughly 25%. (Bremmer, 2017)In contrast, India has chosen different path; Instead of focusing on manufacturing, it focused on service sector. As on 2012, It is the seventh-largest services sector by nominal GDP, and third largest when purchasing power is taken into account. (www.wikipedia.com, n.d.)3. IMPORT AND EXPORT OF GOODS AND SERVICESToday, in globalized world, internation trade between countries has become main key for the development of county as well as development of world. All economies are reducing their trade barriers because of globalization. BRICS nations have vast amount of natural resources, large portion of land and huge number of human hours which is available at very cheap rate. These factors have attracted most countries to trade with BRICS. That is the reason behind significant increase of import and export of goods and services in BRICS.3.1 EXPORTES OF GOODS AND SERVICES3.1.1: TABLE 1COUNTRY 2000 2010 10Y GROWT CAGRBrazil 65 234 262% 14%Russia 115 446 289% 15%India 60 349 483% 19%China 280 1753 527% 20%South Africa 37 100 169% 10%BRICS 556 2881 418% 18%World 7986 17658 121% 8%Source: (www.worldbank.org, n.d.)Developing BRICS economies have seen golden period during 2000 – 2010. It is seen from the data that BRICS has enjoyed a tremendous growth in export sector. BRICS had rose with 18% CAGR which is more than double of the world’s total growth in export sector.As on 2016, BRICS nations have exported total $3.1 Trillion of goods and services to other countries. Within the BRICS China is the leading exporter as well as it is also largest exporter in the world with exporting of $2.26 Trillion of goods and services in 2017. On other hand India, Russia, Brazil, South Africa have exported $275.8 Billion (year 2017), $285.5 Billion (year 2017), $185.2 Billion (year 2016), and $91.04 Billion (year 2014) of goods and services respectively. Export from the India, Russia, Brazil and South Africa is actually declining but there decrease in exports by four countries is balanced by growing exports of China. (www.wikipedia.com, n.d.)3.2 IMPORTS OF GOODS AND SERVICES3.2.1: TABLE 2COUNTRY 2000 2010 10Y GROWT CAGRBrazil 72 244 237% 13%Russia 61 323 429% 18%India 73 440 502% 20%China 251 1521 507% 20%South Africa 33 100 203% 12%BRICS 490 2629 436% 18%World 8025 17714 121% 8%Source: (www.worldbank.org, n.d.)Imports of goods and services also rose in similar manner as export growth during 2000 – 2010. This Increase of international trade from BRICS economies gave the great momentum to the world GDP growth in 21st century. 4. GROWTH IN FINANCIAL SECTOR Financial sector has always been crucial for the developing countries because most of the developing countries ware concern about situation of their financial sector and most of the developing countries were financially poor at beginning of 21st century. However, globalization in 21st century gives opportunity to many developing countries to develop financially. 4.1 IMMERGING FINANCIAL MARKETS OF BRICS4.1.1: TABLE 3:STOCK MARKET CAPITALIZATION (USD bn)COUNTRY 2000 2012 %GROWTH CAGRBrazil 226 1227 443% 15%Russia 39 825 2015% 29%India 148 1263 753% 20%China 580 3697 537% 17%South Africa 205 908 343% 13%World 32187 54672 70% 5%Source: (www.worldbank.org, n.d.) 4.1.2: TABLE 4: MARKET CAPITALIZATION OF STOCK EXCHANGESTOCK EXCHANGE COUNTRY MARKET CAP. (USD bn) IN 2012 MARKET CAP. (USD bn) IN 2017New York Stock Exchange United states 14,507 21,377NASDAQ United state 5376 9,585Japan Exchange Group Japan * 5,974Shanghai Stock Exchange China 2547 5,043Euronext European union * 4,388London Stock Exchange United Kingdom * 4,297National Stock Exchange India 1234 2,360JSE Limited South Africa 908 1,129BM&F Bovespa Brazil 1227 935Source: (List of stock exchanges, n.d.) (www.worldbank.org, n.d.) / *data not foundFigures in table above shows healthy growth of BRICS in financial sector during 2000 – 2017. As per the data above it is clearly seen that financial markets in BRICS are growing better than the financial markets of developed economies, especially China and India has showed significant growth during last five years. Strengthening of financial sector is most important for the BRICS because it is vital for the further growth of BRICS in future. For BRICS in future financial sector will be the fuel to run the economy.4.2 FDI POLICYBrazil is the country that attracts the second largest foreign investments in the world. They had divided all companies into two types: a) Brazilian company of national capital b) Brazilian company of foreign capital. This gave the government a legal basis to discriminate between companies in which foreign investment was involved. Sectors such as oil and gas, petrochemicals, telecommunications and postal services were exclusively reserved for companies of national capital. However, after recommendations by the Foreign Investment Advisory Service (FIAS), the above-mentioned protectionist policies were abolished and a separate investment promotion agency named “Investe Brasil” was set up to promote FDI. 1Foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India 2. As per the India’s FDI policy, there are two entry routes for investment: a) Automatic Route: Under this route, the non-resident investor does not need to take prior approval from the RBI or the Government of India for investing in certain sectors. b) Government Route: under this route, prior approval from the Government of India via the Foreign Investment Promotion Board is required 1. Recently the government has taken many initiatives such as relaxing FDI norms across sectors such as defense, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others, which led India to become the fastest growing investment region for foreign investors in 2016. 2 China has progressively reformed its FDI policies since the early 90’s. Certain parts of China are governed by a separate set of preferential rules and policies. Policies such as “Develop China’s west at full blast” and “Strategy of reviving Rusty Industrial Bases” have helped transform the western and northeast regions of China. China has also developed a “Guiding Directory” which divides FDI involved projects into 4 categories. a) Encouraged projects (262 types) b) Allowed projects c) Restricted projects (75 types) d) Prohibited projects (34 types) (Yunyun Duan, 2010). Moreover, China’s foreign investment also tends to be more “export-oriented” than “domestic market seeking”. Considering the low labor costs and China’s amazing capacity to be a production base, most foreign firms find China to be an ideal place to manufacture and subsequently export to other countries. 1 5. ADVANCEMENT IN TECHNOLOGY Technological advancement and innovation is one of the key success factor for the developed economies. BRICS is the new developing market in 21st century and it has certain advantages like cheaper labor work, cheaper raw materials, vast amount of resources, which has attracted many firms from developed countries to do business in BRICS; in addition to lower trade barriers and liberal FDI policy made market more potential. These firms of developed countries brought advance technology in BRICS, which has been proven very beneficial for BRICS nations. Now, BRICS has started learning from the foreign firms and they have started developing technology on their own to compete with developed countries. Such as china has developed technology from low-cost space travel and high-speed rail networks to e-cars and 3D printing. China has made rapid advances in areas such as education, manufacturing, high-tech, infrastructure, academic publishing, patents, and commercial applications. (www.wikipedia.com, n.d.)In contrast, India is continuously improving their Missile Launch Technology and Aerospace Technology. India has significantly improved their Information and Technology sector that today, India is one of the leading global IT player in the world. These advancement in IT sector benefited India to grow rapidly in service sector. While South Africa has also large information technology market. It is leading player in the mobile software field, security software as well as electronic banking services. (www.wikipedia.com, n.d.) 6. HUMAN RESOURCES As of 2016, the five BRICS countries represent over 3.11 billion people, or about 41.8% of the world population (BRICS by the numbers: BRICS population in 2016, 2017) and it is increasing that means more human hours will be available. Human resource is developing in BRICS. Now, more skilled and professional employees are available at very cheap rate as compared to developed countries. On the other hand increase in population and automation has cut many jobs that leads to unemployment in the country and these unemployment has become major issue for the all BRICS nations. 7. OTHER FACTORS AFFECTING GROWTH OF BRICS7.1 POLITICAL INSTABILITY Political instability always been an issue for BRICS especially in India, China and Russia, political instability is high. Political instability is speed breaker in institutional development of country and weak institution affect the growth of economy. Political instability is also a risk for foreign firms. Foreign firms do not like to invest in the politically unstable regions.7.2 CORRUPTION Corruption is an another major speed breaker in the growth of nation. As per the corruption index 2016, Brazil, China and India three major countries are at rank 79. While South Africa in at 64 on corruption index 2016. Russia is most corrupt country among BRICS, has ranked 131. 7.3 ISSUES BETWEEN CHINA AND INDIASince, China and India both are rival counties and there is always compaction between China and India on the basis of economic growth. This competition had created many national issues several times and these issues has affected both the economies in negative way.7.4 INFLATION RATEInflation rate is another hurdle that affect the welfare of society and thereby effects the economy. Since last few years, BRICS nations have been facing high inflation rate except China. Inflation rate in Brazil, Russia, India, China and South Africa were 8.74%, 7.05%, 4.5%, 1.8%, 6.34% respectively in 2016. It is estimated that for Brazil and Russia it is likely to decline to 4%. While in India, China and South Africa it forecasted to remain same. (www.statista.com, n.d.)8. INITIATIVES TAKEN BY BRICSBRICS has made two financial components for the development of BRICS 1) the New Development Bank (NDB) 2) the Contingent Reserve Arrangement (CRA). Both component became active in 2015. The primary focus of the New Development Bank (NBD), formerly referred to as the BRICS Development Bank is to lend money for infrastructure projects with authorized lending of up to $34 billion annually.The BRICS Contingent Reserve Arrangement (CRA) is a framework for providing protection against global liquidity pressures. This includes currency issues where members’ national currencies are being adversely affected by global financial pressures. It is found that emerging economies that experienced rapid economic liberalization went through increased economic volatility, bringing uncertain macroeconomic environment. (www.wikipedia.com, n.d.)9. CONCLUSION First decade of 21st century was the golden time for the BRICS. BRICS nations have showed notable growth at the beginning of the 21st century by proper utilization of their resources, human resources, geographic areas and available technology and wind of globalization helped them to grow rapidly. Especially Brazil grew faster than expected during first decade of century. However, financial crisis 2008 – 2009 or economic slowdown affected BRICS nations, China and India started growing further again more rapidly after economic slowdown. While Brazil, Russia and South Africa started affecting negatively and it is now consolidating at average growth rate of 2%. As developed economies are shrinking and affecting negatively to global economy, someone has to contribute more to maintain global economy and it is clear from the data that BRICS have consistently contributed toward maintaining global and it is likely to contribute more towards growth of global economy in next few years. However, to do so they have to fight with hurdles such as corruption, national issues, inflation rates, and poverty. 10. BIBLIOGRAPHY(n.d.). Retrieved from www.wikipedia.com: www.wikipedia.com(n.d.). Retrieved from www.worldbank.org.(n.d.). Retrieved from www.statista.com.Bremmer, I. (2017, 08). The Mixed Fortunes of the BRICS Countries, in 5 Facts. Retrieved from http://time.com/4923837/brics-summit-xiamen-mixed-fortunes/BRICS by the numbers: BRICS population in 2016. (2017, 08). Retrieved from http://www.globaltimes.cn/content/1062339.shtmldownloads, GDP (Excel). (n.d.). Retrieved from www.worldbank.org: https://data.worldbank.org/data-catalog/GDP-ranking-tableforeign direct investment. (n.d.). Retrieved from www.ibef.org: https://www.ibef.org/economy/foreign-direct-investment.aspxList of stock exchanges. (n.d.). Retrieved from www.wikipedia.com: https://en.wikipedia.org/wiki/List_of_stock_exchangesNandi, S. (2012). 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