Russia Exposed as the Black Sheep of BRIC
A devastating new study by the Frontier Strategy Group reveals that a large cross section of international investors has rejected Russia when comparing it with the other members of the so-called “BRIC” group. Nearly twice as many investors in the group thought Brazil would be a “top-3” investing opportunity in the next three years as thought Russia would be, and China and India were right behind Brazil. Russia’s level of support as a top-3 candidate was rivaled by the likes of Columbia and Thailand and bested by tiny, backward Vietnam. Russia was also soundly thrashed by Mexico. “It was incredibly surprising to us how quickly people had abandoned Russia,” said Alex Turkeltaub, Frontier Strategy Group’s chairman, to the Wall Street Journal.
This was hardly the kind of news Russian “president” Dima Medvedev was looking for when he attended the BRIC summit last week.
As we revealed in our editorial last issue, financial analysts simply mocked Medvedev’s crazy notion that is country’s currency could become an international reserve standard, the stock market plummeted and to cap it all off FSG called into serious question whether Russia should even have been invited to the summit in the first place.
According to Goldman Sachs: “For the years 2011 to 2050, Goldman is projecting annual rates of growth of 4.3% for Brazil, 5.2% for China, 6.3% for India and only 2.8% for Russia.” That’s right, Russia’s growth rate over the next four decades will be less than half that of India, barely half that of China and woefully far behind Brazil. Unlike any of those countries, Russia stands out as totally dependent on crude energy prices, having totally failed to develop a diversified economy as they have done.
FSG believes that Russia does not belong in BRIC because of its
failure to diversify its economy away from oil and gas meant it didn’t grow between commodity cycles. Unlike Brazil and China, there was little evidence that a broad middle class was emerging in Russia with bulging wallets and the confidence to spend. And with its declining population, Russia’s demographics were less attractive than, say, those of Mexico. Russia has been hit much harder by recession than the other three: industrial output is 15.4% down on last year and gross domestic product declined nearly 10% in the first quarter. Brazil’s economy, in contrast, is already showing signs of pulling out of recession and could return to growth in the second half of this year, according to officials.
Ouch. Those are bitterly humiliating facts for Russia to swallow at any time, but to have them released just at the very moment of a BRIC summit is a brutal blow to the Medvedev/Putin regime. Maybe it a hopeful sign of the beginning of the end.