The BRICS summit and the long-term gamble

Danilo Carvalho Moura

When he wrote his now-famous Goldman Sachs report that coined the term BRIC to refer to Brazil, Russia, India and China, Jim O’Neill was describing something we understand today much better than he did then: the economic ascension of the large emerging market countries (O’Neill 2001). It is common knowledge today that China changed the rules of the economic game in the last two decades and how much the global economic expansion before the 2008 global financial crisis was owed to the strong growth in emerging markets. A less remembered feature of O’Neill’s original work is how much time it spent arguing for the inclusion of those four countries in the G7. That is worth remembering as the BRICS – since 2010 the group that uses the term includes South Africa – meet for the 6th Summit of Heads of State and of Government of BRICS in Fortaleza, Brazil, starting on July 14th.

The conception of the BRICS as a group has very little to do with the economic process O’Neill was thinking about. The BRICS is an overtly political organization born to unite the greatest economic powers of the emerging markets. They do not want to integrate with the G7, today a weakened forum as it is (the G20, which includes all the BRICS, is much more relevant). In its deepest meaning, the BRICS are a group large emerging market countries intent on changing the way the international system is organized.

The strategy behind the BRICS group has always been a long-term one. China will be the largest economy in the world in the next decades (Giles 2014). Yet these are so populous, still have a large gap in per capita income to the established economies, and that means the space for catch-up growth remains. As the BRICS represent an ever larger share of global GDP, the BRICS naturally will be more important, if only from the sheer force of economic gravity. These BRICS countries want the enlarged portion of GDP to be reflected in enhanced influence. More than that: they want to guide the change, and they want it to happen sooner rather than later.

For all their shortcomings, Brazil, Russia, India, China and South Africa will most likely be significant enough in the near future that there will be no effective global governance without them. In many some ways that is already true – hence the G20.

The problem with long-term goals is that short-term volatility cannot be avoided. The last sixteen months — since the last BRICS Summit, in Durban — have been momentous. India changed its government (Singh & Shah 2014) and China changed the speed of its economic growth (Perkins 2013). Russia grabbed Crimea and now suffers at least some sanctions from the G7 (Lee 2014). South Africa seemingly has lost its moral heart with the death of Nelson Mandela (BBC 2014) and perhaps its position as Africa’s biggest economy (The Economist 2014). Brazil’s government lost its touch and Brazilians lost their patience (and the ruling party may very well still lose the October elections) (The Economist 2013). Overall, economic performance from the five countries has been underwhelming, at best.

With the 6th Summit about to start, several small questions coming from this context arise. Attempts to give the BRICS a more institutionalized existence persist. Taking the long view, though, it is the larger of the questions surrounding the group that matters most.

 

What has changed?

Thinking of what is different since Durban, the new Indian government raises questions. Narendra Modi has been Prime Minister for less than two months, and there is very little evidence so far on how he sees the position of his country in the world, except for a few references to “non-alignment”. How then does Modi see the BRICS?

The relationship between India and China is of special concern. There is a lot of tense history in the past between the two countries, and it is a safe bet that the eyes in New Delhi have not been blind to the China’s recent muscle-flexing in the East and South Seas. It remains to be seen if and where the nationalism of Modi’s BJP will manifest itself in his foreign policy.

Secondly, it will be impossible to escape the conflict in Ukraine. Many have analyzed the resurgence of geopolitics and its impact on global governance. Russia was suspended from the G8 and now the G7 has returned. Sanctioned by the US and the EU, Russia is currently viewed by the West as potentially a much more adversarial and revisionist power.

This presents its own challenges to the BRICS. The other four countries refused to criticize Mr. Putin’s actions in the Ukraine and has made it clear that they oppose Russia’s exclusion from the G20. It is certainly possible that there will be some display of solidarity in the final declaration of the BRICS Summit.

As the new landscape appears, no group of countries that includes Russia will find sympathy in Washington, Berlin or London for now. So further calls for reform are unlikely to gain much traction in Washington.

 

An agenda

The obligatory references to reforming institutions that will show up in communiqués aside, there may be no progress in the short-run. A possible exception is IMF reform, already agreed upon but currently on life-support at the US Congress. The most promising work for the Summit lays elsewhere.

The BRICS Development Bank (BRICS bank) will probably feature prominently in the agenda. The idea of the BRICS bank has been discussed and examined since 2012, and the practical difficulties that lay ahead are not small. There have been rumors about the members reaching a tentative settlement on a place to locate the bank’s headquarters, but the initial contributions of the members will be hard to justify for the democratic leaders. That said, the enthusiasm the BRICS bank has generated among the members (and broader publics as well) is real, and there are indications that the technical work has progressed considerably in the last year. The delay on the approval of the IMF reform may offer the necessary push of the members towards the creation of the Bank.

There has also been work on many lateral topics. Exchanges on agricultural or health policies, and meetings of finance ministers or science and technology officials may seem of little consequence. But they are part of a general strategy to develop relationships, smooth cooperation and create a common history of work that, in the long run, are the elements that make an effective organization. Those smaller, largely ignored issues will also be in display at the Summit, even if we do not hear much about them.

 

The larger question

And yet, as Vladimir Putin tries to weather the storm he created, Xi Jinping keeps making waves in the seas around China and Narendra Modi attempts to steer India into a new direction. Meanwhile, Dilma Rousseff (the President of Brazil) and Jacob Zuma (the President of South Africa) try just to stay afloat. China and Russia are permanent members of the UN Security Council, the remaining three are not. India, China and Russia are nuclear powers. Brazil has a reasonable claim to Latin America’s leadership. South Africa’s position is more complicated in Africa, especially with Nigeria’s economic rise. These structural differences which have haunted the BRICS concept have not abated.

Each of the five countries has very different economic and demographic prospects – India and South Africa are probably still a demographic boom away from demographic transition; Brazil is aging faster than it is enriching; Russia is dwindling, and its economy is a gas-dependent mess; China will soon present us with a live experiment on the consequences of harsh, implacable population control. Two are imperfect, but free and competitive democracies (Brazil and India); one is an also imperfect and free but not very competitive one (South Africa). One is a single-party dictatorship (China), one is a personality-centered, increasingly authoritarian regime (Russia).

Those differences are not inconsequential for a foreign policy alignment. They mean those five countries often have conflicting interests and visions in international trade, development financing, human rights. They are all “emergent” nations, but that does not mean they can all stand by the same ideas, or even for non-contradictory ones.

The Summit in Fortaleza will probably be a symbolic event; more political declaration of will than concrete realization. Even if it is more fruitful than that, the truly important question most likely will not have an answer any time soon. It is not as if the BRICS can stop being an acronym to become something else; but they can only be productive if the BRICS can actually agree on what that should represent.

 

References

BBC “South Africa’s Nelson Mandela dies in Johannesburg”. December 6 2014 http://www.bbc.com/news/world-africa-25249520

Giles, Chris. “China poised to pass US as world’s leading economic power this year”. Financial Times, April 30 2014. http://www.ft.com/intl/cms/s/0/d79ffff8-cfb7-11e3-9b2b-00144feabdc0.html#axzz36SBvHna3

Lee, Carol. White, Gregory. Favole, Jared. “U.S., Russia Trade Sanctions Over Crimea”. Wall Street Journal, March 21 2014. http://online.wsj.com/news/articles/SB10001424052702303802104579451142166356328

O’Neill, Jim. “Building Better Global Economic BRICs”. Global Economics Paper nº 66. Goldman Sachs, 2001.

Perkins, Dwight. “China’s Growth Slowdown and Its Implications”. NBR Analysis Brief, November 4, 2013. http://www.nbr.org/publications/analysis/pdf/brief/110413_Perkins_ChinaSlowdown.pdf

Singh, Rajesh. Shah, Adit. “India’s pro-business Modi storms to historic election win”. Reuters, May 16 2014 http://www.reuters.com/article/2014/05/16/us-india-election-idUSBREA4E0XG20140516

The Economist “Africa’s new Number One”. April 12 2014. http://www.economist.com/news/leaders/21600685-nigerias-suddenly-supersized-economy-indeed-wonder-so-are-its-still-huge

The Economist “The streets erupt” June 18 2013 .http://www.economist.com/blogs/americasview/2013/06/protests-brazil

 
 

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