The three-day BRICS summit, the first in-person summit of the grouping since 2019, has entered its last leg in Johannesburg. This year’s summit has already seen the induction of six new members to the bloc and discussions on key issues, such as reducing the dependence on the dollar for trade. But does this group of emerging economies have what it takes to topple the hegemony of the West?
Goldman Sachs first coined the term BRIC (Brazil, Russia, India, and China) in 2001 to describe attractive emerging markets. On the sidelines of the UN General Assembly in 2006, the foreign ministers of these four countries met and formalised the group. The group, which was born out of a common interest in promoting trade and development, was later expanded to include South Africa, and the acronym became BRICS.
Before this year’s summit, the bloc accounted for 41 percent of the world’s population, at 3.25 billion people, and more than 29 percent of the total land surface area of the world. Also, the combined GDP of the BRICS countries stood at around $26 trillion. Once the bloc completes the induction of the newly-invited members, these figures will go further up.
Rising share in world GDP
The growing importance of BRICS in the world economy can be ascertained from its rising share in the world gross domestic product (GDP). While BRICS countries only accounted for 8.41 percent of the world GDP in 2001, this has gone up to 25.77 percent in 2022.
Meanwhile, the share of G7 countries has gone down from 64.93 percent to 43.53 percent during the same period.
Considered on a purchasing power parity (PPP) basis to better reflect the strengths of local currencies and prices, the GDP of BRICS nations has already crossed the figure of G7 countries. The share of BRICS countries in the world GDP (PPP) stood at 31.87 in 2022, while for the G7 countries, the figure was 29.99.
India and China account for the majority of growth in the BRICS. Together, the two countries account for a fourth of the PPP-adjusted world economy.
As a trade bloc
According to data from the World Trade Organisation (WTO), BRICS countries accounted for around 20 percent of merchandise trade (exports) at around $25 trillion in 2022.
For India, the BRICS countries are crucial trade partners. Data shows that in 2022 alone, India’s trade with fellow countries in the bloc crossed $197 billion.
The need for trade in local currencyThis year, the summit has emphasised on de-dollarisation in favour of national currencies. Apart from the ease of trade and the preservation of foreign currency reserves, trading in local currencies could also help in the disbursal of credit through the New Development Bank (NDB), the flagship project of the BRICS.
The NDB was established in 2015 by the five BRICS countries to serve emerging markets. Bangladesh, Egypt, and the United Arab Emirates have joined as members since then. The war in Ukraine and the hike in interest rates by the US Federal Reserve have made dollar debt more expensive for the markets served by the NDB.
An investor memo released by the NDB in April 2022 shows that out of the nearly $30 billion in loans disbursed by the bank, as much as 67 percent were in dollars. This became a challenge when the US imposed sanctions on Russia, driving up borrowing costs.
At 18 percent, the Chinese yuan accounted for the highest quantum among the loans disbursed in local currencies. The Indian rupee, however, lags behind as it accounted for only 0.3 percent of the loans disbursed, despite India having a 24 percent share in the project portfolio for which the loans were approved.
Expansion
Out of more than 40 countries that expressed interest in joining the bloc, six—Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates—have now been officially invited to join.
Although India has welcomed a consensus-based expansion of the bloc, it seems to be moving carefully to ensure that it does not tip the balance of the world order in favour of China.
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