BRICs Lacking Mortar? It depends on your perspective!
A year ago, I wrote about the decline of the BRIC phenomenon (Have We Hit a BRIC Wall?). As projected in my blog, the rapid development of wealth among citizens of BRIC countries – Brazil, Russia, India and China was likely a thing of the past.
We took a look at the status of these countries again a year later and, as predicted, these countries’ growth has slowed to a creep; this has caused many whose main goal was to grow the BRICs as a key feeder market to increase room nights here at home to take another look at plans for investment and expansion.
Let’s re-examine the BRICs on an individual basis.
In a recent article in The Economist titled “How India got its Funk”, it is argued that India’s complacency “has led the country to miss a great opportunity” by not taking the chance to enact much needed reforms during the boom of 2003-2008. Indeed, not only have the much needed infrastructure improvements lagged, but, according to the Economist:
Graft and red tape has gotten worse
Private companies have slashed investment
Growth slowed to 4-5%, half the rate during the boom
Inflation is at 10%
The Rupee has weakened considerably
Social upheaval and civil unrest are feared
In Brazil, (the “B” in BRIC) gloom persists. The reais has lost almost half its value to the dollar; two years ago it cost only 1.53 reais to buy a dollar—fast forward to summer 2013 and the rate is 2.42 reais to a dollar. In Brazil, growth this year is only around 3% which is the weakest in a decade. Experts predict it will drop even further to between 2-2.5% for 2014. Inflation is over 6%. This does not bode well.
We have also continued to monitor the changing economic situation in China, where wide investment in Ghost Cities threatens to bankrupt the growing middle class, and in Russia, where social upheaval is reminiscent of the cold war era.
In India, as well as China and Russia, the accelerated growth of 8-10% annually seen during the early part of the century, has declined dramatically. To the average citizen in China, there is a serious retraction of their purchasing power and, as a result, they have already begun to hold back.
On first glance this all seems as though there is no mortar holding the BRICs together and that any business strategy built upon inbound targets is doomed. However, our evolving perspective on this question leads us to suggest that you don’t throw in the towel.
There may not be as many BRIC citizens travelling to N. America or Europe as hoped… but we would be naïve to think there was no hospitality and travel potential for us to grow “there” as they continue to travel internally. Here is why:
These four countries comprise more than 2.8 billion people, which is 40% of the world’s population, and they cover more than one-fourth of the world’s land area—not to mention, they account for more than 25% of the global GDP. As such, the BRICs are very good territory for a huge variety of consumer related industries.
BRIC nations will account for 30% of all automobile sales worldwide in 2014. Over 1 billion smartphones and devices will be shipped to these four countries, not made there. Ernst and Young predict that as many as 500 million Chinese could enter the middle class over the next decade; by 2030 70% of China’s population could be middle class, which means major business opportunities for anyone selling goods to China. Those are just a few examples, but my point is, business travel TO these countries is booming and it doesn’t appear to be slowing down anytime soon.
According to the Global Business Travel Association (GBTA), growth in business travel spending within the BRIC nations is projected to grow 2-3 times faster than in developed economies like the U.S., France, and Germany. Why? Their own citizens will be travelling internally and others whose commercial efforts will travel TO them. “China could become the top business travel market in the world as early as 2015.” To accommodate all these travelers, the Civil Aviation Administration of China (CAAC) says that China plans to build 70 new airports in the next few years and to expand 100 existing airports.
In addition, Beijing is in the midst of constructing a second airport, which is expected to be finished December 2018. The construction will cost at least 70 billion dollars and is expected to have the capacity to handle 75 million passengers by 2025.
Brazil’s business travel industry is currently ranked eighth in the world and is forecasted to surpass Italy, France and the U.K. over the next two years. Demand for hotel rooms and flights to Brazil have significantly increased with the upcoming World Cup in 2014 and the Summer Olympics in 2016, even as civil unrest threatens.
Add to that, a recent Open Skies agreement between the U.S. and Brazilian governments are set to take effect in October 2015. Airlines from the U.S. and Brazil will be allowed to select routes, destinations and prices for services based on consumer demand and market conditions. The President of Brazil announced plans to build at least 800 new regional airports in the country giving access to air travel to all 194 million residents of Brazil. They may not travel beyond their borders but they will travel.
This should give us pause as we evaluate and adjust our strategies…
If you are a hotelier with dreams of expansion, have you determined it is too late to cash in on the boom? If you are a hotelier hoping to grow the BRICs for inbound room nights should you throw in the towel?
Enquiring minds want to know!
Share your company’s view.