Questions are being raised over the long term prospects of BRIC countries due to the prevalence of slow growth in some of the major sectors over the last two years. Although China and India are comfortably placed and going forward making them the leading drivers of growth among the group but the recent financial crisis in the global market has definitely affected these two countries as well. This means that the growth differential between the G-3 and the BRICs has remarkably narrowed down. A business analysis has to be made to determine whether the BRIC nations are failing down or not and what is the current viewpoint regarding the same.
A Look Back by the Business Analysis Experts Regarding the Statistics
An extraordinary economic growth was witnessed in the BRIC countries before the financial crisis. This helped in reinforcing the common viewpoint among the investors that this group is an essentially uniform whole but there were some persistent growth differentials even during the period of economic boom with China showing a threefold growth rate, Brazil having a growth rate ranging between 2.5 to 3.7% while as Russia and India performed moderately.
Business Analysis of Economic Boom in BRIC countries – a Myth or a Reality
When it comes to economic theory, GDP growth is decomposed into three factors- the growth of capital stock, labour force and total productivity. Looking back at the statistics of the past year China was the clear leader among the group in terms of productivity and investment. Meanwhile the growth in Brazil is mostly powered by capital accumulation and increased employment but surprisingly there was a negative productivity growth. Moreover, this upsurge in capital accumulation was the result of foreign capital inflows. When it comes to Russian investment, it also shows signs of weakness due to much emphasis on exports. This shows that the performance of these BRIC countries has oscillated between stability and insecurity.
Business Analysis Focuses on the Reversal of the Roles Due to Domestic and External Constraints
The rapid weakening of the demand growth coupled with de-leveraging process in the developed economies of the world after the recent financial crisis has resulted in weakening of the external growth driver in the BRIC countries. The impact of this change has been most prominent in China because exports had been a vital driver of economy. Moreover, the cutback on trade finance by the Western banks and slowed commodity demands have also contributed to this negative dynamic. BRIC governments provided a kind of hangover from policy incentive to counter the financial crisis but it resulted in weakening the economies of the respective countries.
The Current Financial Strength is an Advantage when it comes to Business Analysis of BRICS
The recent global economic meltdown is a warning sign for the policy makers in BRIC countries against adopting an aggressive stimulus policy but there are some financial strength indicators that point towards a positive trend. In spite of the current reduction in the balance sheets of BRIC countries, the private debt metrics and government debt are in a comparatively better position when compared to the industrialized countries of the world. Moreover, all the countries are showing a healthy external asset position in addition to a robust foreign currency reserve. This means that BRIC countries aren’t under extreme pressure of constraining their growth and they can even afford to ease their policies to some extent. This is likely to result in a moderate recovery cycle in 2013.
The Future Strategy in Terms of Business Analysis of BRIC Markets
In terms of the future prospectus of BRIC nations, it is expected that India and China can look forward to emerge as growth leaders among this group. The key factors that would drive success in future would be encouragement of private saving and steering this saving into private investment instead of the conventional route of governmental spending. The transfer of foreign technology and investment should be encouraged and the regulatory barriers that come in the way of expansion of manufacturing and service sector needs to be eased.
Although the BRIC countries have a lot of potential to offer from an investor’s point of view effective safeguards need to be put into place to prevent the group from falling.