The Growing Reach of BRICS: Reshaping the Global Economic Landscape

In a surprising turn of events during a summit held in Johannesburg, South Africa on August 24, 2023, BRICS, a group of five major emerging economies (Brazil, Russia, India, China, and South Africa), announced the forthcoming inclusion of six new members. This unexpected expansion marks a profound shift in the geopolitical landscape, as these additions seek to redefine global power dynamics.

The BRICS summit convened at a time when the world is witnessing a notable transformation in the global balance of power, challenging the long-standing dominance of Western nations. The newly admitted members – Iran, Saudi Arabia, Egypt, Argentina, the United Arab Emirates (UAE), and Ethiopia – are slated to formally join BRICS on January 1, 2024.

This development is underpinned by a shared vision of fostering friendship, solidarity, and common interests, with three pillars anchoring the partnership: (i) political and security cooperation, (ii) financial and economic collaboration, and (iii) cultural and people-to-people exchanges.

Noteworthy Achievements of BRICS

BRICS, in its previous form, had already achieved significant milestones. Two prominent achievements were the establishment of the New Development Bank (NDB) in 2015 and the creation of the BRICS Contingent Reserve Arrangement in 2014. These measures aimed to provide a financial safety net for member nations during crises, further enhancing the group’s influence in the global political and economic arena.

Over 30 agreements and memoranda of understanding laid the legal foundation for cooperation across various sectors, including customs, tax, interbank collaboration, culture, science, technology, innovation, agricultural research, energy efficiency, competition policy, and diplomatic academies.

A Transformative Expansion

The expansion of BRICS comes with significant ramifications. Collectively, the new composition now represents a staggering 3.7 billion people, accounting for 46% of the global population. Notably, in terms of nominal GDP, the new BRICS members contribute only marginally, increasing the group’s share from 26% to 29% as of 2022. However, when assessed by purchasing power parity (PPP), the new BRICS accounts for an impressive 37% of the world’s GDP, surpassing the G7’s 31% share in 2022. Similarly, global trade in goods has experienced a modest expansion, growing from 18% to 21% in 2022.

The geographic distribution of the new members spans three continents: Argentina from South America, Egypt and Ethiopia from Africa, and Saudi Arabia, Iran, and the UAE from Asia. This diversification has elevated the collective influence of BRICS, surpassing that of the G7 in terms of global GDP (PPP), population, and export shares. Furthermore, the new BRICS configuration now commands approximately 42% of global oil production, reinforcing its potential to drive reform in international financial institutions and act as a counterbalance to Western hegemony.

Diversity in Global Power Structure

The expansion of BRICS carries an underlying goal of promoting diversity in the global power structure, which has recently been marked by increasing divergence. Geopolitical conflicts in Eastern Europe and complex relations between the United States and China have accentuated these differences. The presence of Western-controlled development finance institutions, with their stringent conditionalities, has fueled the emergence of the NDB as an attractive alternative for many developing nations seeking alternative credit sources. As of 2022, the NDB had already financed approximately 100 projects, amounting to $34 billion in infrastructure investments.

In a noteworthy development, China has expressed interest in bringing Türkiye into the expanded BRICS fold. Türkiye’s potential inclusion is highly significant, given its pivotal role as a major trade partner for existing BRICS members like China and Russia, as well as for newly admitted nations such as Iran, Saudi Arabia, and the UAE. Additionally, Türkiye’s position as a bridge between East and West adds to its geopolitical significance, making its potential inclusion in BRICS even more impactful.

Beyond Türkiye, over 40 countries, including several member countries of the Islamic Development Bank (IsDB), such as Algeria, Indonesia, Comoros, Nigeria, Gabon, and Kazakhstan, have formally or informally expressed interest in joining BRICS.

The Path to De-dollarization

Notably, the expansion of BRICS has the potential to expedite the global de-dollarization process. During the 2023 summit, BRICS leaders engaged in discussions aimed at enhancing the utilization of their national currencies in international trade. This move seeks to reduce their vulnerability to the influence of a strong U.S. dollar and the unpredictability of foreign exchange fluctuations, especially in the context of rising interest rates.

In 2022, the U.S. dollar dominated approximately 88% of international trade and held a share of around 59% in the official foreign exchange reserves of central banks globally. The BRICS expansion has already led to an increased use of local currencies, challenging the dollar’s dominance in global finance and trade. While some view BRICS as lacking the unity necessary to offer a comprehensive alternative to the U.S.-led global economy, the addition of the new BRICS members has significantly expanded the global trade impact of the existing BRICS bloc, with a considerable portion of these transactions being conducted in non-dollar currencies.

Promotion of Local Currencies and Unified Payment Systems

Expressing concerns about the widespread use of the U.S. dollar in global trade, BRICS members are actively promoting the enhanced use of their national currencies in international transactions. Additionally, they are working towards the implementation of a unified payment system as part of their long-term objectives. Recent examples include bilateral agreements between Brazil and China to settle trade in local currencies and India’s partnership with the UAE to conduct trade in rupees.

Challenges on the Horizon

Despite its potential to challenge the current global order, BRICS faces significant challenges. Divergent socio-political and economic systems, as well as varying ideologies among member countries, can hinder decision-making and consensus-building. Moreover, disparities in economic development and conflicting priorities among member nations can impact the effective implementation of decisions and policies.

The expansion of BRICS indeed marks a transformative moment in global politics and economics. While it faces numerous challenges on its path to becoming a unified international organization capable of challenging the established global system, the influence and reach of BRICS are on an undeniable upward trajectory. As the world watches, BRICS continues to evolve, leaving an indelible mark on the global stage.