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Beyond BRICS and Mortar

Pramit Pal Chaudhuri January 11, 2012

The BRIC report of Goldman Sachs is one of those fortuitous bits of timing. It came out just when the emerging economies became investment material, at least for those seeking a higher rate of return.

A lot of investment banks and think tanks were kicking themselves afterwards for not having trotted a similar piece of analysis.

It isn’t as if the BRIC report got it all right. The first version grossly underestimated the growth rates of most of the countries. And Goldman Sachs executives will tell you that if they wrote it again, they would drop Russia and probably include Indonesia or some other country. Russian growth is driven by two commodities – everything else about it is a negative growth driver.

As it is the BRIC countries themselves have just added South Africa to their roster, making them the BRICS nations. Nobody is quite sure why an investment report should have diplomatic representation but stranger things have happened.

Goldman Sachs produced a few other follow-ons, like the Next Eleven and so on. They all sank like a stone. I asked an executive whether they were actually recommending that their clients invest in Pakistan – which is one of the Next Eleven growth economies. He admitted, “We actually have a ban on our own staff traveling there.”

There has since been a steady stream of such reports coming out. Standard Chartered produced one on a coming “supercycle” of growth. Citibank just produced Global Growth Generators. And HSBC had a straightforward 2050 forecast. The list goes on.

All of them are quite positive about the future. All focus on China, India, Brazil, Indonesia and countries like Vietnam and Nigeria. None include Russia anymore. But many no longer write off the US so quickly. HSBC argues it will still be the second largest economy and not too far behind China. Citibank includes Egypt – presumably this was calculated even before the present political revolution there.

But all the calculations have so many variables in terms of sources of growth, and, I would argue, show little or no ability to factor in political risk, that any or none might be right. The politics is going to be the toughie. As global inflation persists, geopolitical instability increases as US power recedes, and unexpected upheavals in places like Egypt take place it is these uncalculables that will really separate the modeling from the crystal ball gazing.