Tag Archives: BRICS

BRICS, Columns/Op-Eds

Article in “Russia & India Report”: BRICS for a new world

by Samir Saran and Vivan Sharan
March 12th, 2011
Please find here the original article

The 4th BRICS Academic Forum recently concluded in New Delhi. Over 60 delegates representing academic institutions, think tanks and expert community from the member countries participated in substantial debates that covered virtually every challenge and opportunity of contemporary times. The debates were intense, sometimes combative but almost always conducted among friends. This was the key takeaway from this meeting. The community is strong, it is aware of the differences, eager to resolve those and is comfortable with the irresolvables. The skeptics of BRICS for four years, would now need to rethink, this group has evolved, this group sees potential in greater and deeper engagement, and this group is capable of proposing bold and visionary ideas at the New Delhi Summit later this month and in the other interactions before and after.

This was not always the case and we only have to recall the early days of the relationship. To anyone witnessing one of the early Track 2 interactions on a cold day in Moscow in 2008, it would have seemed improbable that the grouping would come this far. There was early hesitance and unformed agendas among each of the experts gathered from the four countries (at that time BRIC). The Brazilian experts were unsure of their being there in the first place. A very prominent diplomat from Brazil saying, “why are we here, why do you need us, you are all neighbours and should talk amongst yourselves”. The Russians at that time, and who must be credited for the inception of the BRIC idea, saw in it a political opportunity to create a grouping of that could counter the Atlantic alliance and the Western economic and political weight. They were to be dissappointed, India and China were already deeply integrated with the US and EU in the arena of trade and economics and would not play ball. The experts from China liked the BRIC idea, which could be another instrument for projecting their growing pole position in world affairs and India was beginning to manage the nuances of diverse relationships in multi-polar world. It had also learnt from the SCO experience and this time it would not demur.

However, the early days of the conversations amongst experts and indeed among the policy makers from these countries lacked detail. This has changed, from the macro discussions on global governance, financial architecture, security and greater coordination, the discussions today focus on the substantive, on experince sharing, on creating institutions and linking up existing ones. In the fourth year of the BRICS (South Africa joined last year), the group has come of age. This is attested to by two facts. First, the experts from the four countries have signed an agreement to step up their interactions which till now have been sporadic and on the sidelines of the Leaders Summit and two, the wide ranging recommendations that the experts forum has submitted for the consideration of the Leaders at the summit in New Delhi demonstrate the limitless possibilities for the grouping.

The Forum’s recommendations to the 4th BRICS Leaders Summit to be held in New Delhi on March 29th are relevant and actionable. They are the result of intense discussions, debates and negotiations between the delegates on common challenges and opportunities faced by BRICS members, as they seek to set the global agendas for governance and development going forward. The theme for this year’s Academic Forum was “Stability, Security and Growth” – all common imperatives for the emerging and developing BRICS nations.

17 policy recommendations were carefully crafted by the Forum and are centred on key priorities for BRICS within the aegis of governance, socio-economic development, security and growth. The mandate of the Forum was to provide concrete policy alternatives to BRICS Leaders and to the credit of the delegates this year, the recommendations may have lived up to the mandate. The Forum deliberated context specific micro debates embedded within larger narratives. Varied and significant themes were addressed including the articulation of a common vision for the future; a framework to respond to regional and global crises; climate change and sustainable resource use; urbanization and its associated challenges; improving access to healthcare at all levels; scaling up and implementing new education and skilling initiatives; the conceptualization of financial mechanisms to support and drive economic growth; and finally sharing technologies, innovations and improving the cooperation across industrial sectors and geographies.

The Forum deliberated upon two distinct sets of engagement. One set of engagements is through research and initiatives that are “Intra-BRICS” in nature. These involve experience sharing across social policy, resource efficiency, poverty alleviation programmes, sustainable development ideas, innovation and growth. Each of these themes can be effectively mapped to help tailor policy within BRICS. The recommendations highlight the possibilities for enhancing such engagements through exchange of institutional experiences and processes, free flow of scholars and students, joint policy research, capacity and capability building for facilitating such interactions.

The second set of engagements and outcomes pertain to interaction of BRICS with other nations,  external actors and groupings at various multi-lateral forums and institutions. These are reflected in the recommendations pertaining to climate policies, Rio +20, financial crisis management, traditional security threats, terrorism and other new threats and global challenges around health, IPR and development.

The Forum provided a valuable platform for exchange of perspectives between delegates without adhering to national positions or party loyalties. There were heated debates on issues such as the possible institutionalisation of a BRICS Development Bank and an Infrastructure Investment Fund that could assist in the development aspirations of the BRICS and other developing countries. The discussions on the setting up on new, credible institutions to initially supplement and eventually substitute existing financial institutions such as the World Bank and IMF reflect the strong desire of BRICS to move ahead and away from the traditional development agendas of 20th century institutions that are today incapable of empathising with some of the realities and aspirations of the 21st century. This is perhaps a reflection on the way Bretton Woods Institutions are managed and governed and indeed to their legitimacy itself.

The recommendations reveal that BRICS view the sustainable development agenda through the lens of inclusive growth and equitable development primarily. The recommendations have also clarified that BRICS will continue to focus on achieving efficiency gains in resource use. Both these outcomes point towards resolute and far sighted policy guidance by the Forum. Climate change mitigation debates which have become a proxy for “Promoting Green Technology” and indeed are an outcome of “re-industrialisation policy” of some EU countries were conspicuous by their absence from the debates. Instead, with “plurality in prosperity” as a common ideal, the outcomes also signify that the research community within BRICS want the sustainability discourse to shift from one that emphasises common responsibility to one that emphasises common prosperity. This means that BRICS must attempt to reorient consumption patterns and energy use globally, towards sustainable trajectories. The BRICS Leaders would do well to replicate the cohesiveness of the BRICS academics in the articulation of their vision for creating sustainable economies, ecologies and societies. Similarly the promotion of cultural cooperation, establishing innovation linkages, sharing pathways to universal healthcare and medicine for all, strenghthening indigenous knowledge are all recommendations that are timely and appropriate.

The gradual transition process of BRICS becoming the global agenda setters has been one of the more exciting developments to watch and study. While sceptics may still dismiss the possibility of BRICS being “rule-makers”, it is unlikely that they will not influence “rule-making” processes. The experts at the forum were unambiguous in their vision for the grouping. While recognising that in many instances BRICS might eventually yield to sub optimal policy formulations due to national agendas and geo-political constraints, they were determined that the incubation period is over and now the bar must always be set high and the leaders must be ambitious. In the words of one of the delegates at the 4th BRICS Academic Forum, BRICS have indeed created a “new geography of cooperation” and opportunities are boundless.

Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at the Observer Research Foundation. The foundation hosted the 4th BRICS Academic Forum. 

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BRICS

4th BRICS Academic Forum: Recommendations to the 4th BRICS Leaders Summit in New Delhi

Please download here the full document: Forum Declaration Final

March 06, 2012, New Delhi: The 4th BRICS Academic Forum comprising experts and scholars from the research and academic institutions of Brazil, Russia, India, China and South Africa met on March 4th, 5th and 6th, 2012 in New Delhi. Given that the BRICS have covered significant ground from the first meeting of Leaders in Yekaterinburg, the Forum believes that they must seek and set concrete agendas for articulating a clear, bold and ambitious vision.

The theme for this year’s Forum, “Stability, Security and Growth”, represents the common aspirations of BRICS for strengthening progressive development trajectories and seeking transformations for optimal representation and participation in matters of global political, economic and financial governance. Sovereignity and International law serve as the fundamental principles for BRICS members in world affairs and these are prerequisites for ensuring stability, security and growth.

The imperative of economic growth cannot be substituted, and the Forum believes that BRICS must continue to create synergies for enhancing this growth through greater engagement with one another as well as with the rest of the world.

The Forum proposes the following recommendations to the BRICS Leaders for their consideration:

1)    Given the state of the euro zone and the continued ripples created by the global financial crisis, greater emphasis must be given to creating frameworks for enabling viable and timely responses to both endogenous and exogenous financial shocks within and outside BRICS. To this end, a systematic approach must be articulated to respond to any further economic downturns in the global economy.

2)    The BRICS nations must seek to create institutions that enable viable alternatives for enhancing inclusive socio-economic development agenda within and outside BRICS. Such institutions must eventually seek to set global benchmarks for best practices and standards.

3)    BRICS agreed to “strengthen financial cooperation” among their individual development banks at the Leaders Summit at Sanya in 2011. For furthering this objective, the Forum recommends studying the establishment and operational modalities of financial institutions such as a Development Bank and/or an Investment Fund that can assist in the development of BRICS and other developing countries.

4)    BRICS must evolve as a platform for creating contextualised multilateral policies, and by mutual consultation develop viable and credible mechanisms to respond to local, regional and international political and social turbulence such as the events being witnessed in West Asia and North Africa.

5)    The increasing involvement of non state actors and the dilution of the principle of non-interference are dual challenges that need to be met. Appropriate policies consistent with International Law need be be studied by BRICS academic institutions.

6)    The BRICS are home to some of the most bio-diverse regions in the world and they must work together to preserve such diversity through exchanges and consultations. They also must share experiences of integrating natural assets with their national macro-economic policies.

7)    As home to nearly half of the world’s population, BRICS have a responsibility to create pathways for sustainable development. BRICS could learn from policy successes as well as failures of the past from within and outside BRICS, and seek to implement policy solutions for sustainable development. In this context BRICS must bring to the fore inclusive growth and equitable development as the central narrative at global fora such as Rio+20.

8)    BRICS must study the role of financial and non-financial policy instruments in promoting innovation, strengthening University-Industry linkages and evolving TRIPS compatible IPR policies.

9)    The BRICS nations have a responsibility to respond to the increase in terrorist activities, illicit narcotics trade, money laundering, human trafficking and other new challenges. They must work together to neutralise the threats posed to each of them by sharing resources and information where appropriate, and through collaboration between relevant institutions in the member countries.

10) The Forum noted that a website has already been created by the Indian coordinator on BRICS issues. This could be further evolved into a virtual platform for the academic community for dissemination of developments, research and ideas. The Forum also suggests that the academic community and governments must work towards enhancing visibility of BRICS in their own countries and create an identifiable brand value.

11) Recent trends have shown that the BRICS are still very vulnerable to food and commodity price volatility. This, in turn, has exposed gaps in existing market policies and regulations as well as highlighted the imperative of resource efficiency. The BRICS should increase intra-BRICS cooperation in order to provide stable economic anchors for price volatility while simultaneously enhancing efficiency of resource use through better management, standards and technologies.

12) Urbanization is both a common challenge and an opportunity for BRICS. Additional capability and capacity building within urban agglomerations must be prioritized through sharing knowledge, policies and skills. Key actionable areas need to include infrastructure development, investments in mass transport, and programmes to enable social transformation.

13) The BRICS members must study the efficacy of their individual education policies and policies on Affirmative Action in promoting Inclusive growth. Documenting and sharing related outcomes could prove mutually beneficial. As a first step each of the member countries could use the Internet-based platform for distance learning about one another’s history and socio-economic development.

14) Cultural cooperation and connectivity between BRICS countries should be promoted. Instituting scholarships to promote student exchange between BRICS and creation of platform for dialogue and interface between representatives from legislative bodies, political parties and young leaders of the member nations could complement such efforts.

15) The BRICS are replete with instances and examples of innovative technologies, policies and practices. They must create linkages and institutions to share such learning, in order to promote economic growth and human development. An exchange programme of scholars, experts and business leaders in the area of innovation and entrepreneurship would present a good opportunity to enable this. In this context diversified linkages could be established among the business schools and other institutions of the five countries.

16) BRICS experts must undertake a thorough assessment of indigenous knowledge and practices to deal with common challenges such as eco-friendly agricultural practices, efficient water use, disaster management and other humanitarian issues.

17) BRICS need to collaborate on the realization of the ideal of ‘universal healthcare and medicines for all’. They must enable sharing of policies, practices, standards and experiences on public healthcare and create a community of healthcare professionals across BRICS. It is also suggested that the members must collaborate in strengthening the understanding and dissemination of traditional medicines and therapeutic practices. BRICS members must also coordinate and cooperate in international fora such as the WTO and work towards the effective transformation of WHO programmes.

The BRICS academic institutions and governments must share their hosting experiences from the annual Academic Forums and Summits in order to make successive interactions more productive and efficient.

BRICS engagements must be increased in range and frequency. To this end a Memorandum of Understanding has been signed between BRICS coordinating research institutions. BRICS must explore and make use of such avenues and partnerships among member countries.

The BRICS Academic Forum wishes the Indian government the very best for hosting the 4th BRICS Leaders Summit and is confident that the Forum’s recommendations will be considered.

The Forum appreciates the warm hospitality and expresses a hearty thank you to the Observer Research Foundation for all arrangements.

The Forum looks forward to the next meeting of academics in 2013, to be held in South Africa and they will continue their active engagement and offer full support to the organisers.

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BRICS

4th BRICS Academic Forum, New Delhi, March 4-6 2012 on “Security, Stability and Growth”

Please download here the entire program of the conference: 4th BRICS Academic Forum_03-03-12
Please download here the official invitation: Inaugural invitation

The BRICS nations are experiencing a unique set of circumstances in their socioeconomic
and political evolution. The debates that dominate the discourse
within each of the BRICS nations today, whether on traditional security or nontraditional
security, are linked to the challenges that confront the global community
today. This offers an interesting opportunity and a matrix with multiple possibilities
to cooperate, share and work together.

While it is always simplistic to attempt to capture the broad and rich arena that
current developments offer the BRICS nations to collaborate on, there are inherent
advantages in viewing the contemporary and evolving challenges and aspirations
of the BRICS nations, through the prism of “Stability, Security and Growth”. Stability
from financial shocks, governance failures within the BRICS and globally, from
erratic demand cycles for exports and resources and from systemic contagious
failures in the global financial markets. Security of access to means of sustenance,
basic infrastructure (health, sanitation, education), availability and equity of
opportunities for individuals across social classes, religions and gender; across
regions, communities and security of development space and the environment.
Growth – through new markets and innovations in appropriate technologies; are
common themes that should be addressed and discussed by the BRICS nations,
each of which is in transition and each of which is committed to advance their
economies, capabilities and the daily lives of their peoples.

In order to effectively work with the “Stability Security and Growth” framework,
BRICS need to address four fundamental issues that will define and shape the
socio-economic and political landscape over the course of this decade. They
include – strengthening institutions and institutional capacities to equip international
frameworks with suitably resilient response mechanisms in this age of uncertainty;
sharing concerns about sustainable development in order to live up to the
collective responsibilities of BRICS nations; sharing practices and experiences to
learn and respond to the immense socio-economic challenges within and outside
BRICS nations; and finally exploring the innovation landscape through promotion
and expansion of new avenues for cooperation and growth to enhance lives and
livelihoods, as well as respond to the ethical and development imperatives that
demand urgent attention. These themes are reflected in the agenda.

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BRICS, Columns/Op-Eds

Article in “Russia and India Report”: Navigating the trust deficit

by Samir Saran and Jaibal Naduvath
February 17th, 2012

Please find here the original article

At the 17th round of the Indo-Russian Inter-governmental Commission on Trade, Economic, Technological, Scientific and Cultural Cooperation (IRIGC-TEC) held in November last year, the two governments agreed to set up an investment fund with public-private partnership to finance projects in the two countries. Barely a month later, after almost 18 years of negotiations, Russia was formally invited to join the World Trade Organization (WTO), and, has until June of this year to ratify the accession agreement. Beyond reducing tariff barriers and eliminating non-tariff barriers, accession to WTO is also expected to reduce government interference in business, a key pre-condition for free enterprise. Russia’s evolving economy has been witness and victim to continued government interventions.

Nevertheless, given the impending WTO accession, the India-Russia joint investment fund has managed to get its timing right. Current India-Russia bilateral trade, estimated at around USD 9 billion, is admittedly far below its potential. Trade promotion initiatives such as this investment fund, a possible Comprehensive Economic Cooperation Agreement (CECA) with the Russia, Belarus, Kazakhstan Customs Union combined with the business confidence the WTO accession would inspire, is expected to double bilateral trade to USD 20 billion by 2015, an ambitious, though very achievable feat. With a Price to Earning (P/E) ratio of 6, compared to India’s 14, China’s 15 and Brazil’s 8.5, Russia’s market is attractively priced amongst the emerging markets with traditional industries such as oil and gas, metals and minerals remaining hugely undervalued.

Despite warm bilateral ties, and close political engagement and co-operation extending well over 55 years, India-Russia trade has rarely managed to go beyond the legacy confines of defense equipment, space, energy, metals and minerals, and, commodities, even while, ironically, both countries have independently managed to very successfully leverage new vistas of opportunity in economies they stood together against for a better part of the 20th century. Russia-European Union (EU) trade in 2010, for instance, stood at around USD 191 billion, with the bloc accounting for over 47% of Russia’s total trade turnover, representing a three-fold increase in just ten years. On the other hand, India-EU trade has grown to USD 107 billion this year and is expected to double in two years on the back of a Free Trade Agreement (FTA) currently being negotiated. Compared to this, India-Russia bilateral trade of around USD 9 billion today pales in significance even though it represents a quantum leap from about USD 3 billion in 2006-07.

Russia-India two-way trade and investment has rarely ventured beyond government-controlled domains, which are also accompanied with government-backed guarantees of some kind. Russia’s active participation in several military, aerospace and nuclear projects in India and Indian investment in Russia’s energy sector and preferred trade in controlled commodities are part of this broader trend. But, the true test of any meaningful business relationship lies in the unmitigated ability of private enterprise on either side to confidently engage, invest and gain from each other’s economies, outside the security of sovereign assurance, even if notional. This is not so in the case of Indo-Russian trade.

Russia, of course, dominates the Indian defense sector and is comfortable navigating through Indian officialdom, which still retains much of its controlled economy character from the 70s and 80s. However, this may not remain the case for long. Under greater media scrutiny and public glare, the defense relationship will need to become far more efficient in terms of reliability, time lines and price points, else Russian dominance in the sector could be potentially challenged. Further, as the offset policy starts playing out and thereafter as the Indian private sector becomes engaged in defense production and R&D, Russia may no longer be a competitive player in this segment. To really be a beneficiary of India’s transformation over the coming 2 decades, Russia needs to expand its portfolio by diversifying into the arenas of industry and infrastructure in India. In doing so, its ability to confront India’s dynamic and loud democracy, and an increasingly uncompromising civil society will be as severely tested as its ability to navigate the country’s highly regulated business terrain arising from complex land use norms, environment clearances, and fiscal regimes, all of which have shown to evolve over time.

On the other hand, Russia offers India minerals and land, besides a huge market for software, services, value added goods and consumables. The resource sector in Russia, though, continues to be dominated and overwhelmed by its government with significant self-interest. Agriculture and land based activities too would be prone to similar dynamics and one can expect Indian private sector’s trepidations to be strong on investing in either. Apart from large Public Sector Companies and select large Indian Multi National Corporations, it is unlikely that Indian private sector will invest in Russia, despite undervaluation and potential for attractive return. Indian businesses’ traditional risk aversion is demonstrated by flight of capital to low return economies of the Atlantic that have corresponding low risk political ecosystems as well.

When Indian businesses consider making investments in Russia, they still seem daunted by perceptions constructed by imagery of the powerful and manipulative oligarchy, political nepotism and uncertainty, and seemingly poor judicial and legal recourse frameworks. Fears to do business in Russia have been hyped by experiences of companies such as ExxonMobil, Total and Shell in Russian Oil Sector, which were divested of their interests by Russian political class in a manner that was viewed as ad-hoc, if not vindictive. This imagination has often resulted in investments by Indian entrepreneurs being channeled into markets such as UK, EU and US, which are far more taut than Russia in terms of economic opportunity.

Ironically, Russian investors feel the same way towards India, drawing from a regular narrative of chaotic democracy, policy inconsistency, political fickleness, and civil instability with commitment cycles perceived to not exceed the life of the dispensation in power. One of the collaterals of the 2G verdict of the Supreme Court, which saw the revocation of 21 of Sistema Shyam Telecom’s (SSTL) 22 telecommunications licenses, could be the flickering and faint Russian Interest in Indian business opportunity. Russia’s USD 28 billion telecom to tourism conglomerate, Sistema JSFC, operating in India through its subsidiary MTS, had invested USD $2.5 billion over the past three years into the project, in arguably, the largest private sector intervention by a Russian company in India’s new economy to date. Further, Russian state owned Federal Agency for State Property Management acquired a 17.4% stake in SSTL by investing a hefty $600 million just last year. Fortunately, there is a growing business constituency, which views such re-calibrations as an inevitable part of polity evolution, but nonetheless the experience of Sistema, which may see itself as a victim of judicial overreach as some argue, could well define Russia’s appetite for India’s growth story.

Russia’s accession to WTO this summer and the consequent abolishment of tariff and non-tariff barriers will heighten global interest in Russia. Pro-investment initiatives such as the proposed joint public–private investment fund combined with demonstrable political and economic will on both sides should result in heightened interest in private enterprise on both sides to explore and invest in each other. Multi-billion dollar National Minerals Development Corporation – Severstal Joint Venture steel project in Odisha or Indian companies negotiating long-term agreements for supply of diamonds from Russia are positive signs for medium to long term economic engagement between the two countries.

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BRICS, Columns/Op-Eds

Article in “The Hindu”: Giving BRICS a non-western vision.

by Samir Saran and Vivan Sharan
New Delhi, February 14, 2012

Please find here the link to the original article.

India is all set to host the Fourth BRICS Summit in March this year. The journey from Yekaterinburg to New Delhi has demonstrated that the political will amongst member nations to sustain this contemporary multilateral process is strong. Along the way South Africa has been welcomed into the original “group of four.” Yet, the challenge for BRICS has always been, and continues to be, the articulation of a common vision. After all, the member nations are at different stages of political and socio-economic development. While some have evolved economically and militarily they are yet to succeed in enabling plural governance structures, while others who represent modern democratic societies are being challenged domestically by inequalities and faultlines created by caste, colour, religion and history. The BRICS nations do have a historic opportunity — post the global financial crisis and the recent upheavals in various parts of the world — to create or rebuild a new sustainable and relevant multilateral platform, one that seeks to serve the interests of the emerging world as well as manage the great shift from the west to the east.

Way forward

Indeed, two out of the five economies in BRICS, China and Russia, have already emerged, and are veritable heavyweights in any relevant global political and economic discourse. Why then should BRICS depend on sluggish multilateral channels such as the World Trade Organisation (WTO), or try to imbibe didactic, non-pragmatic western perspectives on issues purely of common interest? It is amusing to be offered solutions to poverty and inequality, bottom of the pyramid health models, low cost housing options, education delivery, energy and water provision, et al by the wise men from organisations and institutions of the Atlantic countries. When was the last time they experienced poverty of this scale, had energy deficiency at this level and suffered from health challenges that are as enormous? The responses to the challenges faced by the developing world reside in solutions that have been fashioned organically.

BRICS could systematically create frameworks offering policy and development options for the emerging and developing world and assume the role of a veritable policy think tank for such nations, very similar to the role played by the Organisation for Economic Co-operation and Development (OECD) in the 20th-century world. Thus BRICS must create its own research and policy secretariat (for want of a better term) for addressing specific issues such as trade and market reforms, urbanisation challenges, regional crises responses, universal healthcare, food security and sustainable development (many of these issues are being discussed year at the BRICS Academic Forum in March).

Non-traditional security

The OECD’s stated mission is to “promote policies that will improve the economic and social well-being of people around the world.” Although the BRICS nations account for a fourth of global GDP and represent over 40 per cent of the total global population, none of them are OECD members as yet; instead what they have is “enhanced engagement” with the OECD. The BRICS nations have already created a viable platform for “enhanced engagement” with each other through the institutionalisation of the annual Leader’s summit, preceded by an Academic Forum of BRICS research institutions and a Financial Forum of development banks (and this year, a newly instituted Economic Research Group will focus on specific economic issues). The dominant discourses within each of the BRICS nations today are centred on non-traditional security, which can be efficiently addressed through collective market based response mechanisms.

Despite intra-BRICS trade volumes rising exponentially over the past decade, there are few instances of actual financial integration within the consortium (aside from the case of Russia and China starting bilateral currency trading last year). A useful first step to enable this would be to institute a code of liberalisation of capital movements across the five countries, as a modern day parallel to the 1961 OECD code with an equivalent mandate. In the current environment of global economic uncertainty, multinational corporations are perhaps the most adaptable and profitable drivers of economic growth. Therefore, at the outset, the creation of favourable policies for multinationals to conduct business across BRICS would be well justified. Moreover, just as the OECD has a comprehensive set of guidelines that set benchmarks for various economic activities, from testing standards for agricultural goods to corporate governance of state owned enterprises, the BRICS nations could create their own guidelines on the best practices and standards within the consortium.

Finally, within the BRICS nations, there are both import and export centric economies. This provides an excellent template for a realistic multilateral negotiating platform where obdurate self serving bargaining positions are natural starting points. The stalled discussions at the Doha Round of the WTO are an example of the difficulties of consensus building. Since the BRICS nations are already addressing a plethora of issues covered by the Doha Round, they are well placed to move ahead of it, and resolve mutual positions and common concerns.

What started as an investment pitch by Goldman Sachs (BRIC) has evolved into a useful multilateral instrument, for the BRICS nations. BRICS must now move on from being a grouping of individual nations, discussing agendas, to becoming a “go-to” institution for setting regional and global agendas. The essence and ethos of such an institution must in turn, flow from the inorganic prism of stability, security and growth for all. Stability from business cycles and financial governance failures, security from traditional and non-traditional threats posed to humans and the environment, and unbiased growth and prosperity are common aspirations for all BRICS nations, and they must be achieved and delivered from within. The Fourth BRICS Academic Forum will attempt to address these imperatives.

Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at the Observer Research Foundation. The foundation is the Indian coordinator for the Fourth BRICS Academic Forum on March 5-6, in New Delhi.


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Books / Papers, Water / Climate

Carbon markets and low-carbon investment in emerging economies: A synthesis of parallel workshops in Brazil and India

Abstract

While policy experiments targeted at energy and innovation transitions have not been deployed consistently across all countries, market mechanisms such as carbon pricing have been tested over the past decade in disparate development contexts, and therefore provide some opportunities for analysis. This brief communication reports on two parallel workshops recently held in Sao Paulo, Brazil and New Delhi, India to address questions of how well these carbon pricing policies have worked in affecting corporate decisions to invest in low-carbon technology. Convening practitioners and scholars from multiple countries, the workshops elicited participants’ perspectives on business investment decisions under international carbon markets in emerging economies across multiple energy-intensive sectors. We review the resulting perspectives on low-carbon policies and present guidance on a research agenda that could clarify how international and national policies could help encourage both energy transitions and energy innovations in emerging economies.

Read the entire article here: Full article (PDF-version).

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BRICS, Columns/Op-Eds

Article in “Russia and India Report”: It’s time for a ‘BRICS Fund

by Samir Saran and Vivan Sharan
November 14th, 2011
Please find here the original article

With a post-crisis global recession deepening in the eurozone and other parts of the world, the BRICS countries can take the lead to set up a ‘BRICS Fund’ to reenergize faltering growth in both developed and developing economies, argues Samir Saran and Vivan Sharan.

The current global economic scenario is uncertain, volatile and misleading. The uncertainty stems from a breakdown in macroeconomic correlations and a continuation of a post-crisis recessionary environment in large parts of the world.  The volatility emanates from the unpredictable price action across asset classes and increased sensitivity of almost all asset classes to financial and political fragilities, like those that are prevalent in the euro zone. Meanwhile, the misdirection and misallocation of capital across asset classes is a direct consequence of the lack of clear signals by political institutions and markets alike, leading to broad scale risk aversion especially in the case of sovereign investors such as central banks.

Increasingly, as such strains constrains economic development and investment flows, it is necessary for the BRICS nations to realise their new roles in the emerging global economic order. The imperative to shape the dynamics of future growth must come from these new drivers of economic momentum. One of the ways to do it could be the creation of a BRICS fund – a consolidated wealth fund with appropriate and proportionate monetary contributions from the central bank reserves of all the BRICS countries. Such a multilateral fund, with pre-determined investment mandates, could prove to be a useful tool for rebalancing capital flows, and reenergizing faltering growth in both developed and developing economies.

About one eighth of all assets managed in the US are allocated to “impact investments” or “social investments” – an impressive statistic that must be replicated by emerging economies. With a view to the future, it is clear that social, economic and environmental sustainability are going to be essential for economic development and growth – at individual company, industry and international level. A BRICS fund which invests back into sustainable initiatives both within the BRICS and outside in the least developed economies could prove to be an unparalleled tool to promote and accelerate sustainable growth trajectories. Rather than being a problem of capital generation, the key challenge in financing transitions to sustainable, low carbon trajectories is the redirection of existing and planned capital flows to financially viable allocations in non-traditional asset classes. Alternative investments into sovereign debt of struggling economies based on mutually agreed upon special purpose vehicles could be another avenue for funding which would also leverage the BRICS’ bargaining position in multilateral negotiations.

In the recent international climate negotiations at Durban, it was decided by member countries that that the second commitment period of the Kyoto Protocol will run from January 2013. Furthermore, it was decided that the Durban Platform for Enhanced Action – an agenda strongly backed by the EU and the Association of Small Island States (AOSIS) would be instituted to develop another new Protocol by 2015 – an international legal instrument that will be applicable to all parties to the UN climate convention and will come into effect after 2020. Simultaneously, the parties to the COP agreed to institute a $100 billion Green Climate Fund (GCF) – a measure largely intended to appease developing nations such as those in the AOSIS to come on board the EU agenda. The strategy worked well, although smaller economies should be aware that in the past a bulk of the funds that have been made available to developing countries through the Clean Development Mechanism of the UN have gone to private project developers in China, India and Brazil (in that order). China got the lion’s share of close to half of the total investments made till now. If the investment flows were analysed at from a primarily deterministic prism, it would be hard to conclude that the funds from the GCF would benefit small developing economies, or impact real organic change. The Durban negotiations provided a textbook case where bargaining positions of developing countries, and especially those in the BASIC group of countries including Brazil, South Africa, India and China, could have been leveraged, had these countries already committed to fund sustainable development through a parallel fund. Instead, the outcome was sub optimal – given that there still is no mechanism for the eviction of carbon squatters who have conveniently pushed the onus onto countries that are still in the low to mid income development profiles for what is effectively a $100 billion payoff.

The BRICS fund could also provide suitable SPVs to smoothen any future financial shocks to the highly integrated global economy. Just as in climate change scenarios, financial shocks and imbalances are likely to alter the growth trajectories of developing economies in a much more significant way than of advanced, developed economies which already have monetary cushions owing to high per capita incomes and strong existing infrastructure. The BRICS fund could help the central banks of the member countries counter the effects of erratic demand cycles, global resource pricing distortions, and systemic contagious failures in global financial markets, through strategic investment stimuli. Such a mechanism would not only be complementary to the policy mandates of the central banks of the BRICS nations, but would send a strong signal about their overall financial policy independence of Bretton Woods institutions such as the IMF.

Whatever the investment mandate – the overall emphasis for such a fund would have to be the generation of absolute returns to be considered worthwhile by all of the relevant stakeholders. Furthermore, it is beyond doubt that multilateral institutions have limited degrees of freedom. If a BRICS fund becomes a reality, a necessary condition would have to be complete operational and functional independence to deliver what is needed. This would only be possible with the effective and efficient delegation of policy sovereignty. The modern-day central banking trend of institutional independence would be a good model to follow. Ensuring political and financial goals are separate, and asset allocation occurs purely on the basis of the accepted common mandate and profitability would create a strong shared institution.

From purely the perspective of profitability and diversification of sovereign assets, such a fund would provide a good alternative mechanism for central banks within the BRICS to allocate appropriate portions of their reserves to riskier assets than they traditionally are mandated to invest in. Thus, the fund could substitute for Sovereign Wealth Funds, an increasingly popular concept for diversifying sovereign reserves through alternate mechanisms, while simultaneously creating significant signaling benefits which would be advantageous in matters of setting trends and norms in international financial investment agendas in the future. Today, financial institutions are zealously protective of their cash assets. This is far from being a panacea for the prevailing economic scenario with a failing European idea and a politically problematical environment in the US. A BRICS fund could provide the much-needed liquidity and confidence, especially to capitalise on resilient business models looking for seed money.

For decades, economies in the BRICS consortium have been subjected to the rhetoric of structural reform by actors that have consistently overspent on consumption. The retooling and rebalancing of the global financial system is an imperative that cannot be ignored any longer. With the increasing cooperation between BRICS countries along political and economic lines, the conceptualisation of alternative mechanisms to promote the development agenda at a time when financial institutions are cautious with their money is certainly justified. Disruptive changes to status quo policies and investment patterns are traditionally most effective in uncertain, volatile environments. Looking forward, this decade presents a mixed bag of opportunities and challenges for nations and economies. With the emphasis and impetus of growth shifting to the emerging and recently emerged economies, it is only natural that the BRICS countries take the initiative and the lead to innovate their way out of international crises.

Samir Saran is Senior Fellow and Vice President at the Observer Research Foundation. Over the past year, he has been actively involved in setting up a green business “gTrade” to promote sustainable investing in India. 

Vivan Sharan is Associate Fellow at the Observer Research Foundation. He has interned at the UNDP, and PWC undertaking disparate research tasks. His primary research interests are in monetary policy, equity/debt markets in America and the BRICs.

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BRICS, Columns/Op-Eds

Article in “Russia & India Report”: BRICS and eurozone crisis


by Samir Saran and Vivan Sharan
November 2nd, 2011
Please find here the original article

The rise of the BRICS nations as new epicentres of economic activity in the rapidly evolving world order has been simultaneously accompanied by a steady decline in the relative economic strength of many of the member countries of the eurozone.

The single currency union has become essentially a two-faced beast. A North–South divide in economic fortunes is clearly visible within Europe (and the irony of this is probably lost on most Europeans). It is time for the leaders of this grouping to recognise the fact that the major rebalancing and recalibrating actions that are urgently needed within the economic and monetary union must also address the concerns of external creditor nations such as those within the BRICS grouping.

After much introspection and procrastination, the European leaders managed to pass a controversial but necessary deal on Greek debt. The deal, which calls for a “voluntary” cut on a nominal 50 percent of private sector investments of over 450 financial firms to reduce total debt burden in the economy by 100 billion euros, is a desperate attempt by policymakers to stymie the relentless bouts of selling pressures on Greek debt.  Although given the circumstances, it was extremely important for the eurozone to signal some form of cohesive multi-stakeholder action to the financial markets, the deal is built upon ambiguous foundations.

The private sector has voluntarily decided to take these ‘haircuts’ and at the same time banks have agreed to increase capital reserves to 9% to shield against an imminent market collapse in Greece. This translates into tremendous pressures on banking institutions, without much positive effect on the bond markets, with Greek bonds still yielding unprecedented rates of interest. It is clear that the projected reduction of Greek debt to GDP ratio from 160% now to 120% in 2020 is not impressing bond traders.

The European leaders have announced that they seek to increase the size of the European Financial Stability Fund (EFSF) from its current capacity of 440 billion euros to over a trillion euros.  It is not clear how they intend to do this, and whether a trillion euros (approx.) is the amount they consider to be sufficient to counter the effects of possible contagious sovereign debt defaults and banking crises in member countries. While these leaders attempt to keep kicking the can down the road with respect to how they manage the myriad financial crises that are evolving in southern Europe, it has become increasingly clear that the problem is too big to be handled without outside help.

The Chief Financial Officer of the EFSF recently told a Brazilian newspaper that his colleagues are “pleased” to see BRICS countries starting to invest in the EFSF. The composition of the investments into the EFSF is not public, and therefore there is no real way of knowing how much each of the BRICS nations have contributed to the fund so far. The EFSF was originally set up to raise money for the Portuguese and Irish bailout packages through the disbursal of loans. Although the Fund has nearly risk-free credit ratings by all the major rating agencies (AAA by Standards and Poor’s and Fitch, and Aaa by Moody’s), it can be argued that investing in Greece’s sovereign debt is a far riskier proposition for creditors to the Fund.

Many of the BRICS nations are already heavily invested in the euro. The central banks of China and India hold approximately 25% and 20% in eurozone bonds respectively and are therefore not likely to spend much more of their international reserves buying into a now suspect currency. However, much like Brazil, which is allegedly considering investing into euro debt via its Sovereign Wealth Fund (which allows greater risk taking) rather than purchasing debt through its international reserves, the economies of China, India and Russia could soon follow suit.

Given the volumes of trade between the euro zone members and each of the aforementioned nations (China surpassed the U.S as E.U’s largest trade partner in July) along with hefty direct investment flowing both ways, it is certainly not in the interest of any of the stakeholders – to let the euro collapse. The involvement of countries like China, with immense amounts of liquidity, does not fail to inspire market confidence as was seen last year in July, when China announced that it would purchase a billion euros in Spanish debt. The bond auction was oversubscribed and lead to a turnaround in market confidence in Spanish debt even though China only committed 400 million euros.

Keeping in mind their leveraged bargaining position in current circumstances, the BRICS nations should coordinate their positions and assert themselves while negotiating investments in eurozone debt. Although the BRICS nations have a diverse set of agendas and priorities, it is not hard to see a future where there is greater coordination within the nations in the grouping, especially between geographical neighbours Russia, China and India, in order to deepen global financial integration and reverse the Western narratives that have dominated the larger economic realm for the past century.

At the Sanya BRICS summit in April, the leaders put on record that the “international financial crisis has exposed the inadequacies and deficiencies of the existing monetary and financial system” and that the BRICS nations support “the reform and improvement” of this system. In order to support the troubled European economies, the BRICS countries need to devise a formal set of pre-conditions for granting bilateral loans and investing in various bailout funds. Perhaps these could be centred on some basic premises such as further trade liberalization, increased access to intellectual property and perhaps they can even be self-righteous enough to demand more friendly immigration laws.

The Europeans will no doubt be faced with some hard choices. They have to be careful to juggle two contradictory imperatives – that of enlarging existing regulatory capacities in order to strengthen and deepen European fiscal, monetary and political integration, while at the same time accepting the inevitable growing interdependence with external nations.

If the evolving debt crisis in the eurozone is viewed through a deterministic prism, it becomes immediately apparent that panaceas such as debt write downs only offer short term relief to the markets as long as structural imbalances persist. In light of this, the Europeans will be hard pressed to look for a multipronged approach to dealing with the existing problems of their southern peripheral nations.

The glory days of Western credit and forced fiscal reforms in Asia and other ‘south’ countries are far behind us, with hegemonic Bretton Woods era relics such as the International Monetary Fund struggling to find its ‘traditional’ relevance within the new political and economic realities. Although it is in no way certain that the balance of power will completely shift towards the emerging or recently emerged nations such as those in the BRICS, as they are grappling with internal problems of their own, one can be relatively certain that the growing degrees of independence – both from Western policies and from Western demand —  will provide the perfect platform for increasing economic leverage through investments in equity and debt as well as direct investments. Europe has few options left but to align economic expectations with those of the BRICS. The question that still looms large is whether there is enough political unity and substance in the grouping (BRICS and other emerging nations) to make the right kind of bargains.

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