Egypt seeks BRICS membership to free itself from the dollar

The Egyptian government has high hopes for low-cost financing and loans, on concessional terms, that could ease the pressure on the country's battered economy and alleviate the current crisis of securing dollars for import production and manufacturing inputs.

The NDB began expanding its membership almost two years ago, officially taking in the United Arab Emirates, Bangladesh, and Uruguay as new members in late 2021, before Egypt's joining earlier this year.

"The bank's management agreed that the value of the Egyptian contribution is estimated at $1.196bn, of which 20% is paid, for a total amount of $239.2mn," the Egypt State Information Service stated.

In its May 2023 report, Fitch Ratings said the NDB was likely to be able to successfully implement its medium-term strategy, including continuing to grow its balance sheet and attract new shareholders.

Fitch revised its outlook on NDB's Long-Term Issuer Default Rating (IDR), changing it from negative to stable and affirming the IDR at 'AA', according to the bank's website. This is after the bank's successful return to international capital markets in April 2023.

According to reports, BRICS states comprise major economies representing more than 26% of the land area in the world, 42% of the world's population, and more than 20% of the global GDP.

The group has contributed to the growth of the global economy by more than 50%. Despite the geographical discrepancy between the bloc's states, one shouldn't underestimate the geopolitical importance of member states, which occupy strategic positions on the world map.

They also have multiple resources that promote integration among member states in vital areas, such as energy.

Investments, wheat and grain

Dr Mostafa Abu Zeid, director of the Egypt Centre for Economic and Strategic Studies, told Al Majalla that Egypt — if accepted to BRICS — is "expected to benefit from diversifying funding sources: it won't only rely on the IMF or the World Bank, as there will be another outlet, the NDB."

"This is particularly true as BRICS members have very large partnerships with the Egyptian economy, especially China, which is one of Egypt's largest trading partners, with the volume of mutual trade estimated at $15bn during the first 11 months of 2022.

"Russia is important when it comes to wheat imports, with trade between Egypt and Russia estimated at $6bn in 2022.

"The importance of India comes from being one of the major wheat producers at the global level. Thus the Egyptian economy will benefit from expanding its sourcing of strategic commodities such as grain and wheat to meet domestic demand."

He added that the "volume of trade exchange between Egypt and India is estimated at $7.26bn during 2021-2022, according to Egypt's Central Agency for Public Mobilisation and Statistics."

Abu Zeid said that joining BRICS would have many positive effects on the Egyptian economy, most notably increased foreign direct investment from member states – especially Russia, China, and India.

According to him, the Egyptian state has provided, during the past three years, a large amount of incentives and facilities to boost the attraction of foreign direct investment. The most recent of these is the introduction of a state ownership policy document, which attracts more local or foreign private sector contributions.

Joining BRICS would help Egypt create jobs, according to the economic and social development plan for the fiscal year 2023-2024, said Abu Zeid, who added that the Egyptian economy needs to create more than 900,000 jobs annually.

The influx of investment from BRICS states would also be bolstered, leading to a surge in trade volume. This, in turn, will aid in elevating Egyptian exports to BRICS countries. This aligns with Egypt's strategy to raise its export volume to $100bn within the next three years, he said.

Opening the door to Egyptian exports

Meanwhile, Rashad Abdo, international economic expert and chairman of the Forum for Strategic and Economic Studies in Cairo, said BRICS will primarily be looking for strong candidates to advance their economic and political standing.

"The five BRICS states are mostly industrialised and are characterised by the magnitude of their economies; there are many states from different continents of the world now seeking to join the group, including Saudi Arabia, the United Arab Emirates, Egypt, Algeria, Iran, Argentina, and others," he said.

He told Al Majalla that "each state has strengths and weaknesses, but it's certain that the group's leaders are looking to strengthen the global economic and political balance of power. Therefore, they want economically strong member states that don't have economic crises, are burdened with debt, or are about to go bankrupt.

"Rather, they want member states with different advantages to increase the group's weight as an active and influential player in the international economy. On this basis, approvals depend on whether applicant states add trade and economic privileges to the group."

Some of the states that have applied to join may receive an answer at the 15th BRICS summit, scheduled to be held on 22-24 August 2023 in South Africa, under the slogan 'BRICS and Africa: Partnership for Mutually Accelerated Growth, Sustainable Development, and Inclusive Multilateralism'.

Abdo said the "most important" outcome, should Egypt be accepted into BRICS, would be "to increase the terms of trade and joint investments, and to open the door for Egyptian exports to the group's states, and to obtain financing and soft loans and facilities from them, thus achieving a strong economic transition for Egypt."

He added that, in the coming period, there's an expectation to see "a growth of tourist delegations from the BRICS states to Egypt, especially from China."

Obstacles and questions

Egypt's policy, thus far, is to pursue close relationships with different Asian countries. These connections span various areas such as the economy, security, and defence. The goal is to avoid favouring any specific state; this approach empowers Egypt to keep its options open, act independently and make choices without being overly associated with a single alliance.

Jamal Abdul-Jawad, a professor of Political Science at the American University in Cairo and an advisor to the Al-Ahram Centre for Political and Strategic Studies, explained that BRICS serves as an alternative to forming multiple partnerships.

He noted that BRICS is important for countries that together represent a significant portion of the global economy. These nations have the potential to invest and also offer valuable insights about international trade currencies and reserves.

"It's true that membership hasn't yet become a reality, but Egypt is trying to stay close to this bloc and not isolate itself from it. Even if it doesn't necessarily join, it keeps all options open, considering its need for large funding opportunities. This is a key issue for Egypt," he said.

Abdul-Jawad highlighted that the NDB could potentially offer some of the funding Egypt requires. These loans or financial facilities could serve as a quick fix to help Egypt overcome its financial crisis. Additionally, it could create more markets for Egyptian exports and attract direct foreign investment, particularly from China, a significant global investor.

However, Abdul-Jawad pointed out that BRICS is still developing itself, and its future is uncertain. Challenges and obstacles, both within individual member states and in terms of their cohesion and cooperation, will need to be addressed.

This is especially true in the political realm, where differing priorities and goals exist. Notably, the two "largest parties", China and India, have conflicts like ongoing border disputes.

Abdul-Jawad described BRICS as "a marriage of convenience rather than a strategically and ideologically interconnected bloc … We have to deal with it within its limits."

According to him, the main BRICS states "adopt a multipolar world policy to modify the rules of the international system and the policies of international trade; the more the group's membership expands politically, the more these ideas become popular among a large number of states of the world."

He added: "Egypt is one of the main important states in the Third World and its contribution to the leadership of the Non-Aligned Movement is long-standing – it was one of the most important founding states."

It would be beneficial for BRICS states, too, to offer Egypt's membership, according to Abdul-Jawad.

"It satisfies the bloc and even makes it feel that it's on the right path; it gives the impression that current members are receiving great international support, enhances their popularity among the international public, and expands their markets," he said.

"This is especially true in light of the dispute over markets and the current trade war that the United States waged on China, when it placed restrictions on trade with this country – this trade war is set to escalate in the coming period."