There is a bright economic future for BRICS (Brazil, Russia, India, China and South Africa) and the emerging economies but they need to structure governance and transparency; they should seriously address the issue of corruption. This was the unanimous view of the panelists who included Mohammad Al-Sabban, senior economic adviser to the Saudi Minister of Petroleum and Mineral Resources, former Pakistan Prime Minister Shaukat Aziz, Jose W. Fernandez, assistant secretary of state for economic energy and business affairs, USA, and Anil Gupta, professor at the University of Maryland and chief adviser to the China India Institute. Riz Khan, former CNN, television news reporter and interviewer, conducted the interactive session in his inimitable style.
The panel's conclusion was that given the interconnectedness of the world economies and the room for expansion, powered by demographics, domestic and foreign investment within the BRICS economies, they held good prospects. However, lessons from the developed economies, particularly Europe and the US should be learned.
Aziz said it was essential to realize the interconnectedness of the global economy. "It has resulted in integration, you can't work in isolation and the concept of decoupling simply does not exist, especially because of trade and investment flows,"
he said, adding that the mature economies have not handled themselves as well as they should and that there were lessons to be learned, he added.
There are still many challenges in the mature economies, Aziz said and gave the example of the United States that showed a lack of structural reform, something normally associated with emerging economies. "Events have shown that if you do not adapt and don't reform, even the mature economies can get into trouble," Aziz said.
Aziz thought that the current crisis in Europe would tell the emerging economies how not to do things. "The lack of cohesion in European economic policy has led to where we are today. What we learn from this crisis is that unless you create jobs and growth you will have both political and economic problems."
When economic union in a group of countries was formed, it was not possible to have monetary union without fiscal cooperation or interaction, Aziz said. "That was the biggest flaw in the (EU) setup. When you have economic union, a nation cedes sovereignty and that is a very difficult political decision for a country."
Aziz emphasized that the emerging markets must improve their transparency, structure and governance because there was corruption in many countries. "The way to fight that is to be transparent."
Gupta said: "In 2000, emerging economies were only about 18 percent of the world scene - now they are about 33-35 percent. If they continue to grow by about 5 percent, which seems very likely, by 2025 they will represent about 50 percent of the world's GDP."
Expanding the theme of the interconnected nature of the global economy, he added: "So it's not so much decoupling, but a rebalancing of the world's economies." Increasing interconnectedness was, he said, "phenomenally good but it comes with some risks."
The interlinkages give access to markets, capital, resources and ideas and generated competition. However, two main risks from integration were systemic or catastrophic risks and the nodal nature of the member countries.
"When a system becomes more complex and interconnected, the likelihood of catastrophic failures goes up. A glitch in the corner of the system has the capability to bring the whole system down, for example the 2008 financial crisis," Gupta said.
The second was the individual nodes or countries interlinked in the system. A weak node will not necessarily benefit from interlinkages if it encounters trouble. Mexico, for example, did not benefit, but China did benefit. "If a node is weak and chooses not to behave, for example, Greece in the EU network, it threatens the system," he added.
Al-Sabban said Saudi Arabia was very aware of the international scene and was concerned with the happenings in the EU and the US.
The EU is going back into recession this year, the US will grow by 1.8 percent. "Emerging economies we see are going to grow by 5.4 percent on average - so I think the emerging economies are fully engaged in the world. Their impact now is tremendous - we used to have the G8 but that is now irrelevant without including the emerging economies," Al-Sabban said.
With the recession of 2008, there was a decline in the demand for oil, but with the emerging economies there was an increase in demand, he noted.
"Between 2008 and 2011 we saw a decrease in demand from mature economies of 2 billion barrels a day, while China increased by 2 billion a day in the same period. As an oil exporting country, we are watching very closely," Al-Sabban said.
Fernandez was optimistic about the prospects for growth in the emerging markets.
"China is talking about 8 percent," he noted. "Moreover, there is a coming demographic bulge - especially this part of the world. As they are incorporated into the economy, demand and growth will follow." Part of that was for example seen in massive infrastructure projects, "for example in India, where trillion dollar projects are coming up over the next 5 years."
Essential he thought was the involvement of the private sector. The panel concurred as Fernandez said: "If you are going to sustain growth, you are going to have to involve the private sector. These are challenges and opportunities but I am optimistic overall."
