Building on the BRICS of solidarity

http://www.tribuneindia.com/2014/20140714/edit.htm

PM Narendra Modi will be in Brazil for the BRICS Summit, beginning on July 15. It can be an opportunity for India to leverage trade ties with the Latin American countries to its own advantage
Deepak Bhojwani

A proactive India can ensure that Latin American countries become its trade partners

AS the hype of the football World Cup subsides, the Brazilian coastal town of Fortaleza, renowned among other things for its gigantic sand dunes, will host the leaders of the most important emerging countries in the world on July 15.

Prime Minister Narendra Modi has already established a reputation for recalibrating the teeth-to-tail ratio in foreign policy. In what will be only his second foreign tour, he will meet with the Presidents of China, Russia and South Africa, in the company of Dilma Roussef, the President of Brazil, a vital strategic partner.

The Summit is expected to roll out important decisions, especially on the formation of the BRICS Bank, with a capital base of US $100 billion.

On the sidelines of the Summit, Modi is expected to have a meeting with those of the other 11 leaders of the Union of South American Nations — UNASUR — who accept Brazilian President Dilma Roussef’s invitation, and will be in Brasilia on July 16.

A Brazilian initiative covering all the 12 nations of South America, UNASUR was formalised in Brasilia in 2008. It is still the most powerful political grouping in a región struggling to achieve a common identity since independence two centuries ago. The fact that most of these leaders will be in Brasilia is testimony to the role of Brazil, the only Portuguese-speaking country in a largely Spanish-speaking environment, in bringing Latin America to the world, and vice versa.

Few prime ministerial visits

While the BRICS agenda is a mountain being scaled by the sherpas and others, the meeting which PM Modi will have with the Latin American leaders, apart from his bilateral with President Roussef, holds tremendous significance. It is no secret that visits by an Indian Prime Minister to Latin America have been fewer than to any other region. After Indira Gandhi’s odyssey in 1968 (she visited eight countries), prime ministerial visits, apart from Brazil, have been mainly for multilateral events — to Argentina, Mexico and Colombia.

Although there can understandably be no set agenda, the fact that such a meeting is taking place is important for India’s outreach to that supposedly distant continent. Supposedly because other BRICS members, specially Russia and, more importantly, China, have been aggressively wooing that region. South America, with an area five times that of India, four times its GDP, and an average per capita income of over $11,000 per annum, has still to catch the fancy of our top leadership.

In this century, trade with the 33 countries of Latin America and the Caribbean has grown at a compound rate of over 30 per cent since 2001. It soared to over $46 billion, despite a slowdown in the past year. The 12 South American countries accounted for approximately 80 per cent. India’s exports have also seen steady growth, despite a continuing trade deficit, largely due to growing imports of crude oil.

Fortunately, Indian businessmen, some of whom will hopefully be in the PM’s entourage, have assessed the potential and have leveraged the complementary nature of its resource-rich economy. On July 6, Pawan Munjal of Hero Motors launched a $70-million motorcycle factory on a 17-acre plot in Colombia.

Four countries in South America — Venezuela, Brazil, Colombia, Ecuador — and Mexico, accounted for almost 20 per cent of India’s world wide crude oil imports in 2013. Extensive investments, worth several billion dollars have been made by Indian public and private sector companies in hydrocarbon concessions, so far in Brazil, Venezuela and Colombia.

With Argentina, Peru and Ecuador also under consideration, apart from Mexico, India’s energy security strategy has an alternative to the current unstable environment in Iraq, Sudan, Iran, or even the South China Sea.

Indian investments

Indian enterprise has been exploring other sectors. Shree Renuka Sugars has invested heavily in sugar plantations in Brazil. Praj Industries has been setting up ethanol plants all over the region for years. Suzlon is active in Brazil and Chile. Indian automobiles, pharma, chemicals, IT are on firm footing. Indian hotel companies are scouting partners and properties in a fast-growing tourism market.

PM Modi, as Chief Minister of Gujarat, had met with the Latin American Ambassadors in India on more than one occasion. One can assume he is aware of the absence of political baggage, the enormous economic and commercial prospects. Gujarat, with the refineries of Reliance and Essar, as well as other business connections, accounts for over 60 per cent of India’s imports from Latin America.

Latin American presence

He must also be aware that several Latin American business houses have set up shop in India and more are keen to have a foothold in this enormous market. According to this year’s World Investment Report by the UNDP, India’s outgoing FDI pales in comparison to that of South and Central America combined — at $8.5 billion compared to $45.5 billion in 2012; $1.7 billion against $32.2 billion in 2013.

The UNASUR 12 are a cogent group of mostly progressive economies. While there may be internal divisions, there is near unanimity on the importance and potential of India. All 12 have embassies in Delhi. There are pending requests from several of these ambassadors for visits by their Presidents to India, expressing long-standing interest.

Ecuador, for instance, is the only country to have purchased India’s Dhruv helicopters — seven in 2008. Two of these crashed, in 2009 and 2014 — no aspersions on HAL from the Ecuadorians — and need to be replaced. India has defence agreements with Brazil, Colombia and Peru as well. There are agreements on cooperation in outer space and nuclear technology. The agenda has been drawn up years ago.

Time is of essence

Though the business environment augurs well, there is little time to lose. Most of these countries have seen the writing on the wall and are stitching together free- trade agreements among themselves and with other major economies. The Chinese President is scheduled to visit friendly Argentina, Venezuela and Cuba after the BRICS Summit. China has invested or loaned over $100 billion within the region. Our Ministry of Commerce’s belated interest in negotiating free-trade agreements with Colombia and Peru needs to be ratified at the highest levels. An amplification of a trade agreement with Chile has been pending with India for almost two years. Yet another with the five-nation Mercosur needs to be expanded.

If this visit conveys the right signals to South America, and to Latin America as a whole, India will be joining a party already in full swing. It will have to work harder to attract the right kind of attention. The Prime Minister’s visit is timely and should take full advantage of this opportunity.

— The author, a former ambassador, has represented India in eight Latin American and Caribbean countries



They can bank on this

At the Sixth Summit of BRICS, a new financial architecture will be established. A monetary stabilisation fund, the Contingent Reserve Arrangement (CRA) and a development bank called BRICS Bank will begin to operate after the summit. The CRA will have $100 billion, with contributions from China of $41 billion dollars; Brazil, India and Russia, with $18 billion each and South Africa with $5 billion. The BRICS Development Bank will begin operation with a capital of $50 billion, with contributions of $10 billion and guarantees of $40 billion from each of its members. It will have a capacity of financing up to $350 billion. China plans to create an Asian infrastructure bank to rival the Asian Development Bank, which is dominated by the US and Japan. Shanghai is considered to be the frontrunner to become home of the new BRICS bank. China, Russia, India and South Africa are putting forward cities to be the host. The choice of city is expected to be made on July 15. The leadership of the bank will be decided in July and will likely be rotated every five years.

Building BRIC by BRIC

The term, "BRICS", was coined by chief economist of Goldman Sachs Jim O’ Neill in his publication, Building Better Global Economic: BRICs. Almost a decade ago, O’Neill decided to start thinking of them as a group – which he gave the acronym BRIC. It was a simple mental prop. The bolder move was to predict — publicly, and in Goldman’s name – that by 2041 (later revised to 2039, then 2032) the Brics would overtake the six largest western economies in terms of economic might. At the time, many scoffed at this idea. The predictions turned conventional western wisdom on its head; and O’Neill hardly seemed an obvious champion of the concept. A large man with working-class Manchester roots, he does not exude the aura of any globetrotting elite. His office is decorated with splashes of cherry red memorabilia from Manchester United Football Club, and he still speaks with the thick, flattened vowels of his childhood. Indeed, when O’Neill coined the term BRIC, in 2001, he had never properly visited three of the four countries (the exception was China), and spoke none of their languages. Bric has become a near-ubiquitous financial term, shaping how a generation of investors, financiers and policymakers view the emerging markets.

Factfile
BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa. It was BRIC before inclusion of South Africa in 2010.
The members are developing or newly industrialised countries, distinguished by large, fast-growing economies and significant influence on regional and global affairs.
On June 16, 2009, the BRIC countries held their first summit in Yekaterinburg. A declaration was issued, calling for the establishment of an equitable, democratic and multipolar world order. Since then, they met in Brasilia in 2010, Sanya in 2011, New Delhi in 2012 and Durban in 2013.
Scholarly attention has been given to BRICS by Brazilian political economist Marcos Troyjo and French investment banker Christian Deseglise. They founded the BRICLab at Columbia University to examine the strategic, political and economic consequences of BRIC countries’ rise. Projects for power and prosperity are analysed through graduate courses, special sessions with guest speakers, education programmes, and conferences for policymakers, business and academic leaders.