Analysis – BRICS development bank
For the foreign policy magazine, Europe’s footsteps, that I set up with my class mates in Denmark, I wrote an analysis about the BRICS’ development bank:
BRICS’ New Development Bank part of difficult path to unity
In 2000 the combined economy size of Brazil, Russia, India and China was around a quarter of that of the United States. A year later, they were gathered under one name, coined by Goldman Sachs scholar Jim O’Neil; the ‘BRIC’ countries, he predicted, would develop to become a major player in global economic growth.
Today, the BRIC countries have nearly caught up with America, their combined GDP is over 16 trillion, where as America’s is 17.4 trillion. The countries’ ties have been institutionalised: in 2009 the four leaders met in Russia and a year later they were joined by little brother South Africa, adding the S to BRIC, the BRICS would from now on be a force to be reckoned with.
The countries rhetoric at summit declarations would soon unfold to be similar to that of the self-pitying cartoon-duck Calimero. We are the ugly and unlucky duckling. We are being mistreated by the big bad evil west: How long can four countries representing just short of half the world population accept being the subject to last centuries’ western power houses such as the International Monetary Fund (IMF) and the World Bank (WB)?
And the Calimero rhetoric carries truth. The economies of the BRICS represent one fifth of the global GDP, but the IMF never had a leader that wasn’t European or American. The countries only get 11% of the seats in the IMF and proposed reforms repeatedly faced an American ‘nope’, while it doesn’t cost the US anything.
If we can’t do it with them, we’ll do it without them, the countries must’ve thought. Last year in July, the BRICS founded their own New Development Bank (NDB) and a Contingent Reserve Arrangement (CRA). In the written summit statement, the countries voiced unconcealed displeasure with existing international institutions: “international governance structures designed within a different power configuration show increasingly evident signs of losing legitimacy and effectiveness.”
Rejection to reform, a historically familiar display of what some would call American arrogance, led to what seems to be a strengthening of BRICS’ relationships. However the countries aren’t as close as they seem to be. In fact they are very different.
Two of them are known autocracies: China is a national capitalist country with old Maoist power structures still in place and Russia is traditionally ruled with the iron fist of one leader. On the other side, India, South Africa and Brazil are democracies. There are serious questions to which extent the member countries have enough in common to ever counterweigh the power of the west. Only 2.5% of foreign investment of the BRICS countries goes to other members in the group and over 40% still goes to the US, the EU and Japan.
The BRICS seem to use their ties for different foreign policy goals, China with a 41% share of the CRA budget aims to replace the dollar with the yen as the most traded currency. South Africa – that according to Tim O’Neil shouldn’t even be a part of the BRICS – has access to bigger level power politics. India and Brazil that have seen decelerating economic growth need access to bigger market and political influence. Russia, under great economic pressure since the Ukraine crisis and the fall of oil and gas prices because of emerging shale oil exploitation, looks towards BRICS for maintaining its international influence through different canals.
The deeply divided BRICS have many hurdles to cross before they can act as one. Just last year, South African president Jacob Zuma, raised careful questions to China’s increasing influence in Africa, contesting the very nature of what the NDB is for China. Zuma’s careful remarks were later more aggressively backed by Lamido Sanusi, governor of Nigeria’s central bank, who wrote in an opinion article published in The Financial Times that China’s approach to Africa is in many ways “as exploitative as the West’s has
However, how divided the BRICS may be, they are also able to find each other, and when they do there power is great. The countries have one thing in common: they don’t like foreign interference in domestic politics. They opposed a full intervention in Syria during the Arab Spring, are proponents of Iran’s right to peaceful use of nuclear power and shattered hopes for climate reforms on multiple climate summits. After all: it is the west’s fault the globe is warming, not theirs so why should they limit their economic growth to fix the mess?
Common enemies make good friends. The BRICS will remain a force to be reckoned with, but as long as they stay so divided amongst each other; their power should not be over estimated. The countries can find each other in their aversion of domestic interference and the NDB is therefor common ground. The countries will help each other and expend their influence in other developing countries with NDB loans that don’t have human rights or climate requirements. The NDB will further contribute to the growing south-south trade that has as of last year surpassed south-north trade.
If big economic factors such as the low oil price – which benefits all BRICS except for Russia as a big tax cut on consumers would – doesn’t drive the countries apart, their combined growth numbers will continue to stay far ahead of those of slacking Europe and even of those of recovering US.