WILLIAM GUMEDE | Brics by Brics, slowly breaking the shackles of the West

One significant impact of the Russia-Ukraine war will be to accelerate the expansion of the Brics trade alliance from its current members of Brazil, Russia, India, China and South Africa. This will speed up the remaking of the post-Cold War global political power dynamics, financial make-up and ideological systems.

Chinese President Xi Jinping is meeting Russian President Vladimir Putin in Moscow this week, and it is likely that the rapid expansion of Brics — which both leaders are particularly keen for — will feature prominently in their discussions.

This month Mexico applied to become a member of Brics. Argentina, Indonesia, Saudi Arabia and Iran have already applied to join. Turkey, United Arab Emirates, Iran and Egypt are also keen to join. Brics had an expansion dialogue meeting in May 2022, with many finance ministers attending and expressing their formal interest to join.

Many large developing countries are eager to join the Brics alliance, which they see not only as alternative trade partners to the West, but in some cases a bulwark against what they see as developed global hegemony in markets, ideology and culture. A larger Brics alliance will increasingly rival the Group of Seven (G7) large industrial economies of the US, UK, France, Germany, Japan, Italy, Canada as well as the EU, home to 16% of the world’s population. The G7 countries account for 62% of the global economy.

Brics countries consist of 41% of the world’s population and account for 26% of the global economy. The average per capita GDP of G7 economies are six times that of Brics economies. However, a fast expansion of Brics will  increase the trade bloc’s share of the global economy much quicker than earlier predictions.  

Both Russia and China are keen to enlarge Brics to build a larger developing-country opposition against US-led Western country global hegemony. The Brics association is mission critical for Russia, because it desperately needs non-Western global allies to trade with after Western sanctions because of its war with Ukraine.

Given the Western blockade of Russia because of its invasion of Ukraine, the country would be on its knees if it were not for the support or “neutrality” of Brics countries. An enlarged Brics will boost Russia’s post-war recovery, as it would be able to neutralise Western sanctions and do business with more diverse developing countries.

Both Russia and China are keen to enlarge Brics to build a larger developing country organised opposition against US-led Western country global hegemony.

Russia also needs political allies to prevent being frozen out of global multilateral institutions such as the UN, World Bank, World Trade Organisation and International Olympic Committee. China has, for its own strategic reasons, long tried to transform Brics from a trade into a political alliance, as its central strategy to make itself the centre of a developing-country bloc to rival the US-EU-Japan industrial country global trade and political alliance.

Russia and China have tried hard in the past to turn the Brics trade alliance into a political alliance. However, Brazil, India and South Africa have so far remained committed to a trade alliance only. For Russia, after its war with Ukraine, it is now more urgent to turn Brics into a political alliance to get members to support its political battles with the West.

President Jinping’s meeting with Putin this week comes after the International Criminal Court in The Hague accused Putin of war crimes in Ukraine and issued a warrant for his arrest. Upon landing in Moscow, Jinping said: “In the face of a turbulent and changing world, China is willing to continue to work with Russia to firmly safeguard the international order.” When Putin launched his invasion of Ukraine last year, Jinping said China and Russia have a “no limits” partnership. China and India have been major buyers of Russian fuel during the conflict.

However, up to now, Brazil, India and South Africa, the world’s largest developing-country democracies, have focused on Brics being a trade rather than political alliance. A large influx of new large developing countries could push Brics to include political alliances. Some countries such as Iran are keen to join Brics to secure protection from Western sanctions.

South Africa is hosting the 15th Brics Summit in Durban from August 22 to 24, when decisions are likely to be made about new members. An expanded Brics will also dominate global agriculture supply chains — with Brazil, Argentina and Russia major food producers. An expanded Brics will also increase the grouping’s influence on global manufacturing supply chains.

A key strategy of Brics is to diversify global trade away from solely using the US dollar, and a larger Brics will mean the world would increasingly use fewer US dollars.

Only Russia is a large oil producer in Brics. If large oil producers such as Saudi Arabia, UAE and Egypt join Brics it would mean the group would dominate world’s energy supply. The strength of the US dollar is also partially based on the currency as underpinning the oil trade — the so-called petrodollar. Members of Opec, the organisation of oil exporters, settles their accounts in US dollars.

China has been planning to turn its currency, the yuan, into a global reserve currency by expanding its trade with as many developing countries as possible.

China has been planning to turn its currency, the yuan, into a global reserve currency by expanding its trade with as many developing countries as possible. However, the yuan does not have the same convertibility as the dollar, which is anchored by strong institutions, transparency and wide global use. Though part of China’s strategy has been to turn the yuan into a petroyuan, by getting oil producers to trade with the yuan also, this has met with little success so far.

Enlarging Brics to include the oil producers is likely to accelerate the de-dollarisation of the world, and a number of Brics countries are exploring ways to de-dollarise their trade. Brics economies have increasingly reduced the US dollar holdings in their foreign reserves.

Gita Gopinath, the IMF’s first deputy MD, has already warned of new currency blocs based on trade between separate groups of countries. Brazil and Argentina have announced they are starting preparatory work on a common currency. South America’s two biggest economies will invite other Latin American countries to join. One of the reasons for the proposed regional currency is to reduce reliance on the US dollar.

Some Brics strategists have been calling for a Brics global reserve currency. The idea is a Brics common currency that, over time, works like the euro.

However, the challenge is that trade within Brics countries is too small — the phenomenon of needing an “optimal currency area (OCA)” — to sustain a common currency. For another, US GDP is still close to 25% of the global economy — which underpins demand for US dollars.

Switching from the US dollar as global reserve currency will not happen overnight. When the dollar overtook the British pound as the global reserve currency, it took 50 years for a full switch to take place. Nevertheless, expanding Brics membership will help secure an optimal currency area to make a common Brics currency possible.

One year on, the Russia-Ukraine conflict is likely to speed up the expansion of Brics, and a larger Brics will accelerate the remaking of international trade, politics and institutions — and potentially unleash a new Cold War between an expanded Brics — with a larger global economic footprint than the old Soviet Union-led, Eastern bloc — and the West.

William Gumede is associate professor, School of Governance, University of the Witwatersrand and author of South Africa in Brics (Tafelberg).

This is an edited version of a recent presentation on “How the Russia-Ukraine War is Changing Brics” at “The Politics of Economic Policy in Emerging Market States” Conference, Niehaus Centre for Globalization and Governance, Princeton University.