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Jim O’Neill: BRIC Thinking

Terence James O’Neill. Born March 1957 in Manchester. Currently retired from finance and working on various business and economic forums.


 

 

“Those earliest predictions, shocking to some at the time, now seem rather conservative”


Badge of Honour

There aren’t many people who give a name to an entire financial market vector, butO'Neill the former head of global economics research at Goldman Sachs changed the global investment environment forever in 2001 when he published a seminal BRIC paper entitled “Building Better Global Economic BRICs.” Rarely has an idea seemed so much of its time.

What BRICS originally meant

O’Neill’s paper proposed that the market should start to think of Brazil, Russia, India and China as a special group among the emerging markets – one which deserved to be considered not just because of its vast geography and its population size (they account for 25% of the world’s land mass and 40% of its population), but also because they currently command a combined gross domestic product of $20 trillion in PPP terms.

To that, he might have added that their currencies were stable by emerging country standards; that their ownership of consumer goods was growing particularly fast; and that their financial markets were both significant and reasonably liquid. O’Neill’s sense that these countries would grow to become major players in the global economy has proved cogent and accurate.

What it didn’t mean

For investors, the BRIC acronym has entered widespread use as a symbol of the perceived  shift in global economic power away from the developed G7/G8 economies toward the developing world. And it did not entirely console the anti-globalisation campaigners who continued to portray western inward investment as a form of economic colonialism, but at least it drew at least some of their fire away.

O’Neill has also never disputed that Brazil, Russia, China and India are an ill-matched assortment. Two are democracies and two aren’t. Two are major commodity producers, while the others remain largely dependent on imports. Their levels of GDP wealth range from more than $10,000 per head in Russia to below $2,000 in India. Not always easy to generalise.

The group finally gels

Goldman Sachs generally avoided claiming that the BRICs would organise themselves into an economic bloc or a formal trading association such as the European Union. But O’Neill was always fascinated by the prospect that the four countries would eventually form a political club or an alliance which might result in the better co-ordination of their growing economic power. And he is still convinced that the four are serious about their identity as a group.

Writing in the Bruegel European economic think tank forum (of which he is a board member) in July 2014, he declared that the proof of this could be seen in the little-reported fact that the four countries had now agreed to set up a joint development bank, to be headquartered in Shanghai and headed by an Indian.

Meanwhile, he says, the economic momentum of the four is still enormous despite everything. He agrees that, although all four BRIC countries had seen their GDP growth rates slow sharply since 2013, it was too easy to ignore the fact that, that because of China’s huge size, “the weighted average performance of the BRIC growth rate since 2011 is 6.5pct. Now this is down from 7.9pct the last decade, but higher than the previous two decades.”

Pass the MINTs

Next up? O’Neill’s top for the next decade includes the MINTs: Mexico, Indonesia, Nigeria and Turkey. The political risk for these four is probably in another league, but it’ll be interesting to see how they mirror the BRICs.

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