BRICS expands, acquires some financial heft

The Global South intensified its quest for more egalitarian and responsive international institutions with as many as twenty-three nations openly queueing up to join BRICS, and many more applying discretely. Eventually, the geo-strategically significant Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and UAE were admitted under consensually agreed formula at the 15th summit at Johannesburg, South Africa, on August 24, 2023. With the crisis in Niger dividing West Africa even as the rest of the continent (and world) looks on, the space for unilateral Western dominance is visibly shrinking.

The BRICS (Brazil, Russia, India, China, and South Africa) grouping is the non-Western world’s response to the US-dominated Bretton Woods Institutions (World Bank, IMF) and their suffocating conditions for loans to the developing world. The 2008 global economic meltdown triggered by the collapse of leading American banks prepared the way for the first summit in 2009. The addition of some resource-rich members from the Gulf region, and important countries from South America, East Africa and North Africa have added to its global footprint.

Prof. Dmitry Trenin of the Russian International Affairs Council observed, “Expanding the membership and working towards financial independence from the West are two important challenges to be discussed at the Johannesburg summit.” The first was concluded with relative ease; the challenge is to answer the “growing pushback against self-serving Western dominance in global politics, economics, finance, and the media.”

Addressing the summit via video conference on August 22, 2023, after the West-controlled International Criminal Court issued a warrant against him and scuttled his personal attendance at Johannesburg, Russian President Vladimir Putin asserted that de-dollarization is “gaining momentum” and the US dollar is losing its global sheen in an “objective and irreversible” process. He urged BRICS countries to increase settlements in national currencies.

The BRICS emerging economies are becoming new world economic leaders, with a cumulative share of global GDP currently at 26 per cent, and are actively working to reduce their reliance on the dollar in mutual transactions. In terms of purchasing power parity, BRICS has already surpassed the Group of Seven (G7) leading industrialised nations as it accounts for 31 per cent of the global economy, compared to the G7’s 30 per cent.

Putin pointed out that over the past decade, mutual investments between BRICS member states has increased by six times; their total investments in the world economy have doubled, and cumulative exports account for 20 per cent of the global total. Moscow is focusing on re-orienting its transport and logistics routes towards “reliable foreign partners,” including BRICS members, to ensure an uninterrupted supply of energy and food to the international market. The priority is the Northern Sea Route and ‘North-South’ transport corridor. The NSR, passing through the Arctic Ocean along Russia’s northern coastline, will ensure faster goods deliveries between Europe and the Far East. The NSTC will link Russia’s northern and Baltic ports to the Persian Gulf and Indian Ocean, easing cargo movement between Eurasian and African nations.

Putin pledged to increase fuel, food and fertilizer supplies to the nations of the Global South, to contribute to global food and energy security, and blamed the current international food crisis on the West’s unilateral sanctions. He condemned “illegitimate sanctions” and the “unlawful freezing of sovereign states’ assets” that violate free trade and economic cooperation rules.

Prime Minister Narendra Modi applauded BRICS’ many achievements, especially the role of the New Development Bank in helping countries of the Global South, and pointed out, “We have created a financial safety net through the Contingency Reserve Arrangement.” Initiatives like BRICS satellite constitution, Vaccine R&D Centre, mutual recognition of pharma products are improving the lives of common citizens of BRICS countries, while initiatives like Youth Summit, BRICS Games, Think Tanks Council are strengthening people-to-people ties between them. India has suggested that the BRICS agenda be strengthened with Railway Research Network, closer cooperation between MSMEs, online BRICS database, and Startup Forum.

Calling for extending cooperation in field of Space, Prime Minister Modi said work on the BRICS satellite constellation is already underway and urged the creation of a BRICS Space Exploration Consortium to focus on space research, weather monitoring. Sharing India’s innovations in education, especially in rural and remote areas, Mr Modi called for cooperation in education, skill development and technology and offered to share all platforms developed in India with BRICS partners. He called for skills mapping to identify each nation’s strengths to complement each other in the journey of development.

He mooted joint efforts to protect the big cats of different species under the International Big Cat Alliance, and mooted a traditional medicine systems repository. The Global South is a priority of BRICS, and India has also accorded it top priority under its G-20 presidency with the motto of “One Earth, One Family, One Future”.

The summit host, South African President Cyril Ramaphosa, called for fundamental reforms in global financial institutions and said the BRICS New Development Bank is leading the way by offering funds for developing nations without conditions. So far, BRICS countries have received four times more investment due to NDB compared to 20 years ago. Ramaphosa said Africa is a continent of great opportunity, rich in critical minerals, and a skilled young urban population which positions the continent as the next frontier of growth. Hence Africa wants to process its resources on the continent and export finished products with value addition.

Brazil President, Luiz Inácio Lula da Silva, promised to energize trade ties in Africa under the South-South cooperation scheme, including State alliances with the private sector and the financing of strategic projects through the New Development Bank. Lula said many “ambitious projects” are underway in Africa for setting up free trade zones that offer Brazil an opportunity to trade its commodities and products such as food, beverages, iron and steel manufactures, hydrocarbons and various minerals, across 54 countries. He urged the expansion of air and sea links between Africa and Brazil for positive economic and productive integration, to increase the flow of people, trade and tourism.

China’s President Xi Jinping, who’s speech was read by commerce minister, Wang Wentao, proposed that Beijing and South Africa be strategic partners with mutual trust, mutual understanding, and a commitment to justice. President Xi urged that BRICS countries should oppose economic coercion and focus on business cooperation; expand political and security cooperation, maintain peace and tranquillity; and warned that the persisting Cold War mentality has made the geopolitical situation grim. He offered China’s cooperation to create a mechanism for sustainable industrial exchange and cooperation in the BRICS countries.

BRICS Bank

The contemporary challenge before BRICS’ New Development Bank (NDB) is to create a global financial architecture that can support a trading and investment system that is not dependent on a single currency. The freezing of Russian foreign currency reserves of $300 billion, held in US treasury bonds, on account of the action in Ukraine, has had a sobering effect on BRICS and other countries that invest in US government bonds and keep their overseas gold reserves overseas in foreign banks. With sovereign assets in danger of being frozen or forfeited in any future crisis, the search for safe alternative destinations is an urgent imperative.

The NDB is likely to lend more in local currencies and accelerate the de-dollarization of the world economy. The NDB issued two bonds in South Africa in August 2023, a 1 billion rand ($52.3 million) five-year note and a 500 million rand three-year note. These attracted 2.67 billion rand of bids in total, according to auction results shared by two investors with Reuters.

NDB plans to issue the first-ever Indian Rupee Bond by October 2023. Other local currencies being considered include those of Brazil, Russia, and the United Arab Emirates. The bank’s Chief Financial Officer Leslie Maasdorp revealed that the NDB aims to increase local currency lending, from about 22% to 30% by 2026. 

Observes note that Washington’s weaponization of its currency in its Hybrid War against Russia and concurrent manipulation of trade and technology against China show the urgency to create new financial instruments to reduce the non-Western economies’ dependence on the dollar. It is not widely known that Western sanctions have hampered the activities of the BRICS’ Bank.

BRICS is therefore encouraging the use of national currencies in trade between members. Though free from third-country interference, these transactions incur costs owing to problems with convertibility of some currencies, their limited use outside the issuing country, and the instability of the exchange rate. These issues need resolution to improve international payments and settlements within the group.

However, what gives BRICS an edge over the West and its institutions is that fact that it embraces the diversity of its members and does not seek to impose any political or economic model upon the world, much less any particular culture. It seeks to facilitate development for a more open and inclusive world order.