Brics growth slowing

2014-04-03 00:00

COFACE, the international credit insurer, says after 10 years of frenetic growth, the economies of the Brics (Brazil, Russia, India, China, South Africa) are slowing down sharply.

These countries were also at the forefront of emerging market investment in recent years. But, said Finance Minister Pravin Gordhan, international investment focus is now shifting to the so-called “frontier markets”, which are countries that are usually less developed than emerging or developed markets.

Coface predicts Brics’ economic growth in 2014 to be, on average, 3,2 points lower than the average growth over the past decade. At the same time, other emerging countries are accelerating their development. Among them, Coface said in a statement, a top 10 emerges with good production prospects and sufficient financing to support expansion. In addition to accelerating high growth, financing is needed to boost investment

To identify promising countries that the Brics are now giving way to, Coface identified several criteria, including two that are essential:

• countries that have high growth that is accelerating, and whose economy is diversified and resilient to growth slowdowns; and

• countries that have sufficient funding capacity to finance growth (a minimum level of savings needed to avoid excessive recourse to foreign savings), without the risk of creating a credit bubble or which do not yet have equity markets of a comparable size of those in OECD countries.

This leads Coface to distinguish two groups in the new emerging countries:

• Colombia, Indonesia, Peru, the Philippines and Sri Lanka have a sound business climate (A4 or B), similar to that of the Brics countries today; and

•Kenya, Tanzania, Zambia, Bangladesh and Ethiopia have very difficult (C) or extremely difficult (D) business environments that could hamper their growth prospects.

“Naturally, it will be more difficult for the second group of countries, which could take longer to fully realise their growth potential,” said Julien Marcilly, head of country risk at Coface.

“However, their business environment problems are relative. In 2001, the quality of governance in Brazil, China, India and Russia was comparable to that of Kenya, Tanzania, Zambia, Bangladesh and Ethiopia today,” said Marcilly.

Growth of the new emerging countries will take a different path than for Brics, he said. Some weaknesses when compared with the Brics persist.

Firstly, the 10 identified new emerging countries currently only represent 11% of the world’s population, while Brics accounted for 43% of the population in 2001. Their GDP level is only 70% of that of Brics in 2001. Finally, Brics recorded on average a current account surplus, while the emerging countries run a deficit of around six percent of GDP.

“With growth in developed countries being structurally weaker today, the new emerging countries may benefit less from trade towards these countries than did Brics in the 2000s. Their growth rates will depend more on their domestic markets and on exports to other emerging markets,” said Marcilly.

The new emerging countries also have advantages over Brics of 2001.

Their inflation rates are around 2,8 points lower than what Brics countries experienced, and their level of public debt is around 40% of GDP compared with 54% for Brics at the time.

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