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 formalizing 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 deglobalization looms .”


RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.


Kelly Bogdanova

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

Related articles

Worlds apart: Risks and opportunities as deglobalization looms

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

Video: The de-dollarization dilemma

Analysis 1 minute read
- Video: The de-dollarization dilemma

China’s next act in a changing economic order

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