As investors, we have a tendency to become wrapped up in the short-term events that capture our attention day to day. But it is important to step back every now and then to put things into a longer term perspective. For many of us, the culmination of our investment goals is not right around the corner, but a number of years or decades away. We can be certain of very little except, perhaps, for one thing – the world will look very different years or decades from now than it does today.

To put that into a perspective we can consider how different the world is today from what it was twenty or thirty years ago – back when our parents were trying to figure out what investments would make sense for their retirement years. In my opinion, one of the most remarkable changes over this period has been the shifting locus of global economic power from a traditional axis, bound at either end by New York and London, to a more diffuse distribution of wealth all across the globe. The engines powering that growth – prominently Brazil, Russia, India and China, known popularly as the “BRIC” economies – are the focus of our post today. How this rise came about is a story of four improbable, fascinating journeys.

China

China today is the world’s second-largest national economy. With a GDP of about $5.8 trillion, it is still quite a distant second to the US, at $14.5 trillion. But China’s GDP has enjoyed annual growth of 10% or more for a number of years now, while the US has been struggling to achieve a sustainable rate of 2% recently. What is all the more remarkable about this is that 35 years ago China’s economy was not ranked anywhere. Years of navel-gazing, top-down management by the Chinese Communist Party, and the disastrous effects of the Cultural Revolution had left its economy in ruins by the mid-1970s. In 1976, the country began to change course and open up to the world. And by the early 1980s, Party leader Deng Xiao-Ping was exhorting his comrades that “to get rich was glorious”. Chinese enterprises turned to global capital markets to raise money from increasingly enthusiastic investors, and started to build what has now become the world’s preeminent manufacturing economy and the most voracious consumer of most of the world’s basic industrial commodities. With foreign exchange coffers holding over $3 trillion in (mostly US dollar-denominated) capital reserves, China is also plausibly the world’s number one creditor in an age where traditionally strong economies in Europe and the US are deeply in debt.

India

India got a later start than China onto the world stage. After freeing itself from the colonial rule of Great Britain in the mid-20^th century, India chose the path of deep involvement by the state in all facets of the national microeconomy. That led to stagnation – India was more or less ignored, while foreign investors poured their wealth into China in the late 1980s. That changed in 1991 when the then-finance minister announced the end of the “license Raj” and turned India’s gaze out to the world. India’s path to prominence went through the service sector of the economy rather than the manufacturing center – all those years under the British Raj paid one very real dividend in the form of a population of word-perfect English speakers who could staff the growing call centers of the world’s tech support desks, financial institutions, and all the rest. While call centers remain a prominent part of the economy, India’s value proposition has moved significantly upstream. Companies from GE to Cisco Systems and Microsoft have some of their largest state-of-the-art research headquarters in India, staffed by the ultra-intelligent graduates of the country’s Institutes of Technology (think MIT, but twice as hard to get into).

Brazil

Latin America was also a mess in the 1970s. Anyone who worked for a US multinational bank at that time will recall the three letters LDC – Lesser-Developed Countries, as emerging markets were referred to at that time. Brazil was the largest of the dysfunctional Latin American nation-states that consumed foreign loans for infrastructure and energy projects that never saw the light of day, and a series of regional crises pushed the region – and its bankers – to the brink in the early 1980s. During the 1990s, Brazil continued to be regarded rather more warily than its counterparts in Asia – like China, India and Indonesia. In 2003, the global elite tut-tutted as a populist member of the old Worker’s Party, Luiz Inacio Lula da Silva, won the Presidential elections. More hyperinflation and financial crises, the conventional wisdom went. But that wisdom was wrong and Brazil rose to claim its place as one of the world’s major growth engines. Brazilian companies in a variety of diversified industrial and energy sectors – including new leading-edge green energy sectors – have achieved best-in-class status among world competitors.

Russia

In 1989, security walls in Eastern Europe came crashing down and securities exchanges switched on for business. Two years later, the Soviet Union broke up and Russia embarked on a raucous, volatile journey towards being a 21^st-century market economy. In many ways Russia is the weak link in the BRIC economies – it does not boast as many clear-cut success stories as China, India or Brazil. Russia’s economy is still largely dependent on its abundant natural resources (it has a virtual monopoly on the provision of natural gas to Europe, for example), and political corruption is all-pervasive. Yet in other ways, Russia displays the hallmarks of leading-edge emerging economies: a growing consumer class with increasing discretionary income, massive infrastructure build-out, and home ownership opportunities afforded by a functional consumer credit market.

The BRIC countries are not simply “emerging markets” – they are systematically critical economies whose fortunes and that of the world at large are intertwined. We will be presenting more in-depth analyses of each of these countries separately in posts to come.

Tell Us:

What countries do you think will be the leaders in the economy of the future?

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