Questions are many but answers not so simple. To begin with we can go through the some vital facts & figures as shown in the figure: -
Source: CIA Factbook 2007
After compiling the above data now its time for analysis.
- Starting with area, Russia has the largest area of around 17 million sq km which is more than half of the combined area of its peers. So it has huge geographical advantage in terms of land though the whole of it may not be usable for industrial purposes.
- In case of population, China takes the lead which is followed by India. But in terms of ‘density of population’, India stands first with 333 persons per km!!! Whereas Russia though boasting with largest surface area has meagre density of just 8. We all can understand how this is beneficial for Russia as now each resident in Russia has greater share in natural resources. India is many a time compared with China in respects of population, but a point to be brought to notice is that though India is second to China in population but China is around three times in area than India.
As far as growth rate is concerned, India having 1.38% is followed by Brazil with 1.04%. It is appreciable the way China has controlled its growth rate which has become one more reason of its enormous economic development in a short span of time. Russia has a decreasing growth rate of 0.37%. A low growth rate can indicate greater standards of living of people, better quality of workforce, more education, less disparities among population & so on. This ultimately leads to reaching the grade of developed nations in lesser time.
The unemployment rate depicts the quality of population. Not only should a population be proportionate to its area covered but also it should be skilled & put to use in economic development. Brazil suffers from huge unemployment rate of around 10%. This is terrible as the population which is already employed is paying for the living of the unemployed public too. Moreover such a group of residents is not contributing to the national development but is consuming the natural resources which will disturb the balance. Again China steals the show with least rate of 4.2%. - In terms of GDP & its growth rate, China tops the chart followed by India. Former has whooping 10.5% as GDP growth rate while India is following it with 8.5%. Brazil lies at the bottom with 2.8%. Though Russia has only 1.7 trillion which is a little ahead of Brazil but it has growth rate which is more than double (6.6%) of latter’s (2.8%). GDP is regarded as the biggest indicator of economic health of a country. For understanding it is the gross market value of goods & services provided by a country during a particular period (usually a year). It reflects how the country’s corporates-both public & private- have put to use its resources. So the more the GDP & its growth rate, the better for the nation.
- Public Debt is the money owed by government. It can be internal (where govt owes money to public or financial institutions within the country) & external (where it owes to foreign public & institutions). More of public debt can be because of heavy investment by govt in nation’s development (infrastructure, education, subsidies, forex reserves, etc). But more public debt as a % of GDP reflects the imbalance between govt spending & value creation. If more investment by a firm is backed by increased sales, then it is said to be utilising its operations well & there seems more growth. Same is the case with nations. In this context, India & Brazil may face great impact of imbalance of investment & return in future as their debt as % of GDP is around 50%. While Russia has this ratio standing at only 8%.
- Inflation rate has been the most talked about matter in India recently where RBI is tweaking the monetary policy frequently to tackle inflation. Inflation, for laymen, is the rate at which commodities get dearer after a particular period (usually a year). It hits the poor & fixed income groups badly. From economic point of view, a little bit of inflation is always desired. But high inflation makes resources expensive which may affect the growth aspects of economy. China has been able to keep its inflation at 1.5% lowest among developing countries. While India has moderate inflation of around 5.3% (which crossed 6% in first quarter of 2007) but Russia has hyper-inflation of 9.8%. Even Brazil enjoys low inflation of 3%. How come China has greatest GDP growth rate but least inflation rate is a question which has not been answered yet.
- Industrial production growth rate shows the pace with which the secondary sector of the economy is producing output. A country with more rate is said to have greater efficiency with which it puts to use its resources. Here also China is numero uno with 22.9% which is 3 times the growth rate of the runner up India having 7.5%. Brazil & Russia are still to touch the 5% mark.
- Forex reserves are the amount of foreign exchange lying with the Central Bank. These though are not great investments as the monies raised here are invested in other countries or provided to government at very nominal rates. But these reserves come to rescue when there is huge volatility in the international market. The Central Bank of a country sells foreign reserves to prevent the home currency falling beyond the comfort level. China has accumulated reserves exceeding $ 1 trillion. All other participants lag far behind. Russia comes 2nd with $ 314 million followed by India & then Brazil.
- One more indicator of nations’ performance can be the major market index. Though it is not a consistent measure of economic development & is often affected mainly by emotions of investor but still it can be used as a scale to measure the current investment outlooks of people & future prospects of corporate sector. Russia’s RTS Index has provided a return of 800% from Jan 1997 to Jan 2007, highest among BRIC countries. Runner up is Brazil’s Bovespa with 436% followed by India having BSE Sensex which gave return of 217%. Here China has not been able to score & lies at bottom with SSE Composite Index providing 80% since Jan 2000.
Apart from the above metrics, Foreign Direct Investment (FDI) already made is another factor that can have impact on decisions of International Investors. China allowed FDI in 1978. Now it is the largest receipient of foreign investment among developing countries & second in the world. In 2006, China's overall FDI inflows totalled $69.5 billion, most of which was for financial service sector. But 2006 saw a drop of 4% in the FDI investment since 2005. India is becoming liberal about its FDI policy lately by removing or reducing the caps on Foreign investments. For e.g. the cap in Air Transport Services was raised from 25% to 49%. Still there are limits on foreign investments in Banking, Asset Reconstruction, Broadcasting, Insurance, Defence Production, Infrastructure, Telecommunication and Newspaper. Apart from these sectors 100% FDI is permitted in all sectors. India received approx $ 11 billion in 2006 while FDI totalled US$18.78 billion in Brazil, higher than for 2005 (US$15.19 billion). Total Foreign Direct Investment in Russia in 2006 is estimated at US$ 31 billion. Here also China is number one.
Conclusion: Which would be the final investment destination is a question will the time will answer but there seems to be a great fight between China, India & Russia. If figures are to be believed then China & India have highest GDP growth rate & industrial production growth rate. Brazil is still huge unemployment rate, heavy public debt & least rate of growth. Apart from above factors - Political stability, high productivity, low costs of labour and good infrastructure are some of the key metrics to be kept in mind while making a foreign investment.
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