Sharing BRIC’s

Two of the BRIC nations, Russia and China, recently signed a historic agreement with huge reciprocal benefits. The deal’s aim is to ensure that Russia and China, along with their sister BRIC countries, Brazil and India, continue to lead the world’s economy well into the 21st century.

Executives at China Development Bank and the Russia state oil company, Rosneft, have agreed to exchange US$25 billion in loans for a daily supply of 300,000 barrels of oil for the next 20 years. The deal has been hailed by officials from both countries as the ideal way to address China’s problems with energy supplies and Russia’s lack of credit.

China, the world’s second largest oil importer, has huge monetary reserves and needs to ensure that its massive economy is not forestalled by failing energy supplies. Russia, the world’s second biggest exporter of oil (after Saudi Arabia) has recently experienced serious problems with lack of liquidity and many Russian companies are having difficulty securing finance.

The pipeline transporting oil from the vast oilfields in East Siberia will be the first from Russia to China and its load of 15 million tonnes each year will constitute around 4% of China’s annual oil requirements. This recent agreement furthers trade between the two BRIC nations – China-Russia trade grew by 18% in 2008 and was worth US$56.8 billion.

The BRIC nations are widely expected to head global economic growth this year. The Financial Times predicts a world GDP increase of just 0.6% for 2009 with most of this coming from Brazil, Russia, India and China whose combined growth is forecast to be 4.7% – almost 8 times larger.

“This latest massive deal between Russia and China confirms the economic potential of the BRIC nations,” says James Gonzalez, Market Analyst at Obelisk Investment Property. “The opportunities for growth together with the natural resources in these countries – Brazil also has huge oilfields, as yet unexploited – mean a lot of investment will be focused here this year.”

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