Friday, 23 January 2015 11:11

Guest article: BRICS & Investment: Leading the World Re-Industrialisation

BRICS & Investment: Leading the World Re-Industrialisation
By Spyridon St. Kogas, CEO, Knowledge Industry Group

The need for a World Industrial Agenda

The agenda of the post crisis world economy no one could say that is defined yet. The world stagnation is still here and does not let us to think that the crisis is over. Combining this with the escalation of political and geopolitical tensions in Ukraine and the Middle East is not difficult to fear that we get into a chaotic transition with unpredictable consequences on world community. In order to not lose the whole context, which has been connecting with the dynamics and directions of the world market, we should consider immediately its ongoing multi polar transformation.

From this point of view we could make efforts to define an agenda for the post crisis world, planning and implementing actions where could support new policies for growth and prosperity in the 21st century.

Adopting the need for new policies of development, any economic power would be responsible to contribute practically to a thought revolution from above , aiming to abandon the speculative finance orthodoxy which dominated the last decades the majority of the economic leaderships of the global economy. To define what we mean ''new policies'' in practice is the main challenge, a challenge for those who really want to offer a coherent and long-term plan for the restart of the world economy.

This is of course the historical challenge of the BRICS block. To prove that could contribute to this restart through an absolutely new world economic architecture. I strongly believe that from now on the BRICS alliance should be criticized twice for its results, just because their share to the world market is catalytically for the future directions of the planetary economy. The days of theoretical declarations about the world agenda have passed and this brings new tasks for the emerging powers.

The synthesizing of micro and macroeconomic policies in conditions of the globalised market it would be possible only if the economic powers pursuing a more inclusive type of world governance, pursuing an economy oriented to a transcontinental function, pursuing to impact on the course of the economy.

It is the nature of the globalization that has been shaping BRICS identity to express the need for a return to the values of the Industrialization, adapted to the technological and social context of the 21st century. This could be helpful for the whole international community, already "BRIConomics" has an important influence on how we discuss in Europe for strategies of recovery from the crisis, strategies of therapy and not of an ephemeral relief.

It is characteristic the recent decision of the European Commission of the European Union concerning the urgent need for "A European Industrial Renaissance''. As the Communication of European Commission of February 2014 says:

"The economic importance of industrial activities is much greater than suggested by the share of manufacturing in GDP. Industry accounts for over 80% of Europe's exports and 80% of private research and innovation. Nearly one in four private sector jobs is in industry, often highly skilled, while each additional job in manufacturing creates 0.5-2 jobs in other sectors.[1] The Commission considers that a strong industrial base will be of key importance for Europe's economic recovery and competitiveness".

Undoubtedly we have the opportunity to turn back again to the essential dynamic of the investments which is the funding of infrastructure projects on the productive sectors of the international economy and to those sectors that are vital for the productive economy as for example transportation and telecommunication.

The world role of the BRICS Development Bank

The announced founding of the BRICS Development Bank has already strengthen those trends and of course created new expectations for a more dynamic management of the intra-BRICS economic relations. In any case, the short term challenge for the BRICS Development Bank it will be to play the role of the central investor for the Development needs of the BRICS or lately of the regulatory body for a potential monetary unification of the BRICS markets.

But the strategic challenge for the BRICS Development Bank is to not have a role similar with that of European Central Bank or the European Investment Bank in the acceleration of the European Unification. The geo-economic structure of BRICS has a much more significant role for the International economy, a role much more interregional, intercontinental and for that reason worldwide. It is the role of the accelerator of the Development in the majority of the emerging and developing economies.

The estimations of BRICS economists (Romani, Stern, Bhattacharya), sum up that investment spending in infrastructure in emerging and developing countries will need to increase from 0.9 trillion dollars per year to 2.3 trillion dollars per year by 2020. In absolute terms, East Asia and Pacific has the largest need for infrastructure investment, and of course Sub-Saharan Africa follows in needs if someone looks carefully the current share of Investment in GDP.

It's obvious that we got a financing gap between current and required investment in infrastructure in emerging countries and generally on the global infrastructures. A gap that is not possible to close by the domestic budgets cause always stay constrained to the struggle with the debt and budget deficits. This gap is the challenge for the BRICS Development Bank. Under a strategy of cooperation and partnership initially with the National Development Banks of the member countries, could promote systematically the funding of Infrastructure Investment and of course a strong lending to SME's. Furthermore it could support financially a combined project of Universities and Emerging multinationals for research and implementation of Innovation to real economy. At the same time a strategy of lending non-BRICS emerging countries could give mutual benefits in the course of the first ten years of the BRICS Development Bank. This would be important not just because total capital would be larger, but the range of expertise available would be broader and also governance of the Bank could be more inclusive.

The inclusiveness does not need to stop in emerging countries of the world market but could reach also particular developed countries, which under certain condition would show the interest to participate actively in the development bank as shareholders and borrowers at the same time. This is maybe a political challenge for the leadership of the BRICS but this is the essence of the differentiation that could create in the International Relations the experiment of the BRICS Development Bank. To contribute to the recovery of the world economy as an international investment organism, to confront drastically the world infrastructure investing gap with representational policies from all around the world.

Directing the Foreign Direct Investment to a world re-industrialization

In light of the above what we could propose is the planning of an acceleration of the structural changes of the last fifteen years in the BRICS economies aiming to direct the inward FDI's on a technological upgrading more connected with the capital intensive production. This direction has objectively as a prerequisite the deepening of the educational reformation in the BRIC societies and the support of a knowledge-driven industrialization, which has at the center the Innovation. I think that, except China, the other countries of the block are still in an initial stage of this process. If such a direction supported by policies in the next five years, very soon BRICS as a whole would be in position to change the quantity and quality of their outward FDI's significantly.

The gigantic needs of global infrastructure are reaching a demand of funding about US$ 57 trillion by 2030. Globally, the main sectors of infrastructure demand are power & gas utilities, oil & gas, and transportation.

These are the sectors which should drive the next big Innovation wave of our days. The systematic effort to shift from the communication-centered industrial innovations to energy and transportation oriented industrial innovations.

After the connectivity of the global citizenship communication we need to pursuit the world connectivity of trade routes and of course the exploration and exploitation of planetary resources. Lets think mega projects as the Ethiopia Djibouti railway, the Blue Line of the Lagos Rail network, Marmaray Tube Tunnel , Gotthard Base Tunnel , just to mention few, expanding in all over the world.

And here we can emphasize that with such directions to the Investment Strategy of the BRICS, we are going to live a global industrial renaissance with unimaginable effects on the international trade and of course with spectacular results on the social and economic structure of the international community. This is not an utopian design for the distant future. But this does not mean that it is a project where we will see it to happen easily the next years. In the beginning we need to map the new architecture through which necessarily should pass in order to set up a worldwide re-industrialization of the international economy.

The Multinational Enterprises of the West and the Emerging countries could play a decisive role to this direction. The whole logic of merging and acquisitions in the light of this course will have changed. The established international organisms as IMF, World Bank, WTO will be calling to take the initiative for cooperation with the new international organisms that bring the globalization in the spotlight, as the example of the BRICS Development Bank used above.

There are forces in the International economy that think and act inspired by this vision. There are new elites where they do not recognize themselves as soldiers of a certain ideology or camp. All the old ideas of our economic education are out of order in this new multipolar world order. The Leading of the world reindustrialisation is the primary task for the world economic governance for the next twenty years. The BRICS Investment strategy will be essential for the speed and depth of this process in the long run.

Spyridon St. Kogas, Chief Executive Officer, Κnowledge Industry Group - K.IN.G

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