BRICS, EXPLAINED.

September 22, 2024

For the busiest:

  • BRICS is an international organisation formed by Brazil, Russia, India and China in 2009, focused on promoting multi-polarity and cooperation.

  • Currently, it accounts for about 45% of the world's population and 27% of the world's nominal GDP,

  • BRICS members do not always have aligning strategic interests, preventing the group from closer integration.

  • Most of the intra-BRICS trade is China-centric, with trade between the other members remaining relatively low.

  • BRICS create alternative international institutions and promote de-dollarisation: substituting the dollar as the leading international currency.

  • China is proposing the use of yuan in its oil trade with Saudi Arabia.

  • However, the US dollar's role as the leading reserve currency is secure in the short and medium term.

  • BRICS+ accounts for 74.2% of the global deposits of rare earth elements.

  • Despite this, BRICS states have not widely engaged in trade weaponisation so far.

BRICS is an international organisation formed by Brazil, Russia, India and China in 2009. South Africa joined in 2010.

Egypt, Ethiopia, the United Arab Emirates and Iran all joined BRICS+ in 2024.

Saudi Arabia was invited to join, but so far did not officially confirm its membership. However, it participates in BRICS events as an invited state.

For the purposes of this report, we consider it a de facto member of BRICS+.

Argentina was also invited, but following the election of President Javier Milei in 2022 it cancelled its application in favour of building closer ties with the US.

BRICS began when four foreign ministers of the founding states met at the margins of the United Nations summit in New York in September 2006, later evolving into a much broader partnership.

The group’s stated objectives are peace, security, development and cooperation, according to a 2011 declaration.

Members share the view that the world is shifting towards multi-polarity (away from US dominance) and promote cooperation in the face of these changes.

The group’s major goal is to reduce US influence over major international organisations and the global economy.

BRICS established alternatives to the World Bank and the IMF – the New Development Bank and the Contingent Reserve Arrangement.

The group also promoted de-dollarisation: the effort to replace the dollar as the main currency used for holding reserves globally.

China and Russia are both members of the Security Council of the United Nations, and both play critical roles in shaping the BRICS agenda. 

Currently, the BRICS+ member states account for about 45% of the world's population, 27% of the world's nominal GDP, and 35% of the world's GDP at purchasing power parity, outperforming the combined G7 members. 

After the 2024 expansion, BRICS+ expanded its presence in the global energy market. Member states now account for about 40% of crude oil production and exports.

Despite these achievements, BRICS countries have diverse and sometimes conflicting national interests, often weakening their ability to take unified actions.

After the latest BRICS expansion in January 2024, the group’s name informally changed to BRICS+.

The organisation now includes other developing countries in Africa, Asia, and Latin America, often referred to as the "Global South".

BRICS member states often advocated for greater representation of the Global South in international politics.

During the last BRICS summit held in Johannesburg in 2023, Russian President Vladimir Putin blamed Western countries for the war in Ukraine, while Chinese President Xi Jinping rejected Western criticism of his country's political model.

However, the group does not hold a joint anti-Western position. Some members, like India, Saudi Arabia or the UAE, have strong economic, diplomatic, and military ties with the US.

BRICS aims to reshape global governance by:

  1. Calling for a transformation of the United Nations and the Security Council, particularly to boost the role of developing countries.

  2. Promoting the use of local currencies for bilateral trade instead of the dollar and promoting regional payment systems.

  3. Establishing alternatives to international institutions like the World Bank and the International Monetary Fund.

  4. Influencing the global energy market, especially the trade in natural gas, crude oil and coal.

BRICS chose the path of enlargement: including a range of diverse members, rather than improving cooperation between fewer members that share more common strategic interests.

There are no specific requirements for BRICS membership except being accepted by all existing members.

BRICS members do not always have aligning strategic interests, preventing the group from closer integration.

One example is the rivalry between Saudi Arabia and Iran, despite last year's attempts at reconciliation mediated by China.

China and India, the group’s largest economies, have tense and competitive political relations, escalating into violent skirmishes along their border in 2020 and 2021, in which dozens of Indian and Chinese soldiers were killed.

Trade between BRICS members has grown steadily over the last twenty years, quicker than that between BRICS members and the G7 countries.

Russia enhanced trade relations with other BRICS countries due to the sanctions imposed after the invasion of Ukraine. In 2023, Russia’s trade volume with other BRICS members reached $294 billion, about 41.4% of its total foreign trade. 

China also registered an increase of 11.3% in intra-BRICS trade in the first quarter of 2024, reinforcing its dominant economic role within the organisation.

Most of the intra-BRICS trade is China-centric, with trade between the other members remaining relatively low.

Expanding intra-BRICS trade can increase its members' economic independence from the West. 

Some BRICS countries have already signed free trade agreements with each other by being part of other organisations, such as the Gulf Cooperation Council.

There is currently no official discussion of a free trade agreement between BRICS members, unlike the proposal of a BRICS currency.

A potential concern with a free trade agreement is other members’ trade imbalance with China.

BRICS countries promote de-dollarisation, which includes a series of tools to substitute the dollar as the leading international currency.

Goals:

  1.    Reduce the geopolitical influence of the United States, especially the effectiveness of its sanctions, which rely on the SWIFT financial transactions system. SWIFT is effectively a messaging network overseen by Western countries’ central banks and used by financial institutions to transfer information about payments globally.

  2. Allow BRICS countries to better control their monetary policies and reduce the risks of external shocks from US economic decisions, such as changes in interest rates.

  3. Conduct more intra-BRICS trade in local or common currencies, thus lowering transaction costs like exchange fees.

Tools:

  1. Signing local currency trade agreements, with which two countries agree to settle cross-border trade in their local currencies. This trend is already visible in some of the most influential BRICS countries. For instance, in 2023, Russia's trade in yuan exceeded that in US dollars.

  2. Developing alternative payment systems. One of them is China's Cross-Border Interbank Payment System (CIPS), a financial infrastructure set up in 2015 to run transactions in yuan.

  3. The New Development Bank, an organisation that is effectively an alternative to the Western-influenced World Bank. It is tasked with supporting infrastructure and sustainable projects with various financial tools, including loans and guarantees. Currently, the organisation makes about 20% of its loans in the local currency of the borrowing members, aiming to expand it to 30%.

  4. Signing central bank liquidity swap agreements, with which two central banks exchange currencies and maintain liquidity during times of crisis. For example, the People's Bank of China (PBOC) has signed bilateral currency swap agreements with the central banks of 41 countries.

However, the US dollar's role as the leading reserve currency is secure in the short and medium term.

Being the global reserve currency requires a large and stable domestic economy, open and sophisticated financial markets and institutions, convertibility of the currency, and its use by countries globally as foreign reserves and denomination for trade. 

2.45% of all global currency reserves were held in the Chinese yuan (renminbi) in 2023, less than the 5.4% held in the Japanese yen and the 58.8% held in the US dollars. 

BRICS countries are openly discussing the idea of creating a common currency, but this is not a short-term possibility. 

The primary obstacles are the diversities in the economic structure and political systems of the members, their level of development, management of national currencies, and openness of the financial markets, as well as the risk of members’ trade imbalance with China. 

After Iran, the UAE and Saudi Arabia joined BRICS+, the group's supposed influence over the energy market has increased significantly.

BRICS+ members now collectively account for 42% of world oil production and 35% of oil consumption.

A closer alignment between Saudi Arabia and Russia, the first and the second oil exporters in the world, could allow the bloc to have closer control over oil prices.

However, Russia and Saudi Arabia have long cooperated as part of OPEC+, jointly advocating for production cuts in recent years, having had their disagreements previously.

It is unclear to what extent Saudi Arabia’s membership in BRICS would change its oil policy. 

As of September 2024, Saudi Arabia has not officially clarified whether it has or has not joined BRICS+, continuing to balance its relations with both the US and China to maximise diplomatic benefits.

China is proposing the use of yuan in its oil trade with Saudi Arabia. Currently, the industry is mostly dominated in US dollars, often called ‘petrodollars’. 

Moving away from a dollar-centric model will enable BRICS countries to better shield themselves from the US sanctions, especially those targeting Russia and Iran.

Similarly, this will reduce the effectiveness of sanctions the US may introduce against China if it annexes Taiwan. 

On climate action, BRICS holds the principle of "common but differentiated responsibilities", meaning they will tackle climate change according to their domestic capabilities. 

In 2021, BRICS+ members were responsible for 51% of global greenhouse gas emissions.

South Africa and Brazil have pledged to achieve carbon neutrality by 2050, Russia and China – by 2060, and India – by 2070. 

BRICS' oil-rich members have set ambitious green energy goals, supported by billion-dollar investments, to diversify their economies.

These include Saudi Arabia's aim to generate 50% of its electricity from renewables by 2030 and the UAE's target to increase the share of green energy in its total mix from 25% to 50% by 2050.

BRICS members hold vast reserves of rare earth minerals and metals, which are crucial for clean energy transition and other modern tech. 

BRICS+ accounts for 74.2% of the global deposits of rare earth elements, with China alone having 40%.

The United Arab Emirates has invested in the mining sectors of Latin America and Africa, focusing on dual-use minerals, which are utilised for both civilian and military purposes.

Iran is trying to expand its mining activities despite the Western sanctions. This sector's contribution to the country's GDP grew over 20% since 2020.

South Africa holds 88.7% of the global reserves of platinum and palladium, which are commonly used in the automotive industry.

Brazil holds 98% of niobium reserves, a metal used in aerospace and nuclear energy.

There are ongoing discussions on inviting other metal-rich countries, such as Chile, Indonesia or the Democratic Republic of Congo, into BRICS.

In 2010, following a minor dispute with Japan, China reduced exports of rare earth minerals by introducing quotas, which led to increased prices internationally. Japan was heavily reliant on importing minerals from China.

China claimed the move was necessary to protect the environment, but its likely aim was providing low-cost resources to the local businesses and projecting power onto Japan.

The US, the EU, and Japan brought this case to the WTO's Dispute Settlement Body, which then ruled against China.

Similarly, Russia previously halted or reduced its gas exports to Ukraine and Europe in response to political tensions.

Despite this, BRICS states have not widely engaged in trade weaponisation, with the risk remaining more hypothetical.

Author Elia Preto Martini

Editor Anton Kutuzov