Despite expansion, BRICS still no match for the West

Per-capita incomes are much higher in the seven capitalist democracies with superior financial and technology sectors. They also have the best universities and the most dynamic private sectors.

Ewan White

Will an expanded BRICS challenge the US-led Western order? The answer: unlikely in the foreseeable future.

Despite expansion, BRICS still no match for the West

Robert Ford

last update on 09 Oct 2023

Last month, China prevailed over India at the meeting in Johannesburg of leaders from India, Brazil, South Africa, and Russia’s foreign minister to secure an agreement to expand the group called BRICS.

Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates were invited to join in 2024. Several more countries seek to join. Will this expanded BRICS challenge the US-led Western order?

Answer: unlikely in the foreseeable future.

The reality is that the US-led group of seven capitalist democracies have economies that produced about $45tn in goods and services in 2022 in nominal terms, while the expanded BRICS group produced $30tn, according to World Bank statistics.

In addition, per-capita incomes are much higher in the seven capitalist democracies. These seven countries and the rest of the EU associated with them have the most robust financial sectors and more sophisticated technology sectors.

For this reason, China worries about sanctions that block its access to advanced Western chip technology. And these seven countries have the best universities and most dynamic private sectors.

AFP — Brazil's President Luiz Inacio Lula da Silva, China's President Xi Jinping, South Africa's President Cyril Ramaphosa, India's Prime Minister Narendra Modi and Russia’s Foreign Minister Sergei Lavrov pose for a group photo.

Per-capita incomes are much higher in the seven capitalist democracies with superior financial and technology sectors. They also have the best universities and the most dynamic private sectors.

Among the BRICS-plus group, the Chinese, Russian and Iranian economies are suffering, Ethiopia is at war and unstable, and Argentina and Egypt have endured economic mismanagement and debt crises for decades.

Under Biden's leadership, Washington and Western capitalist states are relatively united now on political issues. By comparison, many disputes about the scope and reach of their territories and sovereignty divide the expanded BRICS.

Johannesburg did not change that.

Unity over breaking dollar dependence

If there is an agreed vision from the BRICS-plus group, it is escaping dependence on the American dollar and finding alternatives to Western-led international institutions like the International Monetary Fund and the World Bank.

Constant American imposition of economic sanctions encourages other countries to find alternatives to the dollar and, to a lesser extent, the euro.

The BRICS-plus group aims to conduct more business in local currencies. In significant steps in this direction, China, and India both use the renminbi to pay for Russian oil, and Abu Dhabi concluded a deal to use the renminbi for an oil deal, too.

If there is an agreed vision from the BRICS-plus group, it is escaping dependence on the American dollar and finding alternatives to Western-led international institutions like the International Monetary Fund and the World Bank.

Multiple currencies can amplify risks

There is a risk to BRICS-plus countries, however.

Russia stopped taking rupees for its oil exports when reserves of rupees in the Russian banking system grew too large to be useful.

Moreover, with BRICS expansion, central banks will have to accumulate not just renminbi and rupees, but also Argentinian pesos and Egyptian pounds as those countries' imports from other BRICS members exceed their exports. Few central bank governors will want to hold large reserves of these perpetually weak currencies.

Shutterstock — With BRICS expansion, central banks will have to accumulate not just renminbi and rupees, but also Argentinian pesos and Egyptian pounds. Few central bank governors will want to hold large reserves of these weak currencies.

Creating a BRICS-plus currency to rival the dollar and euro would be more challenging. The European experience reminds us that a strong currency requires tight coordination of economic policies among the states using the common currency.

New development bank: strengths and weaknesses

Finally, the BRICS group's new development bank has started $32bn in lending to member states for development projects in sectors such as water, agriculture, and infrastructure. This is an achievement, but the project portfolio is much smaller than the World Bank's lending. The new bank's capital is much smaller than the World Bank's.

To grow quickly, the new bank must access private financial markets that care more about profits than politics. Private bankers and financiers will insist on tight loan conditionality and repayment of loans to the New Development Bank.

The European experience reminds us that a strong currency requires tight coordination of economic policies among the states using the common currency.

However, dissatisfaction with conditionality from the International Monetary Fund and the World Bank and rising foreign debts encouraged the establishment of the New Development Bank in the first place.

Moreover, China already has a reputation for being difficult with foreign debt rescheduling, as Zambia's experience shows. BRICS does not have an immediate answer to the understandable dissatisfaction among many in the Global South.

Of course, the world order and its economic and political institutions created largely by the West need reform. Many countries have suffered from the rising price of the dollar, rising food costs due to the Russian invasion of Ukraine and the harmful impact of weather aggravated by climate change.

American officials support reform to the World Bank and the International Monetary Fund.

It would be beneficial if the BRICS-plus group could facilitate reaching an international consensus in negotiations about the future of international economic institutions, on issues such as the institutions' internal governance and voting shares, how to determine conditionality attached to loans, ensuring environmental safeguards, preserving essential trade flows, and minimising harm to lower-income citizens.

The Biden administration, more than any Republican Party administration, and the European Union will be ready to find agreements through multilateral negotiations.

On the other hand, if the expanded BRICS group only broadcasts anti-American and anti-Western positions from Russia, China and Iran, Washington's reaction will be more severe. It will weigh this against bilateral relations with the member states.

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