What is the BRICS and Who are the BRICS Countries?
The nations of Brazil, Russia, India, China, and South Africa are together referred to as BRICS. Jim O’Neill, an economist with Goldman Sachs, came up with the name “BRIC” in 2001. At the time, South Africa was not included in the acronym.
O’Neill predicted that by the year 2050, the four economies that make up the BRIC will come to dominate the world economy. In the year 2010, South Africa was included on the list.
During the aughts, this notion evolved into the accepted knowledge of the market. However, there were many who were always skeptical, including those who argued that the phrase was just marketing hype created by Goldman. In point of fact, very few people talk about the BRICS countries these days, at least not in terms of their dominance over the rest of the world. In 2015, Goldman Sachs merged its BRICS-focused investment fund with a more general emerging markets fund, and thereafter the fund was terminated.
KEY NOTE ABOUT BRICS:
- In 2001, Goldman Sachs came up with the abbreviation BRIC, which stood for Brazil, Russia, India, and China. This was the beginning of BRICS. 2010 saw the inclusion of South Africa.
- The concept that drove the creation of the coinage was the prediction that, by the year 2050, the economies of the nations will come to collectively dominate the expansion of the global economy.
- The BRICS countries presented an opportunity for businesses to expand their operations into new markets and promised lucrative returns to institutional investors.
- When Goldman Sachs decided to liquidate its BRICS-focused investment fund in 2015, it was quite clear that the party was over for the most part.
Understanding BRICS
As a result of low labor costs, favorable demographics, and abundant natural resources during a time of global commodities boom, Brazil, Russia, India, China, and South Africa ranked among the world’s fastest-growing emerging market economies for several years. This was made possible thanks to a global commodities boom.
It is essential to note that the Goldman Sachs thesis did not predict that these nations would create a political alliance (like the EU) or even a formal commercial union. This is a critical point to keep in mind.
Instead, Goldman argued that they have the potential to become a dominant economic bloc, despite the fact that it acknowledged that its forecasts were optimistic and based on important policy assumptions. Goldman’s estimates are contingent on significant policy assumptions.
However, the inference was that economic dominance would lead to political power, and in fact, leaders from BRICS countries frequently attended summits together and frequently acted in a manner that was in harmony with each other’s interests.
Early Development of the BRIC Thesis at Goldman Sachs
In 2001, Goldman’s O’Neill made the observation that despite the fact that the global GDP was expected to increase by 1.7% in 2002, the BRIC nations were forecasted to grow more quickly than the Group of Seven, which is comprised of the seven most advanced economies in the world: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
O’Neill presented his perspective on the BRIC nations’ potential in the article titled “Building Better Economic BRICs,” which can be seen here.
Dominic Wilson and Roopa Purushothaman, both of whom worked for Goldman Sachs and were O’Neill’s colleagues, followed up in 2003 with their paper titled “Dreaming with BRICs: The Path to 2050.” According to Wilson and Purushothaman, the BRIC group could develop to a size larger than the G6 by the year 2050.
As a result, the top six economies in the world will likely look very different in forty years. That is to say, the nations with the largest economies on the world stage would no longer be the ones with the highest incomes per person.
Another research by Goldman Sachs titled “BRICs and Beyond” was released in 2007 and focused on the economic potential of the BRIC countries, as well as the environmental impact of these rapidly developing economies and the long-term viability of their rise.
The ascendancy of new global markets was also discussed in the report, in addition to the BRIC countries and the Next 11, which is a name for 11 emerging economies in connection to those countries.
Closure of Goldman’s BRICS Fund
After the global financial crisis and the drop in oil prices that began in 2014, growth in the economies of the BRICS countries slowed down significantly. By the year 2015, the term BRICS was no longer seen as an appealing investment venue, and funds that had been established with the intention of investing in these economies either ceased operations or merged with other investment vehicles.
The BRICS Investment Fund managed by Goldman Sachs was combined with the Emerging Markets Equity Fund, which is a more general investment vehicle. The BRICS Investment Fund’s primary objective was to generate profits from the economies of the BRICS nations. After reaching a high point in 2010, the fund’s assets dropped by 88 percent.
Goldman Sachs indicated in a statement with the SEC that it did not anticipate “substantial asset growth in the near future” for the BRICS fund and that it did not believe this to be the case.
According to a report from Bloomberg, the fund had seen a loss of 21% during the previous five years.
The term BRIC is now often used in a more general sense. For instance, Columbia University created the BRICLab so that students could investigate the domestic, foreign, and financial policies of BRIC members.
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