As the fifth BRICS summit concluded last week in Durban, South Africa, the common question posed to the few analysts in attendance (this author included) was whether it was a success or failure. Naturally, glowing statements from the five heads of state, and their attendant delegations, espoused the former, while the media generally viewed the inability to agree on the binding mechanisms of the BRICS development bank as a sign of the summit’s demise into the latter. It’s true that without the structural base the development bank could feasibly provide, the BRICS grouping remains a largely amorphous and loose political affiliation. Yet, criticisms of the summit’s intangibility somewhat miss the point.
The BRICS is as much a symbolic as it is a concrete establishment. Emerging as it did during the stiffest headwinds of the global economic downturn in 2009, the then four BRIC economies leveraged an opportune moment to emphasise the robustness of their individual and collective growth as the ‘developed world’ teetered on the brink. While a natural cooling has undoubtedly occurred since 2009, the broader thrust of the emerging world’s advance remains compelling.
Prior to the economic crisis, the collective GDP of the G7 economies was double that of the entire emerging world, last year the output of the G7 was just 12% greater than that of all emerging economies. The BRICS neatly represent, rather than entirely encapsulate, these shifts. The supportive statistics for its claim, driven of course largely by China, are also meaningful: the BRICS account for 21% of world GDP (IMF), 17% of world trade, and over 40% of the world’s population. This year, the BRICS will (on a simple average) grow at almost 5%, well above the world average, forecast by the IMF at 3.6% for 2013. In many ways, therefore, the BRICS summits serve to regularly establish an argument inherent in each of the five member states’ foreign policy – namely that the global political economy is shifting under our feet – institutions and global governance mechanisms must adapt to suit the new landscape.
The level of attention attached to this summit would suggest that, on this score, the gathering is achieving a measure of success. It is also likely that, in time, the BRICS will expand, incorporating other dynamic and strategically significant emerging markets. Already there is talk of a “BRICS-led” development bank, which would include economies such as Mexico and Indonesia.
As seemingly flimsy as the BRICS grouping may be (based as it is on five very different economies) it is increasingly clear that its largest member, China, is committed to its development, imbuing it with a momentum many thought would soon diminish. This commitment is borne of commercial interest (China is a counterparty to 85% of intra-BRICS trade), and pragmatic geopolitical necessity – China’s ascendance on the global stage has rendered it vulnerable to the type of nationalist opposition any perceived hegemonic power almost inevitably attracts.
Lamido Sanusi, Governor of the Nigerian Central Bank, urged African countries in a column for the Financial Times, to adopt a more cautious approach to engagement with China, suggesting that the world’s second-largest economy is “capable of the same forms of exploitation as the west” under colonialism. China takes these sentiments seriously, and is eager to counter a rising trend, initially espoused almost singularly by western media and institutions, but now gaining somewhat wider support, that frames Beijing as a rapacious investor eager only to secure its domestic interests.
Channelling trade and investment agreements through a more collaborative emerging markets platform, such as the BRICS, provides China with an opportunity to deflect some of this bilateral tension. Chinese state and private sector players arrived in Durban with clear intent, resulting in several meaningful deals being signed. These included a $30 billion currency swap deal with Brazil (which is the only BRICS member that ran a trade surplus with China last year); a cooperation agreement signed between South Africa’s Transnet and China Development Bank (which may include a loan of up to $5 billion to aid Transnet’s large infrastructure development plans); and a two-year framework agreement reached between Sinopec and PetroSA to collaborate on the planned $10 billion Project Mthombo refinery in Port Elizabeth’s Coega Industrial Development Zone.
There is a commercial underpinning to the BRICS that is beginning to gain real momentum. As expected, the BRICS Business Council, which consists of five senior business leaders from each of the member economies, was officially launched in Durban. Initially, Patrice Motsepe, Executive Chairman of African Rainbow Minerals, will chair the council, which will aim to meet twice annually and establish sector-specific focus groups to build synergies between BRICS corporates. The council will also act as a bridge between state and private sector players within the BRICS, offsetting economic diplomacy weaknesses in some member economies.
A further advantage will come, in time, from the simple engagement on the sidelines of regular BRICS-inspired gatherings. Over 500 senior business delegates attended the BRICS business forum in Durban. It would be naïve to assume that no commercial inspiration will derive from this powerful clustering.
Finally, since gaining its invitation to the BRICS, South Africa has consistently countered accusations of its minnow status by asserting its potential role in acting as a “gateway” to the rest of Africa. This claim can be challenged on multiple levels – not the least of which is the fact that Africa’s sheer size and complexity renders a single-entry strategy largely ineffectual. Moreover, known tensions between South Africa and other poles of economic and political weight in Africa, particularly Nigeria, raise concerns around South Africa’s role as a representative of the continent at the BRICS. Given these dynamics, President Zuma’s call for African heads of state to attend a specifically created BRICS Leaders Africa Dialogue Forum could be viewed as a proxy for Pretoria’s success in using BRICS membership as a means to develop a wider African consensus.
While President Goodluck Jonathan, notably, did not attend, heads of state from Angola, Cote d’Ivoire, Senegal, Uganda, Ethiopia and Egypt, very significantly, did. Given the debilitating effect of fragmented bargaining from independent, and often singularly weak, African economies with traditional and existing political and commercial partners, the signs of this more collaborative approach is to be welcomed.
Finance ministries from the BRICS members stared down what would have been intense political pressure to reach agreement on the proposed development bank’s binding mechanisms. The adoption of a more cautious approach could equally be seen as a sign that stakeholders are intent on ensuring the eventual institution is necessarily robust, rather than a more flimsy statement of political intent. That said, the idea still needs to run a gauntlet of deep challenges relating, but not limited to, its governance structure, capital contributions, geographical ambit and project identification process. These are not insurmountable, but will require deep commitment from all five member economies.
BRICS heads of state will gather again at the next G20 summit, providing an opportunity for an update on how the various finance ministries are proceeding on this score.
On these measures, the summit could easily be viewed as an affirmation of the rationale underpinning the BRICS grouping’s establishment. Crucially, much binds the BRICS on a commercial level, and it is here where gains of the affiliation will be more intimately felt. Last week, supportive pillars, albeit small, were added to the still nebulous grouping.
Simon Freemantle is Senior African Analyst, Standard Bank.