About BRIC

When Goldman Sachs economist Jim O'Neil coined the term

"BRIC" in 2001, he grouped together four seemingly disparate
nations: Brazil, Russia, India and China. They shared two
characteristics; a large population and an impressive rate of
economic growth. Investors seemed to share O'Neil's assessment
of the four countries, and the next few years cemented the status
of the BRICs as the darlings of foreign investors.
2012

According to the World Investment Report, in 2012, the BRIC

countries managed to absorb nearly USD $263 billion of FDI, or
20% of the global total.
2013

The BRICS continued to be strong performers in attracting foreign

direct investment in 2013, almost doubling their share from the
pre-crisis level. BRICS now account for over one fifth of global FDI
with China gaining the 2nd spot, Russia 3rd and Brazil 7th in the
list of top 20 host economies of 2013.
The current share of global FDI inflows to BRICS is at 22 per cent
which is twice that of their pre-crisis level, according to the UN
Conference on Trade and Development (UNCTAD) report.
Total inflow to BRICS reached $322 billion in 2013, up 21 per cent
from 2012.
South Africa outperformed other countries within BRICS, with FDI
inflows rising by 126%.
With inflows to China at an estimated US$127 billion including
both financial and non-financial sectors the country again
ranked second in the world, closing the gap with the United States
to some $32 billion, said the report.

FDI inflows to the Russian Federation jumped by 83% to US$94

billion making it the worlds third largest recipient of FDI for the
first time ever, added the report.
The rise was predominantly ascribed to the large acquisition by
BP (United Kingdom) of 18.5% of Rosneft (Russia Federation) as
part of Rosnefts US$57 billion acquisition of TNK-BP.
India ranked 16th among the top 20 global economies receiving
the maximum FDI and Asia regaining the top spot as the largest
host region. FDI inflows into India grew 17 per cent to $28 billion
in 2013 despite unexpected capital outflows in the middle of the
year, according to the report.
FDI to Brazil the largest recipient of FDI in the sub-region of
CELAC stood at $63 billion in 2013.

TREND
The share of BRICS countries in the total inflow of the current
world FDI increased to 11% in 2011. The import of FDI in BRICS
countries was 2.2 trillion dollars in 2011 (it was increased 5.3
times during the past eleven years). At the same time the import
of FDI in Russia was increased by 14.2 times, in India by 12.3
times

Foreign direct investment between the European Union

and BRIC
France was among the top four EU investors in all BRIC countries.
In 2013, the main EU investor in Brazil and Russia was
Luxembourg
Figure: Main EU Investors in Brazil, FDI flows, 2013p

Figure: Main EU Investors in Russia FDI flows, 2013p

Germany dominated EU investment in India and China (including

Hong Kong).
Figure: Main EU Investors in India FDI flows, 2013p

Figure: Main EU Investors in China (incl. Hong Kong) FDI flows, 2013p

FDI stocks held between the EU and the BRIC countries doubled
between 2008 and 2012 in both directions. Similarly to FDI flows,
the EU is a net investor vis--vis those countries

Mismatch: Needs of the recipient

preferences of foreign investors

economy

and

the

While BRIC countries welcome the influx of funding, the mismatch

between the needs of the recipient economy and the preferences
of foreign investors persist.
India has attempted to woo foreign money into infrastructure
projects such as power stations and roads. Yet these sectors
account for only 6% of inbound FDI.
In 2011, 50% of all FDI into China went into its real estate sector,
fuelling a property bubble. Consequently China's top economic
planning agency has officially discouraged foreign investment in
areas it deems "oversaturated", such as housing and automobile.
On the other hand, though Chinese government classified its
renewable energy industry as a priority investment sector, there
has been a lukewarm response from foreigners.
Brazil and Russia, in particular, have failed to attract foreign
investment into their high tech and manufacturing sectors, which
is necessary to diversify their economies from their dependence
on commodities.
There is now a growing consensus amongst BRIC policymakers on
the need to channel foreign capital into knowledge industries
such as biotechnology, nanotechnology and robotics in a bid to
move their economies up the value chain. Judging by current
trends, this is no easy task, as BRIC countries are perceived to
lack economic freedom.
According to the Economic Freedom Index (EFI) compiled by the
Heritage Foundation, which tracks country performance on 10
criteria such as protection of property rights to fostering
entrepreneurship, the BRIC countries are clustered at the bottom

of the ranking. Economists have found a positive correlation

between a nation's EFI score and the amount of FDI it can secure
for its high tech industries.

WHY FAIL TO ATTRACT FDI?

Lack of competiveness, complex bureaucracy and uncertain
policies are other reasons why BRIC countries fail to attract FDI in
sectors deemed important by their policy makers. In the latest
Global Competiveness Report published by the World Economic
Forum, none of the BRIC countries featured among the top thirty
most competitive economies. With the exception of Brazil, every
other BRIC country saw a decline in their competiveness over the
past year.
These factors not only deter foreign investors but also domestic
investment. In the past decade, the BRIC's share in global FDI
outflow has increased exponentially from a miniscule one percent
to ten percent. While rising economic prosperity and global
aspirations of domestic firms have fuelled outward FDI to an
extent in BRIC countries, high costs and lack of investment
opportunities at home have also contributed to the surge in
outbound FDI.
In some cases, FDI outflow from BRICs has begun to resemble a
capital flight. For instance, 2011 saw $10 billion worth of Russian
capital flow into property in EU countries. In Brazil, outward FDI
has exceeded the value of inbound FDI. One of India's largest
conglomerates, the Tata Group, has publicly acknowledged that
there are better investment opportunities outside India. A survey
conducted last year indicated that 60% of Chinese millionaires
would consider immigrating abroad due to uncertainties over
government policies.
Aside from these systemic challenges, foreign investors continue
to face structural barriers when investing in BRIC countries. A lot
of industries where foreigners would like to invest continue to be
out of reach. Analysts say FDI flows into BRIC countries could be

adversely affected
protectionist policies.

if

their

governments

continue

with