BRICS expansion ushers in fresh opportunities

The BRICS, a five-member bloc comprising Brazil, Russia, India, China, and South Africa, announced on Aug 24 that it would admit six new members, in a bid to enhance the global influence of emerging economies and forge a shared future of faster growth.

Iran, Saudi Arabia, Egypt, Argentina, the United Arab Emirates and Ethiopia will join the organization, taking its total members to 11. These new member countries come from Asia, Africa and Latin America, with each holding significant economic heft and geopolitical influence.

Against a backdrop where geopolitics have an increasingly profound impact on the global economic and trade systems as well as supply chains, the expansion of the BRICS cooperation mechanism is expected to have three primary effects.

Reshaping global landscape

Due to its larger overall economic scale and total population, any enlargement of the BRICS will obviously lead to its stronger presence globally, making it capable of being a new engine for global economic recovery.

Following the expansion, the economic and population sizes of the 11 member countries will account for about 29.2 percent and 46.8 percent of the global total, respectively. The expansion is also expected to further deepen trade cooperation among member countries in terms of resource utilization. Moreover, the enlargement will also facilitate communication and cooperation, and help the member economies to be better heard by the global community within multilateral institutions, such as the Group of 20, the International Monetary Fund and the United Nations.

The inclusion of Egypt and Ethiopia will further amplify the role and influence of the BRICS countries in Africa. As home to a large number of developing countries, Africa is experiencing rapid growth. However, it also faces challenges such as inadequate infrastructure, limited access to educational resources, weaker self-development capacity and insufficient power in the international arena. In this sense, the BRICS cooperation mechanism, as a platform focusing on economic development and cooperation, aligns closely with the need of African countries.

Since the BRICS member countries are crucial trade partners, export markets, and sources of foreign investment for Egypt and Ethiopia, the framework is poised to facilitate the two economies in promoting foreign investment, developing infrastructure and broadening financing channels. Following their entry, Egypt and Ethiopia will be able to leverage the bountiful resources of the BRICS member countries — such as funds, technology and market access — to accelerate the development process, reduce reliance on the US dollar and help their currencies become stronger internationally.

The participation of Argentina, the second-largest economy and a heavyweight country of trade in South America, will help expand the BRICS' geopolitical influence and promote trade across the globe to a great extent, while creating more opportunities for the country.

Although Argentina's economic size and national income levels are substantial, imbalances in its development have led to a lack of new growth drivers in the economy. Overly loosened capital controls and excessive currency issuance have led to high-level volatility, despite the fact that a great deal of government and external debt still awaits to be resolved. As it faces both domestic and external challenges, joining the BRICS may point a new way through international cooperation and support its sustainable economic development.

Hasten end of USD dominance

Thanks to the expansion, the BRICS members will be able to better secure the supply of essential resources, such as oil and metals, with the potential to further promote local currency settlements in trade and investment, thereby challenging US dollar hegemony in commodity and financial transactions.

This round of the BRICS expansion, benefiting from the inclusion of oil-producing countries such as Iran, Saudi Arabia and the UAE, reinforces synergy within the framework with respect to crude oil production and export. Together with the original five BRICS members, which are major producers and exporters of raw material, the new BRICS is expected to show higher-level resilience and further stabilize the global supply chain by leveraging their bountiful natural resources and cooperative allocations.

Driven by converging interests, transactions in the international oil trade within the BRICS framework will increase the use of local currency settlements and further contribute to breaking the historical ties between oil and the US dollar. It is interesting to note that even prior to the expansion, the new BRICS participants had already exhibited varying degrees of deviation from the decision-making structures previously led by the United States in both energy and foreign policies. Saudi Arabia had formally accepted local currency settlements from Kenya for oil purchases, while Argentina as well as Brazil had shown willingness to directly conduct trade settlements in the Chinese yuan.

Amid recent fluctuations in international dynamics, the admission of Saudi Arabia, the UAE and Iran reflects a common desire among energy-exporting economies in the Middle East to engage in new cooperation patterns and shared interests through multilateral platforms. The fact that Saudi Arabia and Iran took a faster-than-expected route in joining the framework — just five months after the restoration of their diplomatic relations in March — is solid proof of the BRICS providing equal discourse and impartial support to its members and serving as a new paradigm for international cooperation.

With the collective rising tide of emerging markets and developing countries, the BRICS expansion will support its member states in resolving regional conflicts, reduce US influence, explore new paths for sustainable development and lay a solid foundation for reforming the global governance system.

New bank, novel path

The New Development Bank, a multilateral development bank established by BRICS states, will also have a more weighty role to play in advancing member countries' infrastructure development, local currency financing and trade, by effectively allocating financial resources from international capital markets.

Since the very beginning, the NDB has mostly invested in infrastructure projects, like ports, airports, high-speed railways and digital infrastructure. Additionally, it has supported members in achieving their green development goals through investments in clean energy projects. Brazil, for instance, has received significant investments from the NDB during recent years, leading to notable improvements in its transportation, water services and digital network infrastructure.

What's more, the multilateral bank continues to ramp up efforts in enhancing its participation in global capital markets to facilitate local currency financing and trade. In August, it successfully issued 1.5 billion South African rand ($78.5 million) worth of bonds in the country's domestic bond market, becoming the market's highest-rated issuer since 2015. The NDB in May also issued 8.5 billion yuan ($1.16 billion) worth of panda bonds, an onshore bond offering international borrowers a way to tap domestic renminbi investors, making it one of the largest issuers of such bonds in the Chinese interbank market.

Christine Zhang is executive director of sovereign rating and overseas business at CCXI, a Chinese credit rating agency, while Zhang Jingxin and Yu Jia are senior analysts in the same department.

The views do not necessarily reflect those of China Daily.