BRICS Countries in Mean Development Trap

13 july 2015

Chief Adviser to the Head of the Analytical Center Leonid Grigoryev took part in a multimedia round table on the BRICS summit in Ufa to assess the results of the summit. During the round table experts discussed the results of the summit and the process of further integration within BRICS.

“BRICS countries are interesting not just because they are big but also because there is great variety among them,” Mr. Grigoriev said. “Many BRICS countries have both large cities with great universities and poor provinces with few opportunities. South Africa is the most unequal country in the world while Brazil, China and Russia are not far behind in terms of inequality.” All BRICS nations are trapped at the intermediate level of development, the expert believes. They need to break out of the 5-thousand-dollar per capita GDP and achieve 10 to 15 thousand dollars per capita and then reach 25 thousand dollars per person - a level of social stability and a developed market. All the BRICS countries are striving for those goals, but so far progress has been slow, the expert points out. “China has just had its securities markets tumble. Brazil’s growth is evaporating. Russia is in economic recession. It should be noted, however, that this has been a difficult path for everyone and the countries that are now regarded as the developed world also went through their share of difficulties,” Mr. Grigoryev said.

However, the BRICS nations are making every effort to keep growing. “Establishment of banks has an important symbolic and practical significance. It is not just about money that gets pumped into them and can then be used for investing. The most important economic effect from the new bank is the future because as of now not a single kopek has been invested in it yet, it is just a financial infrastructure that is being created for the future. So this new bank is not going to magically change the economic situation in either the BRICS countries or anywhere else,” the expert was quoted as saying. Mr. Grigoriev sees colossal symbolic and intellectual significance in it because for the first time a parallel system is being established that can extend a loan to any country instead of the International Monetary Fund, even if, especially initially, the loans the bank can offer are modest. The expert talked about how now there is going to be competition between development banks, because all regional banks both in Asia and in Africa are subordinated to the World Bank’s policy and are not entirely independent.

“If we look at infrastructure that needs lots of money what we will see is that what is a big project in railways is a small project in natural gas, because in natural gas the amounts that are needed are colossal,” the expert explained. It is the main bottleneck in global development, especially in emerging markets, he believes. “First of all, countries spend their own money. No bank can solve a problem unless there are investments in the state. Usually 20-25% of the GDP of each country goes on capital investments while the share of foreign investments is no more than 1-4%. Foreign money can never replace national money,” the expert stressed.

So what happens in effect is that first investments are made by countries, then there are joint projects, then the Asian Infrastructure Investment bank and the BRICS Development bank join it, Mr. Grigoriev noted. “In the meantime the goal of the BRICS Development Bank and the Fund is to come up with a new development strategy, including a way to break out of the mean development trap,” the expert believes. The World Bank works with poor countries, the International Monetary Fund is in charge of stability in financially developed nations but countries at the intermediate level are left to fend for themselves. And it is for this reason, according to him, that these large countries got stuck as they are trying to develop their social infrastructure.

Video of the round table is available on the website of the INA 'Rossiya Segodnya' press center.

Photographs provided by 'Rossiya Segodnya'.