What the Expanding BRICS Universe Means for the Global Economy

Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) were the six new additions to BRICS (Brazil, Russia, India, China and South Africa) announced on August 24 during the economic bloc’s landmark 15th summit in Johannesburg, South Africa. With the 2023 summit held under the theme “BRICS and Africa: Partnership for Mutually Accelerated Growth, Sustainable Development and Inclusive Multilateralism” and two of the six new additions based on the African continent, the expanding BRICS universe provides yet another major stepping stone on the inexorable path toward global economic multipolarity.

With the expansion set to come into effect in January 2024, the current BRICS group of Brazil, Russia, India, China and South Africa will be more than doubling its membership list shortly. And given the identities of the six new additions, BRICS+—or whatever moniker will now be applied to this 11-strong bloc—is set to become a mighty economic force on the global stage.

“BRICS has embarked on a new chapter in its effort to build a world that is fair, a world that is just, a world that is also inclusive and prosperous,” Cyril Ramaphosa, president of host nation South Africa, said of the expansion. “We have consensus on the first phase of this expansion process, and other phases will follow.” Among the most enthusiastic supporters of BRICS’s expansion, China’s President Xi Jinping described the membership enlargement as “historic”, adding that it shows “the determination of BRICS countries for unity and cooperation with the broader developing countries”. Brazil’s president, Luiz Inácio Lula da Silva, hailed the admission of the six countries as “the driving force of the new international order”.

With the most important multilateral groupings of the last few decades dominated by advanced Western economies, the propulsion of BRICS to the forefront of global influence seems to portend a seismic shift in the international economic order. This grouping of developing and emerging economies has been most frequently compared with the West’s G7 (Group of Seven) forum of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. The expansion involving six additional economies, however, puts daylight between the two respective groups in terms of economic might, and even more so when accounting for purchasing power parity (PPP), with BRICS+ now representing 37 percent of global gross domestic product (GDP) and the G7 accounting for just 30 percent.

Regarding the populations represented by the two groups, meanwhile, BRICS has always had the edge thanks to the approximate 1.4 billion people in each of China and India, easily the world’s two most populated nations. With Ethiopia (126.5 million people) and Egypt (112.7 million people) added to the mix, moreover, the population gap between BRICS+ and the G7 will only further widen. Concerning the geography of BRICS+, it is worth noting that five of the six new members are located near each other, with the three oil-producing nations of Saudi Arabia, Iran and the UAE accompanied by Egypt situated in the Western Asia region and Ethiopia located not too far from this group.

Indeed, including three of the world’s biggest crude-oil producers—Saudi Arabia, Iran and the UAE (the world’s second, seventh and eighth largest producers, respectively)—is perhaps the most startling feature of this new crop of nations. According to 2022 figures from the U.S. Energy Information Administration (EIA), these additions will propel BRICS’s oil production from 19 percent to 41 percent of the world’s total. With two of the world’s three biggest oil consumers (India and China) already represented in BRICS in addition to the existing membership of the world’s third-largest oil producer (Russia), this expansion will set the stage for a decidedly robust oil-trading bloc. And with boosting trade and economic cooperation among member nations arguably BRICS’s main goal, adding several leading oil producers to a group containing such insatiable oil consumers makes sense. It will also position the group’s trading activities as leading influences on global commodities and financial markets.

But perhaps the most significant implications of this enlargement on the global economy will come via the use of local currencies to conduct bilateral trade and the corresponding reduction in the employment of the US dollar. Opposition to the dollar-dominated financial system has grown in recent years within the developing world, with countries observing how the dollar has been weaponised to enforce economic sanctions against several vulnerable countries, including freezing Russia’s assets and cutting it off from Western-dominated financial systems. The Federal Reserve’s (the Fed’s) aggressive monetary-tightening regime has also led to periods of pronounced dollar appreciation, inflicting considerable pain on developing nations, particularly those with dollar-denominated debt and those relying on essential imports, such as food and fuel, priced in the US currency on international markets.

BRICS members had accelerated their de-dollarisation efforts before the Johannesburg summit. Brazil and China struck a deal in late March to trade in local currencies, while India and the UAE began trading in their respective currencies in July. According to President Ramaphosa, BRICS members’ finance ministers and central bank chiefs have been tasked with determining ways to accomplish this shift away from the greenback. “There is a global momentum for the use of local currencies, alternative financial arrangements, and alternative payments systems,” he said.

This shift can also be viewed in the context of the bloc’s wider efforts to mount a challenge against the Western-dominated financial system. Despite representing a significantly larger share of the world’s population, developing countries receive relatively paltry voting power in international organisations, such as the World Bank and the International Monetary Fund (IMF), which continue to hold significant financial powers in allocating capital toward global development.

“We call for greater representation of emerging markets and developing countries, in international organizations and multilateral fora in which they play an important role,” the BRICS’s official summit declaration (“15th BRICS Summit: Johannesburg II Declaration”) asserted, whilst also calling for more quota power for emerging markets and developing countries (EMDCs) and greater protection for the voices of the poorest members. “We call for reform of the Bretton Woods institutions, including for a greater role for emerging markets and developing countries, including in leadership positions in the Bretton Woods institutions, that reflect the role of EMDCs in the world economy.”

BRICS’s response to such institutions was to create the New Development Bank (NDB) in 2015, aiming to make development finance more representative of the developing world’s needs and less punitive on debt-distressed countries. Including new members in the NDB1 should help raise its profile and creditworthiness in international lending markets.

Looking forward, BRICS+ can expect further expansion soon, with this year’s summit chair, South Africa, confirming that more than 40 countries—such as Bolivia, Cuba, the Democratic Republic of the Congo (DRC) and Kazakhstan—have expressed interest in joining. Of those countries, 16 have reportedly applied for membership, including Algeria, Indonesia, Palestine and Vietnam. While this growth will bolster the group’s influence within the global economy, coordinating and agreeing on policy will also become more challenging.

Nonetheless, the clamouring from such nations to join BRICS+ demonstrates not only the group’s bright prospects over the next few years but also the potentially substantial transfer of economic power from the Global North to the Global South. How will Western powers respond to this trend? “For China and Russia, this is a win. They have been pushing for this for five-plus years now,” Ryan C. Berg, the head of the Americas Program at the Center for Strategic and International Studies (CSIS), told The Guardian. “For China, it allows them to continue to build what they hope is a Beijing-centric order. For Russia, who is hosting it next year, it sees this as a tremendous opportunity in its current moment of significant isolation.”

But some also believe this “win” for China and Russia does not necessarily have to come at the expense of the United States and that win-win solutions for everyone can still be achieved. “It’s a reminder that the US needs to think more about how it’s engaging the rest of the world in a way that advances the interests of both [itself and other countries],” M. Taylor Fravel, an expert on China’s foreign policy and security strategy and director of MIT’s (Massachusetts Institute of Technology’s) Security Studies Program, recently opined. “I don’t view this as a zero-sum situation. It would be counterproductive for the United States to take a hostile approach to the BRICS, in part because it has friends within it. If you’re thinking strategically, having friends in the BRICS group is not a bad thing, so a low-key response is probably most effective.”

This article originaly appeared at internationalbanker.com