The BRIC Road to Growth. Jim O'Neill

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Figure 1.2. Contribution to GDP (USD) 2011–20.Source: GS Global ECS Research.

      As I discussed in The Growth Map,1 long-term growth is really driven by two variables: the number of people in a country’s workforce and how productive they are. Countries with large and rising numbers in the workforce, and with rising productivity, will see their real GDP growth rates accelerate, and countries with declining populations, and weak and declining productivity, will see their growth rates weaken. Table 1.3 sets out the conflicting pressures for each of the BRIC countries.

Table 1.3. Labour force participation.

      Source: UN and GSAM.

      As things stand, none of the BRIC countries has the ‘ideal’ combination. India easily has the best demographic profile; its large, young population gives it a rapidly increasing labour force and the highest potential growth rate of all the BRIC economies. I frequently think that, for this reason alone, India has the highest potential to do better than expected in this decade and beyond. In contrast to this, India probably has the weakest productivity of the four BRIC countries. As explained elsewhere,1 I use an index produced by GS and based on a total of eighteen different variables, called a growth environment score (GES), to measure sustainable potential growth and productivity. India scores the lowest of the BRIC countries and has the most need – but also the most scope – to improve. If it did introduce the reforms needed to boost productivity, it surely has the greatest capacity to achieve unexpectedly strong growth. India could easily surprise us, despite its disappointing progress in the past two years.

      In June 2013, I visited India to meet the probable candidate for the BJP (Bharatiya Janata Party) in the 2014 elections, Mr Modi, the chief minister of the state of Gujarat. If he were to become elected, despite considerable challenges, and if he could implement his mantra of ‘maximum governance and minimum government’, India could become an extremely exciting place. Poor governance, both centrally and in many regions, has hindered the effectiveness of many policies, economic ones included. Transformation of central governance and its links to the different states would be a huge, but very difficult, step forward for India.

      Table 1.4. Trend growth in the BRIC countries (% change in real GDP).

      Source: IMF and GS Global ECS Research.*From GS Global ECS projections model.

      None of the other three countries has as favourable a demographic profile as India, and so, in order to boost real GDP growth significantly, they have to rely more on productivity-enhancing policies to exceed expectations. So it is difficult to believe that their growth will accelerate in the future. Brazil has reasonable demographics and, with much improved policies that could unleash private sector investment, it could also show stronger growth than over the last decade. I have assumed that Brazil will grow by more, and this currently looks somewhat optimistic.

      Once economies become very big, of course, there is less scope for them to grow rapidly. So, by 2050, it is assumed that all four of the BRIC countries will have slowed down. The two with the most challenging demographics are China and Russia, which both have ageing populations. Yet in the decade 2040–50, the BRIC countries combined will have surpassed the G7 in size, having overtaken the United States some twenty years earlier. Their average growth rate of 3–4% over that period, while significantly slower than today’s 6–7%, would still be the envy of Europe and the United States.

      While all four of the BRIC countries need to introduce policies to boost their productivity, there is a danger of being too pessimistic about their outlook. There is evidence that demographic trends in Russia and China will not be as bad as I have just assumed. In March 2012, I participated in the annual workshop of the Ambrosetti Forum and, in a session on the ‘emerging world’, the chief economist of Sberbank compared official Russian projections for population size in recent years and the latest estimates of the actual figures. It would seem that the population has increased slightly, and so, as yet, shows little evidence of the widely assumed decline. There continues to be growing evidence that, as Russians become wealthier and more knowledgeable, they are adopting behavioural attributes that are extending their life expectancy. This includes drinking less cheap alcohol, especially vodka. There are perhaps other factors at work as well, including some signs of increased immigration from some of the СКАЧАТЬ