Brics countries have expressed commitment to collaborate on confronting global warming, with rapid urbanisation in the five member countries.
In 2001, then Goldman Sachs chief economist Jim O’Neill identified a group of countries he said would emerge as a formidable economic force. Coining the acronym Bric (Brazil, Russia, India and China) O’Neill predicted the four would eventually experience healthier growth than the advanced economies of the G7.
More than two decades later, and with South Africa added to the mix, the Brics experiment has had mixed results, with some economies in the bloc faring far better than others.
And though the touted Brics expansion would undoubtedly add extra heft to the alliance, which is being seen as throwing its weight around amid the current geopolitical tumult, its economic fate will continue to be steered by its most influential member — China.
‘A political club’
The Brics foreign ministers gathered last week in Cape Town ahead of the alliance’s annual summit set to take place in August.
The meeting was also attended by representatives from Iran, Saudi Arabia, the United Arab Emirates, Cuba, the Democratic Republic of the Congo, Comoros, Gabon and Kazakhstan, who took part as “friends of Brics”. Egypt, Argentina, Bangladesh, Guinea-Bissau and Indonesia participated virtually.
Brics has reportedly received membership applications from some of these countries, as well as Bahrain.
All this suggests that the Brics bloc is poised for an expansion, a prospect that O’Neill himself has supported. A Brics+ alliance, O’Neill wrote earlier this year, would give emerging nations a platform to rebalance the global economic system, which has been dominated by the G7 since it was formed in the 1970s in response to exchange rate collapse.
The G7’s share in the global economy has declined considerably since the early 2000s, when the group held more than 40% of the world’s GDP (based on purchasing power parity, not nominal values).
The G7 now contributes 30.7% of global GDP, according to data compiled by London-based Acorn Macro Consulting.
The inclusion of the aforementioned countries in the Brics alliance would put its combined nominal GDP comfortably above the G7’s. But, according to analysts, this does not necessarily give Brics the components of an especially formidable economic alliance.
The likelihood of the Brics+ alliance becoming an economic club, like the G7, is low, according to Momentum Investments economist Sanisha Packirisamy.
“There are big differences between their geopolitical influence, growth trajectories and economic strength,” she said. But there is reason to assume that it could become more of a political club.”
Heavyweight
China is by far the largest among the Brics economies, having recorded considerable growth since the late 1970s. At about $17.73 trillion, the Asian giant’s GDP dwarfs those of Russia, India and South Africa, which — as the laggard of the group — stands at about $419 billion.
For a grouping like Brics to form a monetary or fiscal union, its members ought to have similar levels of geo-economic significance, Packirisamy said. They should also share a similar level of influence over the global economic system.
Stanlib chief economist Kevin Lings noted that the Brics grouping, even without additions, is already significant in terms of its economic size. More countries will not necessarily add to the bloc’s economic influence, he said.
“Obviously if they have more countries, then they do represent a more significant grouping. But there are some other substantial issues here. The one is that the grouping, in terms of its participants, is overwhelmingly dominated by China,” Lings added.
“So the other countries are not equal participants in the sense that they are not comparable in size and they are not comparable in terms of financial strength.
“China would dominate in both those respects. So, to a large extent, the grouping’s ability to influence comes down to China’s ability to influence.”
Rather than navigating the complications of dealing with a number of disparate countries, Brics participants could be better off doing deals directly with China, Lings said.
South Africa was, in a sense, the first beneficiary of a Brics expansion when it was invited to join in 2010. But some have questioned the country’s place in the alliance given its lacklustre economic performance.
In 2003, Goldman Sachs made the case for South Africa’s inclusion, forecasting the country’s economy would grow at an average rate of around 3.5% over the following 50 years. However, since South Africa joined, it has recorded far from stellar growth, with GDP expanding at an average rate of just 1.7% per year between 2010 and 2019, lagging behind other emerging market economies.
Though the performance of the Brics members has been mostly disappointing since 2010, particularly Brazil and Russia, South Africa has done little to catch up to its peers.
A number of the countries that may be in contention for the Brics+ alliance have smaller economies than South Africa’s and somewhat less influence — making for an even bigger disparity between the bloc’s biggest member and its smallest.
Seeking clarity
Lings noted bringing more countries in the alliance would call its stability into question, as what binds them together would become less clear.
The bloc’s stated goal is to reform the enduring financial and economic architecture, through which the US has maintained its primacy. However, it has attracted criticism for failing to meaningfully pursue these reforms by offering genuine alternatives to the International Monetary Fund, the World Bank and the three main credit rating agencies.
Meanwhile, according to O’Neill’s assessment, the Brics bloc has disappointed insofar as nurturing trade relations between its members.
The reason it feels as if Brics has drifted, Lings said, is because it is difficult to pin down the measurable difference the alliance has made.
“If you expand the membership and you are very conscious to explain what this is about — what this is trying to achieve — what its relationship is with other big economies and how it affects existing trade relationships, then it can become a more meaningful factor on the world economy,” he said.
“It can have an uplifting impact on the members of Brics and potentially other countries that enter into commercial agreements with Brics. So, absolutely, it’s got the potential, but it has got to be managed effectively.”
Enemies and friends
There is a risk, especially to smaller economies such as our own, in the Brics+ alliance taking a more adversarial posture towards the US and its allies in the West — a prospect that may be borne out given the sanctions against Russia and Washington’s ongoing trade war with China. South Africa’s ties with Russia, for example, already stand to jeopardise the country’s inclusion in the African Growth and Opportunity trade agreement with the US.
Saudi Arabia’s inclusion in Brics might also be seen as a threat to the US, which has maintained its dominance through a deal struck with the Middle Eastern nation back in the 1970s to use the dollar as the standard currency for buying oil globally.
Relations between the two countries have soured somewhat after the White House accused Saudi Arabia of siding with Russia in the wake of a decision by the Organisation of the Petroleum Exporting Countries to cut crude output — ratcheting up prices and Moscow’s oil revenue.
As Brics mulls creating its own currency, a collapse of the petrodollar system would deliver a significant blow to the greenback. Demand for US treasury bonds would decline, resulting in higher interest rates stateside.
Packirisamy noted that, in a more multipolar world order, a country’s geo-economic influence becomes more important than the size of its GDP. This is true for a country like Russia, which holds significant sway over global commodity prices. The same could be said about Saudi Arabia.
In a much more multipolar world order, Packirisamy said, it will become difficult to determine where countries stand on global economic issues, such as the sustainable development goals and climate change. “I think it’s going to become a lot more fragmented.”
According to Lings, an adversarial Brics alliance is bad for all involved — including China, which he says cannot adopt a “go it alone” strategy.
“The path to being the biggest economy in the world and to having a bigger role is not de-globalisation, it’s increased globalisation. It’s making yourself more relevant to the rest of the world, not less relevant,” he said.
“So there is a risk here. If you are expanding Brics because it is becoming largely an adversarial grouping of countries … Then I don’t think that’s a good outcome for anybody. It fragments the world and isolates individuals. And it’s potentially quite dangerous.”