Since emerging as the victors of World War II, the American world order has been the prevailing global hegemony for more than seven decades. However, a number of emerging economies have gained significant economic and political power in recent years, causing some to question the established international order. Chief among these are the BRICS nations – Brazil, Russia, India, China and South Africa. In 2011, they formalised their partnership with the creation of the BRICS Summit. Curious about BRICS and how it could possibly upend the US dollar dominance that we’re facing in today’s economy? This article aims to explore the essence of BRICS, its impact on world economics and how the recent BRICS Summit could potentially shift the dynamics of international markets.
What Is BRICS?
BRICS is an organisation formed by five major emerging economies in the world - Brazil, Russia, India, China, and South Africa. These countries represent over 3 billion people, or around 43% of the world's population, making BRICS one of the largest blocs.
Thanks to competitive advantages like affordable labour costs, abundant natural resources and huge demographics, BRICS nations are pegged as high potential economies with plenty of room for growth. In fact, Brazil, Russia, India and China alone have a combined Gross Domestic Product (GDP) that’s comparable to the entire European Union’s GDP At their current pace of growth and development, analysts at Goldman Sachs estimate that the alliance will be able to dominate the global economy by 2050.
History of BRICS
BRICS was formed in 2006 when the five countries realised the potential of creating an economic alliance that would help them achieve greater influence in the realm of politics. The concept was initially introduced in 2001 by former Goldman Sachs economist Jim O'Neill, who coined the term “BRIC” to describe the emerging economies of Brazil, Russia, India and China. South Africa then joined the group in 2010 and the acronym evolved to become BRICS.
Objectives of BRICS
The main objective of BRICS is to promote economic growth and development through cooperation and collaboration between its members. The five countries have identified several areas of collaboration, including trade, investment, energy, industry, finance, and technology. The BRICS Development Bank, officially known as the New Development Bank (NDB), was launched in 2014 with an initial capital of $50 billion to support infrastructure projects in the member countries and other developing nations. Given the recent instability of the US economy, BRICS has been trying to take advantage by amplifying fears of de-dollarisation and creating a new BRICS-issued currency. This may seek to overthrow the US dollar since it’s currently being used in more than 80% of cross-border trades.
15th BRICS Summit & Its Possible Impact on the Economy
Every year, the heads of state of BRICS nations meet at the BRICS summit to discuss issues of mutual interest and seek new ways to strengthen their economic ties. In general, the BRICS Summit meetings have a significant impact on the global economy, as they provide a platform for the world's largest emerging economies to coordinate and collaborate on common economic issues. The decisions made at these summits can influence the direction of global trade, investment, and finance. For example, at the 2018 BRICS summit, the members agreed to expand the use of national currencies in their trade and investment transactions, reducing their reliance on the US dollar and other reserve currencies. To this day, the BRICS alliance is still focused on establishing its own currency while attempting to reshape the global order of things.
The 15th BRICS summit was held in August 2023, with the theme “BRICS and Africa: Partnership for Mutually Accelerated Growth, Sustainable Development, and Inclusive Multilateralism”. The summit highlighted the importance of political and socioeconomic coordination and was chaired and hosted by South Africa. Of the various discussion points, here are some highlights:
Six New Members to Join in 2024
While the alliance has stuck to its five core members for over a decade, the biggest announcement from the 15th BRICS Summit is that BRICS is now set to expand to more than double its size by inviting the likes of Saudi Arabia, Argentina, UAE, Egypt, Ethiopia and Iran. This could further threaten the Western world order that’s currently in place as having multiple Middle Eastern members in the alliance will undoubtedly cause a power struggle for influence in the Persian Gulf. With the world’s biggest oil suppliers on the side of BRICS, we may see even more crude oil market volatility in the near future.
China & India Pulled Troops from Disputed Border
Despite being part of such a huge economic bloc, it may seem surprising for onlookers to see China and India still locked in a border conflict. The Ladakh area remains a hotly contested issue as India and China both lay claim to the region and have clashd on multiple occasions across the years. With the latest BRICS Summit, we’re possibly seeing tensions ease as Indian and Chinese leaders called for a de-escalating of border tensions and a recalling of deployed soldiers from the area of conflict.
The Push For De-Dollarisation
To reduce their reliance on the US dollar, the New Development Bank has recently called for BRICS nations to facilitate trade and transactions in local currencies. For BRICS, this will ideally provide an alternative to what the world’s economic system is used to and provide pressure on the United States to keep its trillion dollar debt and rising inflation in check.
Opportunities and Risks for Investors
The BRICS countries offer significant opportunities for investors looking for high growth potential and diversification. These countries have large and growing consumer markets, a young and talented workforce, abundant natural resources and strong economic fundamentals. Taking into account the Gross Domestic Product (GDP) of the new members of the BRICS alliance, we're likely seeing the bloc control 30% of the global economy as their annual GDP comes in at US$30.76T. However, investing in BRICS countries also comes with risks, such as political instability, currency fluctuations, and regulatory challenges. Investors should carefully research the market and seek professional advice before making any investment decisions.
Future Outlook for BRICS
Despite mounting political instability and the threat of a global economic slowdown, BRICS is expected to continue its growth trajectory in the coming years. According to a report by PwC, the BRICS economies are projected to account for around 50% of the world's GDP by 2050. The report also predicts that the middle class in BRICS countries will grow by around 1 billion people by 2027, creating significant opportunities for businesses and investors.
The Bottom Line
Understanding BRICS and its impact on the global economy is crucial for investors looking to diversify their portfolios and tap into high-growth markets. The BRICS nations have made significant strides in promoting economic cooperation and collaboration, and the annual BRICS summit provides a platform for these countries to chart their economic course and make important decisions. Although investing in BRICS countries comes with risks, the potential rewards are enormous as we may see BRICS nations play a bigger role in the near future once they are able to achieve sustainable growth.
Keen to begin your trading journey with us? Find emerging market indices and more when signing up for an account with us today.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
