In the span of two decades, the BRICS group, comprising Brazil, Russia, India, China, and South Africa, has evolved from a mere concept coined by economist Jim O’Neill into a powerful alliance with its own multilateral lender. This expansion will unite some of the world’s largest energy producers with major consumers among developing nations, bolstering the group’s economic influence in a world largely dominated by the US. Explore the origins, accomplishments, and challenges of this dynamic coalition in a shifting global landscape.
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How BRICS Became a Club That Others Want to Join
By Tom Hancock and Mike Cohen
The BRICS group of emerging market nations — Brazil, Russia, India, China and South Africa — has gone from a slogan dreamed up at an investment bank two decades ago to a real-world club that controls a multilateral lender. Now it’s undergoing an enlargement that would pair some of the planet’s largest energy producers with some of the biggest consumers among developing countries, potentially enhancing the group’s economic clout in a US-dominated world.
1. How did BRICS get started?
“BRIC” was coined in 2001 by economist Jim O’Neill, then at Goldman Sachs Group Inc., to draw attention to strong economic growth rates in Brazil, Russia, India and China. The term was intended as an optimistic scenario for investors amid market pessimism following the terrorist attacks in the US on Sept. 11 that year. The four nations took the concept and ran with it. Their rapid growth at the time meant they had shared interests and challenges, and combining their voices could increase their influence. The first meeting of BRIC foreign ministers was organized by Russia on the sidelines of the United Nations General Assembly in 2006. The group held its first leaders’ summit in 2009. South Africa was invited to join in 2010, adding another continent and the letter “S.” In August, invitations were extended to Saudi Arabia, Iran, the United Arab Emirates, Argentina, Ethiopia and Egypt to join in 2024.
2. What does BRICS do?
The biggest achievements of the group have been financial. The countries agreed to pool $100 billion of foreign currency reserves, which they can lend to each other during emergencies. That liquidity facility became operational in 2016. They founded the New Development Bank — a World Bank-inspired institution that has approved almost $33 billion of loans — mainly for water, transport and other infrastructure projects — since it began operations in 2015. (South Africa borrowed $1 billion in 2020 to fight the Covid-19 pandemic.) By comparison, the World Bank Group committed $70.8 billion to partner countries in fiscal 2022. Suggestions that the BRICS countries adopt a common currency haven’t gained traction. But its expansion to incorporate major fossil fuel producers gives it more scope to challenge the dollar’s dominance in oil and gas trading by switching to other currencies, a concept referred to dedollarization. Diverging interests have made it hard for them to agree on how to tackle some other pressing global issues, such as climate change.
3. How have trade relations changed?
Trade between the bloc’s five existing members surged 56% to $422 billion between 2017 and 2022. Economically, the natural resources and farm products of Brazil and Russia make them natural partners for Chinese demand. India and China have weaker trade connections with each other, partly due to their geopolitical rivalry and an acrimonious border dispute.
4. Who’s in charge?
For most of the time BRICS has existed, China’s gross domestic product has been more than twice the size of the four existing members combined. In theory, that should give it the most sway. In practice, India, which recently surpassed China in population, has been a counterweight. BRICS hasn’t formally endorsed China’s big push to build infrastructure abroad, called the Belt and Road Initiative. That’s partly because India objects to such projects in disputed territory held by Pakistan, its neighbor and archrival. The New Development Bank has no dominant shareholder: Beijing agreed to the equal holdings for each member advocated by New Delhi. The bank is headquartered in Shanghai, but has been led by an Indian and two Brazilians, most recently former President Dilma Rousseff.
5. Is Russia still a member despite its invasion of Ukraine?
Yes. The other BRICS countries have adopted a broadly neutral stance toward the war, viewing it as more of a regional issue than a global crisis. However, the war has changed Russia’s relations with BRICS institutions. The New Development Bank quickly froze Russian projects and Moscow hasn’t been able to access dollars via the BRICS shared foreign currency system. Essentially, with US sanctions piling up, other BRICS countries prioritized ongoing access to the dollar-based financial system over helping Russia. Putin participated in the Johannesburg summit in August by video conference, sparing the South African government from having to decide whether to execute an arrest warrant for alleged war crimes issued by the International Criminal Court.
6. How does BRICS differ from other multilateral groups?
It’s similar to clubs such as the Group of 20 big industrialized and emerging economies in promoting a move toward a more “multipolar” world and away from the post-Cold War dominance of the US, as exercised through structures like the tighter-knit Group of Seven and the International Monetary Fund. Other groupings arguably gaining influence as part of the trend include OPEC, the Shanghai Cooperation Organization, the Southern Common Market (Mercosur), and the African Union. In a similar vein, the Global South has become an increasingly popular way to refer to developing or emerging economies, though it’s not an actual club. It’s typically contrasted with a Global North composed of the US, Europe and some wealthy countries in Asia and the Pacific. But the relationships aren’t straightforward. For example, the European Union, firmly part of the Global North, could gain more influence in a multipolar world. China still considers itself a developing country, which brings some trade benefits, although its status as the world’s second-largest economy with a large middle class makes that classification an awkward fit. The G-7 invited Brazil, India and Indonesia to attend its leaders’ summit in 2023, in what officials said was an attempt to reach out to the Global South.
7. What was the impetus for expansion?
The push was largely driven by China, which has sought to increase its global clout, but had the backing of Russia and South Africa. India was concerned a bigger BRICS would transform the group into a mouthpiece for China, while Brazil was worried about alienating the West. South African President Cyril Ramaphosa, who hosted the August summit, said a consensus was reached on expansion and more phases would follow, but didn’t elaborate. As of late October, it wasn’t clear if all six invitees would actually join come Jan. 1. According to Bloomberg Economics, an expanded BRICS would also mean more say for the alliance in world affairs and may lead to a different type of global economy. That’s because in comparison to the G-7, the BRICS are less market-oriented.
What Bloomberg Economics Says…
“The original BRIC members had two things in common: large economies, and high potential growth rates. The expanded BRICS-11 is a less coherent group — some are going through crises, others are thriving. This could signal an expansion of the agenda beyond economics.”
— Ziad Daoud, chief emerging market economist
8. Are there still BRICS funds or is the concept dead as an investment strategy?
There’s still intense interest in emerging markets among investors. But while a nice idea two decades ago, BRICS is largely irrelevant as an investment theme today due to geopolitical changes and the members’ different economic trajectories. Except for India, the BRICS have underperformed their emerging-market peers over the last five years, according to Bloomberg Intelligence. US-led sanctions have put Russia off limits for most foreign investors, and some sectors in China — especially technology companies — have also been sanctioned or face potential investment bans. China also is a maturing economy, increasingly separated from other emerging markets and facing a structural slowdown. Brazil’s economy slowed markedly following the end of a global commodity boom about a decade ago, while South Africa’s has been subjected to years of rolling power blackouts because the state utility can’t produce enough electricity to meet demand. India is still a growth story that investment banks now compare with China 10 or 15 years ago, though it’s unclear if it can follow China’s manufacturing-led model.
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The Reference Shelf
More QuickTakes on the border dispute between India and China, India’s jobs challenge, and Brazil and Argentina’s currency plans.
Bloomberg Opinion’s Mihir Sharma on why BRICS isn’t big enough for both China and India, Bobby Ghosh on South Africa’s Ukraine peace mission, and Daniel Moss on why a BRICS common currency is still a pipe dream.
A Bloomberg News deep dive on the tussle for global influence.
A Merics report on China’s attempts to challenge the international order.
The New Development Bank’s FAQ page.
Bloomberg terminal functions for the market let clients analyze the yuan’s challenge to the dollar.
© 2023 Bloomberg L.P.
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