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Investment Potential in BRIC

Brazil is considered to be a low-moderate risk country to invest.Brazil is considered to be a low-moderate risk country to invest.

Without a doubt the BRIC countries (Brazil, Russia, India and China)–four of the world’s largest emerging economies—have massive economic and investment potential, especially within the technology industry.

According to Euromonitor International, if the BRIC countries are able to maintain their current growth rate, the combined economies of these four global powerhouses could be worth more in US dollar terms than the G6 (Germany, France, Italy, Japan, UK and the US) by 2041, techfeatured.com reported.

Both the gross domestic product and the personal disposable income have developed exponentially among the BRIC nations over the last decade. This growth has fueled numerous Public-Private Partnerships across each country making foreign direct investments a formidable business venture for any major corporation.

PPP deals can often be complex, financially demanding and extremely time consuming with projects lasting several years. However, under the right economic conditions and proper business strategy, they can offer significant benefits to the private business sector, the consumer and national governments.

Each country may pose a different risk and the success of these projects would largely depend on the country’s ability to handle such risks and minimize interruptions to the projects.

 Brazil

According to data compiled by the Economist Intelligence Unit, Brazil is currently at a score of a “BBB” in its overall country risk assessment. This is otherwise known as an “investment grade status. Based on this assessment, Brazil is considered to be a low-moderate risk country to invest in depending on agency rating.

Brazil is abundant in natural resources like quartz, diamonds, chromium, iron ore, phosphates, petroleum, mica, graphite, titanium, copper, gold, oil, bauxite, zinc, tin, and mercury.

The Wall Street Journal recently reported Standard & Poor’s downward revision in Brazil’s outlook to “negative” from “stable”. According to the Economist Intelligence Unit “long-term growth forecast anticipates more rapid average annual GDP growth over the next 19 years (3.8%) than over the past 25 (2.8%).

Brazil’s economy is slowly recuperating from the 2011-12 downturns, but Brazil’s potential growth rate is much lower than in 2004-10, when it grew by 4.5% annually.

According to the Economist Intelligence Unit “The financial services sector will grow above the overall rate, but it will lose some dynamism as credit growth slows. Credit has more than doubled since 2003 in GDP terms, to 53% as of February 2013.”

According to the Economist Intelligence Unit “With an estimated population of 195m and GDP of US$2.3trn in 2012, Brazil has the largest financial services market in Latin America. However, income and wealth remain highly concentrated.

 Russia

According to data compiled by the Economist Intelligence Unit, Russia currently scores a “C” value, (54 points) in its overall risk assessment. Based on this, Russia is considered to be a moderately risky country to invest in. Some of those risks include the “opaque and corrupt administration, over-reliance on commodities production and the ill-functioning judiciary.”

With respect to political risk, Russia scored a “C” value (55 points) according to the Economist Intelligence Unit. President Vladimir Putin has seen various protests during his many terms, however, the country is not booming as it was in the decades immediately following the Cold War.

With respect to financial risk, Russia scored a value of “C” (58 points). Russia lacks heavy involvement from the government in the banking sector, therefore, it has been difficult to achieve any sort of reform for the banking industry.

Just like the rest of the world, Russia suffered from the economic crisis that had a ripple effect on the entire global marketplace.

 India

The report “estimates that the real GDP growth (on an expenditure basis) slowed to 3.4% in fiscal year 2012/13.” The report believes that India’s economy has bottomed out. The country is currently at a low point in their economic cycle with the slowest growth in ten years having taken place in the 12 months preceding March 2013. This however is good news for future investments in the country as recent economic reforms, lower interest rates and wholesale price inflation are expected to cause a real GDP growth.

From this point on through 2030, India is predicted to be a hot bed for economic growth, making this an excellent target for global investment.

India is forecasted to grow at an average of 6.4% from 2012-2030, making the country the fastest growing large economy in the world during this time. However with this growth, India will face some new challenges that could be a cause for concern.

Though India as a country has a lower risk ranking and an excellent forecast for economic growth, the technology sector will have to navigate some new terrain in order to continue growth.

 China

China’s economy is the second largest and an important source of revenue for most multinational firms. Tightening labor markets and supportive government policy are expected to sustain rapid income growth in the next two years.

The degree of government interference in the economy remains a worrying factor although the private sector is increasingly important. China’s domestic demand of goods is expected to grow faster than its export markets. Although government has lowered trade barriers in order to encourage more imports, still access to some sectors remains difficult.

Although they are going through economic and social changes that threaten political stability, their security risk is fairly low and the overall risk of doing business in China is moderate to high.

Progress in financial sector reform has begun to accelerate, China’s banking and capital markets are immature but foreign-invested enterprises have generally good access to loans.

Editor’s Note: It is unclear why the website techfeatured.com dropped the ‘S’ from the BRICS countries in this feature relating to South Africa. The association, after all, is of five newly-industrialized  economies. South Africa joined in 2010.

 

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