The highly anticipated XV BRICS Johannesburg summit, the first in-person since the COVID-19 pandemic, held in the midst of a very polarised world, displayed more internal cohesion than was expected, given the trust deficit between New Delhi and Beijing. Despite differences over expansion, India and China exhibited a willingness to strengthen BRICS’s global governance circuit as a just forum for trade and regulatory policy. The five BRICS nations also announced the full admission of six new countries – Argentina, Ethiopia, Iran, Saudi Arabia, Egypt and the UAE.
About 50 other heads of state and government attended the summit, underscoring the appeal of BRICS, which represents at its core the aspirations of developing countries for a greater role in the global financial system.
At a time when the world is looking for answers, the XV BRICS Johannesburg Declaration certainly gives the impression of forward momentum, with concern about the “use of unilateral coercive measures” expressed at the outset, calls for “greater representation of emerging markets and developing countries (EMDCs), in international organisations,” and “special and differential treatment for developing countries in the WTO”. In pointing out the rising interest rates which have worsened debt vulnerabilities in many countries, and a demand to “address the international debt agenda properly”, BRICS has shown unity of purpose.
With over $4 trillion in foreign currency reserves and 21% of the world’s population, the BRICS countries cover a substantial portion of the global economy. However, the full potential of BRICS economies is far from reached. Members comprehend this, and so the Johannesburg declaration calls for “unlocking” intra-BRICS cooperation, which it has been trying to unleash through dialogue on payment instruments between emerging markets and developing countries (EMDCs).
The New Development Bank (NMD or the BRICS Bank), is arguably the most concrete success of the grouping, with a well-designed governance system. If one compares the BRICS Bank’s cumulative disbursements of $14.6 billion by the end of 2021, to the $60 billion disbursed by World Bank in 2021, the NDB’s lending programmes are minuscule. Nevertheless, the central banks of BRICS nations seem ready to let go of the conservatism that has held back the BRICS’s lending potential. NDB started expanding its membership in September 2021 with the admission of Bangladesh, the UAE and Uruguay; subsequently, Egypt was admitted as a new member. The inclusion of Saudi Arabia as the ninth member would strengthen BRICS’s funding options, representing another deep-pocketed shareholder as the NDB assesses its ability to mobilise funds.
The NDB is at the cusp of emerging as an alternative, as the West continues to maintain its traditional lock over the World Bank. But in order to make a worthy difference in global affairs, the BRICS bank will have to become more transparent and move forward with transformative ideas. The NDB could look to supplement its activities by collaborating with Beijing-based Asian Infrastructure Investment Bank (AIIB). Launched almost simultaneously in 2014, the capital structure, governance and operations of both these new multilateral development banks (MDBs) have been effective in addressing infrastructure investment deficit in developing countries. At its VII summit in Ufa, BRICS explicitly declared, “We welcome the proposal for the NDB to cooperate closely with existing and new financing mechanisms including the Asian Infrastructure Investment Bank.” Taking that forward, the NDB and the AIIB should actively engage in co-financing projects with development institutions as well as commercial banks.
The World Bank has been slow in reorienting its mission in the age of climate change. The 2022 Bridgetown Initiative proposed reforms to the World Bank mission with calls on wealthy countries to provide $100 billion per year in foreign exchange guarantees to low-income countries for decarbonisation efforts. But with this transformational reform yet to come about at the World Bank, the BRICS position that poverty eradication and climate change are not exclusive is more attractive for developing countries.
Global warming could push an additional 132 million people into poverty. By one estimation, EMDCs except China, will require a total annual investment of $1 trillion by 2025 and $2.4 trillion by 2030, as such, Green Finance (GFN) has become a top priority for the BRICS economies. Because these countries are also the largest CO2 emitters, aggressive GFN initiatives are required. NDB has made a start by utilising ‘green bonds’ (fixed-income securities that are used to finance environmental projects) to ensure that environmental activities are supported sustainably. Given these shifts, new MDBs could increase the volume of their operations severalfold, with a particular focus on global multilateral climate finance, bringing the disbursement amounts closer to the volume of infrastructure financing provided by major traditional banks.
There are misgivings that BRICS is a disparate group. India has apprehensions that the Chinese approach to development finance is shaped by complex economic and political interests. But in order to remain relevant in the context of multilateral development finance, it must recognise that because China is playing a prominent role in both the NDB and the AIIB, synergy in the realm of global financial governance through the BRICS mechanism may be the best way forward. There appears to have been reinforcing dialogue toward this perspective, between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping on the sidelines of the Johannesburg summit.
With its expanded membership and relevant portfolio, BRICS should consider setting up a permanent secretariat which it does not have at the moment.
The Ukraine war, for all its discord, has underlined the disaffection of the Global South with the West, unlining the support Russia enjoys from its BRICS partners at a time of global isolation. The Johannesburg declaration which ends with the statement “Brazil, India, China and South Africa extend their full support to Russia for its BRICS Chairship in 2024 and the holding of the XVI BRICS Summit in the city of Kazan, Russia” could not emphasise this support better.
Vaishali Basu Sharma is an analyst on strategic and economic affairs.