Author: Albert Khaoutiev
The acronym BRIC was first mentioned in 2001 in a report by an economist of Goldman Sachs. South Africa joined the club only in 2010 with the help of China including the African continent as an additional player in the emerging markets.
The acronym BRICS, which aims to represent the rise of emerging markets around the world, is synonym with the rise of the non-west- ern world. Indeed, Brazil, Russia, India, China and South Africa are of- ten seen as a counterweight to the G7; the man behind the acronym even predicted that the BRICS would surpass the G7 by 2035.
The bloc has started to organize itself with its first formal BRIC summit in 2008 held in Russia and since then many international forums and official gatherings by the member countries willing to advance their agenda on the global scale have followed.
Western countries have been developing fast in the 20th century
and grew to become the leading economies. However, nowadays the BRICS countries should not be underestimated. They account for 43% of the global population, 26% of the world's land coverage and hold a GDP of USD 18.5 trillion. According to IMF, they contributed 23.6% to the world economy in 2017.
What is the current status of the BRIS and their relationship with China?
Brazil has had many internal scandals including corruption charges in the last years that led to the impeachment of the president Dilma Rousseff. However, despite the political turbulence Brazil's economy seems to be back with growth again after a recession in 2016. Ac- cording to the latest report from the IMF in January 2018, the country is forecasted to expand by 1.9% in 2018.
Within BRICS, China is Brazil's major trading partner and is seen as the big brother in the development of Brazil and Latin America in general where China wants to build itself as a trusted partner. With Russia, bilateral trade hit USD 4.3 billion in 2016 according to Brazilian government sources. With South Africa, trade has been going down from 2011 to 2016, but the launch of the free trade agreement between Mercosur and SACU (Southern African Customs Union) is aimed to boost trade between the countries. India, on the other hand has had little cooperation with Brazil as they are focusing their trade on the faster growing Mexico.
The economic outlook seems to be rather positive for Brazil. However, it may soon be caught back by its demons in the political arena. The country will hold general elections this October where the former president Luiz Inacio Lula da Silva is planning to run.
After disputes with the West, Russia turned its focus to the East, get- ting closer to China and finding new partners such as Turkey and Iran. The economy has been in a precarious situation, but the country is continuing to grow, and the IMF predicts the Russian economy to grow by 1.7% in 2018.
Being the largest country in the world with massive resources of oil, coal and natural gas, Russia has been pushing to promote economic cooperation within the BRICS and bolster the alliance. For example, it is now in discussions to establish its own gold trading system as BRICS members are all either major consumers or producers of physical gold. Moreover, the Central Bank of Russia (CBR) opened its first foreign representative office last year in Beijing for a greater cooperation between Russia and China. Finally, the CBR also started talks with BRICS nations to create a payment system that would be an alternative to the SWIFT system.
When it comes to India and China, geopolitics plays a crucial role and affects their economic and political decisions. Both countries are the main drivers of the BRICS, but also increasingly consider each other as regional competitors.
However, both countries are also closely connected. On the one side, China is India's largest trading partner, even though the trade is skewed in favor of China. In 2016, India's trade deficit with China reached about USD 46 billion. On the other side, China strongly relies on India's cooperation to push forward its Belt and Road Initiative.
South Africa is seen as the Eldorado of natural resources. As a matter of fact, the country own vast quantities of gold, diamonds, platinum, iron ore, copper, manganese, uranium, chromium, silver, titanium and beryllium. The country is also the largest producer and consumer of energy on the African continent.
Since joining BRICS, South Africa has benefited from both trade and diplomatic ties with the other member countries. Without surprise, China is its largest trading partner and top investor particularly in infrastructure, energy, transport and banking. For example, ICBC owns a 20% stake in South Africa's Standard Bank.
However, South Africa's place in the BRICS could be debated. Its economy has been growing slowly at 0.9% in 2017 and the IMF expects the GDP to remain steady this year. Just recently, the president has been pushed by his own party to resign due to corruption scan- dals, weakening the position of South Africa within the BRICS.
What is next for the BRICS? Has the BRICS lived up to the expectations from its conception?
There were big plans, but relatively little results. The bloc has however managed to transform itself from a mere political association into an increasingly relevant influencer on regional and global affairs. In 2014, it set up the New Development Bank, to be an alternative to the IMF and the World Bank, with headquarters in Shanghai. It started to issue loans last year, however its capital is still much lower than the one of the AIIB. They have also been planning to create a joint rating agency to counterweight the three globally accepted credit rating agencies S&P, Fitch and Moody's.
The main challenge for the BRICS is their geographical and cultural differences. They have little in common aside from the fact that in 2001 they were willing to embrace globalization and were forecasted to drive high future growth. Over the years, it is clear that China has come to play a pivotal role in the development of the association. Trade between China and the other four-member countries of the BRICS accounted for 85% of total intra-BRICS trade; at the same time these countries face strong competition from the cheaper manufactured Chinese goods – leading in the past Brazil and India to address the issue at the WTO. Meanwhile, China's economy has grown to be larger than the ones of all other members combined.
President Xi made himself a defender of globalization at Davos summit last year. And the EU and the US have been calling on China for the past years to open more its markets, however, the country's reforms and policies have not yet shown the results hoped for. There are still many concerns for foreign companies operating in China, such as forced technology transfers and tight internet control.
The German ambassador to China, Michael Clauss, said that it was in everybody's interest to support an open global trade system centered on a strong WTO. "Chinese investments are highly welcomed by Germany; however, it cannot continue to be a one-way street: openness on the one side and tightening market access on the other". Indeed, European companies have not seen the same welcome in China even though the EU is China's biggest trading partner. There is need for greater reciprocity – trade happens when both parties are willing to collaborate.
Hence, there are not many things that unite the BRICS making it difficult for them to have a common agenda and the BRICS' future remains uncertain. Perhaps it is time to forget the BRICS? Even the inventor of the acronym has turned his attention to the new economies called « MINT »: Mexico, Indonesia, Nigeria, and Turkey – the next key emerging countries. However, the BRICS' consumption markets have powerful potential. So, the question could be how the interplay of the key players in the alliance needs to shift. If better cooperation is institutionalized, the BRICS might come to be the relevant economic alliance in the future.
Albert Khaoutiev is a senior consultant at Morgan Philips Executive Search. He holds a Master degree in international business from HULT International Business School. Now he specializes in the recruitment of senior professionals in the finance functions. Prior to the recruitment industry, Albert worked in investment management. He has been living in China over three years and usually comments on China-related topics including economy and politics.