BRICS Time

Major Global Shift or Teacup in a Storm ?

Last week during an investor call I got asked what my thoughts were on the emerging BRICS alliance. It is remarkable that the recent summit of this loosely organized association of nations is getting some serious traction, but people are starting to take note and want to understand how moves like this will impact the global economy. In this regard we also hear lots about ‘de-dollarization’ and de-globalization’ of our economy whereby the US-led world order is slowly being re-arranged with new alliances and power centres emerging. So far BRICS has not really challenged US dominance and most of its initiatives are still at the drawing board stage, replacing the US Dollar is pretty much a pipe dream still. Others however think that this is some benevolent anti-colonial movement that will undo the post-war economic order and will help create alternative models with less dependence on the West and affiliated institutions like the IMF and World Bank. Maybe, but scant evidence on this so far. Let’s take a closer look.

De-globalizing ?

It is not a far stretch to argue that we are entering a phase where the unfettered globalization that was unleashed in the 1990s is being readjusted. The wave of economic growth has enabled a few new power centres to emerge, notably China and India. These are now in a position to start setting economic agendas and influence less fortunate economic players by starting to throw their economic weight around. Chinas’ neo-colonial incursion in Africa is a good example of this. Western economies are feeling some pressure and often have to reset economic agendas which are increasingly - see Trump - inward looking. Reducing dependence on foreign powers means readjusting supply lines (less manufacturing in China) or become energy sufficient (less reliance on Saudi oil). The war in Ukraine has taught us that being economically too intertwined with a nefarious player will have far reaching political and economic consequences. The environmental angle is also worth mentioning here: why do we need to fly apples from New Zealand to North America? Cost? Impact? We may be needing less from each other and more from ourselves and thus a retreat from the global marketplace is beginning to gain some momentum.

What does the end of Pax Americana look like ?

‘America First’ was initially maybe an exotic campaign slogan when Trump emerged on the scene, but now it is a reality. Even Democrats are realizing that repatriating manufacturing and other activities back to the US are beneficial moves from both a security and economic perspective. Bring back the jobs. But it may move well beyond economics.

The wealth created and the relative stability we enjoyed ever since WWII has been underwritten by the US. Not just on the economic side, but also militarily through NATO and many other defence arrangements, note that it is the US that has been policing the seas, the world if you like. Third World countries that have developed and become economic powerhouses have royally benefited from this arrangement, eighty years of relative stability, clear but open and protected borders and a free flow of money and goods. Sure there have been financial casualties, think Argentina, but by and large the world has done extremely well.

Problem is that not only when it comes to the economy, but also militarily the US may be scaling back or may be challenged to a point by others that it may be wiser to reduce its presence. If Trump is re-elected, and we mentioned it here before, he will put an axe to NATO and ensure its demise. It is not a right wing move, the outer spheres of the left are equally willing to abandon overseas military involvement and in the process give room to the very dictators, like Xi and Putin, that the old world order has fought so hard to suppress over time.

So is BRICS changing the game ?

So you can see the changing contours of a new emerging order. With Beijing, Moscow and New Delhi leading the charge (and Brasilia and Pretoria as fellow travellers) an attempt is made to shift dependence on the West towards new power centres who can shape world events to their favour by collaborating. Again, the war in Ukraine is a case in point and Russia is a keen partner of team BRICS.

However, the BRICS group is not strongly aligned, in fact two of its founding partners, China and India, have a severe dislike of each other and are still in conflict over their joint borders. Russia is at war and with Western sanctions and will need China’s support and consequently become more of a client state where China is the driving entity more than Russia. And Brazil, well, they fluctuate between the statist left (current president Lula) or the populist-right (Bolsonaro) and it is not always evident where they will land or how much they still will lend an ear to Washington. So it is far from a coherent political and economic bloc and more of a temporary marriage of convenience that loves to signal Western democracies its potential to disrupt global affairs. And anti-colonial? This is a stretch, as mentioned both China (in Asia and Africa) and Russia (in the former Soviet republics) are using the same mechanics to subject others and extract what they need, natural resources is one thing that is in high demand and if you can’t buy it you may just want to get it using different methods.

At the recent BRICS summit in South Africa - where Putin was invited but failed to show up - it was agreed to invite others to join and Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates are slated to become BRICS members in 2024. A diverse group to say the least with at least two (Egypt and the Saudis) solidly and deeply connected to Washington. At best it is a mixed bunch with aspirations that are hard to materialize. BRICS is more of directional movement than a power block that is ready to dismantle the US-led world. But if Americans do vote to retreat there is an opportunity for this grouping to begin to start influencing that global order in a more serious way.

Much like BRICS itself that order is increasingly a fractured one where different power centres will strive to preserve their place in a decentralized and less global world.