Truthfully, there is no set in stone BRIC. The term, coined first by Jim O’Neill, has kept true to its acronym. Reference BRIC nations today, and most conclude you mean Brazil, Russia, India and China. However, since the acronym was coined in 2001, additions like South Korea (BRICK) have led to new, interesting combinations.
Now, nearly ten years after the term was first used, there exists and on-going debate about the future of the acronym and which countries could and should be added, as well as which should be dropped. While “BRIC” may have been used by one Goldman economist, fund companies nearly own dominion to use of the name, and new discussion has emerged about the future of the big four growth economies.
The first, and most common, call from investors is that Russia should be replaced among the group. Russia boasts per capita GDP nearly three times higher than China, just over nine times greater than India, and 50% greater than Brazil. Plus, with its growing reliance on commodity exports — of mostly oil to China’s growing manufacturing and transportation powerhouse — a play on Russia has become, for most, a play on commodities.
Possible replacements are abundant. One common call for replacement is Indonesia, which is quickly coming to as a strong emerging market and a country filled with economic growth. However, still a concern is the role of government in its economy. The government took control of more than 160 different institutions and businesses following the Asian financial crisis, though most now contend the government could take a step back and allow its market economy to prosper.
As is commonly seen in emerging countries, Indonesia remains mostly an agriculture economy with a growing capital base and consumer class. When growth comes full circle, economists believe fewer will work in farms and instead move to more productive jobs in the manufacture of goods, including textiles and clothing, electronics, and furniture. Indonesia is slated to grow more than 6% per year with a far more reliable projection than volatile Russia.
Turkey has yet to become a big destination for foreign investment, but with improvements in government, a reduction in its deficit and an improving credit quality, those following Turkey see opportunity knocking.
Turkey earns a rating just one step under investment-grade from both Fitch and Standard and Poor’s, but the CDS markets say differently. Credit default swaps for Turkish debt sell for prices lower than both Chinese and Russian insurance, a mark of the country’s credit quality. By 2012, Turkey is aiming to cut its debt-to-GDP ratio by 10% while reducing its current deficit by 30%, from 4% of GDP to 2.8%. In that time, projections suggest Turkey will manage 6% annual growth, making it the king of financial austerity — should projections turn into reality.
Much like the population bend in India, demographics play a key role in Turkish growth. An explosion in population growth since 1980 leaves the current median age at 28 years old, meaning there are still many years of productivity until the latest baby boom turns into a baby burden. The next big play in BRIC may not be in BRIC at all, but in front-running the new emerging market formation. In 2010 alone, investors socked more than $100 billion in emerging markets, of which $60 billion found the stock markets and $40 billion found fixed income. While that amount may not fill one month of the US budget deficit, it’s enough to provide for a wild ride in the emerging markets.