LSE EMF: Beyond the BRICs – Jim O’Neill

'Mr Bric': economist Jim O'Neill
'Mr Bric': economist Jim O'Neill

As far as economists go, they don’t get much better than Jim O’Neill,  former Chairman at Goldman Sachs and global investment banking titan. O’Neill, amongst many other things, is accredited with coining the infamous acronym, BRIC (referring to the shift away from the western economies to Brazil, Russia, India, China). After leaving Goldman Sachs, O’Neill chaired a commission on the future of British cities and delivered a keynote speech on Thursday 26th February to the LSE SU Emerging Markets Forum where The Worldly provided full coverage and also managed to secure an exclusive video interview with O’Neill.

Population and productivity are the two most important determinants of growth

O’Neill opens by highlighting the wide spread confusion about the current world economic situation. He explains that contrary to popular belief, “world GDP growth for the last decade remains impressive”, and there is evidence to suggest that it is trending higher than pre-crisis levels.

In terms of poor performing countries, O’Neill slams Brazil, Russia, and the Eurozone; showing particular disappointment at Brazil. Praise is given to China for performing better than predicted. O’Neill explains that China is growing at a rate of 7% and has doubled in size since 2008, making China now five times bigger than India and twice the size of Japan. Although, when O’Neill coined the ‘BRIC’ acronym in 2001, he had high hopes for India, and saw potential for it to challenge China in performance.

The China that over consumes commodities, has gone.

 

Now, a lot would have to go wrong in China, and a lot would have to go right in India for it to even compete in the same league. O’Neill flashes up a table with growth predictions for this decade (2010-2020) for several developed and developing countries. For his prediction for India to be correct, India would have to grow by over 10% for the next five years. Although, he says this is not impossible. “Population and productivity are the two most important determinants of growth”, O’Neill explains that India’s vast population and “spectacular demographic” mean that India could in fact do that.

China is now a bigger market for Apple than that of the United States.

Conversation turns back to China, where there is a lot of talk about a “new China”, as focus has shifted, according to O’Neill, from the quantity of growth, towards the quality of growth. “The China that over consumes commodities has gone.” An increasing world reliance on China is developing, epitomised in the example of Apple outperforming expectations on their latest profit announcement. He argues that this is because of China, as they are now a bigger customer to Apple than the United States. Although, O’Neill does warn against the media’s misleading figures. It has been widely reported that China has a record current account surplus, which, in nominal terms is true. However, when looking at the current account position it is generally considered as a percentage of GDP. As Chinese GDP has doubled since 2008, the figure (in real terms) shows a 3% surplus, which is less impressive. O’Neill does strongly suggest that China is the growth engine of the world, but also adds that the world is not achieving its full potential still, and this is due to the Eurozone.

Nigeria is arguably the single most interesting economic story

Where O’Neill originally coined the acronym for the BRICs, he’s also popularised the acronym for the MINTs (Mexico, Indonesia, Nigeria, Turkey). Discussion is focused particularly on Nigeria. “Nigeria is arguably the single most interesting economic story”, he explains. O’Neill then diverges into a slightly bizarre anecdote of a Nigerian Doctor who became a rap producer, with the end point being that Nigeria is the second largest marginal consumer of champagne in the world…

For a comparison, O’Neill points out that Nigeria has four times the population of South Africa and has far more potential – explaining South Africa will never become a large economic power. He then reveals that he has told his Nigerian friends in finance that if they stopped fighting with each other and started trading with each other they would see strong growth, and their potential could be realised. A fondness of South Korea is one of O’Neill’s closing topics, where he explains when he came into the world of finance, it had equal wealth to many of the African states. Now, South Korea has the same wealth as Spain. The education system in South Korea is also incredibly strong, and arguably, according to O’Neill, one of the best in the world. O’Neill concludes his presentation by reiterating his admiration for China and South Korea, and displaying a disappointment at the Eurozone, adding that he hopes it “picks up.”

The question and answer is brief, as O’Neill is (as expected) incredibly busy. When quizzed on why he chose the BRICs as his chosen group of growth countries, he explains that all have a large population and potential for productivity growth (the two drivers for economic growth explained earlier.) O’Neill adds that he has reservations about not including Mexico.

Another audience member asks about his opinion on Bangladesh, and what he sees in its future; to which O’Neill simply replies, “no idea! … Fly out the 200 smartest people to South Korea and find out what they’ve done, and copy it”. This is greeted with laughter. The question and answer session is brought to a close. Throughout the keynote, O’Neill displayed a clear disappointment towards the Eurozone. With the forthcoming election and increasing political pressure tied with Europe, we asked him how how felt about the UKs involvement in the Eurozone, and if there was a referendum tomorrow, how he would vote? You can see his answer in the Worldly exclusive video below:

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