By Ekaterina Kologrivaya and Lucas Padilha
It is hard to find a combination with more political and economic variance among a cohort of “like-minded countries“. The union of the largest developing economies – BRICS: Brazil, Russia, India, China and South Africa – which contributed to 36.3% of world GDP growth during the first decade of this century, the BRICS decade, might serve as a platform for crisis response and economic lifeboat for fellow nations but does it?
Its initiators saw the union as a fundamental feature, as well as vaguely working Shanghai Cooperation Organization (SCO), for a change of the international system: creation of the multi-polar world, shift of economic and political centers from West to East, promotion of globalization, etc. From Russia’s point of view, a no less important question is what contribution such an alliance can make to world stability.
Countries are looking for new order – global or regional – which is always a product of ideas and resources contributed by several players. As major countries with own views on the international agenda and ambitious strategic goals, BRICS believe that they can operate more effectively in a multipolar environment.
Since BRICS foundation, there has been questions over its efficiency and relevance with claims of over ambition. Disagreements between members and slow progress in implementation of initiatives, make the union quite vulnerable to criticism. Over the last few years, even though China-Russia leaders seem to have close political relations, there was no effect on the economy and bilateral trade. Simultaneously, Chinese policies in South Asia meet a serious resistance from India. And also, the Indians are displeased with an increased Chinese presence in the Indian Ocean.
A straightforward judgment would be that both as a geopolitical concept and an economic thesis, the union were brokeeven before the pandemic, and now it will be impossible to fix. Goldman Sachs – the bank at which the acronym was invented – closed its BRIC investment fund in 2015, after years of losses. While China grows at a much slower pace than it used to during the BRICS decade, now it has to deal with even more serious problems, however, claimed to be a short-term ones. Brazil and Russia, at the same time, have faced recession. Above all, there is no permanent secretariat, defined budget, constitutive treaties, and headquarters for the BRICS. The New Development Bank (NDB) and the BRICS Contingent Reserve Agreement (CRA) serve as main institutions.
The NDB provides funds and framework, outside of the World Bank Group, for long-term projects in developing countries. As it is believed among defenders of the alliance, the formal nature of BRICS should be separated from national foreign policy agendas. Despite unoptimistic views about the union, since 2015, the BRICS bank approved 55 projects, across several areas from clean energy to urban development, totaling 16 billion USD. 32% of this value was invested in China; India comes in second with 27.7%. The NDB also has managed to acquire high credit ratings receiving AA+ from both S&P Global and Fitch Ratings in 2018, and AAA from the Japan Credit Rating Agency in 2019. From this point, it can be seen that the “BRICS bank” is not broke and actually working.
One of the driven powers of the union, China, wasn’t hurt seriously by “outer” issues, like 2008 crisis, but the novel coronavirus outbreak became an internal and global issue and already showed upsetting results. The Caixin reported that the COVID-19 damaged both the domestic and international demand. New product orders went down for the third month in a row with exports declining the most since December 2008. The fall and growth of manufacturing purchasing index (PMI) showed that February hit the record pace with the lowest level since 2004.
At the same time, the Republic of South Africa (RSA), which economic records don’t seem to change drastically, needs help the most. President Cyril Ramaphosa noted that COVID-19 is particularly dangerous for South Africa in light of high levels of poverty, malnutrition, HIV and TB. At the time of the announcements, the RSA had the highest number of cases on the continent albeit a low number relative to countries worldwide.
The NDB managed to respond to the outcomes quite efficiently. According to recent reports, the Board of Directors was in discussions with Brazil and South Africa for a one billion USD emergency loans each at the beginning of summer.
By the June 19th, those requests have been approved. “The COVID-19 Emergency Program Loan to South Africa will be provided in response to the urgent requests of the South African Government. NDB’s assistance will address needs to overcome the pandemic and help mitigate impacts on the most vulnerable populations,” said Mr. Xian Zhu, NDB Vice President.
The Bank has already fully disbursed the same size loans to China at the end of April and India in May. Apparently, only the Russian government doesn’t require help even in when the price for oil, on which export Russia heavily relies, hit its historically low record.
“We ready to do more, if our members request it”, NDB President K.V. Kamath said in his interview. He pointed out that the NDB had the “financial capacity” to provide ten billion USD in “crisis-related help”. Previously, the Board of Governors approved a seven billion RMB Emergency Assistance Program in Combating COVID-19 to the PRC. The Bank mobilized resources for this loan through the first-ever RMB-denominated Coronavirus Combating Bond issued by the Bank of China. The conversation on combating the pandemic is likely to lead to a discussion of the global role of the BRICS in Humanitarian Assistance and Disaster Response (HADR).
What next?
What ways BRICS national economies will take to recover, and will China behave as a contested major global power, are not minor issues blurring the future of the union. Plans for the 12th BRICS summit, scheduled for July 21-23 in St. Petersburg, and SCO meeting are still on, although the dates were confirmed to be postponed and the events might be eventually organized online. So far, multilateral meetings were held since April, until the recent news about China-India border tensions.
As Russia has a long history of being a mediator between two countries, the Russia-India-China (RIC) trilateral virtual meeting was held on June 26, led by the Russian Foreign Minister Sergey Lavrov. It is worth mentioning, India’s Defence Minister, Rajnath Singh, and his Chinese counterpart, Wei Fenghe, have recently visited Russia as on June 24, two days prior to the Foreign Ministers’ call, they attended the Victory Day parade in Moscow. The virtual meeting didn’t concentrate on border dispute, that happened eleven days before, and rather focused on global issues, such as upcoming reforms in the United Nations (UN), where India doesn’t have a permanent seat in Security Council, while Russia and China do.
The desired by BRICS countries multipolar system should lack one clear leader and being governed by several power systems, mainly interacting with each other on the global issues using the UN platform. The relations between the power centers are supposed to be competitive, but non-confrontational while all countries retain their unique economic models, ideologies and political structures. This is why the union put so much emphasis on the UN Security Council as it is supposed to have a central role in this order, much like it was designed after before the formal establishment of the organization.
BRICS countries share same principals. They strive to reform the existing system of global governance, not by undermining or destroying it, but gradually finding a worthy place within it for the developing economies and the “South” as a whole. The future of cooperation between nations depends on whether new institutions will be developed as well as NDB’s ability to solidify its global presence.
By setting open-ended developmental goals and health-protection related priorities, room for experiments and cooperation in tactical and operational levels has been created. It will however require minor financial and political compromises from members. BRICS countries are planning to work on an early warning mechanism for outbreaks of infection, the development of diagnostic and preventive measures for the disease, as well as joint epidemiological exercises. At the same time, NDB would provide financial anti-crisis assistance to members to fight the pandemic, considering the prognosis for second-wave outbreak this fall. In this sense, it seems that the outbreak has made the union, if not stronger, then at least more active, creating a silver lining in a sky full of COVID clouds.
