How the BRICS expansion could shake up the world economy
Six new countries are set to join the BRICS to make their presence felt on the global economic stage. But the Western world’s sustainability goals might suffer the consequences.
A somewhat surprising mix of countries is about to join the BRICS, the economic grouping of Brazil, Russia, India, China, and South Africa - a decision made at the 15th BRICS summit, hosted by South Africa. In January 2024, the bloc will include developing country Argentina, Africa's second-largest economy Egypt; Ethiopia, one of the fastest-growing economies in the region and oil giants Iran, Saudi Arabia, and the United Arab Emirates. What do they have in common? The only certain answer is that all six applied for membership.
From a 'lazy acronym' to an unavoidable trade partner
BRICS, which had no clear purpose and many difficulties co-operating among themselves, now started to recruit. And they are not finished. Including the newly recruited members, more than 40 countries want to join the bloc, according to the 2023 summit chair South Africa.
“The sanctions against Russia and China over the last 18 months have acted as a catalyst,” Christopher Weafer, the CEO of business consultancy Macro-Advisory Ltd, said. Moscow and Beijing are trying to lower the excessive reliance on Western economies, essentially both having been exposed to what happens if they are penalised.
The foundation of BRICS in 2001 didn't cause too much of a headache to the West for a while. "The grouping has been around for many years but really hasn't progressed into anything effective or coordinated," Weafer said.
"It's always been an idea, almost like a lazy acronym, I guess you might describe it."
Since then, the grouping hasn't had much of an impact on world trade, however, they created a jointly-owned development bank - the New Development Bank. The lack of visible purpose and co-ordination but tangible differences in political interests, and production standards, let alone currencies, left them unable to become a heavyweight champion on the world stage of economics.
One could argue that the G7 nations (the seven largest advanced economies in terms of GDP including Canada, France, Germany, Italy, Japan, US and the UK) were dismissive of some of the group's demands and interests. However, lately, geopolitics started having an increased impact on economic ties.
BRICS, I think we could say is now starting to emerge.
Christopher Weafer
CEO of Macro-Advisory Ltd. business consultancy in the Eurasia region
The continuing expansion offers the BRICS an opportunity to have a powerful voice on issues like climate management and the control of global financial systems.
The newcomers may see it as a way to diversify their business opportunities (and be less dependent on Western countries and their rules) with the promise of preferential trade terms between members and other incentives to increase trade and cross-border investments.
The current members of the bloc represent about 42% of the world’s population and more than $27 trillion in accumulated gross domestic product. The enlarged grouping will account for 46.5% of the world population and using the IMF’s 2022 GDP data, we can calculate that it will account for $30.8 trillion of the global $100 trillion GDP.
On the other hand, GDP based on purchasing power parity, or PPP (percentage share of global GDP based upon a common basket of goods which represents the actual purchasing power), shows a very different balance of forces. In total, this expanded BRICS now increases its share of global GDP to more than 36% on a PPP basis, surpassing that of the G7.
What is next for the Sustainable Development Goals?
It is certain that the new grouping is hard to ignore as its members sit on 45% of the world's oil production and possess significant iron ore, coal, and bauxite sectors let alone the key role they have in the world's agriculture.
Therefore, developed nations, typically the G7, rely to a great extent on trade with them and also on co-ordination on such issues as climate change and environmental issues. Therefore "the strongest economies can no longer ignore the newly-shaping bloc's needs," says Weafer.
The expert believes that while technology, investment, and trade are going to be important issues on the table, one of the corner points of the discussion between the strongest economies and the BRICS countries could be bridging the gap on their interests in environmental issues and setting priorities.
The #UAE joins BRICS bloc 🇦🇪 pic.twitter.com/BoWmVNkFp1
— UAEGOV (@UAEmediaoffice) August 24, 2023
"Developing nations do not see the environment as big a priority as people in the developed world do," explains Weafer.
Even though countries like Saudi Arabia and the UAE keep listing sustainable growth as a priority, they need time to adjust. "Their priority is about economic and social development, in order to create a more stable economic basis, like the G7 and the EU already possess," says Weafer. "And the argument is that, 'give us time', but there isn't time."
Settling on environmental issues will probably be the biggest challenge between G7 and BRICS.
Christopher Weafer
CEO of Macro-Advisory Ltd. business consultancy in the Eurasia region
"I think it is important to get some common ground on how to deal with environmental issues because there is an enormous chasm right now," Weafer adds. "I mean, enormous because when I travel in China and the Middle East I see that they just don't see it. They think this is a problem that's exaggerated by Europe and a way that the G7 is suppressing the potential evolution and growth of the developing world. I've even seen an article written by somebody saying it was a modern form of colonialism."
How realistic is a common currency for the BRICS?
One of the re-circling questions about the BRICS is whether or not they are working on a system to use a common currency. "The challenge is comparable to cutting the Gordian knot," says Weafer. Creating the euro took decades and that was a bloc composed of far less physically diverse and distant countries.
Increasing bilateral trade and finding ways to settle that in bilateral currencies is a lot more likely. At the moment this works only with Russia and China after the countries' central banks took years to set up a system to allow it. Recently Russian President Vladimir Putin said that 80% of the trade between Russia and China is settled in either Russian rubles or Chinese yuan.
On the other hand, it has its risks. For instance, Russia is selling a lot of oil to India but the payments, which are in rupees, are being trapped in the Indian banks because of capital controls and the nonconvertibility of the rupee.
Realistically, in the next 10 years, the members have time just enough to try to iron out some of these bilateral trade settlements.
Where does further expansion lead the bloc?
The already peculiar selection of countries may well be joined by new members such as Kazakhstan and Thailand, who have reportedly applied already. The criteria is hazy, says Weafer. "I think the admission criteria is primarily the willingness of a country to join. The reason is that they're just looking for diversification, eyeing countries with a reasonable size. For instance, Indonesia is definitely a target."
Also, already existing groups could be invited to join such as the Eurasia Economic Union and the Shanghai Cooperation Organization.
The expert believes that geopolitical events such as the existing conflict in Ukraine and the potential conflict with Taiwan are going to keep dominating the world's economic stage.
The next 12 months will reveal more about the challenges and potentials the BRICS is about to bring until the next summit.
Since the Russian President couldn't visit the summit this year after the International Criminal Court (ICC) issued an arrest warrant for him, Vladimir Putin announced that plans have been made to hold the next BRICS summit in Kazan in October 2024.
By then, we may even learn the name of the new bloc which seems to be a challenge for the group that added every new member's first letter to its name so far.
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I hope BRICS will also add each member country's internal/domestic unacceptable anomalies as meriting attention. Seton During, www.costscutters.uk.