BRICS And The Global Economy Part II:Ideas


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.



[1] International Monetary Fund (IMF), "World Economic Outlook", http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?pr.x=91&pr.y=5&sy=2011&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&c=223%2C924%2C922%2C199%2C534&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC&grp=0&a=http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?pr.x=91&pr.y=5&sy=2011&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&c=223%2C924%2C922%2C199%2C534&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC&grp=0&a=
[2] Dominic Wilson, Kamakshya Trivedi, Stacy Carlson and José Ursúa. The BRICs 10 Years On: Halfway Through The Great Transformation, Goldman Sachs Global Economics Paper, No.208, December 2, 2011. Goldman Sachs Global Economics, Commodities and Strategy Research at https://360.gs.com
[3] W. Alejandro Sánchez & Amandha Lopes, Brazil’s Foreign Policy— putting the B in BRICS, Council On Hemispheric Affairs Policy Memo, #1, www.coha.org/wp-content/uploads/2013/05/COHA_Policy_Memo_1_Brazil_BRICS_April_2013_Sanchez_Lopes.pdf
[4] Approved by President of the Russian Federation V. Putin, Concept of the Foreign Policy of the Russian Federation, THE MINISTRY OF FOREIGN AFFAIRSOF THE RUSSIAN FEDERATION, 12 February 2013, http://www.mid.ru/brp_4.nsf/0/76389FEC168189ED44257B2E0039B16D
[5] Approved by Vladimir V. Putin, President of the Russian Federation, Concept of participation of the Russian Federation in BRICS, THE MINISTRY OF FOREIGN AFFAIRSOF THE RUSSIAN FEDERATION, 9 February 2013, http://www.mid.ru/brp_4.nsf/0/58404FEA180B30AD44257B35002871F3
[6] Edited by Avtar Singh Bhasin, India’s Foreign Relations – 2010 Documents, Ministry of External Affairs of India, https://www.mea.gov.in/Images/pdf/Indias_Foreign_Relations_2010.pdf
[7] Michael A. Glosny, “China and the BRICs: A Real (but Limited) Partnership in a Unipolar World”, Polity, Volume 42, Number 1 (January 2010), 101-110
[8] Jim O'Neill, The Growth Map: Economic Opportunity in the BRICs and Beyond, (Penguin, 2011), Chapter 3 BRICS by BRIC
[9] REPUBLIC OF SOUTH AFRICA COUNTRY STRATEGY PAPER 2013-2017, SOUTHERN AFRICA RESOURCE CENTER (SARC), November 2012 http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2013-2017%20-%20South%20Africa%20-%20Country%20Strategy%20Paper.pdf
[10]“Brazil and Peacekeeping: Policy, not Altruism,” The Economist, Sep 23, 2010, http://www.economist.com/node/17095626.
[11] Jim O'Neil, Building Better Global Economic BRICs, Goldman Sachs Global Economics Paper, No.66, November 30, 2001. Goldman Sachs Global Economics, Commodities and Strategy Research at https://360.gs.com
[12] BRICS: Trade Policies, Institutions and Areas for Deepening Cooperation, Centre for WTO Studies, http://wtocentre.iift.ac.in/FA/Brics.pdf
[13] BRICS New Delhi Summit 2012 Official Report, BRICS Research Group, http://www.safpi.org/sites/default/files/publications/BRICS-2012.pdf
[14] BRICS POLICY CENTER PAPER: V BRICS Summit Durban, BRICS Policy Center, http://bricspolicycenter.org/homolog/arquivos/PAVBRICS.pdf
[15] Approved by Vladimir V. Putin, President of the Russian Federation, Concept of participation of the Russian Federation in BRICS, THE MINISTRY OF FOREIGN AFFAIRSOF THE RUSSIAN FEDERATION, 9 February 2013, http://www.mid.ru/brp_4.nsf/0/58404FEA180B30AD44257B35002871F3
[16] Will the BRICS Development Bank settle in Shanghai? Financial Research Center, Fudan University,
http://fudan-uc.ucsd.edu/_files/201306_China_Watch_BRICS_Development_Bank.pdf
[17] Mao Changqing, Qin Peijing, RMB Internationalization: Steps and Opportunities, Research Department of CITIC Securities http://www.law.harvard.edu/programs/about/pifs/symposia/china/2013-china/1-cs-cdrf-sino--us-financial-seminar-rmb-internationalization-steps-and-opportunities-20130823.pdf
[18] Nkunde Mwase and Yongzheng Yang, BRICs’ Philosophies for Development Financing and Their Implications for LICs, IMF, http://www.imf.org/external/pubs/ft/wp/2012/wp1274.pdf
[19] Trans-Pacific Partnership Agreement and its implications to BRICS Countries, CUTS International, http://cuts-international.org/BRICS-TERN/ppt/Trans-Pacific_Partnership_Agreement_and_its_implications_to_BRICS.ppt
[20] BRICS-from-below,
http://ccs.ukzn.ac.za/files/brics-from-below%2015%20February%202013%20announcement.pdf

This entry was posted on Thursday, 17 April 2014 and is filed under ,,,,,,,,,,,,,,. You can follow any responses to this entry through the RSS 2.0. You can leave a response.

Leave a Reply