In 2001 Goldman Sachs economist Jim O’Neill coined the acronym BRIC for four fast-growing economies that he predicted would attract big flows of foreign investment and become major players in the global economy. Brazil, Russia, India and China, O’Neill said, were economic winners who could usher in a new era of multilateralism.
Embracing their stature as future stars, BRIC nations began meeting among themselves and held their first leaders’ summit in 2009. Expanding their geographic footprint in 2010, they allowed South Africa to join. BRICS collectively accounts for 45% of global population and more than 20% of GDP.
When I reported from the 2013 BRICS summit in Durban, leaders advocated a more equitable growth paradigm and reform in global governance. China’s Xi Jinping, in Durban for his first international gathering as president, extolled his country’s unprecedented advance. He boasted that China’s gross domestic product would double by 2020 and that by 2049 China would have become ‘a modern socialist economy’.
The real achievement of the 2013 summit was the commitment to create new entities ̶ a development bank to fund infrastructure and a Contingency Reserve Arrangement (CRA), for bridge loans to members in financial distress.
The New Development Bank (NBD) was set up in Shanghai and began operations in 2015. It has approved $30 billion of loans for some 80 projects. Like two much larger Chinese lenders, the NDB aims to supplant western hegemony in development finance.
How does Jim O’Neill assess BRICS performance two decades on?
Overall, the results are positive, with China and India racing ahead while Brazil and Russia have fallen back. Indeed, says O’Neill, the last decade has been a disaster for commodity-exporting Russia and Brazil, with their share of global GDP back to the levels of 2001. South Africa lags even further with low growth and declining per capita incomes.
O’Neill is disappointed that the BRICS political club has failed to coordinate policies, boost trade among themselves or win equitable voting within the International Monetary Fund and World Bank. It has little to show for its objective of being a steering committee for emerging markets.
But since 2022 the BRICS have benefited from an unexpected gift from the rich nations they oppose. Surprisingly perhaps, the comprehensive economic and financial sanctions against Russia for the war in Ukraine have brought Russia and China closer together.
The West’s freezing of $300 billion of Russian reserves, a trade embargo, and Russia’s expulsion from the SWIFT system of international payments prompted BRICS leaders to examine their own vulnerabilities. Since 2022, China has downgraded the dollar in trade and expanded the use of its own currency, the RMB. China is actively promoting its rival to SWIFT, the Cross-Border Interbank Payment System (CIPS), to settle accounts.
Both India and China have sidestepped sanctions, boosting their imports of discounted Russian energy. These BRICS partners now absorb 80% of Russian oil exports. India-Russia trade is up by 300% while China-Russia trade has increased 40%. Beijing says 70% of its Russian trade is denominated in RMB.
BRICS leaders (absent Russia’s Vladimir Putin) will meet August 22-24 in Johannesburg. There is talk about the BRICS creating an alternative currency to the dollar. This won’t happen, but there will be discussion of alternative payment mechanisms amid concern that over-dependence on the dollar leaves the BRICS vulnerable.
In its July World Economic Outlook, the International Monetary Fund called attention to the risk of the world economy dividing into rival blocs, something it says has already distorted trade, investment and commodity prices.
Within BRICS, India worries that China seeks to dominate. The two nations share a contested 2,000-mile border, along which there were armed clashes in 2022. India has failed to endorse China’s Belt and Road infrastructure Initiative, explicitly opposing one of its six westward corridors that passes through what it regards as Indian territory illegally occupied by Pakistan.
Wary of Chinese intentions, India is skeptical about BRICS promoting the RMB and CIPS as well as wanting to bring in new members. As a result, perhaps the biggest challenge for the BRICS going forward is maintaining good relations between China and India.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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