Caribbean Trade Law and Development

Tag: BRICS

  • BRICS Summit 2023: Expanded Development Options for the Global South

    BRICS Summit 2023: Expanded Development Options for the Global South

    By Tracia Leacock, PhD – Guest contributor

    The 15th BRICS Summit was convened from Tuesday, August 22 to Thursday, August 24, 2023, in Johannesburg, South Africa. The BRICS acronym represents the fact that the current grouping comprises the five nations of Brazil, Russia, India, China, and South Africa, among the world’s largest and fastest growing emerging markets and developing countries, across continents. BRICS aims to serve as a platform for the voices and interests of the Global South.

    As of 2022, the current five BRICS nations accounted for approximately 25 percent of global GDP (but 31.5 percent in terms of purchasing power parity (PPP), already surpassing the G7’s 30 percent), nearly 20 percent of global trade, 42 percent of the entire global population, and 26 percent of the world’s landmass. Intra-BRICS trade in 2022 topped $762 billion.

    All five BRICS nations were represented at the leaders’ discussions by their heads of state (Russia’s President, Vladimir Putin, attended via videoconference, with Foreign Minister Sergey Lavrov leading the in-person delegation).

    This year’s gathering garnered the most media attention of any BRICS summit and was the most heavily attended. South Africa’s President, Cyril Ramaphosa, invited the leaders of all 54 African states, as well as of 15 other Global South nations, in addition to representatives of major international organisations and regional groupings, including the United Nations and the G77+China (which presently includes 134 developing nations, and was represented by Cuba’s President, Miguel Díaz-Canel Bermúdez). 

    During this highly anticipated BRICS summit, member states deliberated on various global affairs issues. Some salient points are as follows[1]:

    Clarification about what BRICS represents

    BRICS leaders emphasised that, contrary to rumours in some pre-summit news coverage, the group is not aiming to challenge the West.

    Brazil’s President Lula da Silva said, “We do not want to be a counterpoint to the G7, G20 or the United States.” “We just want to organise ourselves.” India’s Prime Minister Narendra Modi called on BRICS to be “the voice of the Global South.” Chinese President Xi Jinping also rejected “bloc confrontation,” insisting that “hegemonism is not in China’s DNA,” and called on BRICS to build a more just and equitable international order.

    Reform of global financial institutions

    “…We require a fundamental reform of the global financial institutions so that they can be more agile and responsive to the challenges facing developing economies…,” Ramaphosa told the summit’s Business Forum on Tuesday, August 22.[2] He lauded the achievements made by the New Development Bank (NDB). Known as the BRICS bank, NDB was established by the group in 2015 as an alternative to traditional Multilateral Development Banks (MDBs) such as the IMF and the World Bank.

    In an August 22 interview with Financial Times (FT), Dilma Rousseff, former President of Brazil, and now President of the Shanghai-based NDB, stated that the bank, which already makes loans in China’s renminbi (yuan) currency, would also lend in the national currencies of other BRICS states: Brazilian real, Indian rupee, and South African rand.[3]

    Per FT:

    Rousseff said lending in local currency would allow borrowers in member countries to avoid exchange rate risk and variations in US interest rates. “Local currencies are not alternatives to the dollar,” she said. “They’re alternatives to a system. So far the system has been unipolar…it’s going to be substituted by a more multipolar system.”

    The Brics bank has also tried to distinguish itself from the World Bank and IMF by not setting lists of political conditions on loans. “We repudiate any kind of conditionality,” Rousseff said. “Often a loan is given upon the condition that certain policies are carried out. We don’t do that. We respect the policies of each country.”[4]

    NDB aims to issue 30 percent of its loans in local currencies by 2026, and 40 percent of funding is allocated to climate change mitigation and adaptation, including energy transition.

    Global governance reform

    In his plenary address, Ramaphosa said: “The world is changing. New economic, political, social and technological realities call for greater cooperation between nations. These realities call for a fundamental reform of the institutions of global governance so that they may be more representative and better able to respond to the challenges that confront humanity.”

    Point 7 of the summit’s final communiqué also calls for “a comprehensive reform of the UN, including its Security Council, with a view to making it more democratic, representative, effective and efficient, and to increase the representation of developing countries.…”

    Point 8 supports “the open, transparent, fair, predictable, inclusive, equitable, non-discriminatory and rules-based multilateral trading system with the World Trade Organisation (WTO) at its core, with special and differential treatment (S&DT) for developing countries, including Least Developed Countries.”

    Sustainable development goals (SDGs) and climate mitigation

    UNCTAD Secretary General, Rebeca Grynspan, in an interview with Xinhua news service ahead of the BRICS summit, called for a more inclusive multilateral system, naming China’s Belt and Road Initiative (BRI) as an example for cooperation on sustainable development.

    “We need the voice of the South in revitalizing the sustainable development goals as the only real commitment for solidarity and collective action at the global level,” said Grynspan. “All the BRICS countries are also in the G20. We want to make multilateralism more vibrant, more inclusive, and to help build a more multilateral world even in a moment of more multipolarity.” “It’s important to have another platform that represents the perspective of the developing world and the need for development and more opportunities.”[5]

    South African President Ramaphosa said that “…BRICS nations need to advance the interests of the global south and call for industrialised countries to honour their commitments to support climate actions by developing economic progress….”

    Options for global trade currencies and payment settlement systems

    At a BRICS summit plenary session Putin said, “…we see a need in increasing the role of our states in the international monetary and financial system, the development of interbank cooperation, the expansion of the use of national currencies and the deepening of cooperation between tax, customs, and antimonopoly authorities.”

    Pointing out that “Global economic recovery relies on predictable global payment systems and the smooth operation of banking, supply chains, trade, tourism and financial flows,” Ramaphosa also added that BRICS “will continue discussions on practical measures to facilitate trade and investment flows through the increased use of local currencies.”

    At present, BRICS members China and Brazil conduct their $170 billion of trade in their national currencies. China and Russia also settle 80 percent of their $190 billion trade in renminbi (yuan) and ruble using China’s CIPS and Russia’s SPFS payments settlement systems. Other nations settling part of their trade in yuan include Bolivia and Argentina, which recently also used yuan for an IMF loan payment. India offers rupee accounts with a growing number of trade partners, including Guyana.

    Additionally, each of the current five BRICS nations is piloting or trialling its own Central Bank Digital Currency (CBDC), a concept invented and pioneered on the Caribbean island of Barbados.

    Anil Sooklal, South Africa’s BRICS Sherpa said, “What we are talking about is creating more financial inclusion in terms of global financial transactions, global financial trade and how we conduct our payment.”

    The group indicated that complex discussions about a common trade currency are ongoing and would be explored at next year’s summit. Currency deliberations were led by Standard Bank Group CEO Sim Tshabalala, who indicated that the BRICS Business Forum gave noteworthy consideration to Afreximbank’s Pan-African Payment and Settlement System (PAPSS) for cross-border payments within Africa.[6]

    Reuters also reported that “South Africa’s finance minister said on Thursday that the BRICS grouping would not be looking to replace international payment systems including SWIFT, but rather consider creating one that would strengthen trade in local currencies.”[7]

    Such a BRICS platform would hold potential for “networking the networks,” i.e., serving as an umbrella mechanism interconnecting geographically dispersed “satellite” national, regional, and coalitional payment systems.  

    Expansion of BRICS grouping to incorporate more Global South nations

    In 2022 BRICS announced that it would consider accepting new members, and in the lead-up to this year’s summit, over 40 nations expressed interest in joining, with 22 nations submitting formal applications and another 20 making informal enquiries.

    At the end of the summit, current BRICS members announced that they have invited six nations, Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE), to become full members of BRICS effective January 1, 2024.

    By including three OPEC nations (Saudi Arabia, UAE, and Iran), BRICS membership will now count six of the world’s top 10 oil producing nations (with almost 50 percent of both global oil production and reserves), and at least four of the world’s top 10 gas producing nations (in total, seven of the top 20) in its fold. By including Argentina, the group now has three of the top five lithium producing countries (Brazil and China being the other two). Recently, Iran also has discovered vast lithium deposits, potentially the world’s second largest reserves. In addition, BRICS includes four of the top five agricultural producing countries (now seven of the top 20). This expanded BRICS group includes seven of the G20 nations, thereby solidifying the input of the Global South.[8]

    South Africa’s Minister of Finance, Enoch Godongwana, has indicated that this is just the first phase of admission of new members. BRICS leaders already have embarked on a second round of discussions, seeking consensus on additional member nations.[9] More countries are still in the queue to join BRICS, with Algeria, Bangladesh, Bolivia, Cuba, Indonesia, Kazakhstan, Kuwait, Thailand, Venezuela, and Vietnam among them. By next year’s summit, BRICS also aims to develop further guidelines for accepting prospective partner countries.

    Fortification and diversification of global supply chains

    In point 33 of the BRICS Summit 2023 final communiqué, the members state: “We encourage further cooperation among BRICS countries to enhance the interconnectivity of supply chains and payment systems to promote trade and investment flows.”

    A cursory glance at a map of the globe will suffice to demonstrate the impact of this new phase of BRICS member expansion on stabilising global supply chains and securing key maritime and overland trade routes. The following graphic from an article by Marcus Lu (and Bhabna Banerjee) is useful[10]:

    Russia–Ukraine conflict

    Addressing the open plenary session of the summit, Ramaphosa said, “BRICS has proven itself to be a credible entity that stands in solidarity and seeks to promote a more equitable global system. We thank you also for the efforts that are being made by a number of BRICS countries to bring about a peaceful end to the conflict between Ukraine and Russia…. We agree that… these types of conflicts are best brought to an end by negotiations…BRICS members will continue to be supportive of the various efforts to bring this conflict to an end through dialogue, mediation and negotiation.”

    Tracia Leacock, Ph.D. is an Independent Research and Content Consultant, with a keen interest in international relations. She may be contacted via Linkedin here.

    [1] The full joint statement for BRICS Summit 2023 is accessible at member states’ government websites. PDF link at South Africa presidency website, “XV BRICS Summit Johannesburg II Declaration,” August 23, 2023, https://www.thepresidency.gov.za/content/xv-brics-summit-johannesburg-ii-declaration-24-august-2023

    [2] In point 10 of the BRICS Summit 2023 final communiqué, the members state: “We call for reform of the Bretton Woods institutions, including for a greater role for emerging markets and developing countries, including in leadership positions in the Bretton Woods institutions, that reflect the role of EMDCs in the world economy.”

    [3] NDB lending in Russian ruble was suspended with the onset of the Russia–Ukraine conflict.

    [4] Michael Stott, Financial Times (FT), August 22, 2023, “Brics bank strives to reduce reliance on the dollar,” https://www.ft.com/content/1c5c6890-3698-4f5d-8290-91441573338a

    [5] Martina Fuchs, Xinhua, August 22, 2023, “Interview: UNCTAD chief urges ‘inclusive multilateral system’ ahead of BRICS summit,” https://english.news.cn/20230822/f8ed708a1c074b2b8f7f2d71bbd96f0a/c.html

    [6] Siphelele Dludla, DFA, August 23, 2023, “BRICS nations reach stalemate on potential common reserve currency,” https://www.dfa.co.za/opinion-and-features/brics-nations-reach-stalemate-on-potential-common-reserve-currency-2e19b006-2340-41a0-ac5a-05256b8befea/

    [7] Reuters, August 24, 2023, “BRICS payment system would not replace SWIFT—S. Africa finance minister,” https://www.reuters.com/world/africa/brics-payment-system-would-not-replace-swift-safrica-finance-minister-2023-08-24/

    [8] See Marcus Lu (and Bhabna Banerjee), Visual Capitalist, August 24, 2023, “Visualizing the BRICS expansion in 4 charts,” https://www.visualcapitalist.com/visualizing-the-brics-expansion-in-4-charts/, for a detailed overview of the impact of the BRICS expansion.

    [9] Nokukhanya Mntambo, Eyewitness News (EWN), August 26, 2023, “Algeria likely to be among second batch of countries to join BRICS—Godongwana,” https://ewn.co.za/2023/08/26/algeria-likely-to-be-among-second-batch-of-countries-to-join-brics-godongwana

    [10] Marcus Lu (and Bhabna Banerjee), Visual Capitalist, August 24, 2023, “Visualizing the BRICS expansion in 4 charts,” https://www.visualcapitalist.com/visualizing-the-brics-expansion-in-4-charts/

  • BRICS Summit 2016: Five Key Trade Takeaways

    BRICS Summit 2016: Five Key Trade Takeaways

    Alicia Nicholls

    The BRICS grouping, comprising of the emerging economies of Brazil, Russia, India, China and South Africa, held its 8th Summit in Goa, India under the theme “Building Responsive, Inclusive and Collective Solutions” October, 15-16, 2016. India currently holds the chairmanship of the five-nation grouping.

    Here are the main trade takeaways from the Summit:

    1. Support for the WTO-based Multilateral Trading System

    The BRICS leaders have reiterated their support for the rules-based multilateral trading system and the World Trade Organisation’s centrality. Leaders noted the increased spaghetti bowl of bilateral, regional and plurilateral trade agreements and advocated that these agreements should be complementary to the multilateral trading system. According to the Goa Declaration, BRICS leaders also encouraged parties to ” align their work in consolidating the multilateral trading system under the WTO in accordance with the principles of transparency, inclusiveness, and compatibility with the WTO rules.”

    2. Continued support of Doha Development Agenda

    Contrary to the G20 Statement where the Doha Development Agenda was essentially scrubbed from the trade vocabulary, BRICS leaders reiterated their support for advancing negotiations in the DDA, reflecting the sharply divided opinion on the future of Doha  which was demonstrated in the Nairobi Ministerial Statement. They also emphasised the importance of implementing the decisions taken at the Bali and Nairobi Ministerial Conferences and urged all WTO members to work together to ensure a strong development oriented outcome for MC11 and beyond.

    3. Promoting BRICS Economic Cooperation

    The BRICS leaders praised progress made so far on the implementation of the Strategy for BRICS Economic Partnership and emphasised the importance of the BRICS Roadmap for Trade, Economic and Investment Cooperation until 2020.

    4. Improving intra-BRICS Customs Cooperation

    The BRICS leaders commended the establishment of the Customs Cooperation Committee of BRICS and the signing of the Regulations on Customs Cooperation Committee of the BRICS in line with the undertaking in the Strategy for BRICS Economic Partnership to strengthen interaction among Customs Administrations.

    5. Double intra-BRICS trade by 2020

    In his plenary address, India’s Prime Minister Narendra Modi called on fellow BRICS leaders to double the value of intra-BRICS trade to $500 billion by  2020. According to Prime Minister Modi, intra-BRICS trade was $250 billion in 2015. He further noted that this target would require “businesses and industry in all five countries to scale up their engagement” and “for governments to facilitate this process to the fullest”.

    The full text of the Goa Statement may be accessed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • IMF’s 2010 Reforms finally come into effect

    Alicia Nicholls

    After five long years of waiting, the 2010 reforms of the International Monetary Fund (IMF), which aim to modernise and democratise the IMF’s quota and governance system by giving greater voice to emerging economies, have finally come into effect on January 27, 2016.

    The voting rights, access to financing and subscriptions of the 188 country members of the IMF, one of the guardians of the international monetary system, are largely based on their quotas which are in term based on their wealth. Therefore, while a small IMF member country like Barbados has only 1,442 votes (or 0.06% of total voting power), the largest IMF member, the United States of America, has 421,991 votes (or 16.11 of total voting power).

    The IMF’s Board of Governors, its highest decision-making body, periodically conducts a general review of members’ quotas. However, since the IMF’s creation in 1945 as part of the Brettons Woods system, its quota and governance system have been stuck in time; the alignment of quotas and governance structure were reflective of the historic economic might of the US, advanced European economies and Japan, and does not take into account emerging economies’ growing share of the global economy in the last two decades. Take for example the fact that the United Kingdom had more voting rights than China!

    In recognition of their under-representation in the quota allocations, emerging economies have been pushing for years for reform of the IMF’s governance and quota system to take into account their importance in the shifting global economy landscape. Following the 14th General Quota Review in 2010, the IMF’s membership agreed to a sweeping and historic reform package aimed at giving a greater voice and say to emerging economies. A major hurdle to implementation was the delay in US ratification of the reforms.

    Last year the G20 in its communique echoed India’s disappointment with the delay in the implementation of the reforms. Additionally, in the IMF’s Executive Board’s report to the Board of Governors adopted on January 29, 2016, the Board noted that it had been unable to complete its work on the scheduled Fifteenth Review by the deadline of December 15, 2015 due to the delay in the implementation of the 2010 reforms. Frustration by the BRICs with the delays and their desire for closer cooperation amongst themselves led them to create an alternative multilateral development bank, the New Development Bank, in 2014 with its headquarters in Shanghai

    Finally, at long last the 2010 reforms are  in effect. Building on reforms undertaken in 2008 and entered into effect in 2011, the major highlights from the 2010 reform package are the shift of 6 percent of quota shares from developed to dynamic emerging market and developing countries (leading to increased voting rights for emerging economies), a re-alignment of the quota shares which will result in China becoming the third largest IMF member and Brazil, Russia and India being included among the top 10 members.

    A landmark change as well is the reform of the IMF’s 24-member Executive Board to make it an entirely elected body. Previously, a portion of the directors was elected and five were appointed by the members with the five largest quotas.

    The reforms also double members’ quotas which will increase the IMF’s funding, but preserves the quota and voting shares of the poorest members.

    Outside of these reforms but still of interest, in December 2015 the renminbi became the fifth currency to be included in the IMF’s Special Drawing rights basket. The four other currencies are the U.S. dollar, the Euro, the Japanese yen, and the British pound.

    The 2010 reforms are a praiseworthy start in a thrust towards a modernised, and what we would hope will one day be, a more democratic IMF. It is hoped that the reform work which is expected to continue under the Fifteenth Review will build on these reforms and will not face a similarly long delay in implementation once agreed.

    The full press release from the IMF on the 2010 reforms may be accessed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.