BRICS: CNBC Explains

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Published: Thursday, 11 Aug 2011 | 2:58 PM ET
By: Mark Koba | Senior Editor, CNBC

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BRICS may sound like something you use to build a house, but they're the initials of
some very important countries with economies that affect the world.

Martin Barraud | OJO Images | Getty Images
So what countries make up the BRICS? How did the term come about? What impact
do the BRICS have? CNBC explains.
What are the BRICS?
BRIC are the letters that originally stood for these countries: Brazil, Russia, India and
China.
South Africa became part of the BRIC nations in 2010, turning BRIC into BRICS.
Actually, the BRICS were first formed on paper rather than as a real group. Here's
how it started.
The acronym has been attributed to Goldman Sachs chief economist Jim O'Neill
in a 2001 paper he wrote called, "Building Better Global Economic BRICs."
In his paper, O'Neill argued that since the four BRIC countries were developing
rapidly, by 2050 their combined economies could eclipse all the economies of the
richest countries in the world.
The BRICS acronym has come to be used as a symbol of the shift in global
economic power away from the developed G7 economieslike the U.S.and
toward the developing world.
The five nations if combined would be the largest entity on the global stage,
according to Goldman Sachs, which has continued to monitor the four countries
since 2001. They are considered among the biggest and fastest growing emerging
markets, or those markets still developing.
Many analysts consider the BRICS a good place for investment because of their
growing populations, infrastructure building, and expansive middle class.
Are the BRICS a true economic bloc?
The Goldman Sachs theory isn't that these countries are a political alliancelike the
European Unionbut that they have the potential to become a powerful economic
bloc.
Currently, there are no reported formal agreements among all the five countries. But
there have been agreements between some of the BRICs.
Those agreements include the Shanghai Cooperation Organization between
Russia and China, which includes India as an observer. There's also the IBSA
Trilateral Forum, in which Brazil, India, and South Africa take part in annual talks.
There are some indications that the BRICS are trying to actually organize
themselves as a group. On June 16, 2009, the leaders of the BRIC countries held
their first summit in Russia,and issued a declaration calling for the establishment
of an "equitable, democratic and multipolar world order."
Since then they have met in Brazil in 2010 and in China in 2011.
What makes the BRIC countries powerful?
The BRICS have a lot going for them. These countries encompass over 25% of the
world's land coverage and 40% of the world's population and hold a combined gross
domestic product or GDP of 18.5 trillion dollars, according to recent statistics.
Brazil's resources include massive amounts of oil, along with large supplies of
agricultural products. Russia, too, has great repositories of oil, along with coal and
natural gas. India has iron ore, bauxite, and copper ore and is one of the major
producers of iron in the world.
South Africa is the largest energy producer and consumer on the African continent.
In addition to diamonds and gold, the country also has reserves of iron ore, platinum,
manganese, chromium, copper, uranium, silver, beryllium, and titanium.
China has coal, iron ore, petroleum, natural gas, mercury, rare earth elements,
uranium, and the world's largest potential for hydropower.
China is currently the worlds largest exporter. India has 10 of the 30 fastest-
growing urban areas in the world and could see 700 million people move to cities by
2050, according to Goldman Sachswhich means greater demand for goods and
services by India's population and faster economic growth.
The BRICS theory from Goldman believes that China will become the world's
biggest supplier of manufactured goods, India will become the world's
dominant supplier of services, while Brazil and Russia will become dominant as
suppliers of raw materials.
Of the five BRIC countries, China is said to have the strongest economy, which is
actually larger than that of the four other BRIC economies combined.
Will the BRICS expand?
There has been speculation that South Korea and Mexico will become additions to
the BRICS.
They were not included in Jim O'Neill's original paper in 2001, because they looked
to be more developed nations and economies than Brazil, Russian India, and China,
according to O'Neill. Neither country has officially tried to join.
Indonesia has said it might want to be part of the BRICS at some time in the
future.
Are the BRICS a true economic force?
To many observers and investors, the BRIC countries are merely five separate
emerging markets with little in common. They are countries developing their
economieswith a high pay off, but also with high risks.
The risks include fears that all five could fail to live up to their economic potential.
There are political concerns over human right issues in China and Russia that could
keep out future investors and slow their economic growth.
Looking at India, its troubled past with Pakistan could limit government finances,
increase social unrest, and limit potential domestic economic demand.
Brazil is said to just be getting some economic growth back after years of limited or
negative growth, and slowing foreign investing.
And South Africa has a mixed economy with a very high rate of poverty and low GDP
per capita.
Nonetheless, whatever the concerns, the BRICS are drawing large amounts of
attention and money. A recent reportsaid the BRICS were leading the world in
attracting global investments, as of May 2011.