Expansion of BRICS and the Shifting Dynamics of the Global Economy

Ismaeel Naiya, Muhamed Zulkhibri

19 Sep, 2023

On 24 August 2023, during a summit in Johannesburg, South Africa, BRICS announced the admission of six new members. The BRICS summit came at a time when countries all over the world are trying to deal with a changing geopolitical landscape that challenges the dominance of the West. Seeking more political and economic influence in a global system, Iran, Saudi Arabia, Egypt, Argentina, the United Arab Emirates (UAE), and Ethiopia will join the current five members of BRICS as new members on 1 January 2024.

Founded on the bonds of friendship, solidarity, and shared interests, the partnership has three pillars: (i) political and security cooperation, (ii) financial and economic cooperation, and (iii) cultural and people-to-people cooperation.

Some of the significant achievements of BRICS include establishing the New Development Bank (NDB) in 2015 and the BRICS Contingent Reserve Arrangement, an arrangement providing a financial safety net for member countries during a crisis, in 2014. So far, over 30 agreements and memoranda of understanding provide a legal foundation for cooperation in customs, tax, interbank collaboration, culture, science, technology, innovation, agricultural research, energy efficiency, competition policy, and diplomatic academies.

The expanded BRICS has strengthened the group’s influence in the global geo-political and economic setup. It now covers over 3.7 billion people, representing 46% of the global population. Although the addition of these six new members results in a marginal rise in the overall nominal GDP of the new BRICS, increasing its share of the global GDP from 26% to 29% in 2022, it accounts for 37% of the world’s GDP based on the purchasing power parity (PPP) measure, surpassing the G7, which accounts for 31% in 2022. The new BRICS share of global trade in goods experiences a modest expansion, growing from 18% to 21% in 2022.

The new members are spread across three continents: Argentina from South America, Egypt and Ethiopia from Africa, and Saudi Arabia, Iran, and UAE from Asia. Together, the expansion of BRICS has overtaken the G7 in terms of global GDP (in PPP), population, and export shares. It also controls about 42% of global oil production. These demonstrate the growing power and reach of the organization that would enable it to influence reform in international financial institutions and serve as a counterbalance to Western hegemony.

The expansion of BRICS aims to bring diversity to the world’s power structure, which has recently been increasingly divergent. The East European conflict and complex relations between the United States and China on economic and security matters have highlighted the growing divergence. The dominance of the Western-controlled development finance institutions, with their stringent conditionalities, has made the newly established New Development Bank (NDB) a welcome development for many developing countries seeking alternative credit sources. The NDB has already financed about 100 projects at US$34 billion in infrastructure sectors by 2022.

In a recent development, China has clarified that it is interested in bringing Türkiye into the expanded BRICS. Türkiye’s potential inclusion in BRICS is significant because it could substantially boost its trade earnings. Türkiye already plays a crucial role as a major trade partner for existing BRICS members like China and Russia for newly admitted nations such as Iran, Saudi Arabia, and the UAE. In addition, Türkiye is the link between the East and West. It would be of utmost geopolitical significance if it joined the expanded BRICS bloc.

Apart from Türkiye, more than 40 countries, including many IsDB Member Countries such as Algeria, Indonesia, Comoros, Nigeria, Gabon, and Kazakhstan, have formally or informally expressed interest in joining the BRICS.

Meanwhile, the expanded BRICS may lead to a faster de-dollarization drive. During the 2023 summit, BRICS leaders deliberated on enhancing the usage of their national currencies to lessen reliance on the US dollar, which could play a role in diminishing the susceptibility of their economies to the influence of a strong dollar and the unpredictability of foreign exchange shifts. Moreover, the rising interest rates have intensified BRICS members’ concerns surrounding debt denominated in dollars.

In 2022, the US dollar constituted about 88% of international trade and held a share of around 59% in the official foreign exchange reserves of central banks globally. Unsurprisingly, the BRICS expansion has spurred more significant usage of local currencies, posing a potential challenge to the dominance of the US dollar in global finance and trade. While many perceive BRICS as lacking the unity necessary to offer an alternative to the US-led global economy and the dominance of the US dollar, the addition of the new BRICS countries has effectively increased the global trade impact of the existing BRICS bloc by approximately 16%, with a significant portion of these transactions still exchanged in US dollars.

Expressing concern over the widespread use of the US dollar in global trade, BRICS members actively promote the enhanced use of their national currencies for conducting trade. In addition, they are working towards implementing a unified payment system as part of their long-term objectives. For instance, Brazil and China earlier in 2023 signed a bilateral agreement to settle their trade in local currencies,14 while India tied up with UAE to settle trade in rupees.

The current BRICS produce about 20% of the global oil in 2022. Adding Saudi Arabia, the UAE, and Iran would elevate the new BRICS global crude oil production to about 42%. Adopting the Chinese yuan and Indian rupee as payment for crude oil from China and India could be a logical step for Saudi Arabia to break the dollar’s global dominance. Being the world’s largest exporter of crude oil, Saudi Arabia shipped approximately 7.3 million barrels per day in 2022, representing about 17% of global crude oil exports. Most of these exports (76%) are directed towards Asia. 35% of that share goes to China and India, both of which are BRICS members. With BRICS aiming to reduce dependence on the dollar, there is growing anticipation that Saudi Arabia’s crude oil trade could progressively shift towards non-dollar currencies.

Despite proving to be a potential challenge to the current global order, BRICS has a long way to go to transform itself into a unified international organization that can effectively challenge the global system. It faces significant challenges that can hamper its performance. The different socio-political and economic systems and ideologies of the member countries can hinder decision-making and consensus-building. Moreover, the different levels of economic development and interests can lead to conflicting priorities among the member countries, which can affect the implementation of decisions and policies.


Authors
COVID-19
تحديات استدامة الديون في الدول الأعضاء بالبنك الإسلامي للتنمية وسط تشديد شروط التمويل العالمية

COVID-19
الأزمة المصرفية الأمريكية ومخاطر العدوى العالمية

COVID-19
الحافز المنحرف: تلك الكوبرا التي تلدغ التنمية

COVID-19
توطيد بريكس يحدث تحولا في المشهد الاقتصادي والتنموي العالمي

COVID-19
تأثير الأزمات العالمية على الفقر: القياس والاتجاهات والتحديات