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What to Know About the BRICS Group of Countries Rivaling the G7

(Bloomberg) -- The BRICS group of emerging-market powers — the acronym stands for Brazil, Russia, India, China and South Africa — has gone from a slogan dreamed up at an investment bank two decades ago to a real-world club that controls a multilateral lender. It almost doubled in size in 2024, pairing several major energy producers with some of the biggest consumers among developing countries and potentially enhancing the group’s economic clout in a US-dominated world. Dozens more countries have expressed interest in joining its ranks. 

Who are the new members of BRICS?

The BRICS group expanded in early 2024 to include Iran, the United Arab Emirates, Ethiopia and Egypt. Saudi Arabia was also announced as a new member, though the kingdom has yet to take a final decision on whether to join. Argentinian President Javier Milei, who took office in December 2023 and is steering his country’s geopolitical alignment toward the US and away from China and Brazil, declined a membership invitation. The nations still seeking admission include Malaysia, Thailand and Turkey. Further enlargement is likely to be discussed at a summit in Kazan, Russia, on Oct. 22-24. 

What is the impetus for expansion? 

The push has been driven largely by China, now the world’s pre-eminent industrial power, which is trying to boost its global clout by courting nations traditionally allied with the US. South Africa and Russia have backed the expansion. India was initially hesitant because it was concerned that a bigger BRICS would transform the group into a mouthpiece for China, while Brazil was worried about alienating the West — although both governments eventually agreed to an enlargement. For new members, BRICS offers the potential for easier access to financing from its wealthier members, and a political venue independent of Washington’s influence. 

What does a larger BRICS mean for the world?

The addition of major fossil-fuel producers may give the bloc more scope to challenge the dollar’s dominance in oil and gas trading by switching to other currencies, a concept referred to as dedollarization. However, expansion is “more about politics and less about economics,” according to analysts at Bloomberg Economics. Beijing is trying to build an alternative world order by pulling southern hemisphere countries into its economic orbit in a challenge to US hegemony. The enlarged alliance may become a stronger counterweight to the Group of Seven industrialized nations — the US, Canada, France, Germany, Italy, Japan and the UK. Russian President Vladimir Putin, isolated by the US and its allies over his war in Ukraine, is also keen to see Washington’s global influence recede. Other groupings that are already promoting a move toward a more “multipolar” world — and away from the post-Cold War dominance of the US — include OPEC, the Shanghai Cooperation Organization, the Southern Common Market (Mercosur), and the African Union. 

What does BRICS do?

The biggest achievements of the group have been financial. The countries agreed to pool $100 billion of foreign-currency reserves, which they can lend to each other during emergencies. That liquidity facility became operational in 2016. They founded the New Development Bank — a World Bank-inspired institution that has approved almost $33 billion of loans — mainly for water, transport and other infrastructure projects — since it began operations in 2015. By comparison, the World Bank committed $72.8 billion to partner countries in fiscal 2023. 

How have trade relations changed?

Trade among the bloc’s first five members surged 56% to $422 billion between 2017 and 2022. The natural resources of Brazil, Russia and Iran make them natural partners for Chinese demand. India and China have weaker trade connections with each other, partly due to their geopolitical rivalry and an acrimonious border dispute. 

How did BRICS get started? 

“BRIC” was coined in 2001 by economist Jim O’Neill, then at Goldman Sachs Group Inc., to draw attention to strong economic growth rates in Brazil, Russia, India and China. The term was intended as an optimistic scenario for investors amid market pessimism following the terrorist attacks in the US on Sept. 11 that year. The four nations took the concept and ran with it. Their rapid growth at the time meant they had shared interests and challenges, and combining their voices could increase their influence. The first meeting of BRIC foreign ministers was organized by Russia on the sidelines of the United Nations General Assembly in 2006. The group held its first leaders’ summit in 2009. South Africa was invited to join in 2010, adding another continent and the letter “S.” 

Who’s in charge?  

For most of the time BRICS has existed, China’s gross domestic product has been more than twice the size of the four existing members combined. In theory, that should give it the most sway. In practice, India, which recently surpassed China in population, has been a counterweight. BRICS hasn’t formally endorsed China’s big push to build infrastructure abroad, called the Belt and Road Initiative. That’s partly because India objects to such projects in disputed territory held by Pakistan, its neighbor and archrival. The New Development Bank has no dominant shareholder: Beijing agreed to the equal holdings for each member advocated by New Delhi. The bank is headquartered in Shanghai, but has been led by an Indian and two Brazilians, most recently former President Dilma Rousseff. 

Did Russia’s invasion of Ukraine affect the group? 

The other BRICS countries have adopted a broadly neutral stance toward the war, viewing it as more of a regional issue than a global crisis. However, the war changed Russia’s relations with BRICS institutions. The New Development Bank quickly froze Russian projects, and Moscow hasn’t been able to access dollars via the BRICS shared foreign-currency system. Essentially, with US sanctions piling up, other BRICS countries prioritized ongoing access to the dollar-based financial system over helping Russia. Moscow is now proposing changes to cross-border payments between BRICS countries, a system that would circumvent the global financial system and help sanction-proof its own economy. The alternatives include developing a network of commercial banks that can conduct such transactions in local currencies as well as establishing direct links between central banks, a report prepared by the Russian Finance Ministry, the Bank of Russia and Moscow-based consultancy Yakov & Partners shows. It also envisions the creation of centers for mutual trade in oil, gas, grain, gold and other commodities. Its unclear whether other BRICS members back the plan. 

Are investors still interested in BRICS?

There’s still interest in emerging markets. But BRICS is largely irrelevant as an investment theme today due to geopolitical changes and the members’ different economic trajectories. US-led sanctions have put Russia off limits for most foreign investors, and some sectors in China — especially technology companies — have also been sanctioned or face potential investment bans. China also is a maturing economy, increasingly separated from other emerging markets and facing a structural slowdown. Brazil’s economy slowed markedly following the end of a global commodity boom about a decade ago. South Africa’s economy has been hamstrung by rolling power blackouts and logistics snarls, although it’s recently made some tentative progress in tackling those problems. India is still a growth story that investment banks compare with China 10 or 15 years ago, though it’s unclear if it can follow China’s manufacturing-led model. 

©2024 Bloomberg L.P.