On July 8-9 BRICS holds its 7th annual summit in Russia. What is BRICS? Why do these countries hold summits? Do they have enough in common to make a difference in the global economics and politics? Six years after BRICs and then BRICS started to hold annual summits, what have they achieved?
- What are the BRICS?
In 2001, Jim O’Neill, then Chief Economist of Goldman Sachs, coined the acronym for Brazil, Russia, India and China as the largest emerging markets economies. He expected them to grow faster than the developed countries and to play an increasingly important role in the world.
And so they have. In the last 15 years, Brazil, Russia, and India have caught up with the smallest G7 economy (Italy) in terms of nominal GDP, while China has overtaken Japan and became the second largest economy in the world. Together, BRIC’s nominal GDP is similar to that of the EU or US and is likely to overtake both in the coming few years.
In 2009, BRIC countries held their first summit. In 2010, South Africa asked to join and was invited – thus transforming BRICs into BRICS.
- Why does the world need the BRICS?
Jim O’Neill’s point has been that the world is changing. The leading role of the Group of Seven (G7) and, more broadly, of the Organisation for Economic Cooperation and Development (OECD) is no longer undisputed. Most multi-lateral institutions were designed in the era when the West dominated the world. The US and Europe are over-represented in the IMF and the World Bank. Together with Japan, they control most regional development banks as well.
This imbalance has been especially clear during the recent global financial crisis when the need for participation by non-G7 countries became evident. This resulted in reviving the Group of 20 (G20) and proposals to redistribute voting rights in international financial institutions. But change has been slow and Western countries continue to control the international financial institutions.
This is why BRICS summits are so important. These meetings provide a unique forum where non-OECD leaders can discuss global challenges and co-ordinate their actions within and outside global institutions. The small size of the club and the absence of OECD partners helps in shaping the discussions at the summit.
- What have the BRICS nations achieved?
Even though BRICS are now playing a far more important role in the global economy, they have not yet managed to get their act together. Even on key issues like selecting a successor to Dominique Strauss-Kahn at the IMF, BRICS countries were not able to put forward a credible alternative to the conventional approach that IMF should be run by a Western European. Nor have they been able to speak with one voice about the most important global economic and financial challenges – co-ordination of monetary and fiscal policies, macroprudential regulation, development aid etc.
- Do they have enough in common to get things done?
BRICS countries are very different — both in terms of their resources and in terms of their values and goals. The only thing they all have in common is, well, membership of BRICS. Brazil and India are democratic, China and Russia are not. Brazil and Russia export hydrocarbons, China and India are net importers. China and Russia are permanent members of the UN Security Council – the others are not. Structure of financial systems, levels of income, education, inequality, health challenges also differ substantially within BRICS. This is why it is very hard to speak with a unified voice and to co-ordinate action. The fact that BRICS have not really established anything tangible yet should not be a disappointment.
- What could they do?
This problem of inaction will soon be overcome. BRICS now have a clear leader than can address the issue of internal differences in goals and resources. BRICS is quickly becoming a China-led club. Unlike 15 years ago, China’s nominal GDP is now larger than that of the other club members combined. The same its true with net international financial position, outward Foreign Direct Investment and development aid.
China’s leadership has finally turned the long-debated plan for a “BRICS Bank” into a reality. The BRICS have founded the New Development Bank (NDB), which will become a major regional development bank – the first one without OECD-countries’ membership (unless of course Greece joins.)
The establishment of NDB (head-quartered in Shanghai) suggests international financial institutions should have been more flexible in adjusting their governance to accommodate the increased role of BRICS in the world. NDB is not likely – at least initially – to outperform existing development banks in terms of skills and project quality. However, it will be the first tangible multi-lateral project fully owned by the non-OECD countries – in a sense confirming that Jim O’Neill’s vision was correct.
However, the very fact that the only tangible BRICS project is NDB is also telling. NDB is taking off exactly because it fits into China’s grander New Silk Road or “One Belt, One Road” vision. NDB is in this sense proof that the BRICS club – like Shanghai Cooperation Organization – is now led by China. In summits, BRICS’ leaders will talk as equals but whenever BRICS is up to something real, it will be following China’s strategy.
Publication does not imply endorsement of views by the World Economic Forum.
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Author: Sergei Guriev is a Professor of Economics, Sciences Po, Paris
Image: Images representing China and Brazil are projected onto the outer walls of Brasilia’s national museum. REUTERS/Ueslei Marcelino