The fifth BRICS Summit was held at Durban, South Africa, against the backdrop of multiple challenges confronting the world today. The world is still reeling under the weight of double recession. While the BRICS nations have been able to recover relatively faster, the advanced nations are taking longer.
Prime Minister Manmohan Singh, in a statement prior to his departure for Durban, identified the following issues for discussion: Ways to revive global growth and ensure macroeconomic stability; and mechanisms and measures to promote investment in infrastructure and sustainable development.
Since this was the first Summit taking place on African soil, the theme ‘‘Partnership for Development, Integration, and Industrialisation’’ was aptly chosen to send a message that BRICS countries remained committed to inclusive global development.
The theme of the Durban Summit is also a logical extension of the 2012 New Delhi Summit’s overarching theme of ‘‘BRICS Partnership for Global Stability, Security and Prosperity’’.
BRICS Bank
One of the biggest challenges for leaders is to make further progress on initiatives taken at the New Delhi Summit.
The two notable achievements of the New Delhi Summit were: conclusion of the master agreement on extending credit facility in local currency under the BRICS Interbank Cooperation Mechanism, and the multilateral letter of credit confirmation facility agreement between BRICS countries’ EXIM/development banks. These agreements were concluded to give a big push to intra-BRICS trade, which is roughly 10 per cent of BRICS total trade with the world. It remains to be seen whether a new BRICS Development Bank does indeed take concrete shape. The objective of this initiative was to mobilise resources for infrastructure and sustainable development projects in emerging and developing countries, including BRICS.
At the New Delhi Summit, the feasibility and viability of such an initiative came into focus. The finance ministers are expected to take the project forward from the just-concluded Durban meet.
While this will supplement the efforts of multilateral and regional financial institutions for global growth and development, BRICS at the same time also needs to work for recapitalisation of multilateral development banks.
This issue is also one of the top agenda items of G-20. The multilateral development banks, especially the World Bank, should significantly expand its lending for infrastructure development in the developing economies. Currently, the World Bank lending for infrastructure development is not adequate.
A BRICS Development bank will also help in facilitating more intra-BRICS investment. Political stability, alongside fast economic growth, has made the BRICS nations attractive destinations for foreign investment. China, Brazil, Russia and India are among the top five host economies for global foreign direct investment (FDI), attracting more than $20 billion annually.
FDI Flows
A recent analysis shows that market size, labour cost, infrastructure, currency value and gross capital formation are the potential determinants of FDI inflows into BRICS nations. The trend of increased FDI into the BRICS economies suggests scope for increased cooperation as well as competition among them in the future.
According to UNCTAD’s World Investment Report 2011, Brazil, Russia, India and China have gained ground as important FDI sources in recent years, as a result of their rapid economic growth, abundant financial resources and strong motivations to acquire resources and strategic assets abroad.
In 2010, the total FDI outflows from Brazil, Russia, India and China were close to $50 billion. India, China and Russia are among the top 20 outward investors in the world.
As most of the outward FDI from these countries flows to non-BRICS countries, there is scope for intra-BRICS engagement through cross-border investments.
The service sector is another important area of considerable scope for intra-BRICS trade and investment. At present, trade in services among BRICS nations is mainly in supporting services.
Traditional services exports (transport and travel services) have declined in importance for all BRICS economies, except South Africa, and this decline has been most significant for India. India’s service providers are doing business with BRICS, mainly in the areas of emerging service sectors such as IT & ITES, energy, telecom and health.
Trade in services
The differences in the composition of services exports among BRICS nations indicate a strong scope for trade and cooperation among them in both traditional and emerging services. The sectors where trading opportunities are present include travel, transport, IT and ICT, construction, and other business services.
Post-crisis, there has been a greater emphasis on reforming institutions governing global trade and economic relations. Manmohan Singh, in his pre-Summit statement, called for faster movement on reforming these institutions.
Although G-20 has taken up this role by giving more weightage to emerging economies, BRICS can also work towards generating greater momentum in this regard.
The Durban Summit provides an important opportunity to enhance cooperation in areas such as energy, food and water, which are crucial for sustaining growth and ensuring inclusive development.
BRICS account for 43 per cent of the world’s population, 18 per cent of global trade and attract 53 per cent of global financial capital. BRICS’ share in world GDP increased from 16 per cent in 2000 to nearly 25 per cent in 2010, expected to rise significantly further.
However, BRICS has its own supply-side impediments. Discussions to overcome any constraints on the availability of energy and food are required to ensure continued prosperity for these countries, that account for more than 40 per cent of the world population.
(The author is Director-General, CII.)