What is Brazil, Russia, India, China and South Africa (BRICS)?
Brazil, Russia, India, China and South Africa (BRICS) is an acronym for the combined economies of Brazil, Russia, India, China and South Africa. Economists at Goldman Sachs originally coined the term BRIC (without South Africa) in 2003. Analysts speculated that, by 2050, these four economies would be the most dominant. South Africa was added to the list on April 13, 2011 creating "BRICS".
Understanding Brazil, Russia, India, China and South Africa (BRICS)
As of 2011, five countries were among the fastest growing emerging markets. It's important to note that the Goldman Sachs thesis isn't that these countries are a political alliance (like the European Union) or a formal trading association. Instead, they have the potential to form a powerful economic bloc. Leaders from BRICS countries regularly attend summits together and often act in concert with each others’ interests.
Due to lower labor and production costs, many companies also cite BRICS as a source of foreign expansion opportunity.
- Was originally called BRIC and referred to the idea that China and India will, by 2050, become the world's dominant suppliers of manufactured goods and services. Brazil and Russia would be similarly dominant as suppliers of raw materials.
- BRIC expanded to include South Africa as the fifth nation in 2010.
- BRICS offered a source of foreign expansion opportunity for firms and an investment avenue for institutional investors looking for high returns.
- Now BRICS is used more generically as a marketing term.
Early Development of BRIC Thesis at Goldman Sachs
In 2001, the chairman of Goldman Sachs Asset Management Jim O’Neill noted that while global GDP was set to rise 1.7% in 2002, BRIC nations were forecasted to grow more quickly than the G7, the seven most advanced global economies. At the time, the G7 included Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. In O’Neill’s paper "Building Better Economic BRICs" he outlined four scenarios to measure and model out GDP. These were adjusted for purchasing power parity (PPP). In O’Neill’s scenarios, nominal GDP assumption for BRICs rises from the 2001 measurement of 8% in USD, to 14.2% -- or, when converted at PPP rates, 23.3% to 27.0%.
In 2003 Dominic Wilson and Roopa Purushothaman followed up with their report "Dreaming with BRICs: The Path to 2050.” This was again published by Goldman Sachs. Wilson and Purushothaman claimed that, by 2050, the BRIC cluster could grow to a size larger than the G7 (in USD), and the world’s largest economies would therefore look drastically different in four decades. I.e. the largest global economic powers no longer would be the richest, according to income per capita.
In 2007 another report, "BRICs and Beyond" was published that centered on BRIC growth potential, along with the environmental impact of these growing economies and the sustainability of their rise. The report considered a Next 11, or N-11 (a term for eleven emerging economies), in relationship to the BRIC nations, as well as the overall ascendancy of new global markets.
Closure of BRICS Fund
After several years of impressive growth figures, the BRICS economies slowed down after 2010 as the aftershocks of the 2008 financial crisis reined in spending in Western economies. The BRICS acronym no longer looked like an attractive investment venue and funds aimed at these economies either shut down or merged with other investment vehicles.
Goldman Sachs merged its BRICS investment fund, which was focused on generating returns from these economies, with the broader Emerging Markets Equity Fund. The fund had lost 88% of its assets from a 2010 peak. In an SEC filing, Goldman Sachs stated that it did not expect "significant asset growth in the foreseeable future" in the BRICS fund. Per a Bloomberg report, the fund had lost 21% in five years.
BRIC is now used as a more generic marketing term. For example, Columbia University established the BRICLab, where students examine foreign, domestic, and financial policies of BRIC members.