Jim O’Neill, former Goldman Sachs executive, on BRICS, de-dollarisation, global inflation, Nigeria’s resource curse, Brexit
By Business A.M.
- The BRICS 20 years on!
In this interview, originally published by IC Intelligence, Jim O’Neill, who as chief economist of Goldman Sachs wrote the paper that gave birth to the acronym BRICS, in conversation with Desné Masie, chief economist, IC Intelligence, speaks on BRICS, de-dollarisation, global inflation and macroeconomic risk, Africa’s energy dilemma, Nigeria’s resource curse, Brexit, the English Premier League, and many more. Safe for this intro and the title, the interview texts are as conducted by IC Intelligence.
Jim O’Neill reflects on inventing the BRICS, 20 years on and what it means for Africa
Desné Masie: I’m really sorry, Jim, but I am going to have to ask you, as I am sure everyone does, about your famous BRICS paper you wrote for Goldman Sachs in 2001.
Jim O’Neill: Uh-huh. Stamped on my forehead forever.
Desné Masie: I still think it is so interesting how the acronym has come into common usage and has become a bonafide bloc. But do you think it is still meaningful, given it was meant to describe a set of attributes that have now become quite divergent?
Jim O’Neill: By definition, yes it is meaningful. Martin Wolf wrote about it just yesterday. It’s a group that meets every year. And they’re about to meet again. And very interestingly, they are considering expanding it. Obviously it has persistence. Whether the economic performance of the BRICS is as we postulated it could have been is an entirely different matter. The answer to that is no, because both Brazil and Russia, after a fabulous first decade, had a disastrous second decade. And if you look where they are compared with what we, or I, said, they could [have been], China has done better than I assumed. India has done nearly as well. Russia has been very disappointing. South Africa … Dreadful.
Desné Masie: Yes. I was born in Johannesburg. I am in voluntary exile. Either way, Alec Russell wrote on Friday in his article for the Financial Times, ‘This is the hour of the global south’, that more countries want to join the BRICS now. Do you think the BRICS will eventually rival the G7 on the global stage?
Jim O’Neill: Economically, it already is. I think we have the data. Last year’s GDP data shows that collectively they are now, in PPP terms, already bigger than the G7. So economically, clearly. By the end of this decade, China is going to be pretty close to the size of the US, India is going to be close to overtaking Germany. So, two of the biggest four economies in the world are two of the BRICS. So, you know, obviously economically, despite how disappointing, Brazil and Russia have been. Politically, yes – again, linked to the fact that somebody like Martin Wolf wrote about yesterday. To some degree, the G7’s own behaviour is, in a way, elevating the importance of the BRICS more. I think if I go right back to my initial paper, I cannot believe how narrow minded or naive leaders in the G7 countries are.
Desné Masie: Would you like to expand on that? I think that’s really fascinating.
Jim O’Neill: The whole idea that this group of seven “industrialised” or, “more developed”, “earlier developed” countries can run the world, is embarrassing. Because, first of all, their share of the world GDP has declined. Japan’s not shown any net increase in its GDP for 20 years. Italy virtually never grows. So this idea that they are some kind of thing for the whole world to follow. And then on top of it, effectively it’s a hostage to whatever Washington wants. And so, and, and how do you solve the mammoth global issues of our time with just those guys. I mean, it’s embarrassing and that’s quite depressing, because the whole reason why I created the BRICS was to suggest we needed a better form of global government than the G7.
Desné Masie: Well that’s a very useful segway to my next question, especially given our audience. Many of our readers are in Africa, but we also have a lot of “Africa watchers”, globally – And also because having been born in Africa myself, I rail against words like “emerging” and “developing” because it suggests inferiority.
Jim O’Neill: Yes, it is slightly derogatory.
Desné Masie: Yes, it is derogatory, and it is absolutely a power play. Whereas, things are done in a different way in those markets. They’re not “informal”, they’re different.
Jim O’Neill: Well the whole idea that South Korea is still quite often referred to as an “emerging market” highlights what you’re saying, because today the average GDP per capita in South Korea is the same as in Spain or Italy. So why on earth should people from the west call them an emerging country? It’s ridiculous.
On Africa, the BRICS, and decolonisation supported by Russia and China
Desné Masie: Does the BRICS bloc present an opportunity for an increasingly strategic Africa to renegotiate a new vantage point of power in relation to the G7 or does it present new dangers for Africa?
Jim O’Neill: Probably both. So, obviously three things to follow. Despite the BRICS, the reality is, that a lot of it is symbolism. Tell me something that China and India ever agree on. And I’ve just written something that’s yet to be published about another question you have about the replacement of the dollar. It’s a good job for the West, that China and India never agree on anything. Because if they did the BRICS would definitely be taking over a lot of things [from the west] and its influence everywhere, including Africa. But, as anybody who looks at these things is aware, it seems to be very difficult for China and India to treat each other as anything other than a rival. So that’s the first point. The second point is, of course, from what I could see, and this is definitely happening today, is that three of the BRICS object quite deliberately and try to court influence in Africa. Whether it be Russia, look at the highly controversial debate about Russia and South Africa right now and the arms. Yeah. Obviously China in terms of how much money it’s been investing in African countries, and India has a more historic relationship, especially with South Africa because of Gandhi. So, of course, the BRICS are a very significant influence. The whole reason why China effectively invited South Africa in, was to develop a relationship with the whole sub-Saharan Africa. When I said both [a danger and an opportunity], the downside to that is of course, again topical with South Africa today. Some of these countries have got preferential status from important countries in the G7, particularly the US. And if they’re going to align more and more with the BRICS, it is probably the case, especially with the current mentality of Washington, that the US will remove some of those preferable treatments. It’s worrisome.
Desné Masie: I had wanted to talk a bit to you about Russia and South Africa. So it’s great you brought it up. I did a talk on geopolitics on 1 March this year in the City of London. So some time before this heightened nervousness about military and intelligence cooperation between South Africa and Russia started. If you look at the history of Russia and South Africa – well, first of all, Russia never had any African colonies. Russia extended a lot of help to African countries during its decolonizing project. And especially during the struggle against apartheid. Russia helped South Africa. So, I mean, those are sort of, um, You know, if you wanna talk about the embarrassment of the G7 struggling to move on from the status quo in the world, often when there has been no political support and no money for African countries, Russia and China were there. So for those reasons, I used to be very agnostic about Russia in South Africa and Africa – before Putin lost his mind, obviously.
Jim O Neill: It is a historic relationship.
On the fanciful notion of de-dollarisation and a single BRICS currency
Desné Masie: Yes, but it is a very dangerous situation now. Let’s move on and talk about de-dollarisation. And the idea of a BRICS currency. I’ve tucked in a question about the African Continental Free Trade Area. Which for me is really interesting because it seems to me the EU is kind of struggling to hold together with the war in Ukraine, I think it is debatable if the EU bloc will stay coherent. But can the idea of a single currency for the BRICS fly?
Jim O’Neill: Well, it is ridiculous. I’ve already said. China and India can’t even really agree on basic things like a peaceful border. Yeah. I mean, how on earth can people seriously believe these guys are going to introduce a shared currency, I mean, who would run it? Would there be a BRICS central bank?
Desné Masie: And would it be pegged to the renminbi? Jim O’Neill: It’s amusing. Sorry. I just think it’s fanciful. If you allow it, what is more feasible and more likely, is at some point in the future, the RMB, and possibly the rupee are going to be much more important currencies for the world. But the idea you have a shared BRICS currency, you know, this is just the kind of nonsense that they symbolically say because it just sounds good, you know. The dilemma for them is that people with experience and those that are usually looking at these issues are like, what are you actually talking about? How do you get a BRICS currency? How?
Desné Masie: There was a very long article in Foreign Policy magazine recently on de-dollarisation. One of the ideas floated there was “the bric”. But maybe let’s take a step back from the idea of a shared currency and talk about de-dollarisation. What you’re saying is in terms of de-dollarisation, the renminbi being the preferred global currency is a greater possibility. The rupee could become more prominent.
Jim O’Neill: I have published on this topic endlessly, and I have done so again recently. I’ll say three things. First of all, as experienced by the UK at some very unpredictable moments in time, if you are no longer the biggest economy in the world. Your currency stops being the most important. So if China ends up being a lot bigger than the US, then probably, the dollar won’t be what it is today. But that’s the reality of life. That’s the first point. Second point, however, is, for 40 years, I’ve heard people say that the yen was going to take over, then the euro was going to take over. And now we have this thing about “the bric”, but really, the RMB. And the reason why the yen never took over was because Japan didn’t become that big. And the reason why the euro never took over was because the Europeans didn’t want the responsibility that goes with being a reserve currency. And it’s not obvious to me that China wants that responsibility. Certainly not now, and maybe not in the foreseeable future, because it is a responsibility.
Desné Masie: Are you saying that because of the balance of payments that the country has to maintain?
Jim O’Neill: Well, you’ve got to allow and encourage people anywhere in the world to hold their wealth with confidence in your currency. And not having any fear that something might happen that they don’t expect. You’ve got to have some significant degree of transparency as well as liquidity. And I’m not sure the CCP is in the position to do that.
Desné Masie: Well, China’s economic reporting, and the economic information it shares with “the market” is at the best of times, opaque.
Jim O’Neill: There are still significant controls on what Chinese individuals can do with their savings, so at some point that might change, but if it doesn’t, then how can the RMB be this global reserve currency? How?
Desné Masie: I think what you are saying is really interesting in terms of being able to operate locally where your economy happens, because local currency bonds are a big issue in Africa. There is this massive need for infrastructure. A lot of it is negotiated by investment banks in US dollars. And then if you have a small, highly-volatile open economy, that can obviously create a lot of risk for you down the line.
Jim O’Neill: Intellectually, and again, this is something I’ve just written about recently, for many, many years, some leading Chinese scholars have argued that the SDR should become the world currency, and that would make the world a lot fairer because the dominance of the dollar is clearly problematical for the world cycle. Because effectively, every time the Fed decides to tighten up, it immediately puts pressure on many emerging economies because of the rising dollar and higher rates. And the other side of it, which people don’t talk about, but is equally true, is when the Fed then suddenly decides to start cutting interest rates dramatically, the same thing is true in reverse. And so it’s not, in my view, a permanent stable position for the world, and we probably need some different monetary system in the future, but the idea that one other currency is going to replace the dollar. I’m not sure that that would make it any better either, because then everybody becomes completely dependent on the monetary policy of China. And so why is it actually any better? Maybe better for China, but why is it any better for Africa?
On persistent high inflation and global macroeconomic risk
Desné Masie: A question I had is, or a thought experiment rather, if we look at the path the global economy was on. Let’s not say pre-covid. Because we had some projections about what the trajectory might have been, pre covid, so let’s say post covid. If the war had not happened in Ukraine. Where do you think we would be? Now, I know this is a massively speculative sort of fool’s-forecasting question…
Jim O’Neill: It is. So, my honest answer is: I have no idea. We would almost definitely have a much calmer financial market situation. Interest rates wouldn’t have had the inflationary pressures, or not the same scale, and therefore Western central banks wouldn’t be raising interest rates so much. And so, a much more stable environment, I’d guess, but I don’t know. I mean, there’s always – things.
Desné Masie: Well I wanted to bring up inflation trends because I recently did a huge macro study on African economies. Because there is hardly any data on African economies, so I’m trying to build some data sets. And central banks there are actually quite used to a high-inflation-high-interest-rate environment, and were therefore much more agile than their developed market counterparts. I mean just look at the Bank of England, it still can’t get to grips with a high inflationary environment. So I would be grateful if you could comment on the fact that we are now in this global high inflation environment. Can developed markets withstand the direction of travel? How are they going to get out of this? People are talking about a UK recession on the way.
Jim O’Neill: Listen, economics is a social science. We don’t know the answers. So my answer is: I don’t know. I really don’t know. I hope so. But our central banks are being caught out. They’ve made some big mistakes. The core of it is too much group-think. They persuaded themselves because inflation was so low for so long, it was always going to be so low. And with it, they pursued this so-called “QE” for far too long. In fact, not only has that had some impact on why inflation’s picked up, but it’s also caused damage, in terms of perceptions about wealth inequalities. Because while it was going on, we saw these enormous improvements in financial assets. So owners of financial assets got wealthier at the same time as people that had only income from jobs weren’t getting any wage increases. So the central banks are guilty of being nowhere near as smart as they think they were, and they’re trying to catch up. And so it is interesting that inflation has come down quite a bit in other countries. So you would assume eventually it’s gonna come down here, but the evidence is very disappointing.
On Africa’s dilemma amidst the geopolitics of energy and climate change
Desné Masie: Yeah. I mean, I think if you’re a Zimbabwe or a Uganda, you are used to, like, literally, your inflation rate is running at 20% all the time. You have to manage that on a continuous basis. So I think that’s why people were more agile because it’s like, you know, oh, we know this state of the world. But just to return to the thought experiment. So the conventional wisdom is we cannot say what would’ve happened in terms of the war right. How global conditions might have turned out had it not happened. But, I am not so sure, I think we could have. Because I am reading a lot about geopolitical risk in the global economy at the moment and quite a lot of it comes from energy predominantly, from energy security issues. Maybe I’m just being a devil’s advocate here, but I was reading an EU Commission paper by Frans Timmermans the other day, that was also in Project Syndicate, where he was talking a lot about the geopolitics of climate change. And so my point here essentially is that the Russia situation has only emphasised how energy transition cuts across the BRICS as a grouping, and even as a general lens on emerging markets. So what does the move to clean energy mean for development and for the BRICS specifically? I mean, for China, I would, to me it seems like China’s security strategy is renewables in a way.
Jim O’Neill: Again I would say there is a difference between the reality and the rhetoric. So it’s amongst my other criticisms of the BRICS as a political group, they should be trying to seriously pursue an alternative energy strategy. China on its own, is. But from what I can see of South Africa is that it is so chaotic – is there any strategy about anything? And then, if you look at Russia, the last thing they want to do is to lose fossil fuels because that’s where they get their financial income from. And there is an argument to be made. I digress. In 2008, I was invited by the Russians to do a special presentation for the famous St. Petersburg Summit. It’s like the Russian Davos. And I did it for the whole audience, and it was about where Russia would be in 2020. And they were annoyed with what I said because I didn’t assume that Russia would be in the top five economies of the world. Because I didn’t assume that oil prices would keep rising. Yeah. And their reaction to what I said was very revealing and it made me think, hmm, if oil prices don’t keep going up, Putin’s not going to be as popular as he is then. Because in the first part of the BRICS people thought Putin was an economic genius. But it was because oil prices went up for eight years. And then I thought how does he stay so popular? And the answer is, he becomes more and more nationalist. And I often think the reason why he does all these crazy things, is because it plays to the sense of Russian pride. But in the long term for Russia, it is ludicrous because one of the very interesting things that’s happening, from what I can see, is there is an acceleration of energy efficiency and a move to alternatives in the west. Particularly in Europe. Who would’ve thought that we’re sitting here talking and that European gas prices are significantly lower than they were a year ago. And that only can be because European businesses and consumers are using energy more efficiently and using alternatives. So, of course there should be a BRICS strategy on alternative energies, but where is it?
Desné Masie: What you’ve said now is really interesting because there’s a lot of tension in Africa at the moment because obviously, the whole issue with the loss and damage fund, because African countries haven’t, don’t emit as much carbon. But at the same time, there have been a lot of significant hydrocarbon finds, across the continent. And some countries are expecting an oil and gas bonanza and the African Energy Chamber has been saying, that Europe shouldn’t be, the west, shouldn’t be, lecturing African countries now about renewables and green transition because these countries need to develop, they need to industrialise – it’s not fair, and they deserve to have prosperity. So, I mean,
Jim O’Neill: True, it is very difficult.
On the resource curse, Nigeria and soft power
Desné Masie: But these oil and gas developments are happening from European companies, like the Totals and the Shells are actually developing those finds right? So I mean, is Africa on a hiding to nothing? Are they going to be sitting with stranded assets that they cannot sell in the global economy?
Jim O’Neill: It’s very difficult because I think African people are right to think we want the prosperity that other nations have enjoyed, and so you want to develop what you’ve got. But there is something that I am sure you know, the commodities curse. And it’s not entirely clear to me, but it’s far from clear, that commodity producers are the most successful countries. I once had the privilege of meeting [Ariel] Sharon, the Israeli leader. And he said to me one of the most profound things I’ve ever heard a leader say. He said to me: “what do you think is the greatest strength we have in Israel? And he’s quite an intimidating guy.” he said “Nothing. We have no resources. So that has forced Israel to use their brain. And I think it’s very, very profound. Yeah. If you look at the most successful countries in the world, with the exception of the US. South Korea? No commodities. Japan, no commodities. All of Scandinavia, Sweden, no commodities. So. African countries should, and it’s easy for me to say, yeah, but it’s the same issue that I say to the Brazilians in the Russians, you need to reduce your dependency on resources.
Desné Masie: It’s so interesting you say this because I went to the Africa Debate two weeks ago where I ran into the head of the Africa Finance Corporation, who is Nigerian. And he said “I’m going to make Nigeria a trillion dollar economy” in the same breath as talking about fixing the fuel subsidies. And I said to him, you know, sure, the subsidies need fixing, but it is all legacy stuff, all this fuel stuff. It hasn’t worked out for Nigeria. You’ve got all this FinTech. Nigerian culture…
Jim O’Neill: Yes, Nigeria is really an illustration of the commodities curse. I did this extremely fun radio documentary for the BBC about the so-called MINTs. I spent a week in Nigeria recording this documentary … We had material to do three documentaries because Nigeria’s such a crazy, fascinating place. But what is clear, is that it is one of the biggest examples on the planet of the commodities curse.
Desné Masie: Absolutely. The head of the AFC, said as an alternative to the oil sector, he was really excited about the technology sector, culture and music, all this great stuff in Nigeria. And we spoke about how Nigerian music is often the western entry point … Davido sells out the O2. This could be really significant for Africa, I think. What made the great American century? Their movies, their music … which takes us to soft power, which I want to end off on, given you are such a well-known football fan. The UK seems to be in a state of decline on the global stage, economically and politically, but there’s still quite a lot of soft power. And one of the UK’s biggest assets is the English Football Premier League. There are loads of African football fans and many of them follow the prem, alongside fans worldwide. What do you think about the prem just as an asset and about what could the UK be doing, in terms of getting itself out there post-Brexit?
On the decline of Brexit UK and the soft power of The English football Premier League
Jim O’Neill: The whole post-Brexit environment in the UK remains a nightmare. The country’s elite is still frozen. What is very interesting now is that regular opinion polls show that in virtually every area that voted out. They regret it, but the Westminster Mile dare not, or even in the Labour opposition, dare not talk about just rejoining the single market. Second thing to say about it is that the UK has not really explored a true global strategy for Brexit because there’s just endless denial going on, and it’s really worrying because it’s accelerating our decline because other people around the world think: “what is the matter with these stupid people?” So that is the reality. However, what have we got that our politicians can’t screw up? We have our language. We have our time zone, which in this world of digital connectivity is hugely valuable. You know, I used to say many years ago that London is the BRICS capital of the world. Sometimes I jokingly say the biggest threat to London is if New York changed its timezone to be the same as ours. Because Beijing never has a working day open at the same time as New York. Yeah. Neither really does Dehli. But they and Rio de Janeiro all cross into London’s time zones … And that’s relevant for the football because it’s not the most unsociable time for people, particularly in Africa where it is a one or two hour time difference. Sometimes none. That’s an important thing. I’ll come back to football, but the other thing that we have got, at the moment, is 16 to 18 of the world’s top 100 universities.
Recognized. Every year in independent surveys of the world’s universities that’s four times bigger than our share of global GDP … And so, in addition to many other things, a sensible British government, if we have one, would be trying to do more, linked to the strength of these universities. Which is something I’m heavily involved in. I’m the chair of something called Northern Gritstone, which is investing in startups coming out of northern universities. And these, these are, these are some of our few genuine, unique assets. On football. The Premier League is a remarkable success. Because football is the global sport. I’m an enormous Manchester United fan. I don’t travel globally much anymore, but I’ve been fortunate enough to travel and whenever I get in a taxi and the cab driver goes, “where are you from, and I say Manchester, straightaway – “Manchester United”.
Desné Masie: I think more than the commonwealth and royal family, football has more staying power.
Jim O’Neill: It is astonishing and I’ve witnessed it. I was fortunate to have been born in Manchester and I’m a big fan. … I went to the World Cup in South Africa, Japan, South Korea, Brazil, and it is literally a sport that connects people from whatever colour or whatever political belief.