|The tectonic shift to BRIC nations
Thursday, April 15, 2010
The industrialized world, led by the U.S., brought on the recession
and paid the steepest economic penalty as a result (see my article
on fading U.S. dominance for more background). But because of
the differences in regional economies, emerging nations such
as Brazil, India, China and to some extent Russia (collectively
known as the “BRIC” nations) were largely unaffected by the
recession. Their banks mostly avoided the toxic assets that
nearly brought down the Western financial system, and they were
hurt only by reductions in exports to the West.
The emerging nations all have large populations and economies
that are growing much faster than the old G8 countries. Collectively
they are leading the world out of the recession. Some of these
nations have seen gross domestic product (GDP) grow 5% to 8% per
year for 10 years, while we in the West hope for growth of 2% to 3%.
Twenty years ago, the bicycle was the most common mode of
transportation for people in China. For the past five to 10 years,
the Chinese have been building massive highways. And in 2009, they
also bought more cars than the Americans, for the first time since
the automobile was invented. China’s economy has been the dominant
player by far in the metals and mineral market for 10 years.
India has also made huge economic strides, and the phenomenon of
U.S. outsourcing of both service and industrial jobs to India has
helped boost its economy. Indians are also buying (and producing)
cars at an increasing rate.
The economies of Russia and Brazil haven’t had the impact that
China and India have had, but their growth can’t be overlooked
either. Canada’s economy was once far larger than Brazil’s and
Russia’s even though Brazil has close to 200 million people and
Russia about 140 million. Both have both recently surpassed us in
recent years. When you have such large populations, a small
improvement in GDP per capita can make a huge difference.
My biggest concern is that the BRIC countries and their combined
populations of 2.8 billion people are moving closer to North
American/European lifestyles, and the world simply does not have the
resources to make this happen. As more and more of BRIC citizens
move into the equivalent of a North American middle-class lifestyle,
the pressure on the demand side will increase dramatically, and
prices will move up accordingly.
Even if the proportionate percentage of vehicles on the road in
China and India is similar to a country like Mexico (which is far
behind Canada and the U.S.), the strain on oil supply would be
tremendous. I do not believe crude oil output can rise too much
more, because most of the easy oil has been found already. New
discoveries are smaller and more expensive to develop, barely
replacing what is coming offstream, let alone adding significant
barrels per day to world supply.
We all know what happens when supply is stagnant and demand
increases dramatically: prices rise. This won’t happen overnight,
but it will happen. The old G8 nations will move more rapidly
towards hybrids and other newer, more environmentally friendly
methods of transportation, but this will take time and won’t offset
the millions of new drivers in BRIC nations.
The events shaping our post-recession world have substantial
impact on investment portfolios. We need to be aware of these
changes and alter the way we invest if we wish to participate in the
opportunities that will arise from the economic shift away from the
industrialized West to the BRIC nations.
In my next column, I will outline some steps you can take to
profit from these tectonic shifts.
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opinion of the writer. This information is not intended to provide
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