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July 1, 2013

A Murky Future for BRICS

Once thought to be the next power combine of emerging economies, they now seem to be lost in bickering.

The BRICS acronym was invented in 2001 by a London-based analyst for Goldman Sachs to label the five major emerging economies of Brazil, Russia, India, China and, more recently, South Africa. The group met for a fifth summit earlier this year in Durban, South Africa, yet is still unable to act cohesively in any globally significant manner. And after years of brave talk about leading an alternative trading system free of domination by Western powers, BRICS remains merely a snappy acronym for an illusory movement.

The few consensus statements—long on plans, short on achievement—underscored what turned out to be a thin agenda. Their economies are slowing, their internal trade disputes are significant and their home audiences are restive.

 

Uncertainty Around a BRICS Bank

Although four of the five economies had initially recovered faster from the global recession than did the European Union or the United States, all have recently receded. China, the most enduringly robust of the five, has decelerated from its annual growth rate of about 11% over the last decade to less than 8% in 2012, with the prospect of slipping below 7% later this year. Brazil’s annual GDP growth has fallen to 1% and Russia’s to 3.5%. Meanwhile, India has seen its growth rate slide from above 8% in 2010 to around 5% by January of this year. South Africa hovers around zero. 

Chief among the grand visions yet to come to fruition: agreement among BRICS countries about the structure, siting and capitalization of a $4.5 trillion BRICS bank. Its role is central to the BRICS long-range mission, displacing the World Bank and the International Monetary Fund. 

But in Durban, the member countries failed to agree even on how to capitalize it. The initial idea was that contributions should be pegged to GDP. But since that arrangement would cede preponderance to China, Brazil, Russia and India found it intolerable. Emphasizing the positive, Russian President Vladimir Putin voiced vague support for “the creation of this financial institution,” but within hours his deputy foreign minister, Sergey Ryabkov, told the press that formation of the bank was premature. 

“We are not contesting the idea, we support it, we favor it, but we are urging everyone to be serious enough to make further efforts in order to create the right foundation,” Ryabkov stressed at a press conference. “The devil is in the details,” implying that a particularly infernal dissension was amuck among many troublesome details. 

In a recent Reuters article, India’s finance minister P. Chidambaram predicted that the countries will “work hard” in the next 12 months to reach an agreement on a new bank. But given the group’s enduring differences and past performance to date, that prospect remains murky.

While the urgent and unresolved question of capitalizing the bank buzzed around the summit, South African President Jacob Zuma called for siting the bank in his country. The first and best use of other countries’ money, he said, would be building infrastructure in his own. Essentially, the president of the poorest performing economy called on his fellow members to invest in projects that his own government had not seen fit to fund. Fanciful pronouncements like that pointed up an impression of unreality coloring the entire BRICS enterprise. 

 

Legacy Issues

But whatever BRICS progress there was to report, it was overshadowed by larger disputes among the members at the summit: 

  • Brazil and India seek reform of the U.N. Security Council to include them based on the sizes of their populations and economies. Russia and China oppose diluting their veto-empowered role.
  • In the run-up to the summit, several African nations slammed China’s role in their economies as exploitive—“a whiff of colonialism,” according to Sanusi Lamido Sanusi, the governor of Nigeria’s central bank. 
  • South Africa has been scrapping with Brazil over alleged poultry dumping and countercharges by Brazil of collusion among South African chicken producers against Brazilian imports.
  • China and India are once again engaged in a nuclear-armed standoff in the Himalayas. The two have had a couple of military clashes over the boundaries. 

 

More Questions, Fewer Answers

The press conferences at the fifth summit were symptomatic of the BRICS’ limping agenda—the leaders rarely strayed beyond dry prepared scripts, and reporters were advised that the leaders would take no questions. Meaning there would be no answers. 

As the summit adjourned with little to show during its Durban session, Zuma announced that the group would support the laying of a massive undersea telecommunications cable, directly linking the BRICS and removing dependency on developed countries as interconnection points.

Ultimately the BRICS will have to commit to practical steps and specific projects with measurable outcomes if the group is to attract the allegiance of the many nations they collectively seek to lead. It will have to show that its agenda means growth before investors will act on its promise of a brave new world for commerce. 

But, if one day there is a completed high-capacity cable with the parties on the line in agreement on a winning agenda, then of course we’ll all be listening in. Stay tuned: The next BRICS summit will be held next year in Brazil. At press time, the date was yet to be determined.


Michael Colopy is co-founder of International Commerce Consultants Inc.