United, they stand tall and strong

Updated: 2012-03-23 10:46

By Ahmed Sule (China Daily)

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United, they stand tall and strong
Zhang Chengliang / China Daily

As the brics nations meet in india it is a good time for them to reassess where they go from here

The agenda for this year's two-day BRICS summit that begins in New Delhi on March 28 is titled "BRICS partnership for stability, security and growth." Over the years the BRICS summit agenda has covered a number of global issues such as climate change, food and energy security, sustainable development, the global financial crises and international terrorism. Strengthening the global influence of the group, consisting of Brazil, Russia, India, China and South Africa, has also been a key objective at these annual summits.

Ever since Jim O'Neill of Goldman Sachs coined the BRIC acronym in 2001, the four countries that originally constituted the BRICS - Brazil, Russia, India and China - have continued to grow in economic and political influence as evidenced by sizeable global share of foreign exchange reserves, exports and imports, military spending and gross national domestic product. There has also been an increasing level of expanding and deepening economic, trade and investment cooperation among the BRICS.

Although the BRICS members have in common emerging market status, large populations, large area mass and high economic growth rates, they differ geographically, economically and politically. Geographically, of the five members, one country is located in Africa, another in South America, two in Asia and one in Europe. Economically, Russia, Brazil and South Africa are commodity producers, while India and China do not possess an abundance of commodity resources. In addition, China and Russia have current account surpluses, while Brazil, India and South Africa have current account deficits.

Over the years the BRICS group has implemented or proposed a number of measures to promote greater economic cooperation such as the proposal for a BRICS development bank, bilateral agreements to trade in local currencies and the extension of yuan-denominated loans by China to the other BRICS countries. However, for the BRICS group to be effective in increasing its global influence, sharing a common vision and building a united front, it is important for the five countries to tackle a number of issues or differences that may threaten the group's unity.

The first of these is the fact that before BRICS existed, there was a grouping called the India, Brazil and South Africa (IBSA) Dialogue Forum. Its website says: "IBSA is a coordinating mechanism amongst three emerging countries, three multiethnic and multicultural democracies, which are determined to contribute to the construction of a new international architecture, to bring their voice together on global issues and to deepen their ties in various areas."

The first IBSA Forum was held in March 2004, while the first BRIC summit was held in June 2009. Last April South Africa was invited to take part in the renamed BRICS summit. With the inclusion of South Africa the relevance of the IBSA Dialogue Forum seems questionable. Furthermore, the continuous annual dialogue of IBSA and BRICS could have the unintended consequence of dividing the BRICS into a two-tier sub BRICS bloc, with Russia and China forming one sub bloc and India, Brazil and South Africa the other.

The two forums running parallel are likely to create mutual suspicion, thereby jeopardizing the unity of the BRICS. The BRICS forum needs to discuss the continuing relevance of the IBSA forum and whether it should be discontinued. If IBSA does continue as a parallel forum, it is important for IBSA members to give China and Russia the assurance that their interests are not being jeopardized.

With the exception of Brazil, the other four countries within the bloc will be undergoing political transition in the short to medium term. South Africa and India hold general elections in 2014, while Russia, which held its presidential elections earlier this month, will swear in a new president this May. Later this year China will elect a new generation of leaders. As these countries switch to a new political cycle, it is important that previous commitments made at the BRICS forum are adhered to by the incoming governments and that the BRICS vision is maintained irrespective of the change of government. Failure to do so could threaten the unity of the bloc, but it is unlikely that the incoming governments would distance their countries from the BRICS forum.

As the largest economy in Africa and the only African member of the BRICS, South Africa is an important part of the group. It is often described as a gateway to the African continent for the other BRICS countries. Trade between Africa and the BRICS is considered to be of mutual benefit to both parties in which Africa supplies the BRICS economies with natural and mineral resources to fuel the latter's industrial expansion while the former receives investments in infrastructure projects such as railways, roads and power stations.

In recent years, trade between Africa and some of the BRICS countries has resulted in a build-up of tensions, with a number of African countries complaining that the interaction between the two trading blocs is one-sided, which benefits the BRICS. As the middleman between the BRICS and Africa, South Africa would have to use its status to reduce the tension and make the Africa-BRICS relationship a winner for all.

Each member of the BRICS has different export-import dynamics. China is an export-centric economy that runs a consistent current account surplus. Russia also has a current account surplus as it exports more of its oil reserves than it imports. The remaining three countries run current account deficits. With China running a consistent trade surplus and Brazil and India having trade deficits with China, there has been an escalation of tensions among these countries.

On the one hand, Brazil and India accuse China of undervaluing its currency in order to gain a competitive advantage by boosting its export industries to the detriment of Brazilian and Indian export sectors. On the other, China accuses Brazil and India of being stoked by the United States to press China to revalue its currency. Brazil has often indicated its displeasure at the dynamics of its trade relationship with China in which China exports manufactured products while importing commodities. This, it is argued, negatively affects the local manufacturers who cannot compete with cheap Chinese imports. India has a widening trade deficit with China, and Indian officials have often expressed their frustration at Indian manufacturers' inability to gain access to the Chinese market.

Resolving these trade disputes is imperative for BRICS unity. As China continues its gradual rebalancing of its economy toward consumption, it is possible these tensions will subside.

Of the five BRICS countries, India and Russia share part of their borders with China. This has often created tension among these countries in areas. Although dialogue continues, it is important that these tensions do not deteriorate as this would essentially put an end to the BRICS forum.

A house divided against itself cannot stand, goes the saying, so addressing and resolving these issues and differences among the BRICS countries will enable them to forge ahead as a collective unit and increase their global influence.

The author, a CFA charterholder, is the macro strategist for Diadem Capital Partners, London. The views do not necessarily reflect those of Diadem Capital Partners Ltd or of China Daily.