BRICS +: How it came to be and why it’s expanding

The BRICS, originally a concept born in an investment bank, has evolved from an idea into a significant global entity. Comprising Brazil, Russia, India, China, and South Africa, the group wields influence as a multilateral lender. Now, it's expanding its reach by welcoming Saudi Arabia, Iran, Egypt, the UAE, Argentina, and Ethiopia in 2024. This enlargement unites energy giants with major consumers, bolstering economic power. Renamed BRICS+, the bloc gains potential to challenge dollar dominance in energy trade, signalling a shift in global dynamics..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..How BRICS Became a Real Club and Why Others Are Joining.By Tom Hancock and Mike Cohen.The BRICS group of emerging market nations — Brazil, Russia, India, China and South Africa — has gone from a slogan dreamed up at an investment bank two decades ago to a real-world club that controls a multilateral lender. Now it is expanding its ranks, inviting Saudi Arabia, Iran, Egypt, the United Arab Emirates, Argentina and Ethiopia to join in 2024. The enlargement will pair some of the world's largest energy producers with the developing world's biggest consumers, potentially enhancing its economic clout. The expansion also gives the bloc, which is likely to be renamed BRICS+, more scope to challenge the dollar's dominance in oil and gas trading by switching to other currencies. .1. How did BRICS get started? ."BRIC" was coined in 2001 by economist Jim O'Neill, then at Goldman Sachs Group Inc., to draw attention to strong growth rates in Brazil, Russia, India and China. It was intended as an optimistic thesis for investors amid market pessimism following the terrorist attacks in the US on Sept. 11 that year. The four nations took the idea and ran with it. Their rapid growth at the time meant they had shared interests and common challenges. They were already cooperating in forums like the World Trade Organization and felt their influence in a US-dominated world order would be greater if their voices were combined. The first meeting of BRIC foreign ministers was organized by Russia on the sidelines of the United Nations General Assembly in 2006. The group held its first leaders' summit in 2009. South Africa was invited to join at the end of 2010, extending membership to another continent and adding another letter to the original acronym. The latest expansion was agreed to in August at a summit in Johannesburg..2. What does BRICS do?.The biggest concrete achievements have been financial. The countries agreed to pool $100 billion of foreign currency, which they can lend to each other during emergencies. That liquidity facility became operational in 2016. They founded the New Development Bank — a World Bank-inspired institution that has approved almost $33 billion of loans mainly for water, transport and other infrastructure projects since it began operations in 2015. (South Africa borrowed $1 billion in 2020 to fight the Covid-19 pandemic.) The group is exploring how to increase trade in their own currencies but hasn't announced any concrete steps. Suggestions that the bloc adopt a common currency haven't gained traction. .Read more: BRICS expansion warning: Democracies diluted, rogues' gallery silenced by China – Dr Christopher Sabatini .3. How have trade relations changed?.Trade between the bloc's five existing members surged 56% to $422 billion over the five years from 2017 through 2022. Economically, Brazil and Russia's natural resources and farm products make them natural partners for Chinese demand. India and China have weaker trade connections with each other, partly due to political rivalries and an acrimonious border dispute. Diverging interests on major political and security issues, including relations with the US, and their different governing systems and ideologies have made it hard for them to agree on how to tackle a number of pressing global issues, such as climate change. .4. Who's in charge? .China's gross domestic product is more than twice the size of the four existing members combined. In theory, that should give it the most sway. In practice, India, which recently surpassed China in population, has been a counterweight. BRICS hasn't formally endorsed China's big development push called the Belt and Road Initiative, partly because India objects to Belt and Road infrastructure projects in disputed territory held by Pakistan, its neighbor and arch rival. The New Development Bank has no dominant shareholder: Beijing agreed to the equal holdings advocated by New Delhi. The bank is headquartered in Shanghai, but has been led by an Indian and now, Brazil's former president, Dilma Rousseff. .5. Is Russia still a member despite its invasion of Ukraine? .Yes. The other BRICS countries have adopted a broadly neutral stance toward the war, viewing it as more of a regional issue than a global crisis. However, the war has changed Russia's relations with BRICS institutions. The New Development Bank quickly froze Russian projects and Moscow hasn't been able to access dollars via the BRICS shared foreign currency system. Essentially, with US sanctions piling up, other BRICS countries prioritized ongoing access to the dollar-based financial system over helping Russia. Putin participated in the Johannesburg summit by video conference, sparing the South African government from having to decide whether to execute an arrest warrant for alleged war crimes issued by the International Criminal Court..6. How does BRICS differ from other multilateral groups? .Generally speaking, BRICS is similar to clubs such as the Group of 20 in promoting a move toward a more "multipolar" world and away from the post-Cold War dominance of the US, as exercised through structures like the International Monetary Fund and the World Bank. Other groupings arguably gaining influence as part of the trend include OPEC, the Shanghai Cooperation Organization, the Southern Common Market (Mercosur), and the African Union. Another term, the "Global South," isn't a club at all but is a concept that's gained currency in recent years when referring to relatively poor countries that are also described as developing or emerging. It's typically contrasted with a "Global North" composed of the US, Europe and some wealthy countries in Asia and the Pacific. But the relationship between the two concepts isn't straightforward. For example, the European Union, firmly part of the Global North, could gain more influence in a multipolar world. China considers itself a developing country, although its status as the world's second-largest economy with a large middle class makes that classification an awkward fit. The Group of Seven developed nations and the EU invited Brazil, India and Indonesia to attend its leaders' summit this year, in what officials said was an attempt to reach out to the Global South. .7. How will expansion change things? .To be seen. The push was largely driven by China, which has sought to increase its global clout, but had the backing of Russia and South Africa. India was concerned a bigger BRICS would transform the group into a mouthpiece for China, while Brazil was worried about alienating the West. South African President Cyril Ramaphosa, who hosted the August summit, said a consensus was reached on expansion and more phases would follow, but didn't elaborate. According to Bloomberg Economics, an expanded BRICS would also mean more say for the alliance in world affairs and may lead to a different type of global economy. That's because in comparison to the G-7, the BRICS are less market-oriented..What Bloomberg Economics Says… "The original BRIC members had two things in common: large economies, and high potential growth rates. The expanded BRICS-11 is a less coherent group — some are going through crises, others are thriving. This could signal an expansion of the agenda beyond economics."— Ziad Daoud, chief emerging market economist.8. Are there still BRICS funds or is the concept dead as an investment strategy?.There's still intense interest in emerging markets among investors. But while a nice idea two decades ago, BRICS is largely irrelevant as an investment theme today due to geopolitical changes and the members' different economic trajectories. Except for India, the BRICS have underperformed their emerging-market peers over the last five years, according to Bloomberg Intelligence. US-led sanctions have put Russia off limits for most foreign investors, and some sectors in China — especially technology companies — have also been sanctioned or face potential investment bans. China also is a maturing economy, increasingly separated from other emerging markets and facing a structural slowdown. Brazil's economy slowed markedly following the end of a global commodity boom about a decade ago, while South Africa's has been subjected to years of rolling power blackouts because the state utility can't produce enough electricity to meet demand. India is still a growth story that investment banks now compare with China 10 or 15 years ago, though it's unclear if it can follow China's manufacturing-led model. .Read more: New BRICS a threat to democracy….The Reference Shelf:.More QuickTakes on the border dispute between India and China, India's jobs challenge, and Brazil and Argentina's currency plans.Bloomberg Opinion's Mihir Sharma on why BRICS isn't big enough for both China and India, Bobby Ghosh on South Africa's Ukraine peace mission, and Daniel Moss on why a BRICS common currency is still a pipe dream.A Bloomberg News deep dive on the tussle for global influence.A Merics report on China's attempts to challenge the international order.The New Development Bank's FAQ page.Bloomberg terminal functions for the market let clients analyze the yuan's challenge to the dollar..*With assistance from Gina Martin Adams and Marvin M Chen..Read also:.Decoding BRICS: Unity, rivalry, and South Africa's diplomatic gambit – KatzenellenbogenAndreas Kluth – BRICS: More acronym than alliance, more pomp than powerBRICS bloc ramps up challenge to global West – Ambitions to transform the world order.© 2023 Bloomberg L.P.

BRICS +: How it came to be and why it’s expanding

Related Stories

Ilan Preskovsky: Unpacking the May Gaza Flotilla allegations

Max Hastings: Iran - Flawed US diplomacy isn't the only path

Simon Johnson & Amir Kermani on BizNews: Four scenarios that will decide the fate of the Strait of Hormuz

UK demographic crisis: Birth rates hit historic lows