BRIC or maybe BICBRIC or maybe BICRussiaRussia

The world of Bric

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QuickTime™ oraz dekompresor

sà potrzebne, by obejrzeç ten obrazek.

QuickTime™ oraz dekompresor

sà potrzebne, by obejrzeç ten obrazek.

After 9/11 economist Jim O’Neill of Goldman Sachs Group, created the term BRIC to describe the four major emerging countries in the world.

• The quality of countries institutions

• The macro-economic stability

• The opennessof countries economy

• The presence of highly educated population

BRIC CRiteria

if we take a look at Russia, one can conlude that the country

is having problems in dealing with these criteria

The Economic Boom

• Between 2000 and 2008 the Russian economy grew 7% on average. This seems huge but if we take into account turmoil and chaos of the 90’s then it looks less sensational.

• In fact it reached it’s 1990 GNP again in 2007

• And most of that was due to:

• A very high oil price

• The large influx of foreign capital into the country

The quality of Russia’s institutions

• This is probably the biggest restriction for economic growth

• Bad governance, short term focus, corruption, and lawlessness

• The financial market is underdeveloped and lacks strong long-term foreign capital thus preventing Russian business access to short-term capital

• Transparency Int. Corruption rank: 147 of 180 (Brasil 80, China 72, India 85)

The macro-economic stability

• Very little diversity in the economy

• Based on gas and crude oil

• Despite huge foreign reserves 2009 economic drop of -8.5% shows the economic vulnerability

• Russian companies have borrowed large amounts of foreign loans

• Increasing inflation leads to an increase in real exchange rate

• Last but not least: strong reflex to export capital when crisis is at hand

The openness of country’s economy• Openness is largely based on a wrong model

• Capital influx depends on the import of bank loans

• They tend to dry-up in times of crisis adding to the vulnerability of the economy

• Russia is suffocating from the dominance of corrupt state and red tape

• The government bailed out thw worst-hits with its reserves last year (still one of the highest reserves in the world)

• The massive misallocation of capital to state crony companies has depressed economic dynamism

The presence of a highly educated population

• Thanks to heavy investments in Soviet times, Russia has relatively high educated population

• Since Perestroyka though large ‚brain-drain’ has taken place

• Today only 1% of state investment goes to education

• Eroding human capital: alcoholism, sharp decline in life expectancy, shrinage of the population, the high divorce rate (9 out of 10), low gov interest in healtcare and education

• R&D investments below 1% (OESO average 2.25% of GNP)

• Paternalistic management model dominating as the legacy of communism (fear to take initiative and commit mistakes)

• Confucius: the country that does not care for its culture and education does not for its destiny....

Conclusion

• Right now there isn’t one reason to talk about BRIC in Russia’s context.

• The country has no place inside the top 3 emerging markets (its GDP is lower than Dutch).

• China has surpased Germany as the 3rd largest economy in the world and Brasil is showing strong performance entering the top 10 while Russia has shown the worst performance in years lagging far behind the G20.

After the 20th century Russian hecatomb of nearly 100 million people, Russians actually started to die out. They are now having increasingly unhealthy and shrinking population, with real (quality adjusted) levels of educational attainment that are partly overrated by post-Soviet statistics. Calculations suggest that during the last decade gross outflow of human capital (in the 1990s about 3 million of people – to Western Europe, North America and Israel) has been, possibly, even greater (on my estimate, it is roughly equal to 5–7% of Russian GDP per annum), than of financial capital (2–4% of GDP annually). However, taking into account that repayments of foreign debt amount to about 1.5–2.0% of the measured GDP, total outflow of financial capital is also great. It makes the country extremely vulnerable and dependent on exports of natural resources (oil, gas, metals). This factor in itself favors proliferation of rent-seeking and corruption23, although some efforts are being made to curtail their dimensions.

Vitali A. Meliantsev

Moscow Lomonossov University

BRIC - population

Industrial production

Current unemployment

GDP in $$$

GDP in PPP

GDP Growth forecast 2011

Consumer prices inflation 2010

Exchange rate towards USD