The BRICS summit this week showcased efforts by the five member countries to demonstrate unity and cooperation, but the policy proposals put forward were limited in scope and ambition due to unresolved rivalries and conflicting national interests, Liam Peach, an emerging market economist with Capital Economics argued in an opinion piece.
“While there’s a broader question about whether the BRICS could eventually emerge as a global organisation that would challenge the G7, it seems unlikely that this will happen,” Peach said.
Peach went on to lay out the five main takeaways from the event that was supposed to lay the groundwork for a multinational alliance of emerging markets that can challenge the western hegemony and better represent the interests of the global south at the top table of geopolitics.
BRICS Membership Expansion
Over 20 countries reportedly applied to join Brazil, Russia, India, China and South Africa in the group. In the end, six new members were invited to to join the BRICS+ group on August 24: Saudi Arabia, Egypt, UAE, Iran, Ethiopia, and Argentina.
These new members are considered either neutral or aligned with China in the global context. While a comprehensive list of applicants isn't available, it's said to include countries like Indonesia, Kazakhstan, Nigeria, Thailand, and Venezuela are all keen to become members.
“The BRICS group will involve a two-tiered membership system including full members and partners. Full criteria for BRICS membership have not been laid out, but China’s foreign ministry said that new members should be “emerging economies, possess regional and strategic global influence”, says Peach.
“Expanding BRICS membership is a big deal. China has pushed the hardest for membership expansion as part of its plan to create a geopolitical counterweight to the US. So the expansion is likely to be viewed as a small victory for China,” he adds.
The summit also underscores how the shift into US- and China-aligned regional blocs is accelerating and Saudi Arabia’s interest in joining the BRICS is a key part of that shift. Previously, Capital Economics saw Saudi as neutral, but its membership of the BRICS+ indicates that it is now in the China camp and its decade-long close ties with the US have cooled significantly.
“Membership provides clout to a group of countries that share a number of common goals and that perceive the Western world as increasingly out of touch with their world vision,” says Peach.
Getting agreements was hard. While all the BRICS members agree that the emerging markets are under-represented in the global system and that they need to band together to have the clout to force the dominant G7 hegemony to listen, beyond that there is little agreement on how best to interact with the current world leaders or even each other.
“Almost everything has been under discussion. This includes cooperation agreements in the spheres of space, education and medicine. Numerous remarks were made about promoting cross-border trade and financial flows within the bloc,” says Peach.
In this context the role of the New Development Bank (NDB, formerly known as the BRICS Bank) will be key as one of the few institutions that unite the group.
“The New Development Bank, often referred to as the BRICS bank, is seen as playing a key role in promoting integration across countries. President Xi announced that Chinese institutions will launch a $10bn fund for global development. The BRICS bank has pitched itself as a no-strings-attached lender, in contrast to conditionalities in IMF and World Bank agreements. This may appear compelling for many smaller nations,” says Peach.
Brazilian President Luiz Inácio Lula da Silva championed the inclusion of Argentina in the expanded group, Brazil’s biggest trade partner. However, Argentina appears to be on the verge of yet another default even after signing off on a new $44bn International Monetary Fund (IMF) rescue package.
Lula has called the IMF programme “suffocating” and part of his motivation of bringing Argentina into the BRICS+ appears to be access to NDB and switching of the rescue package from one institution to the other, where funding comes without the IMF’s strings.
While the overarching goal of deeper cooperation amongst the BRICS was clear from the start, the body is only stepping off square one and the summit lacked a well-defined policy agenda with few concrete policies put in place during the week, says Peach.
While BRICS membership could potentially lead to deeper integration with China, facilitating increased trade and investment, the overall benefits for many economies are doubtful. The group's track record in delivering substantial gains is questionable.
For smaller nations, alignment with BRICS could be more politically motivated than economically strategic as they should get greater access to Chinese funding channels and the BRICS bank.
“In general, though, we doubt that BRICS membership will generate meaningful gains for many economies,” says Peach. “The group’s track record in delivering results is far from great… It’s notable that Russia has moved closer to China since the start of the Ukraine war with no tangible evidence of larger FDI inflows or announcements of major new infrastructure projects. And some countries – including India and South Africa – would likely tread lightly with China in order to maintain access to investment from the US bloc.”
Talk of de-dollarisation has been a constant leitmotiv amongst the BRICS, which all vocally favour diversifying away from dollar-based trade to the greater use of national currencies, or possibly setting up a BRICS currency, although as bne IntelliNews reported there are significant difficulties with that.
Nevertheless, de-dollarisation has been a priority for BRICS members, as they all associated the dominance of the dollar, especially in international trade, as a significant tool of US power. Despite all the talk, little practical progress was made.
“Before this week’s summit kicked off, the BRICS bank announced that it would start lending in the South African rand and Brazilian real. Multiple references to reducing the role of the dollar in trade and financial flows were made in the week, including the possible creation of a common currency. No policies have been put forward and the bloc said it will explore ways to reduce the dollar's use before the next summit,” says Peach.
Russian President Vladimir Putin commented that only 29% of intra-BRIC trade is still done in dollars (against the 85% global average) and Peach says there is scope to reduce this further amongst the BRICS. Saudi Arabia and China are currently looking at the possibility of settling their mutual oil trade in yuan and de-dollarizing the oil business would be a significant step towards switching out of the dollar.
“But challenging the dollar’s role appears to be out of the question. The CFO of the BRICS bank wants to raise the share of funding in local currencies from 20% to 30% by 2026 and acknowledged that 70% will still be in dollars. Any effort to move away from the dollar, whether through a common currency or not, would run into the problem that intra-BRICS trade is too small and that currencies are not liquid enough to challenge the role of the dollar,” says Peach.
BRICS on the Global Stage
The big unspoken issue was whether an expanded BRICS can evolve into a geopolitical counterweight to the G7.
While the larger bloc offers a platform for cooperation and a stronger global voice, disagreements among member nations, particularly India and China, could impede progress towards any unified stance.
“China could strengthen its role as a major creditor to emerging markets, which could in turn weaken the role of and flow of financing from multilateral institutions like the IMF and World Bank,” says Peach.
“Even so, there are certainly reasons to remain sceptical about the BRICS challenging the current global world order… Disagreements with member nations run deep. The relationship between India and China is complicated and not all countries are on board with the views of China and Russia on the West. A lack of common agreement among member states will likely hold back progress in many areas and prove an impediment to the BRICS emerging as a unified bloc,” says Peach.