Should Russia Still Be One of the BRICs?
Art by Alex Eben Meyer
Time was that Russia numbered among the golden foursome of emerging economies that seemed slated to rise and even dominate the globe. The very name, BRIC—standing for Brazil, Russia, India, and China—connotes sturdiness. These days, though, Russia’s status has crumbled amid commodity downturns and international sanctions.
Along with the others, Russia enjoyed a healthy growth rate for years. Starting in the late 1990s, it turned in annual gross domestic product increases of around 5% annually. Like much of the globe, it slumped in the 2008 Great Recession. But to the delight of EM investors, Russia quickly rebounded to its former level. Then, starting with the slide in oil price that began in late 2014, it dipped anew. Only recently has its economy nudged back up with oil’s limited recovery.
Yet that doesn’t mean that Russia has returned to anywhere close to its glory days. The sanctions—imposed after its annexation of Crimea, aid to pro-Russian rebels in Ukraine, and meddling in the US presidential election—remain in place. And oil, at around $66 per barrel, is nowhere near the $100-plus territory earlier in the decade.
As a result, Russia’s GDP performance is torpid. In this year’s first quarter, it rose just 0.5% compared to the year before, while India scored an impressive 7.3% gain and China wasn’t far behind with 6.8%. Even Brazil, almost as commodity-dependent as Russia, was up 1.2%, more than twice the Russian rate. If not for the partial comeback of oil, Russia would be a lot worse off today.
The picture is no better for Russia over the next few years. According to World Bank projections, Russia will stumble along at less than 2% yearly through 2020. India and China will do far better, and Brazil will keep its lead over Russia.
The outlook for the four nations was uniformly optimistic in 2001 when Jim O’Neill, a British economist then working for Goldman Sachs, wrote a paper heralding the coming ascendancy of the BRICs: Four rapidly developing countries that he believed, by 2050, would supplant the G-7, meaning the US and the world’s six other established economic giants (the four BRIC nations formed a loose affiliation in 2010, and South Africa joined, although O’Neill insisted it was too small to qualify).
Russia, the world’s 12th-largest economy, at $1.5 trillion, should indeed continue to grow, albeit at a slower speed than before, as the World Bank estimates. But its many skeptics think it lacks the wherewithal to be a preeminent player on the world economic scene. “Clearly countries that are not diversified, like Russia, and do not have structures that will encourage broad economic growth will be large, but will not be leaders,” noted economist Hugh Johnson, who heads his eponymous investment firm.
Certainly, oil and gas comprise 60% of its exports, and while energy prices have risen, they are nowhere near their heyday. “Ten years ago, the oil price climbed to $147 per barrel, and Russian living standards and self-confidence rose with it,” noted Ian Bremmer, president of the Eurasia Group consulting firm. “Since then, the price has fallen to less than half that amount and looks set to remain there for the foreseeable future.”
In addition to Russia’s foreign military adventures, it has invited international scorn with a loose approach to the rule of law and favoritism toward President Vladimir Putin’s cronies. Take the recent fracas over oil colossus Rosneft’s takeover of a small energy company. Rosneft’s chief is close to Putin, and the nation’s economic development minister opposed the deal. The minister ended up sentenced to eight years in prison for what critics say are trumped up charges.
Meanwhile, polls show that the Russian people are “unhappy with the way the authorities respond for example to their pension, health, and education needs,” wrote the UK’s Chatham House, a.k.a. the Royal Institute of International Affairs, in a recent report. Russia’s Ministry of Health refuses to allow even cancer patients access to pain-killing drugs like morphine, and HIV infections are spiraling, Chatham found.
The upshot, said economist Gary Shilling, head of the A. Gary Shilling consulting and investment firm, is that “Russia’s top-down government inhibits economic growth.” The Heritage Foundation think tank rates Russia as 107th (of 180 ranked) in terms of economic freedom—calculated on qualities ranging from property rights to government interference. That places it into Heritage’s “mostly unfree category,” in the company of Iran, Saudi Arabia, and Cambodia. Plus, the other three members of the BRICs.
That’s a telling point: None of the BRICs is remotely like G-7 in terms of being honest and efficient societies. All are burdened by questionable governance, some worse than others. In fact, Russia’s near-dictatorship is a shadow of the iron control the ruling regime imposes in China. None of the four come close to the G-7 in terms of the rule of law and other economic freedoms. Despite widespread corruption, India and Brazil at least are functioning democracies (although Brazil’s former president just started a 12-year prison sentence, convicted of graft charges).
Moreover, the original concept of the BRICs was flawed, by Shilling’s reckoning. “It assumed that these countries could grow quite independently of major economies,” he said. “They all are export dependent.” There’s a basic difference between the fastest-growing BRICs, China, and India, and the slowest, Brazil and Russia. The first two have more diversified economies, and the latter two concentrate on commodities. And in Russia’s case, the tilt is toward energy, which leaves it even more at the mercy of global trends.
What places Russia at the hind end of this four-nation parade are the economic sanctions, and the scant prospect of them being lifted anytime soon. Under Putin, an insistent troublemaker on the world scene, little economic improvement is in sight.