Saturday, November 22, 2014

Crumbling BRICS

NEW DELHI – In 2001, when Jim O’Neill of Goldman Sachs coined the acronym BRIC to refer to Brazil, Russia, India, and China, the world had high hopes for the four emerging economies, whose combined GDP was expected to reach $128.4 trillion by 2050, dwarfing America’s projected GDP of $38.5 trillion. When the four countries’ leaders gather on March 26 in South Africa – which joined their ranks in 2010 – for the fifth BRICS summit, their progress and potential will be reassessed.

The summit’s hosts have set ambitious goals, reflected in the summit’s theme: “BRICS and Africa – a partnership for development, integration, and industrialization.” They seek to advance national interests, further the African agenda, and realign the world’s financial, political, and trade architecture – an agenda that encompasses objectives from previous summits, while reflecting South Africa’s goal of harnessing its membership to benefit all of Africa.

But, while strengthening ties with African countries might seem like the kind of pragmatic development issue that should bring consensus, the seeds of doubt are already being sown. Lamido Sanusi, the governor of Nigeria’s central bank, has called for Africans to recognize that “their romance with China” has helped to bring about “a new form of imperialism.”

Moreover, the central item on the summit’s agenda, a proposed “BRICS development bank,” is one that has gone nowhere at previous summits. This time, armed with a “feasibility study” put together by the five BRICS finance ministers, some progress may at last be made. With trade, both among the BRICS countries and between the BRICS and the rest of Africa, expected to increase from roughly $340 billion in 2012 to more than $500 billion in 2015, there is also much to discuss on the commercial front.

So far, the goal of “global realignment” away from the advanced countries has catalyzed these five very disparate countries’ efforts to forge their own bloc. But the primacy given to “advancing national interests” has always precluded real concerted action, at least until now.

This is why the idea of establishing a BRICS development bank has taken on such importance. And the recently conducted feasibility study might spur long-awaited progress. But toward what end?

According to China’s official news agency, the development bank’s primary objective would be “to direct development in a manner that reflects the BRICS’ priorities and competencies.” Once the bank is established, a working group will be tasked with building the necessary technical and governance capacity. But this stock rhetoric fails to address the discrepancies between the BRICS’ interests, or to define the bank’s role in reconciling and advancing them.

The fact that China is already Africa’s top trading partner, for example, invites questions about the proposed bank’s potential contributions. And China’s answer – that the bank would foster the “development of more robust and inter-dependent ties between the BRICS” – provides little substance. Is the bank supposed to serve as a counterweight to global multilateral development banks like the World Bank, or to reduce American and European dominance over the Bretton Woods institutions?

Whatever the underlying objective, it must be identified, and its concomitant risks addressed, if the BRICS are to make genuine progress. For example, if the proposed bank is simply an additional funding institution aimed at supporting the BRICS’s development agenda, the participating countries’ leaders must establish how it will interact with national institutions, such as the Brazilian Development Bank, the China Development Bank, and the Export-Import Bank of India.

But the problem of aligning the BRICS’ interests is a much deeper one. Consider India’s need for massive investments in infrastructure, made evident in its just-proposed 2013-2014 budget. Some hopeful Indians see a BRICS bank as a way to channel China’s surplus funds – as well as its expertise and experience – to such investments (especially railways), as well as to strengthen Sino-Indian ties. But, given the two countries’ many serious bilateral problems, will either government really want to bind itself so closely to the other?

Likewise, it is unclear what South Africa has to gain from the BRICS. Over the last few decades, the country has used mining revenues to pave roads, strengthen law enforcement, advance education, and revitalize cities and towns. The country’s most serious remaining problems – poverty and social inequality – are unlikely to be ameliorated through cooperation with the other BRICS countries, all of which rank among the world’s most unequal societies.

Other shared problems – such as corruption, poverty, and social underdevelopment – would be similarly difficult to address together. And it seems that the BRICS may not even be willing to try. Although Wen Jiabao, in his final address as Prime Minister, highlighted the enduring obstacles to China’s economic development (many of which its fellow BRICS share), China’s new president, Xi Jinping, insists that his country will not sacrifice its “sovereignty, security, or development interests” for the sake of more trade.

Meanwhile, Russia’s impaired democracy and resource-driven economy are a poor example for its fellow BRICS – and, in fact, could serve as a warning to the others about the risks of excessive reliance on the state. And Brazil, like India a genuine democracy, also seems sui generis. Despite the commodities boom of the last decade, its industrial output relative to GDP is no higher than it was when the effort to create a BRICS bloc began.

The BRICS’ ambitions – and the world’s expectations for them – may yet be fulfilled. But shared potential does not translate into collaborative action. On the contrary, each of the BRICS will have to pursue its goals, and confront its challenges, individually.

Read more from our "Falling BRICS?" Focal Point.

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    1. CommentedTheetharappan Aswin

      The dollar has to removed from world trading currency and Pound has to be made has currency for trading.Because the rate of dollars with many currency of many countries is falling down. So Bric nations should united stand aginst dollar

    2. CommentedNS Prashanth

      Africa's romance with China being a "new form of imperialism" is not very different from the role of many Indian companies either. Perhaps, India-China engagement with Africa are both of the same colour, save for the fact that China has gone longer down the same road, with India (hoping to) catch up its seems. Large-scale land acquisitions by Indian rich in Ethiopia are for example a case in point.

    3. CommentedEdward Ponderer

      For all its own problems, the United States at least has an ability to act which Europe terribly lacks, ever more so the BRICS. The reason is its constitution formulated after the catastrophe of its original Article of Confederation. The states were very much concerned to keep their independent powers and so allowed only a weak federal government over themselves -- leading to the problems Europe now has, and the BRICS, etc. So as a primary step, there would require at least enough "camaraderie" between the peoples forming such groups to allow a dominant overall power to rule over their international affairs, while not being ruled over unfairly by any internal individual state, or clique of states.

      But of course, America to has its great political woes. In truth, something much deeper -- more organic -- has to develop. This is a true bonding of mutual responsibility -- each state putting the interests of the conglomerate and fair distribution ahead of its own personal advantage. But of course, this problem has just been transferred to the higher scale of conglomerates of states.

      It will only when this ideal is approached at at global level that a balance can be found that will finally promise stability and shared prosperity.

    4. CommentedCher Calusa

      Yes, I see Zsolt Hermann's point. Furthermore, if we examine the basis of any nation state's existence, supremacy of that particular nation state and it's ability to thrive is the very reason it exists. It's clear that until each nation has at it's core, the same overall premise for existing, there will be no real progress. There are just too many agendas and seemingly these cannot be combined into anything coherent.At this point in our history we as humans assembled into nations should adopt a new motivation for existing such as to further the development of mankind general. In this way each nation could contribute it's unique resources, talents and ideas toward a common goal.ostensibly, the ability of mankind as a species to not only survive but thrive.

    5. CommentedZsolt Hermann

      These two paragraphs of the article basically give the answers to the questions posed:

      "...The BRICS’ ambitions – and the world’s expectations for them – may yet be fulfilled. But shared potential does not translate into collaborative action. On the contrary, each of the BRICS will have to pursue its goals, and confront its challenges, individually....
      ...So far, the goal of “global realignment” away from the advanced countries has catalyzed these five very disparate countries’ efforts to forge their own bloc. But the primacy given to “advancing national interests” has always precluded real concerted action, at least until now..."

      Everybody keeps on talking about global world, global realignment, but at the same time everybody wants to "cooperate, realign" as long as it is good for their own individual and national interests.
      We see the same pattern in Europe, and if there where the countries within the Eurozone are much closer, more similar than the BRICS it did not work and is falling apart, how would it work in the case of these 5 vastly different countries, where apart from wanting to be richer and to become world powers, they have nothing in common?
      No cooperation, union, alignment can work until we understand what a global, interconnected and interdependent system really means.
      In such a system self calculations cannot work, agreements based on temporary mutual benefits cannot last.
      In our new world system only truly mutual cooperation can work, when the priority is placed on the benefit of the whole, and action is made mutually complementing each other instead of competition.
      We can learn or understand this either by continuing and worsening crisis, failure after failure, possibly even through wars, or by a world-wide, global education program, positively adjusting people's perception about the world and their interrelations with each other.
      After all economics is simply the external expression of how people relate to each other.

    6. CommentedFelipe Filomeno

      One of the ways of rhetorically making something a failure is to set very high expectations for it and, therefore, make every achievement look dismal. This is what most of the big press and conservative thinking have been doing with BRICS. The very existence of joint plans and regular conversations between BRICS is already an achievement in a world that historically has been dominated by countries of the North. Any step forward in the collaboration between BRICS is already meaningful towards the construction of a more democratic world order.

    7. CommentedMichael Mathres

      I agree with Mr. Singh's assessment of the BRICS collaboration challenges, and perhaps their future propensity to meet their social and economical goals individually. However, I'm not sure the title reflects this article. BRICS are not crumbling, and in fact are still keeping a lot of developing economies' head above water.

      Also, I nothing was mentioned about their collaboration or the similar parameters they use to meet their environmental objectives. BRICS' sustainable and prosperous green growth is as important as their trade.

    8. CommentedFrank O'Callaghan

      China will keep her resource hunger. India will develop the same needs. They will be competitors for resources and markets. There are few bi-national or transnational entities that connect them in the way former European competitors are connected. This is ominous.