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BRICS is no longer in need of proving to the naysayers its sustainability and viability. The time has now come for it to expand its membership and reach among emerging markets.
South Africa today hosts the 10th BRICS Summit amid growing global trade tensions
[PREUSS]
The world was in the grips of a growing financial crisis when Brazil, Russia, India and China first agreed to form an economic bloc in 2008.
The sub-prime mortgage crisis which began with the Lehman Brothers (the fourth largest investment bank) in the US led to big banks failing, major corporations collapsing and spawned the Eurozone crisis.
When South Africa joined BRIC in 2010, all of the leading global economies were faltering.
It was the US which first resorted to stimulus programs like quantitative easing (QE), buying bonds back and lowering interest rates.
The Eurozone followed a few years later to deal with stagnation (in France and Germany) and recession (in Italy, Greece and others), just as the US began to taper off its stimulus program.
The IMF warned that advanced economies should maintain supportive policies. “In most advanced economies substantial output gaps and below-target inflation suggest that the monetary stance must stay accommodative. Managing high public debt in a low-growth and low-inflation environment remains a key challenge,” the IMF warned in an earlier report.
By the time the US ended its QE, cash-strapped Greece was nearly defaulting on its loans and needed a bailout program while China’s economy slowed down and entered a corrective phase.
It wouldn’t be until 2016 that the IMF started to indicate some semblance of growth in world markets.
But then the UK voted to leave the European Union and market.
Threats to global economy
Both the Europeans and the British are considering worst case scenarios of a no-deal Brexit – which is no longer a far-fetched notion – with some doomsayers predicting that the military will have to intervene to ensure no food shortages.
While this may seem unnecessarily apocalyptic, the disruption to the existing world economic order is all too real.
This is all exacerbated by what seems like US President Donald Trump’s trigger-happy trade war on allies and competitors alike, slowly pulling the global economy into a downward spiral of uncertainty.
It was just last year that the IMF said the global economy had turned the corner.
But if the protectionist policies and trade wars continue, the IMF predicts considerable global economic slowdown and the loss of several hundred billion dollars in GDP.
The danger is that Trump’s insistence on tariffs could extend beyond steel and aluminium, and also create a cascade effect where other nations see no recourse but to also resort to protectionist measures.
Why BRICS matters more than ever
Ten years after their first meeting, the leaders of the five BRICS countries meet amid dire economic realities: protectionism and trade wars.
The 10th BRICS Summit in Johannesburg July 25-27 Is perhaps the most important since the bloc’s inception because it will mark whether hundreds of years of global trade development and political multilateralism will overcome the lone whims of a world power insisting on establishing barriers of economic conflict and distrust.
The ashes of the failing banks were falling when BRICS was formed; now, it is the fire of xenophobia and inconsistent immigration laws coupled with the divisive measures of Brexit and tariffs that are unraveling decades of integration and cooperation.
Forget for a moment that BRICS countries account for 40 per cent of the world’s population and more than 25 per cent of the party’s landmass.
Put aside also that BRICS countries accounted for more than 25 per cent of the world’s GDP in 2017 – a figure that is to grow to nearly 27 per cent in the next few years, the IMF predicts.
This is not the true source of BRICS strength.
In the past 10 years, the five member states of BRICS have shown incredible resilience weathering several crises including the 2014 decline in commodity trading which lead to stagnation and recession and Brazil, South Africa and Russia.
In 2016, alarm bells were sounded by those who have always panned BRICS as a failure from the outset; they said China was crumbling because it was no longer producing double-digit GDP growth.
While the Chinese economy has slowed down to between 6.5 and 6.9 percent growth a year this is largely a corrective phase as Beijing tries to curb skyrocketing real estate prices, battle corruption and reform financial regulation.
But it is important to look at intra-BRICS growth which has jumped in the past few years and how this has helped members like Brazil move from -3.8 per cent growth in 2015 to at least 1.5 per cent forecast growth in 2018, and 2.5 per cent in 2019.
Brazil’s exports to other BRICS countries during the same period have also increased.
For example, exports to India reached their second highest level in two years at the end of 2017; by the end of the same year, Brazil’s exports to the world jumped 14 per cent.
China, meanwhile, is Brazil’s biggest trading partner – agricultural imports from the South American country to it’s BRICS partner are poised to surge this year.
By the same token, China has several-fold increased its investments in South Africa, which is its largest trading partner in Africa.
According to Chinese President Xi Jinping, bilateral trade between the two countries has increased 20 times in the past decade.
While the growth of trade within the bloc is something the naysayers did not anticipate, it still is not the greatest weapon in its dossier.
No internal combustion
Nor is it the ability to overcome territorial disputes.
Ahead of last year’s summit in Xiamen, China and India ended their quickly escalated confrontation over the 89-km plateau along the China and Bhutan border known as Doklam (in India) and Donglang (in China), across which Chinese construction workers began to build a road in early June 2017.
India sent troops to the Bhutan side of the plateau but withdrew them at the end of August thereby ending a tense 73-day stand-off with China.
The two countries realized that they had much more in common to work together for than what separated them.
Having ended the impasse between them and following their meeting at the 9th BRICS summit, the two countries proceeded to mend three years of deteriorating relations.
In a little reported meeting, (because of that other one on denuclearization in Singapore on the same day), Prime Minister Narendra met Xi in Wuhan, China to discuss bilateral relations and trade.
China’s Commerce Ministry figures show India-China trade volume in 2017 rose by 20.3 per cent and hit a record high of $84.44 billion.
China is also India’s largest trading partner.
BRICS members China, India and Russia are the three largest shareholders in the China-led Asian Infrastructure Investment Bank (AIIB).
“Our common interests far outweigh our differences. The two countries have no choice other than pursuing everlasting friendship, mutually beneficial cooperation and common development,” China’s State Councillor Wang Yi said before the Modi-Xi meeting on April 27, 2018.
This wasn’t mere diplomacy talking but acknowledgement of a powerful and strategic symbiosis.
But even this is not BRICS greatest forte.
Adapt and expand
The greatest advantage that BRICS has over other economic blocs such as the G7 is not only that it is transnational but that it has flexibility and adaptability to expand and add new members from the strongest emerging markets.
The entire premise behind BRICS is that lesser, non-Western powers turned to geo-economics, shuffling their energies to align political strategy with economic planning.
The seeds for the BRICS foundation of powerful political unions shadowing as economic blocs has successfully produced the New Development Bank, which since it’s 2014 establishment has already loaned a sum of $5 billion to 21 projects within the bloc.
With a focus on sustainable and green infrastructure development, the next phase of the Bank’s financing should now turn to emerging markets beyond the bloc.
The greatest hope for globalization to advance lies not at the feet of Europe but at the union of geographically disconnected non-Western economies who share common denominators of large populations with rapidly-growing markets, industrialization, modernization and an ambition to become global market leaders.
Trump’s protectionism and tariffs have given BRICS a coup de grace – a golden opportunity that should not be squandered.
BRICS should show the world that it is the champion of multilateralism by embracing one or two new members this year or in the immediate future – Nigeria, Turkey, Egypt, Indonesia or Mexico are ripe for the picking.
As both China and India are working diligently to open their markets, BRICS must work quickly to tear down barriers and restrictions which could impede the free flow of goods, ideas, people and services within the bloc.
BRICS must now appeal to more people … but not by imposing the Western economic, social and philosophical mantras which have dominated North-South relations.
Western economies need not remain the paradigm by which economic vibrancy and viability is measured. Instead, they can incorporate emerging markets into the policy-making structure.
Many analysts were perhaps unprepared to accept that post-colonial nations, which less than 100 years ago where occupied by Western powers, could now be on the verge of introducing new paradigms to global economic theory.
Thanks to Trump, the time is now.
By Firas Al-Atraqchi for the BRICS Post
