Infrastructure is the major constraint on BRICs

Infrastructure bottleneck is still the major problem that jeopardizes the growth path in the BRIC’s (Brazil, Russia, India and China) economies. This is shown in a study by Grant Thornton’s International Business Report (IBR) with more than 12,500 businesses across 44 economies. According to the research, business leaders in the fast-growing BRIC economies believe the infrastructure is the major constraint on their ability to grow. Besides, the numbers reveal that for the first time, the top five most optimistic economies do not include the BRIC nations. The study does not place South Africa as part of the major emerging markets group.

To 45% of BRIC businesses, transport infrastructure is the major motive on their ability to grow, up from 21% last year. The data is also higher comparing to the global average of just 12%. The figure is particularly high in Russia (74%) and India (59%). In Brazil, 25% of the business leaders are dissatisfied with the quality of local transport infrastructure, a change from the 21% last year. It is important to note that the largest Latin America country will host the next FIFA World Cup, in 2014, and Summer Olympic Games, in 2016. In China, poor transportation was cited as a problem by 22% of the businesses.

Besides transportation, Information and Communication Technology (ITC) are considered a growth constraint. Addording to the research, 47% of the BRIC businesses cited ICT infrastructure as a bottleneck, a dramatic increase from the 19% figure recorded 12 months ago and the global average of just 14%. Again, India (64%) and Russia (63%) are the most concerned. ICT infrastructure is a bottleneck to be solved by 36% of the Brazilian business leaders, while it is 28% to the Chinese ones. 

To Ed Nusbaum, Global CEO of Grant Thornton, growth in the BRIC economies over the past decade has been incredible, with the four economies accounting for more than 30% of global economic growth since 2002. “However, the IBR results reveal that they are now facing capacity issues. Investment in infrastructure appears to have lagged behind growth, leaving unsatisfied business demand for better connectivity, says.

"The BRIC share of global economic growth is set to rise to 37% over the next five years, so these connectivity issues represent a major risk not just for the individual economies but the world as a whole."

When measured on a per capita basis, the GDP of the BRICs economies is behind that of the G7, but the major emerging markets are catching up fast. The BRICs forecast is to account for 37% of global growth in the period 2011-16, with China alone contributing 22%. This will increase the BRIC share of global production from 19% to 23%. Meanwhile, the proportion of global output produced by the traditional powerhouses in the G7 economies will fall from 48% to 44% over the same period.

The research also reveals that no BRIC economy makes it into the top five for business optimism for the first time in Q1-2013. Top of the list is Peru, followed by the Philippines, United Arab Emirates, Mexico and Chile.

In the Nusbaum’s opinion, investment in infrastructure is a sign that governments are serious about facilitating business growth. “This in turn breeds confidence (…) BRIC infrastructure concerns highlighted in the research are not temporary blips. They represent long-term problems which need to be addressed if growth is to be maintained in the coming years”, says. ““However, whilst the BRIC economies overcome their growing pains, the next wave of emerging markets – such as rapidly reforming Mexico and the other rising Latin American stars, Peru and Chile –  look ready to take up the mantle. There is no doubt that holes in output left by the BRICs offer opportunities for these frontier economies.”

The data was collected between January and February 2013. In total, 375 interviews were conducted with BRIC businesses.