What the 11th BRICS Summit Foretells of the Future of BRICS / Badar Alam Iqbal

Badar Alam Iqbal, G. Fulufhelo Netswera, G. Fulufhelo Netswera

The BRICS grouping is relatively a new “should be” global economic hegemony of the Global South. Over the past few years however there has been economic and political upheavals within the grouping and within its member states that the future of BRICS comes into question. This paper reviews the position of the 10th BRICS Summit and the foundation that it lays for the future position of BRICS.

Section 1: Introduction

Since the inception of the idea of BRICS in 2001 (O’Neil, 2001) and the first BRICS summit held on 2002, the world has always seen BRICS countries as countries of opportunities with significant structural problems. The economies of BRICS countries have outperformed the global average growth rate (in GDP rate terms). New initiatives such as New Development Bank (NDB) and Multilateral Trade Facilitation agreements have bolstered the relevance of this grouping such that the economic hegemony of the Bretton Woods institutions, i.e., IMF and World Bank have started withering resulting in the recognition of the influence that BRICS has on global economy.

There has always been a general level of scepticism that BRICS could become an important global economic hegemonic power starting at least with the Global South. Now however it seems plausible considering that in the last few years in the backdrop of world geopolitical crisis and certain domestic economic uncertainty in most BRICS countries, the future of BRICS may be at stake.

Another very similar grouping (IBSA) that included only India, Brazil and South Africa though it started with a lot of momentum seem to be mooted or fading away from public consciousness. A pertinent question in this direction is at what age of such type of multilateral organizations can we be comfortable that they are sustainable? The question of typology of BRICS has not yet settled, what is settled is that it is neither a bloc nor a formal group. If this is appropriate, and it is by most researchers, then BRICS can collapse anytime because for its potential collapse you need few reasons in a situation of world economic and political crisis. We are not of the view that there is a pessimistic world order but pessimism about the current bilateral issues is certainly true as evidenced in numerous writings. We are therefore going to study the 10th BRICS summit in this light of what the future holds for BRICS and what BRICS can give to the world.

Section 2: BRICS Political Framework and Theory of Multilateral Cooperation

The political framework of BRICS is that of reformation and cooperation in the existing international economics order. The testimony of the same is the use of such political and economic tools that can promote cooperation and collaboration among BRICS nations. On the context of Multilateral Cooperation, BRICS nations have always promoted this ideal but not on the cost of BRICS nations that are developing countries. Since its inception BRICS has been focused on reforming the international political economic environment that is largely influenced by the Bretton Woods institutions and by interpretation – western and developed countries.

The assumption with the establishment of Bretton Woods institutions, IMF, World Bank and even the United Nations was that the say and perspective of all nations including the developing countries is really important. But somewhere that reality remained short-circuited and these institutions consequently are perceived to be exploitative of the third world countries and promotional of developed countries as did colonialism to large degree. BRICS has taken this task together and other developing countries see BRICS as reforming the system. The testimony of the same is the creation of New Development Bank.

Within the BRICS there are several anomalies regarding economic and political variables. In order for a group of countries like BRICS to reach to new heights, it is imperative to identify a leader in BRICS countries. Even if no leader is required, then also it is argued that a natural outcome of economic integration is emergence of a natural leader. Who that leader will be remains the question. The economic domination of China over BRICS however has become one of the most important talking points by proponents and dissenters alike. Lately BRICS itself seem to be vocal on geopolitical economic turf wards including anti-protectionism of the United States of America – something historically unheard. A more profound and plausible question can be which country’s potential suggest that it can be a leader.

Section 3: The BRICS Economic Review

There are large implications of the rise of the BRICS for the world economy even if reality differs from projections conducted by the analysis at Goldman Sachs. BRIC countries are strategically connected to the world in terms of international trade, capital flows and market interdependence. The BRICS share in global Foreign Direct Investments (FDI) has substantially increased and have historically accounted for more than 10 % of their annual fixed capital formation.

Despite the rapid economic growth in BRICS in the past decade and estimated positive economic outlook the respective economies are still specialised in relatively lower value added fragments of the value chain. Thus, in the long run BRICS may not sustain its economic growth. Domestic contents of China’s exports of technology intensive products are quite limited compared to the four newly industrialised economies. BRIC countries tend to become the hub of the regional economy and as a result more economic activities may agglomerate in the BRICS markets.

All BRIC countries have gradually increased their level of globalisation whereas Brazil and China have raised their globalisation in the last 40 years, Russia and India has joined this race of increase in globalisation since the 1990s, that is, less than 40 years. If the BRICS maintain their globalisation advantage over their neighbours or even increase it, obviously they will strengthen their hubness in the regions and thus showing stronger technological positions and more asymmetric trade relations with their neighbours. The BRICS clearly dominate extra-regional trade relations of their respective regions and their shares in extra-regional trade are overall still increasing. In one study, it was observed that overall centrality of the BRICS is rising over the period of observation, that is, 2000-2010.

Section 4: 10th BRICS Summit-What it holds?

Before the 10th summit, the ninth BRICS summit till date was wrapped 5thSeptember, 2017 amidst last moment probability of India not paying visit to the Xiamen City of China where the summit was decided to happen. Engulfed in a border stand-off at Dokalam tri junction which took a 2 month long time to settle, India’s presence in the summit was highly doubtful. However, abiding by the BRICS goal of cooperating with each other in line with international law and rules, India cleared air by joining the summit after the border scuffle set.

The summit brought a strong commitment to broaden its cooperation framework in all its vigour. BRICS initiatives like New Development Bank, Contingent Reserve arrangement brought into reality in previous summits were hailed in driving BRICS to new avenues of development. Also, the summit reaffirmed its commitment toward industrial cooperation, research and development, innovation in ICT, 2030 agenda for sustainable development and supports the need to reform UN development system. Thus, through every consecutive summit, BRICS has stepped up its game of binding economies under its ambit to direct them into realising the set goals of cooperation. An even greater BRICS initiative is urged by China lately in the form of extending the grouping into BRICS plus.

The 10th BRICS summit was held in South Africa in July 2018. This was on the centenary of the birth of Nelson Mandela that gave a political message to the world that BRICS countries stand for freedom and values of the opperessed people and that BRICS countries will be more focused on developing countries. There were lots of agreements and cooperation issues ranging from economic to climate issues. At the outset South Africa was commended by BRICS for hosting the summit and giving a new direction to the BRICS cooperation.

The last ten years of the BRICS functioning was appreciated by all the countries and that they will works with more cooperation was extended. The issues that they agreed to focus in the coming years were related to economic cooperation, political reforms and climate change. Particularly focusing on green sources of energy was identified to be one of the most important issue. BRICS countries identified the principles of mutual respect, sovereign equality, democracy, inclusiveness and strengthened collaboration and promised to extend these issues to other countries as well. Sustainable Development Goals has been an important issue and the knowledge hub related to SDG has been at the forefront of the discussion.

So, it is a pertinent question to ask what 10th summit actually holds and the answer is in three parameters. On economic level, the 10th summit has been important because cooperation among BRICS will be extended in future on economic grounds. In terms of political issues, BRICS countries has agreed to uphold such principles that will create a stable political environment among BRICS countries.

The BRICS economies in the aftermath appear to reach its predicted point of equalling G-7 by 2032 and China becoming as great as the United States economy by 2027. In its demarcation of economies into three sets according to the order of actual outcomes, the report places China in the first group thus declaring China at the zenith of economies transcending calculations. Further, China’s global position and inside BRICS is highlighted by its increased share in trade flows, elevated domestic demands, strong currency and enhanced net exports. China accounts for almost two-thirds of the BRICS trade shares. China tops among all four BRICs economies in both domestic demand and net exports in constituting the 2008-09 real GDP growth and also comes at the top in comparison with the United States and EU16. Thus, the report elaborates on the possibility of BRICS projections to materialise much earlier than they were stated to be.

In similitude with Goldman Sach’s various reports regarding BRICS future success and China’s expected win over other members, enormous literature exists on the belief of China garnering most from BRICS and BRICS stature building due to China’s performance. Almeida suggests BRIC to be rather named as CIRB if real substance of each of the members of BRICS in the global pie is considered. Cui presents in his work the Chinese standpoint on the why and wherefore of BRICS.

Section 5: Future of BRICS and the current performance

In order to develop insight into the future of BRICS operation it is important to assess the current performance of the BRICS countries in terms of selected macroeconomic variables. We have identified three key economic variables to study the performance of BRICS. The first parameter is the Merchandise trade of BRICS countries. Merchandise trade is the backbone of BRICS countries as historically they have been manufacturing hubs, specially, India and China. There was a time before 1600, that 35% of the world trade was contributed together by China and India.

The average growth rate from 2004 to 2018 has been 7% while in the previous period it was less than 5%. This growth trend is promising and it is expected to continue keeping in mind the economic cooperation and collaboration that was targeted in the 10th BRICS summit.

The second important macroeconomic variable is Gross Domestic Product of BRICS countries. It is crystal clear that GDP of the BRICS countries has been increasing as it has been increasing for the world. However, the rate of increase in the BRICS countries is higher that the global rate of GDP growth. This increase in the growth rate is also witnessed in the years starting from 2002, which is an indication of BRICS collaboration and cooperation. The third macroeconomic variable for BRICS performance is Foreign Direct Investment Inflows. FDI Inflows is an important elements to study for BRICS, because in the third BRICS summit investment cooperation was highlighted with great vigour.

However, a separate calculation of growth rates of FDI is also very important. The growth rate shows that after 2009, there has been great improvement in the FDI Inflows, the theory suggest that FDI Inflows are attracted due to GDP, Stability of the economy, Business Confidence Index, Ease of doing business etc and all these issues has remained at he forefront of BRICS summit discussions. Therefore somewhere down the line, the reason for such increase in FDI flows in the existence of BRICS.

Section 6: Conclusion

BRICS in an important cooperation among countries that are developing and they are bound to influence in world in the future. The 10th BRICS summit was promising and all countries agreed to future cooperation having realised the power and progress achieved in the last 10 years. However, on the issue of who will lead the BRICS group, there is no clear evidence but surely China is an option. The selected macroeconomic indicators show that the performance of BRICS countries has been improved in the years of BRICS existence and cooperation. The future of BRICS is promising considering the SDGs taken up by the BRICS countries in 10th BRICS summit.

Dr. Badar Alam Iqbal - Adjunct Professor School of Economics and Finance Monarch University (Zug), Switzerland; Professor G. Fulufhelo Netswera - Director, North West University Business School, South Africa; Mohd Nayyer Rahman - Assistant Professor, Department of Commerce, Aligarh Muslim University, Aligarh.

Origin: http://infobrics.org/post/29935/