Slip­pery Brics

The Pak Banker - - 4EDITORIAL - Waqar K Kau­ravi

THE be­gin­ning of 2016 has dis­played a rather gloomy pro­jec­tion of the global econ­omy. The ap­par­ent slow­down in the Chi­nese econ­omy is gen­er­at­ing rip­ples in stock mar­kets across the world. In­ci­den­tally, Brics (Brazil, Rus­sia, China, In­dia and South Africa), which was sup­posed to be the global en­gine of eco­nomic growth finds it­self on a slip­pery slope.

Fa­reed Zakaria's ris­ing rest ( less China) seems to be be­com­ing the drown­ing rest. So why have peo­ple like Jim O'Neill of Gold­man Sachs, Thomas Fried­man and Fa­reed Zakaria gone wrong in their crys­tal ball gaz­ing about the global econ­omy? Western think tanks are again be­com­ing as­sertive in prop­a­gat­ing the idea that the An­glo-Amer­i­can model of eco­nomic growth is re­gain­ing cur­rency. An in­di­vid­ual dis­sec­tion of mem­bers of the Brics con­glom­er­ate may be use­ful to find out the po­si­tion on the ground.

De­spite a cen­tral po­si­tion in South Amer­ica, ro­bust ser­vices sec­tor and abun­dance of elec­tric­ity, Brazil has suf­fered be­cause of pro­tec­tion­ism and overde­pen­dence on com­mod­ity ex­ports. The Brazil­ian real has grad­u­ally sided down from 2.5 to more than 4 for a dol­lar and the pro­jec­tion by ma­jor mar­ket ob­servers sug­gest that it could slide down to more than 5 by the end of 2016.The econ­omy wit­nessed de­cel­er­a­tion since 2013 and shrunk by four per­cent in 2015.

Shin­ing In­dia is an­other Brics mem­ber that has seen some se­ri­ous chal­lenges to main­tain­ing a for­ward thrust in econ­omy. De­spite the phe­nom­e­nal growth in IT and en­trepreneur­ship, In­dia still has more than 400 mil­lion peo­ple un­der the poverty line, 60 mil­lion mal­nour­ished chil­dren un­der the age of five and 62 per­cent of its en­tire pop­u­la­tion with­out ba­sic toi­let fa­cil­i­ties. The class gap be­tween the rich and the poor has be­come a ma­jor chal­lenge due to cor­rup­tion, in­ef­fi­cient bu­reau­cracy, poor gov­er­nance, in­sur­gen­cies along the east­ern se­aboard and Kash­mir, and wors­en­ing pub­lic fi­nance.

Along the north­ern ex­trem­ity of the junc­tion of the In­dian Ocean and the mighty At­lantic lies South Africa. Once the suc­cess story of Africa and its lead­ing econ­omy, it has been by­passed by Nige­ria in eco­nomic in­di­ca­tors. The South African rand has been bat­tered in 2015 to the ex­tent that there is in­creas­ing pres­sure on the Zuma govern­ment to re­form or burst. The in­dige­nous pop­u­la­tion of the re­pub­lic is de­mand­ing a pro­por­tion­ate share in the pie which is mostly dom­i­nated by the white Afrikan­ers. Julius Melema's Eco­nomic Free­dom Fight­ers party has squarely chal­lenged the ANC; and South Africa may see more political tur­bu­lence till the next pres­i­den­tial elec­tions - and even af­ter.

The Rus­sian Fed­er­a­tion is the next Brics gi­ant un­der in­creas­ing politico-eco­nomic pres­sure. The glut in the oil and gas mar­ket and the Ukrainian con­flict has brought down the Rus­sian ru­ble from 33 to 77 for a dol­lar in the last two years. A shrink­ing pop­u­la­tion, poor in­fra­struc­ture main­te­nance and over-de­pen­dence on oil and gas have ad­versely af­fected the health of the econ­omy and con­tinue to pose a se­ri­ous chal­lenge to Putin.

The re­cent slow­ing down of the Chi­nese econ­omy has raised many eye­brows in the global mar­kets. China is a global hub for man­u­fac­tur­ing, and is the largest man­u­fac­tur­ing econ­omy in the world as well as the largest ex­porter of goods in the world. China is also the world's fastest grow­ing con­sumer mar­ket and the se­cond largest im­porter of goods in the world. China is a net im­porter of ser­vices prod­ucts.

The Chi­nese govern­ment's de­ci­sion to de­value the Ren­minbi last year was to ad­dress the over­heat­ing of the econ­omy. The slow­down of econ­omy in China has not ap­peared overnight. An­gela Ahrendts, Burberry's for­mer chief ex­ec­u­tive, warned in Oc­to­ber 2013 that a Chi­nese slow­down "is maybe not a tem­po­rary ac­ci­dent but a new nor­mal". How is the in­ter­con­nected global econ­omy ad­just­ing to this new nor­mal? This is a mil­lion-dol­lar ques­tion.

Coun­tries with raw ma­te­rial ex­ports to China have to ad­just to the chang­ing trend in in­ter­na­tional trade and make dras­tic changes in the new equa­tion. No doubt, stock mar­kets across the globe had to go into ma­jor corrections with an ea­gle's eye fo­cused on the health of the Ren­minbi.

As Brics slides down the slip­pery slopes, there are other fac­tors damp­en­ing the global eco­nomic out­look. The desta­bilised Middle East and North Africa (MENA) re­gion has cre­ated a snow­balling refugee crises that the western world is not able to han­dle. The glut in oil has come at a time when Iran-Saudi ten­sions are al­ready high. The class wars be­tween haves and have-nots are be­ing fu­eled by an in­for­ma­tion ex­plo­sion as the state's mo­nop­oly over in­for­ma­tion and vi­o­lence is com­pro­mised and in­di­vid­u­als, war­lords, ter­ror­ists, mili­tias and civil­so­ci­ety flag bear­ers cre­ate their own Ra­madi, Utoya, Aleppo, Naxal and Oe­gon oc­cu­pa­tion. The slip­pery Brics com­bined with the trends men­tioned ear­lier form a com­bustible ma­te­rial war­rant­ing global states­man­ship of the high­est or­der. Let's pray that 2016's econ­omy is not as gloomy as it ap­pears at the mo­ment.

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