Expansion of BRICS: What are the economic implications?

In late August it was announced that from 2024, the BRICS—a political grouping that currently comprises Brazil, Russia, India, China and South Africa—will admit six new members: Iran, Saudi Arabia, Egypt, Argentina, the UAE and Ethiopia.

The eleven countries combined represent around 45% of the planet’s population, over 40% of world oil production and roughly a third of global GDP. The BRICS average economic growth rate is likely to be notably above the global average. That said, the G7’s GDP is still substantially larger at market prices, and should remain so over the medium term.

The group’s key economic institution, the New Development Bank (NDB), is still tiny in comparison to other multilateral lenders. The Bank has financed projects worth around US$33 billion since 2015; in contrast, the World Bank alone committed around US$50 billion each year over the same period.

Other overarching economic structures are lacking, and a BRICS trade deal seems difficult to fathom given members’ vastly different stages of development and policy priorities.

Internal geopolitical disputes could further complicate economic rapprochement between members: Egypt and Ethiopia are at loggerheads over a dam on the Nile River, relations between Iran and its Gulf neighbors are still strained, and there are tensions between India and China over their shared Himalayan border and Indian restrictions on Chinese imports and technology.

The expansion of the BRICS could encourage greater political overtures and financial generosity from the G7 towards emerging markets going forward; the G20 summit later this year will be key to watch, with the UN calling on US$500 billion of annual financing from wealthy nations.

More countries are likely to join the BRICS in the coming years, as current members—particularly China and Russia—look to bolster an alternative to the G7-led world order.

BRICS members will increasingly conduct intra-member trade in local currencies to reduce dependence on the dollar, with the yuan and rupee set to be major beneficiaries.

That said, the US dollar will remain the global reserve currency for the foreseeable future - incumbency, dollar liquidity, the strength of the US economy, and the reliability of the US government as a debt issuer are key advantages. As for the BRICS grouping as a whole, it is likely to remain more of a political than an economic force.

On the BRICS’ prospects, EIU analysts said, “The BRICS group will not become a solid construction, regardless of how many bricks are added to the wall, and it will continue to face internal tensions and divisions. However, the expansion will bolster its geopolitical significance and its combined economic power, and the organization will continue to evolve. The relatively trouble-free and productive BRICS summit will enhance South Africa’s standing without damaging its relations with key Western partners.”

On the future of the dollar, ING analysts said, “Until international issuers and investors are happy to issue and hold international debt in non-dollar currencies – and the take-up of CNY Panda bonds has been very slow indeed – we suspect this will be a decade-long progression to a multi-polar world, a world in which perhaps the dollar, the euro and the renminbi become the dominant currencies in the Americas, Europe and Asia respectively.”

Courtesy: Focus Economics

Iran's BRICS membership a nail in the coffin of United States sanctions

Vahid Jalalzadeh, Chairman of the Parliament’s National Security and Foreign Policy Committee, said, “Iran’s membership in BRICS is a nail in the coffin of the unilateral sanctions of the United States.”

“One of the main features of the new world order is the strengthening and expansion of the front of resistance against the domination system, the decline of America and the transfer of knowledge and wealth from the West to the East,” he told state news agency IRNA. 

Jalalzadeh added, “BRICS and the Shanghai Cooperation Organization (SCO) are definitely a front against the excesses of the domination system, particularly America.”

Jalalzadeh emphasized that BRICS, Shanghai, and Eurasia are the code names for the failure of Western sanctions.

“The neutralization of sanctions in the era of the formation of the new global geometry means the era of entering regional and international agreements, coalitions and unions. And this means the end of unilateralism,” he continued.

Hossein Qaribi, Iranian Ambassador to Brazil, has also said that Iran’s BRICS membership was the result of months of intense diplomatic efforts by the Ebrahim Raisi administration.

“Iran's membership in the BRICS group is a happy event that is the result of months of efforts and intensive diplomatic measures by the 13th government, the Ministry of Foreign Affairs and the Iranian embassies in five member countries of that group,” Qaribi said in remarks to IRNA. 

He added, “Practically, the policy of strengthening multilateralism in the international system is better realized by advancing the goals of BRICS. In addition, it should be noted that the capacities that exist in the Islamic Republic of Iran will also be available to this group, and with development-oriented planning, it will lead to an increase in business interactions among its members.”

Foreign Minister Hossein Amir Abdollahian has lauded the bloc for deciding to move towards expansion. “In addition to strengthening multilateralism, the great success of accepting Iran’s membership in BRICS can provide the basis for the pursuit of goals and the development of other macro strategies of the government in the implementation of dynamic diplomacy,” the top diplomat wrote on X.

During a BRICS summit held in Johannesburg, South African President Cyril Ramaphosa announced the BRICS member states have agreed to admit Iran, Argentina, Egypt, Ethiopia, the UAE and Saudi Arabia as full members. That means the bloc currently consisting of Brazil, Russia, India, China and South Africa, will double in the number of members as of the beginning of next year.

Iranian President Ebrahim Raisi who had traveled to South Africa to attend the summit called the advantages of Iran's membership in the bloc “history-making”. 

“Strategic cooperation between Iran and BRICS members in the fields of transit, energy, and trade, will support the BRICS global agenda. The Islamic Republic of Iran strongly supports the successful efforts of BRICS in the path of de-dollarization of economic relations between members, the use of national currencies, as well as the strengthening of BRICS mechanisms for payment and financial settlement,” Raisi told the BRICS summit.

 

BRICS getting bigger to reshuffle world order

Major emerging market nations invited top oil exporter Saudi Arabia, along with Iran, Egypt, Argentina, Ethiopia and the United Arab Emirates, to join their bloc in an ambitious push to expand global influence. The new BRICS members bring together several of the largest energy producers with the developing world’s biggest consumers, suddenly giving the bloc outsized economic clout. With most of the world’s energy trade taking place in dollars, the expansion could also enhance its ability to push more trade to alternative currencies.

In deciding in favour of an expansion - the bloc's first in 13 years - BRICS leaders left the door open to future enlargement as dozens more countries voiced interest in joining a grouping they hope can level the global playing field.

The expansion adds economic heft to BRICS, whose current members are China, Brazil, Russia, India and South Africa. It could also amplify its declared ambition to become a champion of the Global South.

The long-standing tensions could linger between members who want to forge the grouping into a counterweight to the West - notably China, Russia and now Iran - and those that continue to nurture close ties to the United States and Europe.

"This membership expansion is historic," Chinese President Xi Jinping, the bloc's most stalwart proponent of enlargement, said. "It shows the determination of BRICS countries for unity and cooperation with the broader developing countries."

Originally an acronym coined by Goldman Sachs chief economist Jim O'Neill in 2001, the bloc was founded as an informal four-nation club in 2009 and added South Africa a year later in its only previous expansion.

The six new candidates will formally become members on January 01, 2024, South African President Cyril Ramaphosa said when he named the countries during a three-day leaders' summit he is hosting in Johannesburg.

"BRICS has embarked on a new chapter in its effort to build a world that is fair, a world that is just, a world that is also inclusive and prosperous," Ramaphosa said.

"We have consensus on the first phase of this expansion process and other phases will follow."

The countries invited to join reflect individual BRICS members' desires to bring allies into the club.

Brazilian President Luiz Inacio Lula da Silva had vocally lobbied for neighbour Argentina's inclusion while Egypt has close commercial ties with Russia and India.

The entry of oil powers Saudi Arabia and UAE highlights their drift away from the United States' orbit and ambition to become global heavyweights in their own right.

Russia and Iran have found common cause in their shared struggle against US-led sanctions and diplomatic isolation, with their economic ties deepening in the wake of Moscow's invasion of Ukraine.

"BRICS is not competing with anyone," Russia's Vladimir Putin, who is attending the summit remotely due to an international warrant for alleged war crimes, said on Thursday.

"But it's also obvious that this process of the emerging of a new world order still has fierce opponents."

Iran's President Ebrahim Raisi celebrated his country's BRICS invitation with a swipe at Washington, saying on Iranian television network Al Alam that the expansion shows that the unilateral approach is on the way to decay.

Beijing is close to Ethiopia and the country's inclusion also speaks to South Africa's desire to amplify Africa's voice in global affairs.

United Nations Secretary-General Antonio Guterres attended Thursday's expansion announcement, reflecting the bloc's growing influence. He echoed BRICS' longstanding calls for reforms of the UN Security Council, International Monetary Fund and World Bank.

"Today's global governance structures reflect yesterday's world," he said. "For multilateral institutions to remain truly universal, they must reform to reflect today's power and economic realities."

BRICS countries have economies that are vastly different in scale and governments with often divergent foreign policy goals, a complicating factor for the bloc's consensus decision-making model.

Though home to about 40% of the world's population and a quarter of global gross domestic product, internal divisions have long hobbled BRICS ambitions of becoming a major player on the world stage. It has long been criticized for failing to live up to its grand ambitions.

The regularly repeated desire of its member states to wean themselves off the dollar has never materialized. Its most concrete achievement, the New Development Bank, is now struggling in the face of sanctions against founding shareholder Russia.

Bloc heavyweight China has long called for an expansion of BRICS as it seeks to challenge Western dominance, a strategy shared by Russia.

Other BRICS members support fostering the creation of a multi-polar global order. But Brazil and India have both also been forging closer ties with the West.

Brazil's Lula has rejected the idea that the bloc should seek to rival the United States and Group of Seven wealthy economies. However, as he departed South Africa on Thursday, he said he saw no contradiction in bringing in Iran - a historical arch-foe of Washington - if it advanced the cause of the developing world.

"We can't deny the geopolitical importance of Iran and other countries that will join BRICS. ... What matters is not the person who governs but the importance of the country."

 

Brazil and Argentina planning common currency for the region

Brazil and Argentina are planning on a common currency for the region in a bid to distance themselves from the US dollar. Brazil and Argentina are the first and second largest economies in Latin America respectively. How the plan will be implemented remains to be seen, but the statement of intent is a very powerful move itself.

Washington has been using its currency as a weapon to advance its own hegemony around the world. As a result, many civilian populations have suffered from unilateral American sanctions imposed on countries that are independent or have taken the course toward independence.

President Lula, who has made Buenos Aires his first foreign trip since taking office, says that early talks are focused on developing a shared unit of value for bilateral trade to reduce reliance on US dollar.

Under the plan, the Brazilian currency (the real) as well as the Argentine currency (the peso), for example, would continue to exist, with the new tender aimed at trade transactions between different Latin American countries.

In a joint letter, the new Brazilian President Luiz Inacio Lula da Silva and Argentine leader Alberto Fernandez said they wanted to advance discussions on a common South American currency to be used for financial and trade flows.

South America’s two biggest economies will try to advance the plan during talks at a summit in Buenos Aires this week and will invite other Latin American nations to participate.

Not only Lula is reversing the policies of his predecessor, Jair Bolsonaro, by distancing Brazil from the United States he is also putting more focus on the region itself.

The idea of making trade transactions in local currencies as opposed to the US dollar is not limited to Brazil and Argentina, or Latin America for that matter.

Over the past decade, more countries have made or started similar initiatives to trade in their own currencies in a bid to ditch the US dollar.

Where the US cannot create instability through invasions, it wages wars through proxies or using other hybrid warfare mechanisms. It has also resorted to sanctions to fuel unrest in countries that don’t see eye to eye with Washington. The US goal is to destroy the economy of its adversaries with the hope of turning local populations against their governments.

Last year, the governor of the central Bank of China said Beijing will work with Asian countries to beef up the use of local currencies in trade and investment, as part of plans to strengthen regional economic resilience.

For the first time, Saudi Arabia and China have also discussed pricing oil deals in the Chinese yuan instead of US dollar.

Iran and Russia have already started trading in their national currencies after Tehran first decided to reduce use of dollar in its foreign trade.

India, among other countries, has also decided to allow rupee payments for imports and exports, which could also boost trade with other countries under American unilateral sanctions.

India's central bank has also unveiled a rupee settlement system for international trade; a move which many have said will reduce New Delhi’s demand for US dollars.

Tehran has been subjected to unprecedented unilateral sanctions by Washington. The measures, which include sanctions on Iran’s banking sector, have prevented the country from importing vital humanitarian supplies for cancer patients and children with rare diseases.

Likewise, the West has imposed unprecedented sanctions on Russia over the Ukraine war. Analysts have said that the US sanctions against Moscow could speed up the move by countries to reduce their reliance on the American currency.

The United States and its allies froze about US$300 billion belonging to Russia’s central bank’s foreign currency reserves and severely limited Russia’s access to the SWIFT payment system. Similar measures have been taken against other countries including Afghanistan, Iran, and Venezuela.

In a report, Bank of America analysts led by Michael Hartnett pointed out that US dollar debasement is the ultimate outcome as dollar weaponized in new era of sanctions.

As a result of Washington’s sanctions, countries have been seeking alternative monetary systems which have dealt a blow to the dollar itself. The role of the American currency has been declining over the past two decades, with reports indicating its share of reserve currencies have gone down to 60% from 70% over that period.

In the summer of 2021, the International Monetary Fund issued a report warning that the share of US dollar reserves held by central banks fell to 59% - its lowest level in 25 years - during the fourth quarter of 2020, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey.

Some analysts say this partly reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies. 

Despite multiple warnings, the US has been pursuing illegal economic policies by weaponizing its currency.

A Washington-based think tank says the US has been extremely happy with its economic measures, and central banks may decide to diversify their foreign reserves instead of relying on the US dollar.

The co-director of the Institute for the Analysis of Global Security, Gal Luft has said that central banks are beginning to ask questions, and that they are wondering if their dependence on the dollar and putting all their eggs in one basket is an intelligent idea.

The removal of the US dollar as a dominant foreign currency will save more civilian lives around the world and help bring about global peace and security.

 

Mexico urges US and Canada firms to participate in lithium market

Mexican President Andres Manuel Lopez Obrador said his administration will issue a call for US and Canadian companies to participate in the country's incipient lithium market.

Though Mexico does not currently produce lithium, the finance ministry estimated the value of Sonora lithium reserves at US$600 billion.

Mexico does not yet have commercial lithium production; though close to a dozen foreign companies hold contracts to explore potential deposits.

"In all cases there must be associations of the public company with private entities and we do not want lithium to be taken out of Sonora," he said at a regular news conference, referring to government plans to exploit the mineral in the northern Mexican state.

The role of foreign companies will be centered in building infrastructure and state entities will hold the majority stakes in the projects, he added.

Lithium will be used for purposes such as the production of electric car batteries, but only factories installed in Sonora will be able to take advantage of the mineral, Lopez Obrador noted.

The president has urged the private sector to work with the new state miner, saying the size of the investment needed means the government needs partners.

Nonetheless, analysts argue that companies are more likely to focus near-term investments in Chile or Argentina's sprawling salt flats, where industries are more established and policies more market-friendly.

Lopez Obrador nationalized Mexico's lithium deposits in April, hoping to cash in on surging demand for the metal.

 

 

 

Lithium price rises to record high level

According to a report by South China Morning Post, lithium metal price in the Chinese market reached US$315,000/ton; just days after Argentinean President Alberto Fernandez signed his country up for China’s Belt and Road Initiative during a high-profile trip to Beijing this month.

The spot price has risen to this level for the first time – more than four times what it cost a year ago.

The two countries happen to be the world’s major players in the supply chain of the metal – an essential material used in electric vehicle (EV) batteries.

Argentina is located in a region with the highest concentrations of the mineral – South America’s so-called Lithium Triangle, which contains more than half of the world’s reserves.

Chinese companies are the biggest buyers and investors of lithium mines around the globe and refine two-thirds of the world’s lithium.

A vast deposit of one of the most highly coveted metals on Earth could potentially be located in the region around Mount Everest, according to Chinese scientists.

The researchers’ discovery of lithium near the world’s tallest mountain comes as global demand for the metal has been skyrocketing, sending prices to record levels and further fuelling geopolitical competition for strategic resources.

The ore deposit may contain as much as 1.0125 million tons of lithium oxide, according to the group of scientists from the Institute of Geology and Geophysics at the Chinese Academy of Sciences (CAS).

But it is not yet known how much the new Himalayan deposit – dubbed Qiongjiagang, after the nearest peak – could be worth.

It may also be the country’s third-largest lithium deposit after one at the Bailong Mountain site in the Xinjiang Uygur autonomous region, and the Jiajika deposit in Sichuan province, according to a report by China Science Daily.

The content rate of lithium oxide in the newly discovered deposit is also high enough to be of “industrial value”, according to the report.

“The Qiongjiagang lithium pegmatite deposit has good conditions for mining,” Qin Kezhang, Head of Research Team, was quoted as saying.

He pointed to the shallowness of the deposit and the quality of the ore, in noting that it would be relatively easy to mine and extract. He also said it is also in a favorable location, geographically – far from the heart of the Qomolangma nature preserve and still accessible. Qomolangma is the Tibetan name for Everest.

However, Qin said, exploitation of the lithium deposit is a long way off, as it is still in the initial “pre-study” phase.

As major economies are all aiming to shift to electric cars in the global fight against climate change, the silvery-white metal has been increasingly considered “new oil” or “white gold”, as it is an essential component in electric vehicle (EV) batteries.

According to an estimate from the International Energy Agency, global demand for lithium would grow by more than 4,000% by 2040 if the world achieves its climate goals.

Currently, 85% of lithium comes from Latin America and Australia, according to market intelligence provider IHS Markit. The two regions are home to 64% of the world’s known lithium, according to the 2022 Mineral Commodity Summary from the United States Geological Survey.

The newly discovered deposit is said to be a type of lithium-bearing rock called spodumene – the same as that from Australia – while deposits in Latin America are found in brine lakes spanning the borders of Bolivia, Argentina and Chile – known as the Lithium Triangle.

As the world’s biggest EV market, Chinese companies refine two-thirds of the world’s lithium and dominate the global battery production.

That dominance has triggered concerns among the United States and its allies, which have vowed to reduce their supply-chain dependence on China.

Meanwhile, three quarters of the mineral supply in China relies on imports. More than 96 per cent of spodumene exports from Australia go to China, IHS Markit’s data showed, while more and more Chinese companies are venturing into Latin America for mining projects.