BRICS: What’s all the fuss about?

Analysis
Insights

As the loose association of developing nations prepares to welcome new members, we look at how emerging relationships could shape the future.

Share

August 31, 2023

Kelly Bogdanova
Vice President, Portfolio Analyst
Portfolio Advisory Group – U.S.

Multinational summits have become commonplace, but the recent annual meeting of BRICS nations drew significant attention. In the U.S. and other Western countries, the assessments we saw from business and mainstream publications and foreign policy think tanks mostly ranged from dismissive to critical, or even mocking. They largely missed the mark, in our view.

There continues to be a lot of misunderstanding about what BRICS is (an association of countries that want a bigger say in global affairs, as well as deeper trade and strategic ties among themselves), and especially about what BRICS is not (a formal bloc like the G7, NATO, or AUKUS that is directly confronting rival nations).

There is also confusion about what BRICS is aiming for: the reform of international institutions like the UN Security Council, the International Monetary Fund, and the World Bank, all of which have been dominated by Western developed countries since the end of World War II and the establishment of the Bretton Woods monetary system.

And there’s not a lot of context about what all of this has to do with the geopolitical and geo-economic shifts that are taking place – changes that are the most consequential since the Cold War ended, in our assessment.

Join the club

The already eclectic group of BRICS countries is becoming even more so. The five BRICS members – the acronym stands for Brazil, Russia, India, China, and South Africa – have extended membership invitations to six others: Saudi Arabia, the United Arab Emirates, Iran, Egypt, Ethiopia, and Argentina.

The addition of four Middle Eastern countries to the BRICS club may underscore that U.S. influence in the region is waning. Countries that once viewed the U.S. as their principal ally, such as Saudi Arabia and the UAE, no longer see the world through this prism, according to Middle East expert Helima Croft, who is RBC Capital Markets, LLC’s Global Head of Commodity Strategy. Rather, these countries view the U.S. as one of a handful of important partners that they will work with.

All four of the Middle Eastern countries already have active, constructive relations with China, Russia, and India that have been strengthening for years.

BRICS membership is an effective way for Saudi Arabia, the UAE, and Egypt to sit on multiple chairs, rather than just being seated with the U.S. and other Western countries, in our view. It’s not that the invitees are casting aside their relationships with the U.S. and the West; rather, they regard their decisions to join BRICS as formalising their already strong and deepening ties with other powers.

Their interest in BRICS is also a subtle (or maybe not-so-subtle) message to Western powers that unilateral economic sanctions, asset freezes, and asset confiscations – like the ones imposed on Russia following its military intervention in Ukraine – are harmful to the global economy and supply chain system.

All BRICS countries oppose such unilateral measures and are unwilling to impose them on each other. The six countries that received invitations have agreed to this, according to Russia’s Ministry of Foreign Affairs. It’s interesting that this is one of the few criteria for BRICS membership.

The Middle Eastern and African countries seem all but certain to accept BRICS membership, in our view, because it affords them additional economic and trade opportunities, along with geopolitical and strategic leverage. New memberships will become effective on Jan. 1, 2024.

Argentina is more of a wild card, with its decision dependent on the outcome of its forthcoming presidential election in October; two of the leading candidates have indicated they do not want to join BRICS.

Over the course of the next year, BRICS countries have stated that they will seek to develop mechanisms to expand trade in local currencies and to work around the Western-based SWIFT electronics payments system. The association’s New Development Bank will increase its efforts to provide and raise capital for infrastructure projects.

In 2024, we expect the expanded BRICS group to offer additional countries full memberships and/or to develop a partnership framework, perhaps structured along the lines of the like-minded Shanghai Cooperation Organisation (SCO).

BRICS countries represent three of the top five and four of the top 10 largest economies

Gross Domestic Product in 2022 on a purchasing power parity basis

Ranking Economy GDP (millions of international dollars)*
1 China 30,327,320
2 United States 25,462,700
3 India 11,874,583
4 Japan 5,702,287
5 Russia 5,326,855
6 Germany 5,309,606
7 Indonesia 4,036,901
8 Brazil 3,837,261
9 France 3,769,924
10 United Kingdom 3,656,809
11 Türkiye 3,180,984
12 Italy 3,052,609
13 Mexico 2,742,903
14 South Korea 2,585,011
15 Canada 2,273,489
16 Spain 2,181,968
17 Saudi Arabia 2,150,487
18 Egypt 1,674,951
19 Australia 1,626,940
20 Poland 1,625,236
21 Iran 1,600,556
22 Pakistan 1,518,043
23 Thailand 1,482,098
24 Vietnam 1,321,256
25 Nigeria 1,280,716
  • BRICS current and prospective members

* International dollars represent the purchasing power equivalent of US$1 when comparing national economies.

Source – World Bank, RBC Wealth Management

The power of pragmatic policy

From our vantage point, the Western press and foreign policy think tanks have overplayed purported disagreements between China and India, and have distorted how both countries view BRICS, membership expansion, and their roles within the group.

Heading into the summit, many headlines blared that India opposed BRICS expansion. Yet the country’s Foreign Ministry and Prime Minister Narendra Modi flatly rejected this notion at the summit, and their actions in support of expanding the association backed up their statements.

Importantly, relations between China and India have scope to improve rather than deteriorate, in our view.

One week ahead of the BRICS summit, news broke that the Chinese and Indian military leaders had agreed to resolve their countries’ longstanding Himalayan border disputes in an “expeditious manner.” There have been military clashes along this roughly 3,400 km (2,100 mile) border five times since 1962, most recently in 2020.

Chinese President Xi Jinping and India’s Modi then held direct discussions during the BRICS summit that included talks about how to “intensify efforts” to resolve this border dispute.

Aside from BRICS expansion, the potential rapprochement between China and India was the biggest news to come out of the summit. A resolution of the border issue would be a significant geopolitical and geo-economic development – no less noteworthy than the recent rapprochement between Saudi Arabia and Iran.

It’s in both China’s and India’s interests to expand economic ties and improve neighborly relations. In 2022, China and India ranked first and third, respectively, in terms of GDP size on a purchasing power parity basis, according to the World Bank. Total trade between the two countries increased 444 percent between 2006 and 2022, from $25 billion to almost $136 billion annually. China is India’s largest goods trading partner.

Judging by the press coverage, Washington and some of its allies seem to fear that India could be drifting away – as if India shouldn’t have friendly relations with the West and at the same time maintain strong ties with other countries. The increasingly prevalent “us or them” mentality is misguided, in our view, especially from an economic perspective.

India’s foreign policy has been fiercely and proudly independent since British rule ended in 1947. Top Indian officials in successive administrations, including Modi’s, have clearly asserted the country seeks to maintain close ties with the U.S. and other Western partners, while at the same time deepening its relations with countries outside of the West’s immediate orbit – including some the U.S. views as rivals, or worse. India has followed this course for decades and won’t change it anytime soon, in our view.

Many developing countries that have constructive ties with the West seek to emulate India’s balanced approach to foreign and economic policy, hence their interest in BRICS and the SCO.

A more consensus-driven model

We think BRICS, rather than being the source of problems affecting the current geopolitical and geo-economic order, is a product of how that order is evolving. Developing countries’ growing economic importance, and their critical natural resources, give them the clout to demand a bigger say in global affairs going forward.

Most Western-led international institutions functionally have the U.S. at their head, either directly or on a de facto basis, and close allies of the U.S. typically follow its leadership.

But newer, non-Western groupings like BRICS and the SCO are much more consensus-driven – there is no single formal or even de facto head of these entities. Member nations agree and cooperate where it is beneficial, and they don’t get worked up over areas where they disagree, or exert pressure on one another. They leave room for multiple views on key topics. And they regard it as important to stay out of one another’s business when it makes sense to do so.

This loose, flexible structure affords developing countries the ability to assert their sovereignty, while at the same time allowing them to reap economic, trade, and geo-strategic benefits. These are key reasons we think a diverse group of developing countries are attracted to BRICS.

For more about BRICS and the dramatic changes taking place in the world economic order, see our report titled, “Worlds apart: Risks and opportunities as deglobalisation looms .”


This publication has been issued by RBC’s Wealth Management international division in the United Kingdom and the Channel Islands which is comprised of an international network of RBC® companies located in these jurisdictions and includes RBC Europe Limited and Royal Bank of Canada (Channel Islands) Limited. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by RBC’s Wealth Management international division.

This publication has been compiled from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgements as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, the value of investments and income arising can go down, future returns are not guaranteed, and an investor may not get back the amount originally invested. Countries throughout the world have their own laws regulating the types of securities and other investment products and services which may be offered to their residents, as well as the process for doing so. As a result, any securities or services discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.

This material is prepared for general circulation and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law none of the entities which comprise the international division of RBC Wealth Management nor any of their affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Wealth Management.

Clients of RBC Europe Limited may be entitled to compensation from the UK Financial Services Compensation Scheme (FSCS) if it cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. For further information about the compensation provided by the FSCS scheme (including the amounts covered and eligibility to claim) please refer to the FSCS website FSCS.org.uk. Please note only compensation related queries should be directed to the FSCS. Royal Bank of Canada (Channel Islands) Limited is not covered by the UK Financial Services Compensation Scheme.

RBC Europe Limited is registered in England and Wales with company number 995939. Its registered office is 100 Bishopsgate, London EC2N 4AA. RBC Europe Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Royal Bank of Canada (Channel Islands) Limited (“the Bank”) is regulated by the Jersey Financial Services Commission in the conduct of deposit taking, fund services and investment business in Jersey. The Bank’s general terms and conditions are updated from time to time and can be found at https://www.rbcwealthmanagement.com/en-eu/terms-and-conditions. Registered office: Gaspé House, 66-72 Esplanade, St. Helier, Jersey JE2 3QT, Channel Islands. Deposits made with Royal Bank of Canada (Channel Islands) Limited in Jersey are not covered by the UK Financial Services Compensation Scheme. Royal Bank of Canada (Channel Islands) Limited is a participant in the Jersey Bank Depositors Compensation Scheme. The Scheme offers protection for ‘eligible deposits’ up to £50,000 per individual claimant, subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the Government of Jersey’s website http://www.gov.je/dcs or on request.

Investment services offered by the Bank are not covered by an investor compensation scheme as there is currently no such scheme operating in Jersey, however ‘eligible deposits’ held pursuant to investment services may be protected under the Bank Depositors Compensation Scheme described above – for more information see the Bank’s general terms and conditions. Some of the products that the Bank might recommend to you could be registered overseas and may be covered by a local compensation scheme. Your investment counsellor will provide you with the details of any overseas compensation schemes (where applicable) at the time of making an investment recommendation.

Copies of the latest audited accounts are available upon request from the registered office.
® / ™ Trademark(s) of Royal Bank of Canada. Used under licence.


Kelly Bogdanova

Vice President, Portfolio Analyst
Portfolio Advisory Group – U.S.

Related articles

Worlds apart: Risks and opportunities as deglobalisation looms

Analysis 5 minute read
- Worlds apart: Risks and opportunities as deglobalisation looms

Video: The de-dollarisation dilemma

Analysis 11 minute watch
- Video: The de-dollarisation dilemma

China’s next act in a changing economic order

Analysis 18 minute read
- China’s next act in a changing economic order