When it comes to the BRICs, Canada kind of missed the boat.
According to calculations by Peter Hall, the chief economist at Export Development Canada, Canada’s share of Brazilian imports was 2.1 per cent in 1990, 1.9 per cent in 2000 and 1.5 per cent in 2010.
That pattern is the same in the other big emerging markets.
Russia: 3.1 per cent of imports in 1992; 0.6 per cent in 2000; and 0.6 per cent in 2010.
India: 1.3 per cent in 1990; 0.8 per cent in 2000; 0.6 per cent in 2010.
China: 2.8 per cent in 1990; 1.7 per cent in 2000; 1.1 per cent in 2010.
This isn’t an entirely negative story. In absolute terms, Canada’s exports to those countries rose over the past couple of decades. That brought more money back home.
There also was more competition in global markets as those countries and others muscled in for a bigger share of international trade.
But that’s as much excuse as explanation. It’s like saying Canada failed to win at the world hockey championships because Switzerland and Finland started fielding stronger teams. The bottom line is Canada failed to take full advantage of the rise of the BRICs countries.
And now, according to Morgan Stanley Investment Management’s Ruchir Sharma, it’s too late.
Mr. Sharma is the author of Breakout Nations: In Pursuit of the Next Economic Miracles. He’s not a fan of the BRIC acronym, and he loathes CIVETS, an attempt to label the next emerging-market boom. (In case you don’t know, CIVETS groups Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.)
Prime Minister Stephen Harper could do worse than invite Mr. Sharma up to Ottawa for a chat. The prime minister is shifting the focus of his trade policy toward Asia and Latin America to take advantage of the rapid economic growth in those regions. If Mr. Sharma is right, this must be done with some precision. Simply chasing the BRICs would have been fine a decade ago. Doing so now could mean missing that next big opportunity.
At the core of Mr. Sharma’s argument is the commodity “supercycle.” He said on a conference called hosted by Foreign Affairs last week that he believes the broad surge in resource prices is over. This would be a blow to countries such as Brazil and Russia that have benefited from strong terms of trade, masking serious flaws in their domestic economies. Brazil, for example, must cope with high interest rates, a strong currency and excessive government spending – a poor backdrop to foster a strong domestic economy. Mr. Sharma said the country is the only major emerging market that hasn’t taken advantage of favourable capital markets over the past decade to upgrade its major airports.
This leaves Brazil exposed to a downturn if commodity prices fall, Mr. Sharma says. And of course, one of the reasons commodity prices likely will fall is because China’s rapid growth is slowing – as growth in all “miracle” economies eventually does, according to Mr. Sharma.
Remarkably, Mr. Sharma’s winners include commodity importers, rather than the exporters that have risen to prominence over the past decade. He mentioned Turkey, Poland and the Czech Republic during the call.
“Emerging market growth is normalizing,” Mr. Sharma said Thursday. “In this environment, you need to pick winners and losers.”