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Article: 37/2024
The Origins
The idea of ‘BRIC’ was publicised with the release of the Goldman Sachs paper published in 2001 titled ‘Building Better Global Economic BRICs’. The study was done by the Chief Economist at Goldman Sachs, Jim O’Neil. The BRIC was termed as an analytical grouping of emerging economies and the paper discusses the relationship between the G7 countries and key emerging economies Brazil, Russia, China and India. At the end of 2000, the BRIC countries accounted for roughly 23.3% of global GDP on a PPP basis, which was somewhat more than Japan and Europe combined. A number of the BRIC nations already have economies larger than those of the individual G7 members: At the end of 2000, China's GDP (in US dollars) was 3.6% of the global GDP, making it somewhat larger than Italy and significantly larger than Canada. This growth rate was predicted to rise again in the 21st century. Jim O’Neil says that the global economic effects of the fiscal and monetary policies of these countries are going to increase and also suggested the reorganisation of multilateral fora to adjust to the rising dominance of the BRIC economies. He also mentions that China will be the key to this rise than the other three who were also growing relatively to the G7 group.
The Background
Brazil had been under severe economic crisis in the 1980s and early 1990s with hyperinflation that touched almost as much as 2000%. In 1994 by introducing the Brazilian Real Plan, Brazil was able to bring the inflation down to a single digit number and was able to manage macroeconomic stability. Russia was also facing an economic downturn after the disintegration of the Soviet Union. The liberalisation and privatisation reforms stimulated various private and foreign investments in the industries, which were initially state-controlled. Also the increased demand for oil globally also allowed Russia to have more government revenues and implement social welfare schemes. China was also going through major economic structural reforms in the 1970s to 1990s during Deng Xiaoping’s era. Their entry into the World Trade Organization in 2001 was another boost to the country’s economy which helped it to emerge as the second largest economy in the world in coming years. Similar cases can be seen in India as well with the introduction of structural adjustment programs of 1991. The 1991 economic reforms made it easier for industries to operate by reducing licensing restrictions, allowed more foreign investment and technology, especially in telecom and IT sectors, devalued the Rupee to boost exports and reduce trade deficits, and improved the financial sector's efficiency.
This positive economic growth continued until the global financial crisis 2007-2008, which affected Europe and North America. The BRIC countries' share of GDP in PPP grew from 26.68% in 2007 to 28.92% in 2010, while the share of G7 countries in GDP fell from 37.25% in 2007 to 34.19% in 2010. The crisis also hit the emerging economies, especially those who were dependent on the export market, including China. While the GDP share of BRIC kept rising during the 2008 crisis, As the EU pointed out, the Euro-Dollar trade system and dollar-centred global financial system caused spillover effects to the emerging economies. Dissatisfied with the dominance of US financial power, Brazil, China, India, and Russia came together with a shared vision for a more balanced world order, aiming to reduce US influence and the control of Western-led institutions like the IMF and the World Bank. Though there were skirmishes in relations between the member states, the shared discontent for US hegemony in the global order was what made them come together. Russia-China relations had their problems since the cold war as well order disputes which even today remains only partially resolved. The most challenging one to BRICs was the India - China stand off, whose border issues could not be solved even with deepening bilateral trade relations.
Inception and After
The idea of BRICs was transformed into an institution, after the meeting of leaders of China, India and Russia, on the sidelines of the G8 meeting in St. Petersburg in July, 2006. This was followed by the BRIC Foreign Ministers’ Meeting which was held on the sidelines of the UNGA General Debate in September 2006. The first BRIC Summit was held in Ekaterinburg, Russia on 16 June, 2009. The summit was held in the background of the 2008-09 global financial crisis, which led the four countries to make a joint statement on stressing the central role of G20 summits and the need for reforms in the international monetary institutions giving equal representation to emerging economies. They were committed to demand for a more multipolar world order They had also demanded a more open and transparent mode of election of representatives to these institutions. The second BRIC summit held in Brasilia in 2010, they again committed to multilateral diplomacy with the United Nations playing the central role. They advocated for reforms in the United Nations. In the background of the world recovering from the economic recession, the four countries pressed for the need of macroeconomic cooperation among the countries. Like in the first summit they also strongly committed to the G-20 grouping and to the reforms of Bretton Woods institutions.
The entry of South Africa into BRICs was on 24th December 2010. In April 2011, during the third BRIC Summit held in Sanya, China, South Africa was officially included into BRIC and the forum was restructured as BRICS. Though Nigeria has a population and economy bigger than South Africa, the vast resources, infrastructure, corporate establishments, financial sector, and stable financial system of South Africa, favoured it over Nigeria. Also the country was already part of various multilateral forums and has been a voice for Africans. Even though South Africa does not actually represent other African countries, because of their unique history and economy, they share some of the concerns like democracy, violence, keeping law and order, inequality, socially and culturally diverse populace, unemployment and poverty. The China factor in South Africa joining the BRIC cannot be neglected. China has massive economic interests in South Africa where they have invested heavily in banking, infrastructure, energy and mining. Also China is the largest trading partner of South Africa. The Chinese yuan had helped the South African economy to maintain stability during the 2008 recession, in return for which South Africa denied visa to Dalai Lama for visiting Desmond Tutu as well as back in 2009.
Areas of Integration
The BRICS adopted a number of working groups, each of them specialising in different policy domains, like financial services coordination and manufacturing. BRICS also fostered cooperation in academic and intellectual engagement, by establishing forums such as BRICS Academic Forum and BRICS Think Tanks Council. The establishment of the New Development Bank (NDB) is an institutional achievement of BRICS. NDB funds financial and infrastructural developments in BRICS countries as well as in other emerging countries. It is a multilateral development bank, which BRICS countries want to be as an alternative to IMF and World Bank which embodies the political, economical ideas of western countries. All five countries have the same share of exercising votes and the bank has expanded its membership to Bangladesh, Egypt and the UAE. Thus we can say that expanding BRICS can lead to greater bank capitalization as each member contributes the same amount of bank capitalization. By the end of 2022, it had provided nearly $32bn to emerging nations for new roads, bridges, railways and water supply projects. The New Development Bank (NDB), established as a result of the Sixth Summit, began with an initial capital of USD 50 billion, which was planned to be increased to USD 100 billion over time. Pretoria, South Africa, serves as the regional headquarters, designated as the "New Development Bank Africa Regional Center." Each BRICS member—Brazil, Russia, India, China, and South Africa—contributed an initial sum of USD 10 billion to the fund. The primary objective of the bank is to finance infrastructure projects, with an estimated annual lending capacity of up to USD 34 billion.
The Contingent Reserve Arrangement (CRA) is another institution, which provides assistance to member countries who are facing Balance of Payment problems. This helps countries maintain their stability in their external finances. The CRA also supplements international monetary institutions including IMF’s financial assistance and thereby providing an extra layer of financial security to BRICs countries. CRA does not put forward policy reforms conditions or structural reforms as a precondition to financial assistance like those done by IMF and World Bank. But they are expected to cooperate with the CRA to find mutually agreeable solutions.
The use of local currency in intra trade relations and in the operations of NDB has been another focus area for future integration. Through the use of local currency, the BRICS countries aim to reduce the dependency on US Dollars or any other foreign currencies, to reinforce their economic sovereignty and reduce the effects of economic policies of foreign monetary institutions on their domestic economy. Infact, de dollarization is one of the shared objectives among the BRICS countries, as they aim to insulate their economies from adverse effects of sanctions or any economic policies being followed by the western countries. China has been pushing towards establishing Yuan as a global reserve currency. During the 2023 Summit, the BRICS members stated they are seeking to develop a gold-backed global reserve currency as well as an international payment system that can provide payments through local currencies. The NDB has been instrumental in Yuan internationalisation as they issue Yuan-denominated bonds and provide Yuan denominated lending facilities, reducing reliance of member countries on dollar denominated bonds. NDB has MoUs and other agreements signed with China Development Bank, Commercial Bank of China and the Bank of China to facilitate Yuan-denominated transactions. The New Development Bank (NDB) has helped develop local currency bond markets in its member countries to boost the availability of assets in their local currencies and encourage the use of these currencies in global financial markets. Apart from these parallel institutions, BRICS countries also converge on industrial development in member countries, collective action on climate change, agricultural cooperation between the members as well as support for UN SDGs.
BRICS 2023 Summit and Expansion
The BRICS summit 2023 took place in JOhannesburg from 22 - 24 August 2023. The theme was BRICS and Africa and the summit adopted mutually accelerated growth, multilateralism and sustainable growth. According to the Australian Institute of International Affairs, there were six major outcomes from the BRICS summit 2023. The first major decision was on BRICS expansion. The decision of expansion of BRICS shows the China-Russia nexus to balance the US. By 2050, BRICS aims to account for 50% of the world’s GDP, which can significantly change the economic landscape. The second outcome was the decision to bring down dependency on the US dollar in global commerce and pushed for use of local currency, which is considered as idealistic by scholars. Also, the Brazilian president, Luiz Inácio Lula da Silva, advocated for BRICS currency which is expected to take further discussion in the coming BRICS summit. Thirdly, the members strongly advocated for multilateralism, better representation in the UN and advocated for reforms in UNSC. Fourthly, the BRICS members will extend their support to the African Continental Free Trade Area (AfCFTA). Another major outcome was the emphasis on green economy and agriculture, where producing eco-friendly jobs, low-carbon and sustainable practices were discussed. The concerns around growing population was also discussed among the members. The last but one of the significant outcomes was the consensus between China and India to set up efforts to ease their border stand-off. However, China issued a map showing Arunachal Pradesh and Ladakh as a part of China
Before the 2023 expansion of BRICS the forum did not have a formal set of requirements or procedures for other countries to become members of BRICS. One key consideration was whether the new aspiring country has the common goals and objectives shared by the five core countries and another one was the geopolitical significance of the aspiring country. However, all the five countries have to agree to admitting another new member. Following the 15th BRICS Summit in South Africa, six new countries, who are considered as the regional powers, have been invited to join the BRICS, Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE. And except for Argentina, all other five have accepted their invitation. Thereby, out of 8.2 billion in the world population almost 3.5 billion makes up the BRICS population with a share of 44% of the global population. BRICS now include three of the major oil supplies in the group, Iran, Saudi Arabia and the UAE constituting around 44% of world’s crude oil. Also, in 2022, Riyadh had stated its interests in settling energy sales in currency other than dollars. Iran too has closer ties with Russia and China after the West has imposed sanctions against Iran. The enlarged group boasts a total population of approximately 3.5 billion, accounting for 45% of the world's population. Collectively, the economies of the member countries have a combined value exceeding $28.5 trillion, representing around 28% of the global economy. The new members are expected to contribute around 11% to the aggregate GDP of BRICS + countries. While the expanding group can seek greater say in global political and economic landscape, India and the fellow members, Brazil and South Africa raise the concern of expanding BRICS having a possibility of becoming an anti-western bloc. Whatsoever, no member other than Iran has a hostile situation with the west. But the tendency of great powers within the grouping China and Russia, are actively seeking to move away from the West.
The BRICS expansion and willingness of more countries to join the forum, clearly shows the discontent with already existing international governance institutions that follow norms of the west. Appeal of parallel institutions are growing and leniency towards multipolarity is gaining momentum against the unipolar world where the US is the hegemon. BRICS 2023 summit is important as BRICS has collectively worked towards developing alternatives to the SWIFT payment system, gradually establishing a financial system that reduces reliance on the US dollar. This includes the creation of a unified payment system known as BRICS Pay, expanding trade in their respective domestic currencies, and exploring the possibility of introducing a common currency. This approach enables BRICS countries to conduct trade among themselves without relying on the global SWIFT network, thereby minimising potential risks or threats from external sources.
The discontent with the global governance structures and the US hegemony is not only confined to regimes like China, Russia and Iran but also countries who are partners of the United States. The slew of applications to join BRICS shows that more countries in the Global South want to be part of the rule makers and not those who comply with the rules which are not made by them. The network discussion highlighted that the expanded BRICS, now including six of the world's top ten oil producers, offers the group an enhanced ability to impact the global energy landscape. This expansion also presents more opportunities for member countries to diversify their partnerships, particularly by facilitating technology transfer, promoting space research, and bolstering the BRICS’ New Development Bank (NDB).
The expansion is viewed differently by different member countries. Brazil wants the expansion to foster deeper south-south cooperation and development assistance, while China stresses more for security cooperation among the BRICS countries. For Russia, the expansion proves positive for its economy and security as Russia has become pariah for Europe and is facing sanctions in face of the Ukraine invasion. The country is seeking to deepen its ties with the emerging economies. China views the expansion as a diplomatic success of Beijing as it seeks to establish itself as the voice of the global south. For South Africa, its position as the representative of Africa, will be diluted with the entry of Ethiopia and Egypt as well as Pretoria’s relatively low volume of trade with the BRICS members. Hence, the expansion is viewed differently by different countries.
Challenges to be Addressed
While there is convergence in interests and objectives among the core members their divergences are also significant as they are major factors that holds back BRICS from being effective. There is a difference of opinion among the member countries regarding the reform of UNSC. Brazil and India have been actively advocating for reforms in permanent and non-permanent seats in UNSC and they have also been supporting the activities of G4 countries (Germany, Brazil, India and Japan) for securing permanent seats in UNSC. While China and Russia have been rhetorically supporting the cause, they have not been proactive in supporting the G4 countries. South Africa also positions itself as the representative of Africa and has been calling for reforms in the UNSC. The group does not have a single voice on this matter.
Bilateral issues between India and China is another challenge that further downgrades the group’s coherence. Also, within the group the economic significance of each member is different. China is the most significant member of the bloc. This is a major concern for India as it fears the expansion choices might be made by China to make the bloc China aligned. Also, China and Russia have hostilities with the west and want to move away from the west, this is not a problem for Brazil, India and South Africa. Infact, INdia’s growing convergence with the US is in the background of its stand-off with Beijing. Hence is unlikely to support BRICS policies that seem more China aligned. Though India might participate in BRICS, SCO and Asian Infrastructure Investment Bank (AIIB), it will keep its cooperation with Quadrilateral Security Dialogue with Australia, Japan and the US active, which is termed by China as an ‘Asian NATO’. Also, shortly after the BRICS summit in 2023, in the G20 Summit, India launched India Middle east Europe Economic Corridor as a countervailing program to China’s BRI. This has also fostered India, South Africa, Brazil sub-grouping in the BRICS as part of India’s strategic alignment to counter the dominance of China in the global south. On their end, Brazil and South Africa must navigate this strategic competition between China and India to advance their interests, while managing the risks that such geo-political rivalries can pose for the wider BRICS’ agenda of overcoming the structural challenges in the global architecture. Hence, even with common concerns about the structure of the global order, significant differences exist in terms of threat perceptions and national security interests among the members. This leads to a wider fragmentation within the group based on varying interests, which may be further intensified by the expansion of BRICS.
The expansion itself comes with challenges as it will in turn pose a challenge to maintaining coherence and consensus based decision making. BRICS would want to have a secretariat, which it currently does not have. Additionally, the BRICS has not yet clarified its goals concerning non-member countries of the Global South, around forty of which have shown interest in joining the group. Likewise, the approach that BRICS members will adopt to advance reforms in multilateral organisations remains uncertain. As BRICS include more oil supplying countries, The expansion of BRICS is likely to impact energy trade, as it will allow these countries to shape energy markets by aligning their interests and potentially forming a unified negotiating front on the global stage. However, considering BRICS' goal of promoting sustainable development and tackling climate change, it will be crucial to observe how the inclusion of more oil-producing nations will affect this agenda. However, amid the concerns of lacking cohesiveness in case of expansion, the group is positioned to embrace change if it succeeds in making use of existing opportunities.
Looking Forward
As Russia starts the presidency of 2024 Brics Summit to be held in October, Putin has announced five major points of focus and priority. This includes, focus on positive and constructive cooperation with all countries concerned, promote all aspects of the BRICS partnership in three key areas, including politics and security, economy and finance, and cultural and humanitarian contacts. Putin stated that Russia's priorities include promoting cooperation in science, high technology, healthcare, environmental protection, culture, sports, youth exchanges, and civil society. Putin further stated that Russia will make every effort to ensure that, while upholding traditions and drawing on the association's accumulated experience over the years, they enable the smooth integration of new participants across all aspects of its activities. He has also upheld the principles of BRICS, which are, sovereign equality, respect for the chosen path of development, mutual consideration of interests, openness, consensus, the aspiration to form a multipolar international order and a fair global financial and trade system, and the pursuit of collective solutions to the top challenges of the time. He has also promised practical implementation of the Strategy for BRICS Economic Partnership 2025 and the Action Plan fro BRICS Innovation Cooperation 2021-2024. The enhancement of BRICS’ role in the international monetary system, interbank cooperation and expansion of national currencies have also been emphasised.
As the major emerging economies converge in Russia in late October 2024, Russia aims to use the platform as its defence against being isolated internationally following the Ukraine invasion. For Russia BRICS also serves its interests of showing off its allies, when the west has imposed sanctions against Russia. The grouping had served the same interests of Russia back in 2014, after the annexation of Crimea, when it was isolated internationally and was expelled from G8 countries, which is now G7. China and India have helped the Russian regime to weather the Western sanctions after the invasion of Ukraine. As the next summit will include newest members, Egypt, Saudi Arabia, UAE, Ethiopia and Iran, suspicions of the group becoming one side of a larger geopolitical battle deepens. The inclusion of Iran, an inveterate adversary of the US, mainly triggers this thought. Whereas, India, Brazil and South Africa are opposed to such leniency within BRICS and want to continue the relations with the West. BRICS can likely become a confrontation ground between anti-western states and non-aligned states.
Despite evident areas of tension among BRICS members, there is mutual support on several issues, especially concerning the global financial system. The BRICS economies share a common stance against what they perceive as a US-dominated global order, supported by the Dollar and post-Second World War governance institutions. While this shared perspective can serve as a strong unifying force, bilateral issues, particularly between China and India—the two most economically significant members—have hindered the group’s ability to formulate coherent policies. Nevertheless, BRICS has managed to collaborate relatively effectively within the frameworks of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA). Though the idea of BRICS Currency has not been mentioned in 15th summit communique, also the idea being widely doomed as unrealistic, the BRICS members are doing trade and investments in local currencies, facilitated by central banks of respective BRICS members.
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