August 30, 2023
IntelBrief: Building up the BRICS
The BRICS group of nations announced during its annual summit last week that it would expand its membership by inviting six new members to join its ranks: Iran, Saudi Arabia, the United Arab Emirates, Egypt, Ethiopia, and Argentina. The move is widely considered to be aimed at elevating the BRICS (an acronym for the current members: Brazil, Russia, India, China, and South Africa) to compete with U.S./Western-led fora and financial institutions like the Group of Seven (G7) and the World Bank. The door is now open for the newly welcomed states to join the group on January 1, 2024.
With the weight of the energy superpower Saudi Arabia – and to a lesser but still significant extent, Iran and the UAE – BRICS will more than double its share of global oil production to over 43 percent. The group will also grow to account for nearly 30 percent of global gross domestic product (GDP) by some estimates. According to International Monetary Fund (IMF) predictions, by the measure of the purchasing power parity of the BRICS’ GDP – an indicator of its members’ respective currency values in their local markets – the group will even overtake the G7 with its new members. The G7 and the new and improved BRICS – which some are calling “BRICS+” – face divergent economic trajectories. While the current iteration of the BRICS approximated the G7’s global share of GDP (around 31 percent) around 2020, Bloomberg forecasts that the BRICS+ will come to account for nearly 50 percent of global GDP by 2050 while the G7 could sink below 20 percent. However, not all the new BRICS members share in their peers’ economic fortunes: Argentina is in the midst of an inflationary crisis, Egypt’s currency has lost half its value since February 2022, and Ethiopia is facing a humanitarian disaster as it recovers from its recent civil war.
None of the group’s new economic firepower guarantees that the BRICS+ will be able to achieve cohesion on significant geopolitical issues, and in some cases, there are existing tensions on major issues between some of the new members (e.g. Saudi Arabia and UAE; Ethiopia and Egypt). The group has demonstrated limited practical impact since its 2009 founding, and experts believe these struggles may grow as new members bring even greater complexity and diverging interests into play. While there are still no blanket trade agreements in effect amongst the BRICS, the group did yield one significant achievement when it established a new development institution, the New Development Bank (NDB), that aims to one day rival international lenders like the World Bank and the International Monetary Fund (IMF). These latter organizations have been criticized by countries in the Global South in the past by imposing austerity requirements and other burdensome conditions on their loans. The economic strength of Saudi Arabia and the UAE may be particularly useful for backing the NDB, especially as China’s economy shows signs of vulnerability amid an ongoing real estate crisis, crackdowns on private industry, and the reverberations of its extreme domestic COVID policies.
Prior to the announcement of the new members, current BRICS members were already divided on their attitudes toward the United States. In contrast to Russia and China, which are avowedly seeking to reshape a U.S.-led global order, India and Brazil have taken more non-aligned stances, cooperating with the United States on some issues and benefitting from positive relations while hedging their bets with other partners. India, in particular, sees a far greater security threat in its next-door neighbor China than it does in the United States, which serves as its partner to counter China via the Quadrilateral Security Dialogue, or “Quad.” Among the new additions, Iran is undoubtedly the most aligned with China and Russia as a U.S. adversary. Ethiopia – Africa’s second most populous state and the host of the African Union headquarters – has been a major recipient of Chinese development assistance. According to the U.S. Institute for Peace, “much of Ethiopia’s air, road and rail infrastructure is financed and built by the Chinese,” with China’s Belt and Road Initiative putting up some 400 projects valued at over $4 billion. Saudi Arabia and the UAE – both major recipients of U.S. security assistance, along with Egypt – have been looking to become less reliant on the United States, which some experts believe is showing signs of its footprint in the Middle East. The inclusion of several Middle Eastern powers in the new BRICS class also indicates China is trying to strengthen its role in the region after bringing together Saudi Arabia and Iran for rapprochement last spring, though tensions between these two powers’ have not been obviated as much as this event may have heralded.
While the BRICS’ growth could mark a significant step toward de-dollarizing the global economy – where nations put forth alternative currencies to undermine the U.S. dollar’s role in underpinning global trade – such an effort is still nascent. While Brazil’s President Lula da Silva has been pushing for the BRICS to develop its own currency, China has tried to get the group onboard with trading in Chinese yuan. South Africa’s finance minister was more bearish, noting last Thursday that the group has never seriously discussed the idea of a BRICS currency. While Saudi Arabia’s role as the world’s foremost oil producer could theoretically help unseat the dollar’s dominance in the oil market, Riyadh will likely not want to see the dollar devalued, given that the Saudi riyal is pegged to the dollar. By contrast, Iran and Russia would benefit greatly from a de-dollarized global economy, as their economies have been hammered by U.S. and Western sanctions underwritten by the dollar’s wide reach. Some have speculated that Argentina’s invitation may be used as leverage to convince the country’s leading presidential candidate to abandon his proposal of replacing the Argentinian peso with the dollar. For the time being, however, the latest news indicates that the BRICS have settled for trading in local currencies.