The global financial crisis, which originated in the United States, had a major impact on the world economy and the economic recovery prospects of developed countries. As the countries with the most active economic growth in the world, BRICS countries (Brazil, Russia, India, China and South Africa) face a great challenge. They need to adjust their development strategies when facing the new challenge in order to achieve rapid and sustainable economic development.
BRICS are all developing countries with good economic development and rapid growth. They have become an important force on the world economic stage, however, these countries face challenges including:
- unsustainable economic development models;
- the negative impact of unfamiliar challenges of;
- the pressure of economic transformation and upgrading;
- external strategic pressure / internal political uncertainty
The economic development models of BRICS countries is significantly different from that of developed countries and regions like the United States, Europe and Japan. The economic growth in the five BRICS countries was established on the basis of low-cost labour, abundant mineral resources, and few technological innovations. Taking China as an example, it depends highly on investments for economic growth as opposed to consumption which has no contributing value.
The economic structures of BRIC countries are inadequate. Russia mainly depends on the energy, military and heavy industries, but the service and financial sectors are underdeveloped. China is at the low end of the industry-chain structure, whilst South Africa, Brazil and India do not have a comprehensive industrial system and external dependence is prominent.
The internal and external environmental changes have caused large emerging economies to pay more attention to the urgent and difficult task of transformation. There is a general increase in the inflation rate of BRIC countries. In recent years, the overall rate of inflation of BRIC countries has increased year-on-year. In 2012, the exchange rate of the Russian Ruble to the US dollar appreciated by 5% and Renminbi (currency of the People's Republic of China) appreciated by 5%. However, the Brazilian Real, the Indian Rupee and South Africa Rand all faced serious devaluation as the countries saw a decline in the growth of foreign investment and capital flight.
China and India mainly rely on an abundant and low-cost labour force, and are engaged in the processing and exporting of low value-added labour-intensive products and the outsourcing of services. They can easily be influenced by the international market, especially the decline in demand in developed markets and market protection policies. Russia, Brazil and South Africa mainly develop mineral products for export. Furthermore, export revenue is vulnerable to international demand and price fluctuations.
On external challenges, the South China Sea dispute, East China Sea Diaoyu Islands issue, and the China/India territorial issue will add to domestic pressures. Russia had a strained relationship with western countries due to Crimea and the recent Malaysian plane tragedy in Ukraine. This will inevitably lead to the slowdown of economic growth. On internal challenges, political transparency in BRICS countries is not high. Corruption, polarization, and terrorism issues all affect political stability, economic development and market confidence.
As a result of these challenges, it might seem that cracks between the BRICS countries have appeared. BRICS is a group and each country has its own situation, however, cracks between the BRICS countries mainly present the economic ties between the countries are not close enough. The volume of trade is inadequate, their industries do not complement each other sufficiently, and information exchange needs to be strengthened. This rift is relative compared to developed economies and are temporary fluctuations during the process of economic cyclical changes. If handled properly, the cracks will not change the overall trend of the economic development of the BRICS countries.
The BRICS countries have the advantage of having huge populations providing resource advantages and some industrial advantages that are important in the international division of labour. Comprehensive reform can promote rapid economic development. The BRICS countries should change outdated ideas and institutions and implement comprehensive reform. They cannot only pay attention to the economic revolution but must also focus on the political revolution. The economic development of the BRICS countries is relatively extensive, but without much technology. To change this, they must increase innovative ability with the promotion of continuous independent and integrated innovation. They should resolutely create a social atmosphere of innovation in order to essentially improve economic innovation by introducing and training talent (especially top-notch personnel), accelerate the building of an innovative environment and protect intellectual property rights with the most stringent legal measures.
The spatial disparity between BRICS countries has resulted in increases in terms of the cost of economic cooperation. Today, under globalization, the BRICS countries must have a more pragmatic approach, use more effective measures and have longer-term plans to further promote economic cooperation.
With the recent developments of the New Development Bank (NDB) also known as the BRICS Development Bank, which was introduced with the sole purpose to foster greater financial and development cooperation among the five emerging markets, it is hoped that relations between these countries will be cemented, breeding more opportunities towards sustained economic growth and development.