The BRICS, their bank and beyond

A strategic expert traces the origins of what brought Brazil, Russia, India, China and South Africa together and what the future holds for these emerging economies of the world.

Not too long ago, just about when the BRICS - Brazil, Russia, India, China, South Africa - group started with their first formal meetings and summits (the first of which took place in 2009),the standard line in leading Western publications was that this was an artificial construct, made up of disparate countries that had very little, if anything, in common, and that wouldn't last. Why do they even meet, it was said. Some of the member countries are democracies, some are not, it was argued. Some are emerging powers, others are declining ones, columnists wrote.

Particular animosity was reserved for Russia's membership. Why should Russia be a member of a group made up of some of the key rising powers of the Global South when it is very much a declining power (“a petrol station masquerading as a country”, in the memorable phrase of the late Senator John McCain), economically, demographically and politically, and is not even part of the Global South.

This takes us back to the very origins of “the acronym that defined the decade without a name”, i.e. the 2000s. As it happens, the initial acronym was coined by British banker Jim O'Neill in 2001, then at Goldman Sachs, and it was BRICs (it did not include South Africa then). It identified a number of countries with large territories, significant populations, natural resources and high (or potentially high) growth rates.

The name hit a chord. And in a decade book-ended in the North by 9/11 and by the financial crisis of 2008-2009, the rise of the two Asian giants ( China and India), growing at double digits, Brazil's boom under President Lula da Silva, and Russia's comeback from the depths of its post-Soviet crisis, soon meant that emerging markets were all the rage and the BRICs were placed front and center.

Yes, it is peculiar that an acronym concocted by a banker to sell bonds ends up creating its own reality. Such is the power of words (and acronyms) in today's world. But once this comes into being, it develops its own dynamic. With the debacle created by the Wall Street-induced Great Recession, the four original BRICs started to meet in 2009, and soon invited South Africa to join them, partly as a result of the IBSA Dialogue Forum, formed in 2003 by India, Brazil and South Africa.

Not content with dealing with their own development challenges, the BRICS created a variety of working groups and opined on various matters under the sun. After the Fourth BRICS Summit held in New Delhi in April of 2012, for example, the 50-paragraph-long communiqué addressed key questions on the international agenda, such as the crisis in Syria, the stand-off with Iran and the Israeli-Palestinian conflict. Needless to say, their perspective differed from the one dominant in the West, leading to denunciations of it as a mere talk shop, bent on pontificating about matters it had no mandate to do so.

Fast forward to the first half of 2016. At that point, the conventional wisdom in the leading international media and in academia was a grudging acceptance that, yes, the 2000s may have been the decade of the BRICS, of the emerging economies, but that their time had come and gone. The BRICS were as passé as yesterday's baguette, we were told. The illusion of the “rise of the rest” had been as artificial as the coinage of their very acronym. By mid-2016, eight years after the financial crisis, it was the serious countries, meaning the North Atlantic powers, the representatives of Anglo- Saxon capitalism, i.e., the United States and the United Kingdom, that were back in charge of global economic governance. These were the countries conversant in the management of international affairs, not the parvenus from the Global South, countries unaware of how to deal with the serious business of running the world. Amazingly, the G7, that small group of North Atlantic countries plus Japan, was heralded as enjoying a comeback, and hailed as a much more cozy, comfortable and like-minded group than that strange concoction gestated by the financial crisis, the unwieldy and much-too-large G20.

Well, that was then, this is now. We know how that fairytale ended. The liberal international order that lasted for 70 years is now coming to an end, dismantled by the very countries which created it. The European Union, the Paris Climate Accords, the World Trade Organization and the Trans Pacific Partnership have all been shattered by the withdrawals or threats to do so by those so-called serious countries, that are ripping apart the very gods they venerated for more than half a century: a rules-based order, multilateralism, the rule of international law and international collaboration on public goods.

And, needless to say, it is the emerging powers, most prominently China and India, that have stepped up to the plate in defense of globalization. It is not by happenstance that the keynote addresses on that very subject at the World Economic Forum in Davos on 2017 and in 2018 were given, respectively, by President Xi Jinping and by Prime Minister Narendra Modi.

Moreover, in these years, the BRICS, under the leadership of both China and India, has left behind its “talk-shop” phase, and started its “institution-building” one. Exhibit A of that is the New Development Bank (the so-called “BRICS bank”), established in 2015 in Shanghai with a capital of $50 billion. Led by Indian banker K.V. Kamath, by late 2018 it had a staff of 120, and had opened an Africa Regional Center in Johannesburg. It also hit the ground running. By late 2017, it met its target of $2.5 billion dollars in loans, a figure that went up to 5.7 billion by late 2018, and aims to reach between 10 and 15 billion dollars by 2021. Renewable energy is a key focus.

As 'The Economist' has pointed out, this means the NDB has made more loans than its sister institution, the Beijing-based Asian Investment and Infrastructure Bank (AIIB), with which it is often compared, and which has twice the paid-up capital. The NDB also been more adventurous, striking out on its own, and exploring the possibility of lending in local currencies.

Many of the concerns that were expressed when the NDB opened for business, that is, that it would be a politically-driven, non-professionally-run entity, set up for window-dressing by a diverse group of emerging economies with little in common and unable to agree on much, let alone on running a jointly-owned bank, have so far proven off-the-mark.

In fact, a recent study by Suchodolski and Demeulemeester published in 'Global Policy' argues that “out of all multilateral development banks created in the past decades , the NDB has the largest potential to catalyze changes in the Bretton Woods institutions and grow as an alternative to them”.

There is little doubt that the relationship between China and India has a strong competitive element, and that is unlikely to change. That said, as the BRICS grouping in general, and the NDB in particular, show, when the two Asian giants join forces, the sky is the limit in terms of what they can do. At a time when the forces of protectionism and isolationism hold sway in the North, for the countries of the Global South already finding themselves at the receiving end of their anti-globalisation and anti-free trade policies, this is not a minor matter. There is a lesson there, for all those who want to see it.

Jorge Heine is a Public Policy Fellow at the Woodrow Wilson International Center for Scholars in Washington DC. A former Chilean Cabinet minister, he has also served as ambassador to China, to India and to South Africa.