DR Said e Cherkaoui Bric Marketplaces

Dr.
Said El Mansour Cherkaoui

http://www.glocentra.weebly.com
saidcherkaoui@outlook.com
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Contact Email: saidcherkaoui@outook.com Contact Phone: 510-859-8345
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East Bay Center for International Trade
Development BRICs Seminar Series
by Said Cherkaoui, Ph.D.
Building New Global Market Order
with four BRIC Economies: Brazil, Russia, India and China
3 Go East Old Man?
4 Vu Dj A New World Order
5 - Attitudes Are Changing in BRIC Countries
6 - The World Economy Grows BRIC by BRIC
7 - While Economies are Growing Faster, China is
Speeding
8 - The Case for Local Asset Management
9 - The BRICs Impact on Global Markets: A
Transforming Event
10 - BRIC a Brac: BRICS Country in Vrac
11 - BRICs by Country: Brazil
12 - BRICs by Country: Russia
13 - BRICs by Country: India
14 - BRICs by Country: China
15 - BRICs or BREAK by Country
1 of 2 Table of Contents
3
3
East Bay Center for International Trade
Development BRICs Seminar Series
by Said Cherkaoui, Ph.D.
Building New Global Market Order **
with four BRIC countries: Brazil, Russia, India and China
16 - BRIC Steps
17 Goldman Sacks Report on the BRIC Economies
18 High Growth and Hyper Implications for the World Economy
19 Solid BRIC Economies and Broken Global Economy
20 BRICs Breaking Records in Economic and Financial Fields
21 BRICs and Industrial Commodity Market and Consumer Goods
22 Making the most of Cheaper BRIC Labor
23 - Find partners in the BRIC economies and to compete with their Talents
24 - BRIC Tips & Tactics
All the presentation and the extrapolation are made on current available studies and analysis and
do not pretend to be iron-clad analysis that will not be tempered by cyclical recession know by the
capitalist world. East Bay Center for International Trade Development, GLOCENTRA and Dr. Said
Cherkaoui do not bear any responsibility fo the Content or the use of the content of this analysis for
any purpose that can lead to a decision.
2 of 2 Table of Contents
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4
Go East Young & Old Man?
BRIC countries will grow
most rapidly
Distribution of Worlds GDP (2004=100)
Source: Extrapolation of current growth rates from
World Bank, World Development Report
Developing countries will account
for nearly half of total growth in
global output over the next twenty
years.
Over two thirds of the growth in
developing countries will come from
just four countries: Brazil, Russia,
India and China
The BRICs countries have much
higher potential returns on
investment (but also higher risk)
than is likely to be available in the
UK
Is part of the solution to closing
the UK wealth gap greater direct
and portfolio investment in the BRIC
countries and/or in developing
countries generally?
All the extrapolation are made on current
available studies and analysis and do not pretend to
be iron-clad analysis that will not be tempered by
cyclical recession know by the capitalist world.
-
20
40
60
80
100
120
140
160
180
200
2004 2025
2004=100
29%
32%
23%
32%
5%
32%
9%
32%
35%
32%
32%
32%
20%
32%
5%
32%
18%
32%
25%
32%
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5
Vu Dj A New Economic World Order
In less than 40 years, the BRICs economies could be larger than
the G6 in USD terms.
China could overtake the US as the worlds largest economy in a
little over 30 years.
Of the current G6, only the US and Japan may be among the six
largest economies in 2050.
New demand from the BRICs economies could rival the current
G6 within a decade and dwarf it by 2050.
Individuals in the BRICs are still likely to be poorer on average
than individuals in the G6 economies, except in Russia.
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6
Attitudes Are Changing in BRIC Countries
Old Attitude New Attitude
Capital flight Capital inflow
Invest outside of the country Better investment returns at home
Export oriented Consumption oriented
Family financial unit Individual unit
Children support parents Save for retirement
Socialist It is good to be rich
Rural Urban
Self doubt Confidence
Weak currency Strong currency
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The World Economy Grows BRIC by BRIC
The BRIC (Brazil, Russia, India, China) countries will be 40% of the
world growth and 30% of the total global economy by 2025 *
The middle class in BRIC will be 800 million in 2010*
Greater than the combined population of USA, Europe and
Japan
BRICs nearly 3 times the population size of the OECD
The BRICs will produce 200 million new high-income people
The BRIC consumer will be a driving force of the world economy
Mutual funds are the ideal investment vehicle for this investor
group
Source: * Goldman Sachs BRIC study & World Bank, World Development
Indicators Database April 2005
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While Economies are Growing Faster,
China is Speeding
0
5
10
15
20
25
30
35
40
0% 5% 10% 15% 20% 25% 30%
rate of change (%/year)
w
i
n
d
o
w

(
y
e
a
r
s
)
Most of the worlds economies
double every 35 years.
In the best of times, the developed world
takes 25 years to double.
Chinas economy doubles every 7 years.
Source: J im Brock Taken from presentation China: Risks and Opportunities for Global
Investors, Jing Ulrich 5/05
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The Case for Local Asset Management
Most investors in the fastest growing economies invest locally
BRIC countries have restrictions on foreign investing
Even in developed countries about 75% of investments are local
Local financial institutions do not have mutual fund expertise
Local asset management provides opportunity for selling
additional products
The obvious: the locals know more about their markets
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The BRICs Impact on Global Markets: A Transforming Event
A sequence of pressures: crude, cars then capital
The growth of a BRICs middle class could be a key market dynamic
The timing of impact varies across the BRICs
The next decade is likely to be the peak period for resource pressure
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BRIC a Brac: BRICS Country in Vrac
BRAZIL:
One of the world's largest commodity exporters
Home to the largest iron ore supplies
Exports also include coffee and soya
RUSSIA:
Home to the largest supply of natural gas
Detained 15% of the world's crude oil reserves
Country debt awarded investment-grade rating in 2005
INDIA:
Highly skilled workforce
Key centre for international companies looking to outsource
Large infrastructure programs
CHINA:
Ranked 5th largest exporter of merchandise
Huge domestic consumption
Host of the 2008 Olympic Games
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BRICs by Country: Brazil
Over the next 50 years, Brazils GDP growth rate averages 3.6%.
The size of Brazils economy overtakes Italy by 2025; France by 2031;
United Kingdom and Germany by 2036.
CRITICAL ISSUES:
Challenges: lack of openness, lower education levels, lower savings and
investment, higher public and foreign debt.
Lower convergence rate at first, then catch-up with China.
Foreign and public debt constraints; Infrastructure; Openness to trade.
Despite the considerable efforts to secure macroeconomic stability, the
Brazilian government have failed to convince foreign corporate decision-
makers.
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13
BRICs by Country: Russia
By 2050, Russias GDP per capita is by far the highest of the BRICs.
Demographic dynamics drive GDP per capita path.
Russias economy overtakes Italy in 2018; France in 2024; United
Kingdom in 2027 and Germany in 2028.
Critical issues: What would be the Political and Economic life after
Putin; The Transition from Oil.
Dreaming or not with Russia
Oil and gas prices major positive factor
Only (too?) slow progress on structural and democratic reforms
Environment for Foreign Direct Investment far from perfect, instability
of security and corruption
Yields in local markets unattractive in comparison to several Western
EU economies
RUB should appreciate, but CBR has its own agenda
Despite Russia's abundant energy supplies, internal political
uncertainties seem to deter foreign direct investors.
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BRICs by Country: India
Indias growth rate remains above 5% throughout the period.
Ernst & Young conducted on 2007 a survey of 809 managers from various
industries in Europe, America and Asia about their investment
preferences. India popularity appears to be increasing fast. While 11
percent of investors cited India among their top three preferences in 2004,
it has risen to 26 percent in 2007
Indias GDP outstrips that of Japan by 2032.
India could raise its income per capita in 2050 to 35 times current levels.
Still, Indias income per capita will be significantly lower than
any other BRICs countries.
Critical issues: Openness; Basic Education; Policy Coherence.
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Sourcing out and in China & India
United States 125,150
EU-25 107,254
Hong Kong S.A.R. 100,870
Japan 73,510
South Korea 27,812
Others 17,800
Total exports 593,329
EU-25
17,128
United States
13,643
UAE
6,043
Hong Kong S.A.R.
3,864
PRC China
3,500
Others
2,508
Total exports
75,595
China's Exports 2004
(in million US$)
India's Exports 2004
(in million US$)
Source: WTO
In late 2006, Tata Consultancy Services won a landmark deal
worth $100 million from Bank of China, the first major IT
contract bagged by an Indian company with a Chinese firm.
16
16
India IT in China
IT in China, Jan. 2008
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17
BRICs by Country: China
Chinas GDP growth rate falls to 5% in 2020 from its 8.1% growth rate
projected for 2007.
By the mid-2040s, growth slows to around 3.5%.
Even so, China becomes the worlds largest economy by 2041.
High investment rates, tapers off though projection period.
Chinas per capita income could be roughly what the developed economies
are now (about US$30,000 per capita).
Per OECD China is already bigger than 2 of G7 Canada and Italy
By 2010 China will be 4
th
largest economy after US, Japan and Germany- If
China were cut off from foreign trade and investment its growth would be just
1-2% p.a. less. *
Critical issues: Financial System Reform; Political Transition
* Source: Professor Lucas, University of Chicago Sunday Times 25thSeptember 2005
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China Top Choice for Investors:
Ernst & Young
Source: WTO
Adjust font size:
Between February and March 2007, the survey asked 809
managers from various industries in European, American and
Asian firms about their investment preferences.
Almost half - 48 percent - of international investors cited China
as one of their top three preferred business locations in 2007,
up from 41 percent in the 2006 survey.
They said they were drawn to China for its low labor costs, more
competitive rates and higher productivity. The country's
infrastructure, quality of research and development, workforce
education and political stability were cited as major advantages.
China still lags behind in quality of workforce - only 4 percent of
those surveyed said it is the most attractive country in terms of
labor skills and only 4 percent consider China as the most
attractive economy in terms of R&D availability and quality, as
opposed to 43 percent for Europe and 27 percent for North
America. (China Daily July 5, 2007)
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BRICs or BREAK by Country
Can Brazil cope with resource authoritarianism in Latin America?
Can Russia revive its non-commodity industries and develop more stable
political system not undermined by personality politics and cronyism?
Can India diversify from regional imbalances, poverty, Anglophone services
and bureaucratic and central state planning?
Can China make the transition from central politics, environment hurdles,
internal poverty and from state mercantilism to consumer markets?
What is the future of oil and commodity prices?
United States and Europe will need to collaborate in trade through bilateral
agreement to build a counterbalance market to the impact of the BRICS and
the Asian East European trade and financial expansion and arrangements.
The Dollar and Euro will be challenged as currencies for international
transactions and investments.
How can the United States of America or the European Union compete?
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20
BRIC Step & Muscle Building
The best contacts and resources to help you get it done.
Start with the report that launched it all, Goldman Sachs, the global investment bank, got
the BRIC discussion going by suggesting that those four economies in development
would add up to do more than the entire "developed" world combined by 2050. Yet few
U.S. and European companies are seriously into any of them -- yet.
Archives and Studies at the Goldman Sachs:
http://www.goldmansachs.com/our-thinking/archive/index.html
The bank has thoughtfully boiled the relevant points down into a
http://www.goldmansachs.com/our-thinking/outlook/jan-hatzius-economic-outlook-us-
mid-yr-2014.html
and it issued a follow-up report in early 2005
http://www.goldmansachs.com/
http://www2.goldmansachs.com/hkchina/insight/research/pdf/BRICs_3_12-1-05.pdf .
One way to track which companies are driving the BRIC economies is to read up on the
investment funds which claim to offer a way to put money into the far-flung geography.
Some key investment vehicles include, of course:
https://assetmanagement.gs.com/content/gsam/worldwide.html
Allianz Global Investors http://www.bricstars.co.uk/literature/index.html#10_general
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Attempt by emerging economies to challenge the US-based global lending institutions
China is starting a separate bilateral institution in Asia which is a rival to the Asian Development Bank, which is
considered to be over influenced by the US and its allies.
The Research Center of Shanghai's Fudan University says China has a strong advantage in terms of economic and
political stability compared to India and Russia.
China is the worlds second largest economy, with the largest trade and investment volumes, the research report
added.
On top of that, Chinas total bank-scale ranks among the highest in world, demonstrating its strong ability to resist
risks, the Fudan University report concluded.
Each BRICS member is expected to put an equal share into establishing the startup capital of $50 billion. BRICS
officials also plan to set up a joint $100 billion emergency swap fund for financial crises available only if needed to
meet the banks obligations. To compare, the World Bank has capital of $223 billion, and most of it is callable.
Despite initially being a small rival the World Bank or the International Monetary Fund, it will serve as a reminder to
the US of the shift in the global economy towards the developing world.
This is a considerable group of countries from around the world that have come together to create something
without US or European involvement, this is significant, the Financial Times quotes Oliver Stuenkel, Assistant
Professor of International Relations at the Getulio Vargas Foundation in So Paulo.
Since 2010 the US Congress has received proposals to increase the influence of emerging nations in the
International Monetary Fund; however the program has not yet faced further development.
Congress is not ratifying [the changes] and that has caused a certain amount of disquiet and unease among the
BRICS countries, said Jose Graa Lima of Brazil's external affairs ministry.
This arrangement [the BRICS bank and reserve fund] is not a response to that [but] it is an indication that it is
possible among the BRICS to create mechanisms to realise certain objectives, Graa Lima added.
Source: Shanghai favourite to become BRICS bank HQ - Published time: July 03, 2014 13:20, http://on.rt.com/29529b
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Goldman Sacks Report on the BRIC Economies
The Goldman Sachs global economics team released a follow-up report
to its initial BRIC study towards the middle of October 2004.
Goldman's view, is that China and India will be producers of value-
added goods like electronics, while Brazil and Russia will come to
dominate raw materials production. Getting involved is a huge BRIC
step, but there are ways to build the right BRIC move.
Just as the initial report focused on the growth potential of the so-called
four BRIC (Brazil, Russia, India, China) economies, the new report takes
the analysis one step forward focuses on the impact of these economies
on global commodities (using oil as a proxy), demand for consumer
goods (using automobile sales to make the point), and the impact on
global capital markets.
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23
Hyper Growth for the New World Economic Order
The main conclusions of the Report are:
- Over the coming years the strong growth profile of the BRIC economies;
-Their increasing importance will push up trend global growth to over 4 per
cent, compared to the trend of the past 20 years of 3.7 per cent;
- An increase in the global trend growth rate of this magnitude has
enormous positive implications for the entire world;
- The BRIC economies' share of world growth could rise from 20 % in 2003
to more than 40 per cent in 2025;
- Their total weight in the world economy will also rise from approximately
10 per cent today to more than 20 per cent within 20 years.
While the main conclusions of the report are quite dramatic, one must keep
in mind that these results need first validated by the current growth that is
not yet matching the high rates projected in the initial report.
24
24
Solid BRIC Economies
and Broken Global Economy
According to the Goldman Sacks Report on the BRICs, the number of people with an income
over $3,000 (approximation of middle class) should double within three years in the
corresponding economies, and within a decade over 800 million people will have crossed this
earning level.
Within 20 years, there could be approximately 200 million people in the BRICs economies with
incomes above $15,000 (as a point of reference that is more than the population of Japan).
This optimistic look is paradoxical to the reality of these BRIC countries where programs
against poverty have not even reduced the gap among the lower classes in terms of earning.
Despite this, the Goldman Sacks advanced projections and analysis that never before has this
type of scale been observed in terms of gross addition of numbers to the ranks of the
consuming class. In terms of sheer numbers, it is equivalent to the addition of a new America
and Europe to the global consumer class.
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China & India Breaking Records as BRICs
Economies
Goldman Sachs estimates that by 2025 the income/capita in the G-6 will
exceed $35,000, only about 24 million people in the BRIC economies will
have similar income levels. China and India will emerge as the world's
largest car markets over time. Within 20 years, China most probably will
have overtaken the US as the world's largest car market. India will also
displace the US about 10-15 years later.
Highlighting India's greater inefficiency in energy use, the data indicate that
within 15 years India's contribution to global oil demand growth will
overtake China's. India's share of actual global oil demand will also peak
near 17-18 per cent, similar to China's.
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BRICs and Industrial Commodity Market
and Consumer Goods
The Report (source: Goldman Sachs) makes the point that the emergence of the
BRIC economies has already had an impact on global commodity markets,
namely the impact of China. The huge price run-up in most industrial
commodities is attributed to strong Chinese demand.
The next stage will be the impact of the huge emerging middle class in the BRIC
economies on consumer goods demand, and finally longer term will be the
impact on financial markets.
The share of these economies in global capital markets is currently 3.5 %, and
depending on the extent of capital market development, they could account for
anything between 10 and 17 % of global equity markets by 2020.
Market capitalization in the BRIC economies is projected to increase by four
times or $4 trillion, approximating the size of the European within 15 years.
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Making the Most of Cheaper BRIC Labor
It could be that your company's best way forward into BRIC-driven growth is
through labor capacity. Do you want to be pre-emptive and anticipate this
money shift or join the party later, when it becomes more accepted as
conventional wisdom? Every institution has to make up its own mind.
Join a major company investing in these regions, likely as a supplier or
contractor. Retailers like Wal-Mart will not ignore future foreign growth and will
need specific quality goods to sell. Heavy equipment makers like Caterpillar
will continue to do well in emerging heavy industries, as will personal care
companies like Proctor & Gamble. Or, browse companies in your sector at
Selectory.com.
This can vary dramatically by geography and sector, but certainly it has been
shown that India's technical elite is very good sources of cheap financial and
back-office labor. A much-talked about guide to sourcing in the BRIC region is
Mark Kobayashi-Hillary's Building a Future with BRICS
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Find Partners in the BRIC Economies
and to Compete with their Talents
Peruse leads databases for a clearer sense of whether you belong in this arena.
The U.S. Commerce Department has a pay database of live trade leads calls
https://www.globus.org/
The Federation of International Trade Associations runs a leads database.
Some other active leads databases include
www.glocentra.weebly.com
http://www.tradezone.com/
Part of the big change for the developed world will be the flood of management and
technical talent. China alone is graduating tens of thousands of engineers a year.
A great overview of the challenges ahead can be found at the
http://news.bbc.co.uk/2/hi/europe/4260368.stm
= A good discussion of U.S.-China trade issues is here;
= U.S.-Brazil-business relations at the U.S. Department of State;
= India, a good starting point is this link: http://www.state.gov/p/sca/ci/in
= Russia is detailed by the
http://search.usa.gov/search?affiliate=usagov&query=russia
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BRICs Top Tips & Neat Tactics
Part of the investment attractiveness of the BRIC countries is the enormous geographical
size of each, and the dreamed vision of huge demand and large new rich class of
consumers. While likely it will slow with the surge of stagflation in the developing world, the
rising cost of living, the dramatic and continuous increase of the oil price and the heated
world wide competition and war ragging drive to control its sources will all have an impact
on the growth of long-term export planning and development strategies implemented by
liberal economies.
Macro statistics should be treated with caution and stock markets do not necessarily reflect
economic production. The BRIC thesis is pretty much a theory -- but with some compelling
early evidence, such as India's rise as a talent pool and China's turn as the world's factory
floor. Keeping tabs on these big two is likely most of the game for now.
Further helpful advice for making the most of these BRICs Markets, contact us:
saidcherkaoui@outook.com
This presentation was designed and conducted in Seminars organized at the
East Bay Center for International Trade Development
Berkeley City College, Berkeley, California

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