#9 What is BRICS?

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The leaders of BRICS (Brazil, Russia, India, China, and South Africa) met in Johannesburg for the fifteenth annual BRICS summit this week.

The biggest news from Jo’burg was that BRICS would welcome six new members starting next year:

• Saudi Arabia

• Iran

• Egypt

• Ethiopia

• The United Arab Emirates (UAE)

• Argentina
  

  

Before we get into the geopolitical significance of this move, we should ask:

What is BRICS?

The acronym 'BRICS' was coined in a 2001 report by Jim O'Neill of Goldman Sachs on the growing role of large developing economies like Brazil, Russia, India and China in a global economy that had been dominated by the U.S. and Europe for most of the 20th century.

(see below for the cover page of the report)

The four countries that were identified as a collective BRIC (plus S for South Africa, which was often grouped with them as another large emerging economy) first met in 2006 before holding their first formal BRIC meeting in 2009.

At that meeting, they advocated for reforms of international economic institutions (which O’Neill and his co-authors had recommended in their report) to give them power in global policymaking forums that was proportionate to their growing role in the world economy.

In 2014, BRICS countries established the New Development Bank (NDB) as a multilateral financial institution that could lend to developing economies. The NDB was pitched as an alternative to the World Bank, which has largely been led by Western economists.

BRICS: A Growing Share of the Global Economy

When they first met in 2009, the BRIC countries made up ~15% of global GDP. Fourteen years later, they make up ~25%.

The historic expansion of the BRICS bloc coincides with their continued economic growth, even if the economies of some members - notably Russia, South Africa, and Brazil - have struggled in recent years.

BRICS: For or against the U.S. Dollar?

The leaders of the BRIC countries expressed different sentiments about the group’s relationship with other countries and institutions, particularly the U.S.

Brazilian President Lula said that the BRICS countries "do not want to be a counterpoint to the G7, G20 or the United States... We just want to organize ourselves."

Russian President Vladimir Putin, unsurprisingly, implied that the group is supportive of distancing itself from the U.S. and the U.S. dollar. In his statement, Putin said: "The objective, irreversible process of de-dollarization of our economic ties is gaining momentum."

Russia has been speaking out against the U.S. Dollar since the first BRIC summit in 2009, and the Kremlin’s message on the dollar hasn't changed much since then.

Just as in 2009, most of the BRICS countries today are careful not to antagonize the United States and other trade partners.

At the same time, they do want to move away from reliance on the dollar by using their own currencies for trade and debt payments.

The BRICS’ NDB bank plans to lend $8B-$10B this year, with a goal of lending 30% in local currencies. And the NDB will issue its first Indian rupee-denominated bond in October after issuing a South African rand-denominated bond last week.

At least a dozen other countries have expressed interest in applying to join BRICS, and the bloc will formalize its application process after the summit. It is well worth watching the continued development of BRICs, which was born as a catchy idea for a research paper, into a major force in the global economy.

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Dan