Francisco A. Laguna & Annapurna Nandyal
This week, we conclude our 4-part series on the BRICS’ New Development Bank (NDB), focusing on the potential benefits the NDB could offer Brazil, the only BRICS country in the Western Hemisphere.
Brazil is one of the world’s largest growing economies. In comparison to other BRICS, Brazil is seen as soft rising power rising, and it tends to be underrated: the country’s growth rate was just 3% in 2013, while China and India had 8% and 6%, respectively. Notwithstanding, Brazil is hot on the international stage: it held this year’s World Cup; it will soon be the home of the 2016 Olympics; and it hosted the 2014 Sixth Annual BRICS Summit this year. Heads of other South American states participated in the Summit for the first time, and the event turned out to be one of the region’s most significant geopolitical summits in recent history.
Currently, Russia is a major oil exporter among the BRICS; India, China and South Africa remain energy deficient states. Brazil could change that dynamic in the relatively near future. In 2012, Brazil became an oil exporter for the first time, and predictions are that Brazil could become one of the largest global oil exporters. Despite the incredible potential of Brazilian oil deposits, the funding required to develop offshore oil fields is uncertain. To control exploitation by Western oil companies, the Brazilian government has passed legislation that the state controlled oil company, Petrobras, has sole authority to explore new offshore areas. Enter the NDB! The bank could help the Brazilian government undertake new oil-financed investments and protect Brazil’s diversified economy against some of the destabilizing effects of sudden oil wealth.
In terms of overall trade, Brazil’s all around top trading partner is China, with the United States second. Interestingly, on a per-country basis, China does the most trade with each of the other BRICS, as well. Brazil does comparatively little trade with the remaining BRICS, and least with South Africa. Discussions of a BRICS Free Trade Agreement (FTA) to boost intra-BRICS have been going on for years. Movement, however, has been slow, and some countries have begun bilateral FTA talks. Clearly, an FTA would benefit trade among the BRICS, and there is a certain synergy among their import / export commodities. An FTA with a strong government contracts section could result in the exportation of services in addition to goods, especially if the NDB provides funding for infrastructure and other projects. The wild card is China, which has historically liked the foreign direct investment route or to finance projects directly, getting concessions concerning Chinese labor and products from the borrower.
TransLegal has correspondent offices in each of the BRICS. Contact us with your questions concerning doing business in Brazil, Russia, India, China and / or South Africa.