Can't connect right now! retry

add The News to homescreen

tap to bring up your browser menu and select 'Add to homescreen' to pin the The News web app

Got it!

add The News to homescreen

tap to bring up your browser menu and select 'Add to homescreen' to pin the The News web app

Got it!

January 25, 2016

Slippery Brics


January 25, 2016

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 civil-society flag bearers create their own Ramadi, Utoya, Aleppo, Naxal and Oregon 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.

The writer is a Lahore-based defence analyst.

Email: [email protected]

Topstory minus plus

Opinion minus plus

Newspost minus plus

Editorial minus plus

National minus plus

World minus plus

Sports minus plus

Business minus plus

Karachi minus plus

Lahore minus plus

Islamabad minus plus

Peshawar minus plus