Market News
August 24, 2023

The Latest Additions to BRICS: Impact On The Global Economy. What’s Next?

BRICS has recently completed the 15th annual summit (Brazil, Russia, India, China and South Africa) which took place in Johannesburg from August 22nd till August 24th, 2023

BRICS  (Brazil, Russia, India, China and South Africa) has recently completed the 15th annual summit which took place in Johannesburg from August 22nd till August 24th, 2023. The role and contribution of the BRICS is significant to the world economy in terms of population (42%), GDP(27% nominal and US$ 16.039 trillion), land coverage (32%), world trade (18%),and global forex (US$ 4 trillion). Since 2001 and till the end of 2010, the BRICS as a group worked on sectoral cooperation in many areas, namely—science and technology, trade promotion and facilitation, energy, health, education, innovation, and fight against transnational crime. Presently, sectoral cooperation accounts for more than 30 subject areas. These areas have brought in specific benefits to the population of the group of countries.

As this group has become increasingly formalized and institutionalized – hosting regular summits and establishing collective bodies – many observers have worried that its growing influence might be accompanied by the normalization of authoritarian forms of ‘state capitalism’, and even the unravelling of the liberal order. Others have taken a more sanguine view, arguing that Eastern forms of state-led development appear superior in many ways to Anglo-American economic and political structures, and this is reconcilable with – and, indeed, depends on – an open global economy.

These Nations Have  Officially Joined BRICS AND WHY?

Over 40 countries have expressed interest in joining the forum, according to 2023 summit chair South Africa. They view BRICS as an alternative to global bodies viewed as dominated by the traditional Western powers and hope membership will unlock benefits including development finance, and increased trade and investment. From the beginning of next year, Iran, Saudi Arabia, U.A.E,  Argentina,  Ethiopia, and Ethiopia will join the current 5 members.
1.   Iran is home to around a quarter of the Middle East's oil reserves, and showcases a way to sidestep sanctions resulting in a win for Putin and Xi, helping give the group a more anti-western, non-democratic tinge
2.    Saudi Arabia and U.A.E have officially been added - the Persian Gulf’s two biggest political and financial heavyweights and two of the world’s largest energy suppliers, is likely to give the bloc added heft in its quest to challenge the U.S.-dominated world order.
3.  Argentina has the third-largest economy in Latin America, after Brazil and Mexico. Its backers in BRICS include India; Brazil, its largest trading partner; and China, with which it has increasingly close financial ties.
4.   Ethiopia, one of Africa's fastest-growing economies, and now became the only low-income country in the group. Its prime minister, Abiy Ahmed, described it as “a great moment” for his country
5.  Egypt is one of the top recipients of American aid, but it has long maintained a strong relationship with Russia and has growing trade ties with China.

How could the expansion of BRICS affect the global economy?

From a Western viewpoint, concerns arise over the increasing nationalist and authoritarian tendencies within the BRICS countries, except South Africa. Xi Jinping's dominance in China, Jair Bolsonaro's Brazil, Narendra Modi's India, and Vladimir Putin's Russia have exhibited populist shifts, accompanied by minority persecution and civil rights limitations.

This prompts European and US policymakers to fear that the BRICS might evolve from an economic club of emerging powers influencing global growth to a politically driven entity defined by authoritarian nationalism.

Nonetheless, commonalities exist between the BRICS and the West. Economically, global discontent with market-driven globalization is evident. The US and European nations, including the EU, have admired China's growth and reconsidered the need for new institutions to facilitate interventionist industrial policies.

Politically, Western countries have witnessed declining democratic quality due to events like Brexit and the rise of Donald Trump. The election of nationalist figures like Georgia Meloni and Marine Le Pen suggests vulnerability to democratic decay.

Diplomatically, the Ukraine conflict seemingly divides Russia and the West, yet many Western financial institutions and political elites have contributed to Putin's regime. As BRICS ascend, they disrupt the global order, compelling the West to consider illiberal practices. However, the East also faces pressure to embrace liberalism, reshaping the order.

This is apparent in China and India's ambivalence, torn between their identity as developing nations leading the Global South and their growing economic alignment with the Global North. The challenges China and India encounter – maintaining BRICS unity while becoming global diplomatic forces – were highlighted in September 2022 when both publicly criticized Russia's actions in Ukraine for the first time.

Will globalization persist?

Envisioning a complete separation of the West from the East or a definite process of de-globalization is challenging. The substantial trade, capital, data, and people flows across borders, intertwined economic interdependence, and intricate global value chains make a clear break implausible.

A complete retreat behind national borders isn't a practical strategy, and authoritarian self-sufficiency lacks credibility. However, unregulated and destabilizing economic openness faces opposition due to internal pressures within states.

The future global economy will likely maintain its overall globalization while simultaneously becoming more national in certain aspects. This isn't contradictory but rather coexisting states driving the globalization process.

A recalibration of the global relationship is necessary, seeking more policy flexibility for nations within an updated global framework of institutions, rules, and norms.

The regional level is pivotal, even with some production returning due to global disruptions. Many production networks will likely reorganize regionally, driven by the need for continental-scale economies of scale in modern value chains.

The crucial question isn't whether the global economy will change, but whether this transformation happens in an organized or tense manner. The adaptation of global governance frameworks to new realities will decide this.

While international bodies need reform, they are not as dysfunctional as often portrayed. States require the public goods they provide, and the BRICS' underperformance in sustaining the G20disappoints in terms of the organization's potential.

Addressing this is crucial for the G20 countries (the premier forum for international economic cooperation) to steer the global economy effectively, soothing tensions between the West and East rather than exacerbating them.


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