The success of the Brics partnership of Brazil, Russia, India, China and South Africa will depend on whether individual members can overcome the dilemma of being allies as well as fierce competitors for markets, goods and geopolitical influence.
The diversity of members' interests means it is difficult to agree on priorities and very difficult to act in concert. Within the group, China has the largest purse. At $3.2-trillion, its foreign-exchange reserves are three times bigger than those of the four other Brics countries combined.
The sustainability of the Brics will depend on how China's financial muscle is deployed. Policymakers from South Africa, Brazil and India say China keeps its currency, the renminbi, artificially undervalued to boost Chinese exports and so power its industrialisation and growth. But the cheap renminbi hurts other Brics countries, for instance South Africa's manufacturing sector.
Guido Mantega, Brazil's finance minister, has said that the lack of global growth, plus China's undervalued currency, creates "distortions in world markets". But China won't talk about it. At the April 2011 Brics meeting, China's Assistant Foreign Minister, Wu Hailong, was blunt: "The renminbi's exchange rate is not on the agenda for discussion."
In the first half of 2012 China had 40 trade disputes with other countries, 70% of them with emerging powers. Brics countries are introducing duties on Chinese products, as Brazil has done, and by the end of 2012 India had 149 "antidumping" cases (when a country floods the market with cheap goods) pending against China. But not all such disputes are against China: Brazil has lodged a complaint at the World Trade Organisation against South Africa's use of antidumping measures on shipments of Brazilian poultry meat.
The challenge for the Brics is to agree on what kind of mutually beneficial policies should be made a priority, how to strike mutually beneficial agreements on these and how to pursue "synergistic" investment and trade with partner countries.
One such policy proposal on the Brics agenda is that members combine their estimated $240-billion in foreign-exchange reserves into an emergency fund to protect members from short-term liquidity volatility and balance-of-payment problems. But the same problems arise: how to use China's muscle without having China dominate the fund? It would make sense for the partners to contribute an equitable share. Some, such as Indian policymakers, believe a Brics reserve pool should be at least partially managed by the International Monetary Fund (IMF). But other Brics countries may resist IMF involvement.
Another potentially mutually beneficial proposal is to reform the international monetary system to benefit developing countries. At the March 2012 Brics meeting, the members broadly called for a new international reserve-currency system to provide "stability and certainty". Then again, the Brics countries disagree on which currency should be the "reserve" currency.
As it stands, the special drawing right, the IMF's unit of account, comprises the dollar, the euro, the Japanese yen and the British pound. China's specific campaign, however, has been to see its currency included in the IMF's basket. In 2009, Zhou Xiaochuan, then governor of the People's Bank of China, set out China's long-term view: to replace the United States dollar with a "super-sovereign currency" in a global monetary system like the special drawing right system, but with the renminbi as a core currency. Brazil, India and South Africa argue that the special drawing right system should remain, but that the currency basket be broadened. Russia remains largely silent on this.
The reform of the IMF, more generally, is a very strong focus for the Brics group. At the Group of 20 Summit in Mexico last November, the Brics group pledged $75-billion to the IMF – if the IMF reforms its voting system to give them a bigger voice. Likewise, the Brics countries seek reform of the United Nations Security Council, but their individual competing strategic interests may undermine their efforts.
One of the Brics group's key priorities is a joint strategy to deal with wildly fluctuating commodity prices. The Brics countries are heavily affected by the persistent volatility in commodity prices, which undermines their growth. South Africa, Brazil and Russia are major exporters of commodities; China is a major importer.
China has named the dominance of the United States dollar as one of the main reasons for the volatility of oil and commodity prices. China argues that replacing the US dollar as the sole issuer of the global reserve currency will almost immediately stabilise commodity prices.
Some of the Brics proposals call for tightening the regulation of commodity derivatives, to prevent them playing havoc with prices. The group hopes to coordinate its policy efforts to secure a "balanced supply and demand in the physical markets".
Clearly, there is lot of intent among the Brics countries to manage swings in commodity prices, but it will be harder in practice, given the vastly different domestic commodity strategies of individual countries, to secure a united response.
Another major Brics objective is a joint development bank, based on the World Bank model. The aim of the bank would be to fund infrastructure and act as an alternative lender to the World Bank and other finance bodies. It will also be a vehicle for lending during financial crises. The big questions are how the bank would be structured and capitalised, where it would be based, and whether it would use different models and lending criteria from those of the World Bank.
It seems China wants such a bank to be in Beijing, but India and Russia oppose this. China is expected to put in the most funds, given its bucketsful of reserves, but a better compromise would be for each partner to provide an equal start-up amount. It would also be prudent to have the bank in South Africa's more "neutral" territory.
Overcoming the conflict of being allies but also competitors, agreeing on core priorities and cobbling together mechanisms to bind members to agreements – this will be crucial if the Brics meeting in Durban from March 26 to 27 is to be more than a talk shop.
William Gumede is author of the bestselling Restless Nation: Making Sense of Troubled Times, published by Tafelberg