Image and Reputation: MSLGROUP Essays on the BRICS CountriesApril 13, 2011

Trade between India and South Africa is booming. Brazil wants a more level trading field with China. Devalued yuan, anyone? Next door, Russian President Medvedev is going against the grain (Putin), pledging to end corruption and lower the tax burden on small business.

Needless to say, the leaders of the BRICS countries have important issues to discuss at their third-annual BRICS Leaders Meeting on April 14 in the island province of Hainan in southern China. And note the absence of the United States, the United Kingdom and every other European power.

Image and Reputation: Policy Matters

This meeting got us thinking about image and reputation. When it comes to sovereign states, such matters are often a function of government policy. Brazilian President Dilma Rousseff and many other policy makers around the world voice concerns about low-quality and unsafe goods from China…how will this play out at the meeting and will Chinese regulations change? Conversely, is this an unfair portrayal of China, which produces a variety of high-quality goods? Should image, policy, trade get into sync?

In the case of Russia, if Forbes describes your country’s problems as “crime without punishment” and “punishment without crime” then you know you have an image problem. And that, in turn, is an impediment to growth. In a post-apartheid South Africa, the continent’s largest country is doing some exporting of its own. We led Brand South Africa in India and China: The campaign is just one element of the African country’s multipronged approach to building ties with its Asian counterparts.

It is with this context that we bring you a collection of essays written by four members of the MSLGROUP network. We asked our authors to use their unique perspectives to give you, the reader, a taste of what it’s like to be on the ground.

We hope you find value in the MSLGROUP BRICS essays brought to you by:

• Kirby Chien, head of content development and senior media strategist at MSLGROUP China. For nearly 20 years he worked for Reuters and Dow Jones, covering the companies, regulators and markets of Greater China. He studied in China, the US, France and Taiwan.

• Paulo Andreoli, CEO of Andreoli MSL in Brazil, the agency he founded in 1994. No stranger to international commerce and politics, Paulo earlier in his career won the Brazil ESSO Journalism Prize (the Latin American equivalent of the Pulitzer) for his reporting on the export of Brazil uranium to Iraq.

• Jaideep Shergill, CEO of Hanmer MSL in India and head of the financial communications practice for MSLGROUP Asia. With 15 years of banking and communications practice, he counsels many of the Indian companies making the I in BRICS a reality.

• Lawrence McDonnell, who in 1998 founded Pravda PR in Moscow. Previously, he spent 10 years as a BBC correspondent and bureau chief for ITN Television News. Pravda represents the MSLGROUP network throughout Russia. Clients range from the Turkish Trade Mission to Caterpillar and the Ritz-Carlton.

The MSLGROUP BRICS Blog Series: Executive SummaryBy Sally O’Dowd, engagement editor, MSLGROUP, Paris

Since the term BRIC—Brazil, Russian, India and China—was first coined by a Goldman Sachs economist in 2001, the loose grouping has evolved rapidly from a catchy acronym to an emerging power broker with growing global aspirations. Indeed, it is now BRICS with the addition of South Africa.

No BRICS nation has been more aggressive than China, the host of the group’s third summit, in deepening the group’s influence in global affairs. Most recently, 10 countries in the 15-member United Nations Security Council voted in favor of the resolution to establish a no-fly zone in Libya, but five nations—China, Russia (which have veto power) and non-permanent members India, Germany

and Brazil—abstained from voting. China has been a vocal critic of the coalition airstrikes in Libya saying they violated international rules. The New York Times Room for Debate section offers a good selection of opinion pieces on China’s reaction to recent events in the Middle East.

BRIC economic growth contrasts sharply with the struggling economies of the United States and Europe, and has given the emerging markets an impetus to push for greater say in issues such as global climate change, reform of the United Nations, and poverty alleviation.

The group accounts for more than a quarter of the world’s land area and more than 40% of its population, which will continue to grow proportionally. Beijing lobbied heavily last year in favor of admitting South Africa into the club, although the African nation does not fit the original model of a large, fast growing economy. South Africa, the continent’s largest economy, produces many raw materials coveted by China. Full disclosure: MSLGROUP China led the Brand South Africa campaign in our market, just as Hanmer MSL did for the Indian market.

While BRIC nations share a similar stage of economic development, they have no common political ideology and indeed there are many contentious issues that separate the four – not the least of which is China’s policy of devaluing its currency to support exports–a topic that my Brazilian colleague discusses here.

Cooperation for a New World Order

There are, however, many issues they can cooperate on. The group worked in concert at the Copenhagen climate conference in 2009 to endorse the Kyoto Protocols. BRIC nations are all large emitters of carbon – except for Brazil – but argue that developed nations have belched pollution for many decades and should therefore shoulder a heavier burden in cutting emissions.

A View from ChinaBy Kirby Chien, head of content development and senior media strategist, MSLGROUP China

Lions in Beijing’s Forbidden City, constructed in the early 15th century, are in pairs. The female extends her leg to play with a baby lion, symbolizing fertility of the royal family. The male lion has a ball under its paw, representing the imperial power.

In addition, as the recent financial crisis has undermined the legitimacy of the G7 and their large financial institutions, the second BRIC summit held in Brazil last year was dedicated to financial reform. And at the London G20-meeting in 2009, the BRIC states issued a separate declaration calling for reform of the International Monetary Fund, for changes in choosing the leaders of the IMF and the World Bank.

China’s growing presence on the international stage was underlined by Foreign Minister Yang Jiechi, who in his 2011 New Year message emphasized China’s role during the first decade of the new century as a regional and global actor. Yang particularly noted the increasing importance of diplomacy in ensuring state interests such as security, sovereignty, and development.

While BRICS nations are not close to establishing any formal alliance – China has outstanding border disputes with both India and Russia, and Brazil’s industrial sectors fret about China’s competitive strengths – Beijing will be looking to further the group’s cohesion at this year’s summit.

The Chinese were trading long before Christopher Columbus was born. For us Brazilians, they have a historical and cultural richness worthy of admiration, even if it is sometimes in the context of concerns about their economic might.

In 2009, China replaced the US as Brazil’s biggest commercial partner. Chinese-Brazilian trade in 2010 jumped 53 percent to US$56 billion, compared with $45 billion with the US. Brazil exports mainly iron ore and agricultural products to China, whereas China exports many more things to our country: cars, electronics, even “knick knacks” in the words of Brazilian President Dilma Rousseff.

It is as part of this scenario that Rousseff is attending the April meeting of the BRICS countries in China. She hopes to clarify the China-Brazilian relationship, because former President Lula left a somewhat unfortunate inheritance: he showed that Brazil was willing to recognize China as a pure market economy—and sometimes he gave too much—in hopes that the Chinese would support Brazil in its efforts to become a permanent member of the UN Security Council.

But Brazil’s industrial sectors are genuinely worried by China’s competitive strengths. Brazilian toy manufacturers are forced to pay taxes and produce under strict child-protection standards that are not the norm for their Chinese counterparts. Likewise, manufacturers of electronics, cars and other durable goods here in Brazil complain about a non-level playing field: The Chinese have devalued their currency, making their products cheaper.

According to the Economist Intelligence Unit, “Voices within the administration have started to express concern about the risk of dependency on China, not only for trade but also foreign direct investment (China became Brazil’s top foreign investor in 2010).

The finance minister, Guido Mantega, has criticized China’s weak-currency policy in particular, and has warned of a looming trade war.”

Meanwhile, Bloomberg reported that Rousseff has a shared sense with President Obama “that China is harming the economic interests of both their countries by undervaluing the yuan.”

The Brazilian president’s mission to China will clearly be fraught with challenges. The biggest one is establishing clearer rules for fairer and more transparent commercial cooperation that would subject Chinese manufacturers to the same standards set for Brazilian companies. This will be a small but significant step.

Brazil intends to show the Chinese that it wants a more robust trading relationship, beyond exporting primary products and importing China’s finished goods. We hope that good diplomacy from both sides will lead to a positive outcome, resulting in our ability to export more Brazilian goods and providing more consumer choice to China’s growing middle class. Naturally, this would be good for Brazilian businesses, which would be able to hire more workers and help Rousseff achieve her goal of raising people out of poverty. As the Chinese government has likewise taken steps to help its poor, let’s hope that this shared and noble endeavor can facilitate talks at the negotiating table.

Brazil and China: Crossing the DivideBy Paulo Andreoli, CEO of Andreoli MSL, Brazil

Christ the Redeemer (Christo Redentor), a statue overlooking Rio de Janeiro, was constructed between 1922 and 1931. Considered the second largest Art Deco statue in the world, it is 39.6 metres (130 ft) tall and weighs 635 tonnes.

The global community in less than 25 years has evolved from the Cold War—where political loyalties rested with one of the two distinct super powers—to a system based on multipolar relationships. And even those dynamics are changing quickly.

What used to be taken for granted, even a few years ago, has been turned on its head. The power equation is shifting from the G8 to other powerful groups in the making. Competition and collaboration run a parallel course, often resulting in strange permutations and recombinations. Russia, part of the G8, is also a member of the BRICS category (Brazil, Russia, India, China and now

South Africa). Yet PricewaterhouseCoopers reports that the gross domestic product of seven emerging markets, not five, (Brazil, Russia, India, Indonesia, Mexico and Turkey) will replace the GDP of the G7 (the G8 minus Russia) economies by 2032.

With all of these shifts, it’s important to “follow the money”—as dizzying as that may be. It really is a different world from the one we knew just two decades ago.

Follow the Money: India and South Africa

Here in India, we’re pleased to welcome South Africa into BRIC, for we’ve been carrying on trade with the largest African economy since the early nineties. Many of our clients—Ashok Leyland, Bharti Airtel, Cipla, Mahindra & Mahindra, ONGC, Reliance and Tata—invest in South Africa in the areas of agriculture, infrastructure, investment banking, pharmaceuticals and telecom.

Since the establishment of diplomatic relations in 1993, commercial relations between the two countries have flourished. Bilateral trade increased from about US$4.7 billion in fiscal year 2006-07 to $7.5 billion in 2008-2009. India and South Africa are expected to sign a trade agreement reducing tariffs later this year.

We at Hanmer MSL have had the opportunity to help foster good diplomatic relations with South Africa. We played host last year to President Zacob Zuma during an official visit to our country and led the Brand South Africa campaign for the Indian market.

Financially speaking, India’s future looks bright. The country’s gross domestic product (GDP) has maintained a healthy 9.2 per cent in the current fiscal year (2010-11). With the right economic reforms we can aim for higher growth in the future. It is with this sense of optimism that we await the outcome of the BRICS talks. In the new global order, it is up to the emerging markets to support companies—and indeed millions of people—in their pursuit of prosperity and economic development.

India and South Africa Get Down to Businessby Jaideep Shergill, CEO of Hanmer MSL in India and head of the financial communications practice for MSLGROUP Asia

India’s rail network traverses the length and breadth of the country, covering 64,015 kilometres (39,777 mi) and transporting more than 6 billion passengers and 350 million tonnes of freight annually.

With just a year to go before Russia elects a new president there are signs of a rift between the incumbent Dmitry Medvedev and his Prime Minister, Vladimir Putin, the man whom many regard as the natural leader currently on sabbatical, more a tsar than head of the administration.

If we are to take Medvedev at his word, then the initiatives outlined in a recent speech in Magnitogorsk are nothing short of revolutionary and strike at the heart of the ruling elite, the state officials who sit on the boards of some of the largest and richest companies in Russia and who remain fiercely loyal to the prime minister who put them there.

The president’s speech was focused on improving the investment climate in Russia. Amongst a number of initiatives designed to stimulate growth, two stand out: breaking corruption and reducing the heavy tax burden on small and medium-sized businesses. It’s not the first time the president has focused on corruption but this time he focused specifically on the crony capitalism that replaced the oligarchs’ hold on the economy in the 1990s. During his own term in office President Putin, in ousting said oligarchs to foreign lands or gaol, appointed his own trusted officials to the boards of Russia’s blue chips to keep them in line and loyal to the state.

Officialdom, however, has in many ways proved more of a scourge to Russia’s development than the oligarchy it replaced. The oligarchs were replaced by a new class, aptly tagged by the Economist as the bureaucrat-entrepreneur. Such individuals are interested only in securing a position in the state apparatus where they can manage and apparently siphon off large parts of the state budget. According to the Economist the number of civil servants in Russia is booming, rising from 500,000 people to more than 800,000 in the last three years alone.

Breaking a System that Stifles Growth

This class not only stifles the trickle-down financial benefits from Russia’s growing income in the natural resources sector to the wider economy but also takes its money abroad. An emerging market is not a very good emerging market when money is flowing out rather than in and when the middle class is being squeezed out of business by government bureaucrats. So when the president promises to lower taxes he is appealing directly to the middle classes to support him in breaking the system created by his own prime minister and predecessor. In any other democracy this may sound like everyday politics but in a country that understands only the power vertical it is akin to shooting your old boss—and all his relatives.

Ending Corruption in Russia, Da or Nyet?By Lawrence McDonnell, CEO and founder of Pravda PR, Moscow

St. Basil’s Cathedral, constructed in the mid-16th century, acquired its vivid colors in several stages from the 1680s to 1848. The church has been part of the Moscow Kremlin and Red Square UNESCO World Heritage Site since 1990.

Should we believe this break in the ranks? Or more importantly, should the Russian people believe it? Do they care? If they do, then they haven’t got many places to talk about it. No surprise that in the absence of an independent media they are logging on. More than 40 million Russians use the internet, giving Russia the 2nd highest penetration in Europe. President Medvedev twitters. He believes in social media and wants to be part of it.

In style and content, Medvedev’s campaign looks like any other presidential race; a candidate reaching out to engage with a middle class electorate on a promise of lower taxes, less bureaucracy (and corruption) and a higher standard of living.

Russians today understand choice, it arrived with shopping; the opportunity to see, touch, try and buy. And this is a campaign platform that could catch the public imagination. But fashion and foreign cars are easier to introduce than a civil society with genuine political choice, genuine political opposition.

It is also difficult to define or quantify a modern Russian middle class. It isn’t a class that survives well under communists, oligarchs or a single-party corrupt state apparatus. If Medvedev does manage to give voice and economic stimulus to the masses under his promised reforms, then he may well create a stable environment for investment and economic growth through small and medium-sized businesses—the framework for the sustainable development of a dynamic market economy.

If he doesn’t then Russia faces stagnation and an uncertain future under the same old ruling elite.

Thank you for reading.

If you would like more information on MSLGROUP’s international communications capabilities, please contact Chief Strategy Officer Pascal Beucler at pascal.beucler@mslgroup.com.

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