Chapter
1 Literature Review and Research Structure
1.1
Introduction to the BRICS
In 2001, Terence James "Jim"
O'Neil, the retiring chairman of Goldman Sachs Asset Management Global, coined
the acronym the BRIC that has become well known nowadays, to refer to the four
rapidly developing countries that symbolize the global economic power shift
away from the developed G7 economies. The four countries are Brazil, Russia,
India and China. The term BRIC was first proposed in Jim’O’Neil’s report, The World Needs Better Economic BRICs, a
paper he wrote for Goldman Sachs's Global
Economic Paper series. Later, South Africa, in 2011 at the third summit of
the BRIC, gained its entry to the group, which was renamed as the BRICS since
then. The BRICS grouping marks a tectonic shift, or the so-called “great
transformation” of the world economy, where the impact of the BRICS and other
similar emerging economies expand and, very possibly, would eventually outstrip
the major developed countries.
Politically, no apparent similarities
exist between the BRICS members. Instead, their internal political structures
differ significantly. Among the five politically divergent states, Brazil,
India and South Africa are well-established democracies, while Russia’s claimed
democracy is largely affected by an authoritarian and oligarchic regime. China,
the largest and most powerful socialist people’s republic, is under a unique
political structure that is also depicted by the Western World as
authoritarian. However, the BRICS countries have common pursuits in the
international society. They form a considerable force in seeking joint action
and allying other developing economies in UN resolutions and other
international negotiations. For example, Brazil, India and South Africa are
seeking a greater voice in the international peacekeeping efforts through the
reform of United Nations Security Council. China and Russia are trying to
achieve larger influence in the International Monetary Fund (IMF) through IMF
Quota Reform. On the other hand, BRICS members on their own are either regional
leaders or powerful emerging economies that contribute significantly to
regional development. By associating with each other, BRICS countries are able
to justify their regional prominence and create a broader platform for
cooperation with developing economies of mutual interest.
Economically, the BRICS nations
represent a considerable weight in the global economy. According to 2012
estimate on a Purchasing Power Parity (PPP) basis, the Gross Domestic Product
(GDP) of the five nations amounted to $22,539 billion in total, approximately
25% of the global GDP. They also account for
45% of the world’s population, and 40% of the world currency reserves.[1] In
2013, trade flow within the group amounts to 212 billion USD or around 16% of the
global commerce. Economists have projected that in 40 to 50 years, the BRICS
nations may very well catch up to the OECD countries in their economic prowess.
At the outset, these five nations are seemingly disparate with regard to economic
structure, development strategy, and macroeconomic policies; however, they have
a common thread in that they are all large developing nations with a
significant growth potential. The Goldman
Sachs Global Economics Paper No.208 estimated in 2011 that, by around 2030,
the BRICS economy as a whole will outstrip the G7 developed economies in total.[2] The
strength in economic growth has led to the transformation of the BRICS notion
from a conceptual economic term to a formal political grouping based on common
developmental interests. With official BRICS summits held and joint communiqués
released, a polycentric system in global affairs is trending up towards the use of non-
institutionalized mechanisms of global governance and network-based diplomacy,
and the growing economic interdependence of states, where the BRICS grouping is
gaining authority as an exemplary framework.
1.2
Research Structure
The following part of the thesis will
mainly focus on two parts. First, the foreign policy strategies BRICS countries
are generally taking and the implications on international affairs. Second,
which is the motivation behind the formation of the BRICS, the economic
linkages and prospective cooperation among BRICS nations and the impacts
generated on the global economy.
Chapter
2 The Foreign Policy Indications of The BRICS
2.1
BRICS’ Foreign Policy Indications on Its Member Nations
2.1.1
Brazil
Over the past few years, Brazil has
been rigorously achieving its aspiration to ascend to a higher level on the
global chessboard. Not only has Brazil witnessed major socioeconomic
development in the past decade, but it also acquired stronger military
competency as well as increasing significance in both the geographically
defined Western Hemisphere and the economically defined Global South.[3] In
addition, Brazil has also been eagerly crusading for a permanent seat in the
United Nations Security Council (UNSC). If successful, it will stand out reasonably
to represent the interests of countries in Latin America and the Caribbean in
the presumed UNSC structural reform. Furthermore, Brazil is hosting two
international games in the coming years in Rio, the 2014 FIFA World Cup and the
2016 Summer Olympics, which justified Brazil’s credentials as a rising global
power. Despite concerns over its stagnated
economic growth rates and issues of governmental corruption, Brazil remains an
eligible member of the BRICS group and will be the rising Latin American star
in the following years in terms of its economic expansion as well as its
international influence. Therefore, Brazil’s foreign policy is fairly open to intra-BRICS
activities with its fellow members, which emphasizes for Brasilia’s inter-BRICS
trade links with Beijing Moscow, New Delhi and Pretoria.
2.1.2
Russia
On 12 February
2013, Russia’s Ministry of Foreign Affairs published the new Concept of the
Foreign Policy of the Russian Federation. This report has offered critical
insights into Russia’s stance in the changing international environment after the
2008 financial and economic crisis, where it sees regional grouping, especially
with the BRICS, as a prominent feature for how it will act towards the new
international society.[4]
More than ever, Russia gives greater emphasis to the BRICS grouping and has
published a separate Concept of
participation of the Russian Federation in BRICS before the fifth BRICS
summit in Durban, South Africa. In the report, Russia listed specific
objectives for its involvement in the BRICS, such as enhancing international
political cooperation with BRICS partners for joint UN resolutions and the
promotion of international security, strengthening economic and financial
collaborations with BRICS members to contribute to global economic recovery,
financial market stability and the International Monetary Fund (IMF) reform, as
well as creating more favorable conditions for multilateral trade, especially
for Russian exports.[5]
In total, these objectives highlighted Russia’s pursuit of active participations
in the BRICS that seeks to turn it into a more comprehensive and cooperative
institution.
2.1.3
India
During the 1990s, India has transformed
its foreign policy objectives to adapt itself to the new dynamics of the global
society. The end of the Cold War and the breakdown of a bipolar world marked
the beginning of an era symbolized by globalization. Changing global scenarios
and domestic economic problems compelled India to reorient its foreign policy
on a multilateral basis. India has thus played a keen role in several
multilateral groupings, such as the IBSA (India, Brazil and South Africa) and
the BRICS. Economic and trade cooperation is a key of India’s policy towards
the BRIC. India’s active participation in the BRICS with other major emerging
economies also conveyed its enthusiasm for multilateral collaborations to solve
shared problems and confront challenges of globalization, with the aim to
collectively boost its bargaining power and political clout on global issues as
well as strengthen economic and political ties to counterbalance the Western superpowers,
namely the G7 alliance. Dr. Manmohan Singh, the current Prime Minister of
India, made a statement at the BRIC Summit in Brasilia in 2010 (before the
entry of South Africa into the grouping), which demonstrated India’s
willingness and appeal for close cooperation with BRIC members: "We are
four large countries with abundant resources, large populations and diverse
societies. We aspire for rapid growth for ourselves and for an external
environment that is conducive to our development goals”. [6]
2.1.4
China
Many Chinese academics have seen China’s cooperation with the BRICS as a
gradual and step-by-step ‘‘logical choice’’
without an intentional policy decision in that China has fewer stakes in the
BRICS grouping. China alone is the world’s second largest economy, the largest
holder of foreign exchange reserves, a nuclear weapons state, a permanent
member of the UNSC as well as one of the largest trade partners for other BRICS
countries.[7] The rising global status of
China today as the leading Asian economy and one of the world’s most important
powers has already gained recognition in the international society. Therefore,
China’s participation in the BRICS has actually contributed to lifting the
global profile of other BRICS members and bringing economic opportunities to
its BRICS partners. However, the BRICS grouping nevertheless serves to benefit
China in several aspects.
Most importantly, the BRICS
grouping builds a friendly international platform for China to implement its
goal of diplomacy since ”reform and opening’’ in the late 1970s, that is to
create a stable and peaceful international environment conducive to domestic
economic development. Joining the BRICS allows China to establish common
grounds and mutual interests with other late developing economies, notably with
its neighboring countries Russia and India, and to promote China’s idea of “Peaceful Rise” to counterbalance U.S. Hegemonism.
Peripherally, being part of the BRICS also enables China to exchange ideas and
share responsibilities with fellow members on key global issues such as
financial crisis, food security, global warming and sustainable development,
and to seek opportunities for group work within the BRICS to preempt potential
threats imposed by these problems.[8] Thus, the stand-to-gain
stance of China in the BRICS justified the grounds for China’s active
involvement in BRICS affairs during the Fifth BRICS Summit in Durban and during
the G20 Summit in St. Petersburg, which allowed China to take priority in
foreign affairs right after the country’s power transition in 2012.
2.1.5
South Africa
Despite Jim O'Neill’s opinion on South
Africa as having too small an economy to be included and that alternative countries
such as Nigeria are stronger candidates for the future of the BRIC, the third
BRIC summit, held in 2011, officially announced the evolution of the BRIC to the
BRICS that included South Africa into the grouping. On March 27, 2013, South
Africa hosted the Fifth BRICS Summit in Durban and was appointed as the
2013-2014 Chair of the BRICS. Notwithstanding skepticism on whether South
Africa’s national strength could well catch up to the other four countries, South
Africa’s joining in the BRICS has been considered as a win-win situation. In November 2012, The
South African Cabinet adopted A BRICS Strategy, specifying four foreign policy
goals for South Africa’s membership in the BRICS: First, to boost South
Africa’s domestic economic growth, increase job opportunities, and expand trade
with BRICS members; Second, to promote Africa’s regional integration
initiatives and to stimulate Africa’s sustainable development with an emphasis
on infrastructure development programs that could possibly be funded by the proposed
BRICS Development Bank; Third, to pursue global governance reform; Finally, to
strengthen intra-BRICS cooperation on an organizational level.[9]
Additionally, assuming itself as Africa’s regional leader and the
“gateway to Africa” for the BRICS, South Africa’s participation is also
strategically constructive to this grouping and the other four members. South
Africa’s comparative advantage within the BRICS lies in its abundant reserves
of mineral wealth, which, according to the US-based Citigroup Bank, worth an
estimated US$2,5 trillion. South Africa is the world’s largest producer of
platinum, chrome, vanadium and manganese, the third-largest gold-miner, as well
as the provider of state-of-the-art mining-related professional services. The recent World
Economic Forum’s World Competitiveness Report placed South Africa as the second
financial system in the world in terms of soundness of banks, whose financial services
sector has been globally recognized as sophisticated and highly competitive. Moreover,
the expansion of South Africa’s trade volume and direct investment with BRICS members
continues to grow. According to Standard Bank, BRICS total trade with Africa
reached US$340 billion in 2012, with China and India being its major partners. Thus,
the inclusion of South Africa into the BRICS will help facilitate
industrial and infrastructure development of the BRICS nations through
provision of essential natural resources and create a benign investment
environment for both the proposed BRICS Development Bank and BRICS private
sectors. Globally, the addition of South Africa also extended the scope of the
BRICS into the African region, rendering the grouping more inclusive and
representative of the developing world, which amplifies its institutional
importance on world financial and economic reforms as well as on reshaping the
global governance architecture.
2.2
The BRICS In International Affairs and Global Governance
The BRICS notion, initially put
forward to describe the massive economic potentials of these emerging
developing powers, was now an increasingly influential bloc in world affairs,
symbolizing the shift of economic power from the developed G8 economies to the major
developing countries that reshaped the Grand Chessboard. The growing economic
strength of the BRICS countries also enabled these nations to pursue more
progressive diplomacy and seek greater leverage in the decision-making process
of major international organizations.
Independently, each BRICS
member plays an eminent role in the relevant regional economic and political
issues. For instance, China and Russia each made leading efforts in
coordinating nuclear talks with North Korea and Iran. Joining the World Trade
Organization in 2001 and 2012 respectively, China’s and Russia’s contribution
to settling challenges faced by the Asian economy grew significantly as the two
countries take more open-economy practices at macroeconomic level. In addition,
the Brazilians are instrumental in UN’s peacekeeping missions in Haiti as well
as the international reactions to the 2009 Honduran coup d'état.[10]
Jointly, the BRICS group has a
common objective as to build a fairer world order by reforming current
international organizations and financial institutions. Diversified approaches
were taken among BRICS members to represent greater influence of the developing
world. The 2009 United Nations Climate Change Conference in Copenhagen
witnessed the formation of the BASIC (Brazil, South Africa, India and China)
grouping as the four potential superpowers worked together to negotiate with
the United States and other developed nations on the common minimum position
towards emission reductions and climate aid money to tackle climate change. The
IBSA (India, Brazil and South Africa) grouping, at the same time, aims at
promoting UN Security Council reform and galvanizing South-South cooperation at a higher
level through cooperation in the field of agriculture, trade, culture, science
and technology.
In
conclusion, as
their overall national power strengthens, the BRICS countries will invariably
possess the capacity to influence and benefit from the global affairs on issues
such as environmental protection, regional security crises, financial market
stability, etc. The rise of the BRICS nations coincides with the process of
globalization that presents brand new challenges to the international
community, e.g. climate change, financial crises, conflicts in Syria, etc. As
major stakeholders, it is for the BRICS’ own good that they should take more
international responsibilities so as to secure their own global interests.
At the same time, many
spectators point out a lack of specific and unified position within the BRICS
as the declarations from BRICS summits consisted of only conceptual frameworks
and visionary outlooks. However, a clear and common goal that firmly connects
the BRICS countries together is their task to stimulate their domestic economies,
the process of which involves both infrastructure modernization and R&D
(research and development) investment. To fulfill this task requires close
intra-BRICS trade linkages that maximize comparative advantages as well as an
institutional financial instrument that makes funds available for development
projects. In the following chapter, the essay will closely examine the economic
impacts of the BRICS group on the global economy from two aspects, trade and
finance, and briefly analyze how their economic prowess as a whole will
influence the international economy in the foreseeable future.
Chapter
3 The Global Economic Impacts of the BRICS
The BRICS nations have been
engaged with one another for mutually beneficial endeavors in various economic
and financial areas. Intra-BRICS economic cooperation has been expanded
significantly over the past five years. In
2012, trade among BRICS members amounted to approximately 310 billion US
dollars and was 12 times of their total volume in 2002, while intra-BRICS trade
has increased substantially during the past 10 years. On the other hand, the
2012 BRICS Summit in Delhi put the creation of a new development bank on the
agenda, symbolizing the extension of BRICS economic links into the field of
global finance institutionally. The following two parts will address the
influence closer BRICS cooperation will have on international trade and
finance, and examine possible reactions the G8 nations as well as existing
international institutions will take towards the BRICS’s increasingly proactive
role in the global economy.
3.1
Trade: Intra-BRICS trade linkages and Potentials for Deeper Cooperation
"Three of the four BRIC countries have a BRIC counterpart as one of
their top trading partners," as Jim O'Neil of Goldman Sachs described
in his 2001 report, indicating the massive potential existing in intra-BRICS
trade. In general, the comparative advantage of each BRICS member can compliment
one another.[11]
For example, Brazil, Russia and South Africa are abundant in the commodity and energy
sectors, while China and India’s rigorous infrastructure development lead to
strong demand in these categories. India and China are reputed as the world
factory due to their low-priced labor costs, where Brazil, Russia and South
Africa are among the top 5 major trading partners of them. According to BRICS Joint Statistical publication, both
China and India dominate the manufacturing sectors with different trade
emphases. China profits mainly from mechanical and electrical products, high
and new technology products, as well as machine components. India has
comparative advantages in producing pharmaceutical products, telecom and
computer software products as well as apparels and textiles. In 2011, the
intra-BRICS trade volume was tantamount to US$ 230 billion. At BRICS Business
Forum 2012, industry leaders of the five nations agreed to double intra-BRICS
trade to at least US$ 500 billion by 2015.
According to BRICS: Trade Policies, Institutions and
Areas for Deepening Cooperation, the research report published by Prof
Sajal Mathur & Meghna Dasgupta at the Centre for WTO Studies in March 2013,
the possible areas for BRICS to enhance trade cooperation exist at both policy
and sector level. For policies, lower tariff rates and less import restrictions
should be implemented to a reasonable extent. Meanwhile, intellectual property
rights legislations as well as trade remedies such as anti-dumping measures
and countervailing subsidies should also be enforced. Besides, a uniformed intra-BRICS
quality management system should be adopted to standardize tradable goods and minimize the
side effects of technical barriers to trade (TBT) and sanitary and
phytosanitary measures (SPS).[12] The Delhi Declaration also
concluded the Master Agreement on Extending Credit Facility in Local Currency
under BRICS Interbank Cooperation Mechanism to facilitate intra-BRICS trade
financially. In addition, the Delhi Action Plan listed several new areas of
cooperation in trade, such as the energy sector, the service sector, health and
environmentally-friendly ventures as well as scientific and technological
exchanges,[13]
which would bring BRICS’ multilateral economic partnerships to a greater depth.
3.2
Finance: Projections of the possible outcomes of The BRICS Development Bank
The proposal for a BRICS Development
Bank (BDB) was approved during the Fifth BRICS Summit in Durban by its member
nations: Brazil, Russia, India, China, and South Africa. The BDB aims to create
a new paradigm to advance the reform of international financial institutions, to
reflect changes in the global economy, and to create conditions for a more just
world order. The BDB is supposed to serve as an alternative to
Western-dominated Bretton Woods institutions, particularly the World Bank and
the International Monetary Fund (IMF). Its functions would include: funding development
and infrastructure projects in developing countries; providing long-term
lending to countries in need during economic and financial crises; acting as a vehicle
for risk-sharing and issuing convertible debt bonds purchased by all member
nations’ central banks.
Thus far, leaders of the BRICS have
agreed on key initiatives for the BDB, including providing initial funding for
infrastructure projects in developing countries as well as co-financing for
sustainable development. A consensus has also been reached with regard to the
BDB’s capital structure, membership, shareholding, and governance. The BDB will
have an initial subscribed capital of US$50 billion, and member nations will
have equal voting power. The Contingent Reserve Arrangement (CRA), a foreign
currency reserve, will also be established to alleviate short-term liquidity
pressures and avert future financial crises. The fund will be managed by the
central banks of the member countries.[14]
The bank’s organizing principles, investment allocations, headquarters
location, and the nomination of executives are the technical details that
currently await consensus.
With the founding of the BDB, a new
model of economic diplomacy will be established. This new model can
significantly influence the BRICS nations, the global economy, and existing
international organizations. Based on this assumption, this part of the essay will
mainly focus on the possible impacts of the BDB on the abovementioned three
aspects.
3.2.1
Positions of BRICS nations
The BRICS nations represent a
considerable weight in the global economy. They account for 45% of the world’s
population, approximately 25% of the global GDP, and 40% of the world currency
reserves. The creation of the BDB further unifies the five emerging economies
through an independent financial institution, thereby establishing a model of
global cooperation between the developing economies through shared risks and
joint investment, which likewise facilitates intra-BRICS trade linkages and
democratization of BRICS financial institutions. Given their largely
diversified political and economic structures, BRICS members have their own
needs from the proposed bank, although they are able to obtain mutual benefits
by accomplishing shared goals.
3.2.1.1
Brazil, Russia, India, and South Africa
Brazil has recently attracted attention
because of its large oil reserves. In addition, it is also the host of the 2014
FIFA World Cup and 2016 Olympic Games. Given its current economic slowdown,
Brazil hopes that the BDB could generate infrastructure funding in the fields
that correspond to the country’s current hotspots, such as oil extraction
technologies, construction of sports facilities, and conservation projects in
the Amazon rainforest, to stimulate the Brazilian economy. The establishment of
the BDB would also reinforce Brazil’s financial cooperation with China, with
whom Brazil signed a currency swap agreement prior to the Durban Summit, and
strengthen economic links with African countries, which have resources that are
attractive to Brazil.
Having recently joined the World Trade
Organization (WTO), Russia is more devoted to the BRICS bloc in defense of
national interest and as a means to expand multilateral trade and further trade
links with BRICS states. Russia also hopes that the establishment of the BDB
could contribute to the mobilization of its foreign reserves and
diversification of Russia’s foreign investments.[15]
If established, maneuvering louder voices in the BDB would propel Russia to
promote government transparency and rule of law as well as to undertake
structural reforms to shift the economy from traditional sectors to modern and
high-tech industries.
India first raised
the idea of the BDB during the Fourth BRICS Summit, emphasizing that the
paramount developmental problem faced by emerging economies, including India,
is the deficiency of long-term financing and investment in capital stock. From
India’s perspective, the establishment of the BDB can therefore be the source
of such investments to compensate for the World Bank’s inefficiency in funding
infrastructure gap for developing countries. However, India is attempting to
dilute China’s influence on the BDB and is refuting the prevalent idea to
establish the bank in Shanghai. Instead, India is presenting itself as a more
suitable location for the bank given its democratic environment and growth
potentials.
South Africa is known as the gateway to
Africa. Its inclusion in the BRICS strengthened its global profile and
leveraged its leading position in the African Union. Thus, at the Fifth BRICS
Summit in Durban, South Africa expressed its enthusiasm to utilize its BRICS
membership to benefit the whole African continent by mobilizing its domestic
savings and woo investments for infrastructure and sustainable projects. Active
involvement in the BDB is also in line with South Africa’s foreign policy
initiative, which will strengthen economic relations with Southern African
states and promote African integration.
3.2.1.2
China
China’s dominance in the BDB is
inevitable in light of its overwhelming GDP, its position as one of the
countries with the largest foreign exchange reserves that are in need of
diversification, and its ascending role in global politics that no other member
nations so far could emulate. On one hand, the introduction of the BDB offers
China better security and liquidity as an alternative channel other than dollar
assets to manage its foreign exchange reserves. On the other hand, the bank may
replace the World Bank and IMF for China as the body with a greater decision-making
power to negotiate directly on infrastructure loans with recipient countries.
Thus far, China holds the largest share in the CRA, and Shanghai is considered
the most likely location for the BDB’s headquarters.[16]
Notwithstanding discontent from other members who seek a stronger presence, the
BDB, intentionally or unintentionally, would make China a major beneficiary,
which in turn would coincide with some of China’s foreign policy goals,
including RMB internationalization that aims to comprehensively reform the
economic structure.
First, with the establishment of a
pilot free trade zone, Shanghai is an even more suitable location for the head
office of the BDB and further allows the RMB internationalization scheme to
reach the BRICS market. With the floating exchange rate and interest rate
liberalization in the pilot zone, Shanghai successfully overcame obstacles to a
free global financial market. Moreover, given the large number of business and
financial organizations in Shanghai, the BDB would efficiently integrate into
and function well in the city’s globalized environment. China’s economic and
political stability as well as its high-ranking bank scale also ensure
Shanghai’s resistance to potential crises and risks that would threaten the
stability of the BDB.
Second, the RMB has a greater influence
on the global economy than any other currency in the BRICS group. At the
beginning of 2014, the RMB is allowed to float within a broader range (from
0.5% to 1%) so as to pave way for the financial reform the government is
determined to achieve. With RMB’s increasing global influence and its liberalization
toward the international financial market, the BDB may adopt RMB as the
official currency for transaction to retain the strength of the CRA and diversify
foreign exchange reserves from the dollar as the US’s rapid withdrawal from its
quantitative easing scheme will further fluctuate the dollar and intensify
instability within the BDB. Brazil and China have previously signed a currency
swap agreement to facilitate bilateral trade in 2013. Similar arrangements
could be extended to all BRICS nations. Consequently, the RMB would be the most
convertible and eligible to act as the official exchange currency that
facilitates the BDB’s transactions. If the RMB is adopted, the BDB will be a
pioneering, non-dollar-oriented organization outside the Bretton Woods system.
Thus, it can promote the national interests of the developing economies without
recourse to IMF voting power. For China, the RMB is also effectively
internationalized at an institutional level.[17]
From an international perspective,
China’s influence as the world’s second largest economy cannot be ignored. The
world could benefit from China’s greater responsibilities and leadership role
in a financial organization.
3.2.2
Influences on other regional economic powers
The BDB is unique from the Bretton
Woods system in that it is based on the principle of mutual benefits and
noninterference in internal affairs. Unlike other regional institutions (e.g., the
ECB) that aim to achieve economic integration, the BRICS is essentially a
political alliance that promotes the common goals of its members; such goals
include trade facilitation and foreign exchange reserve mobilization.[18]
The projected establishment of the BDB would thus impose foreign policy
indications on other countries and regional bodies, particularly on US-centered
allies and African countries.
The US’s
Trans-Pacific Partnership (TPP) initiative intends to control the international
trade regime by further liberalizing the Asia-Pacific economies and to restrain
the impacts of the emerging economies, particularly China and Russia. The US
hopes that this geographically comprehensive arrangement could further fortify
trans-Pacific political allies of the US and eventually persuade major
developing economies to join the TPP and accede to terms of accession that are
favorable to US interests. However, its effort to further expand TPP membership
to South American and Asian countries will possibly be derailed after the
establishment of the BDB. For nations that are currently under TPP negotiation,
such as Colombia, Indonesia, and India, being potential BDB fund recipients
would divert their attention from becoming TPP members. Closer economic
linkages and financial cooperation with BRICS members will encourage these
countries to sign free trade agreements within the BRICS framework instead. The
noninterference principle of the BRICS group allows these emerging economies to
facilitate trade without complying with higher intellectual property protection
and labor market standards established by developed countries.[19]
Stricter requirements in opening up financial sectors and fair competition
between state-owned and private companies are also avoided, thereby achieving
the same end with fewer expenses.
Africa is expected to be the major
destination of aid from the BDB, particularly from China, whose economic activities
in the continent has consistently increased over the past years. The Fifth
BRICS Summit in Durban has reached a consensus with regard to the BDB’s
co-financing target on Africa and sustainable development to promote an
integration agenda led by South Africa. The funding scope in Africa could vary
from education, infrastructure, and technology to research and development.
However, the BDB and African countries should adopt certain performance metrics
in evaluating the efficiency of investment strategies and supervising
implementation of related policies to ensure a successful outcome. A
“BRICS-from-below” meeting[20]
was held during the Durban Summit, accusing the BRICS of new imperialism in
Africa due to massive investments in raw material extraction, industrial
construction, and exports of manufactured products. This meeting, organized by
an African civil society, has offered notable indications for future
investments in Africa. From the BRICS perspective, donor countries should
ensure that the BDB investments in Africa are focused on the region’s
environmental protection and job creation, thereby boosting Africa’s growth in
terms of actual economic development rather than in terms of cash flow. From
the standpoint of Africa, effective utilization of BDB funding requires local
governments to exert effort to reinforce anti-corruption and transparency
policies, with corresponding economic reforms being initiated to accommodate
industrial modernization.
3.2.3
Influences on existing international organizations
Although considered a rival to the
World Bank and the IMF, the creation of the BDB lies in BRICS’ intention to represent
and fulfill the needs of the developing world, performing a complementary role
to existing Washington-based institutions.
The establishment of the BDB is the BRICS’
first step to institutionalize the bloc, thereby creating a platform for
consensus building at the United Nations (UN) or WTO on international issues
and trade rules. The UN expressed optimism toward the global investment
activities of the BRICS. According to Khalid Malik, development economist and
Director of the UNDP Human Development Report Office, the BDB as a novel
financial instrument is essential for the BRICS to utilize their foreign
reserves profitably, to create opportunities for developing countries to
promote growth, and to stabilize global finance. These aims are consistent with
the UN’s vision of an equal and prosperous world order.
Unlike other
multilateral development banks, the BDB encompasses a wide range of major
developing regions in the world: Africa, Asia, and South America. The World
Bank welcomes the BDB and is ready to assist the new bank in terms of financing
and governance. The World Bank’s close partnerships with regional development
banks, including the African Development Bank, the Asian Development Bank, and
the Inter-American Development Bank, where BRICS members are major
participants, may also link a matured BDB with these regional institutions to
issue joint projects. Meanwhile, the IMF is “following with great interest” the
BDB initiative. Affirming infrastructure funding and sustainable growth is “of direct
concern” to the IMF. As growing contributors that are unsatisfied with their
marginal role in IMF’s decision making, the BRICS’ step in creating their own
financial instrument would serve as a significant driving power in promoting
IMF reform of its activities, lending facilities, and governance.
3.2.4
The BDB’s Potential Impacts on the Global Economy
The BRICS bloc emerged in response to
the growing roles of developing countries in the global economy. The BDB is
expected to create a new model for regional development banks. It unifies
geographically diversified countries through joint investments and could
represent the diversified interests of the mass of the developing world. Its
equal voting structure could help address international issues that have been
overlooked by the Bretton Woods institutions and hence act as a potent
financial tool to enhance efficiency and transparency in international banking. Moreover,
the noninterference principle of the BDB would innovate the notion of
conditionality toward the evaluation of liability and policy making. Thus, the
successful establishment of the BDB is expected to redirect the world economy
onto a more positive trajectory and constitute a new pillar for global
financial stability.
Chapter 4 Conclusion
The BRIC notion, first as an
economic term for emerging markets and later as a global political alliance,
has become an investment hotspot over the past decade and has expanded into the
BRICS to represent emerging economies from a broader perspective. This thesis
therefore examines their impacts on the global economy from two aspects,
foreign policy and international economics, in an attempt to derive an overall
picture of BRICS’s international position nowadays.
In the realm of global affairs,
the BRICS countries each represent the major continents of the developing world,
whose emerging economic powers enabled them to have greater decision power and
stronger influence on international issues that affect the sustainability as
well as security of the global society as a whole. On the other hand, the BRICS
members are also actively making contributions to the international community
in the fields of environmental protection, economic development, regional
financial funding and nuclear security, etc. With boosted national strength and
economic competence, the BRICS countries are rigorously seeking for opportunities
on a global scale to further stimulate their domestic growth and promote the
general welfare of their people. The closer interactions within the BRICS group
are in line with each nation’s development objectives, and together the BRICS
countries could seek for greater impacts on the future of global governance.
From the economic perspective,
the BRICS countries have even broader common interests. Besides the increasing
intra-BRICS trade volume and burgeoning investments on inter-BRICS
infrastructure projects, the BRICS is seeking for deeper and institutional cooperation
to jointly increase their economic potential, which prompted them to establish
the BRICS Development Bank, a multi-regional development bank aimed at funding
for the developing world. At current stage, the bank is considered as a
would-be Bretton Woods alternative that gives greater voice to emerging markets
and developing nations in terms of international banking. However skeptical
this prediction remains, giants in the BRICS group, namely China and Russia,
will benefit from such a self-governed financial institution as they could
diversify the destination of foreign reserves and become less dependent on the
IMF and the World Bank. For Brazil, India and South Africa, they are most
likely to become the first batch of funding recipient of the BDB as soon as it
is officially created. The creation of the BDB marks an upper level of intra-BRICS
cooperation, which is both institutional and more sustainable.
To conclude, this
thesis first analyses the intra-BRICS cooperation in global affairs and
economic developments during the past decade, and provides an insight into the
future prospects of BRICS’s role in the global economy. Although many
economists following Jim’O’Neil has provided data analysis for this topic, a comprehensive
econometric model hasn’t been fully established to reflect the overall
situation of the BRICS economies. For future research on this topic, a dynamic
evaluation metric could be derived from current database to thoroughly examine
the political, financial and economic effects of BRICS activities before and
after the establishment of the BDB to reveal the future global impacts of the
BRICS economics quantitatively.
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