Economic Analysis - BRICS Summit: Three Key Takeaways - NOV 2017
BMI View: The ninth annual summit of the BRICS did not result in any 'groundbreaking' initiatives, but we can nevertheless glean several key takeaways: the diversity of the BRICS means few common goals are identified; trade liberalisation is being pushed by China; and India is encouraging cooperation in moving the economies up the value chain.
The BRICS countries (Brazil, Russia, India, China and South Africa) have concluded their ninth annual summit, held over September 3-5 in Xiamen, China. Although nothing radical has been announced, the discussions and statements from the conference nevertheless reveal some important trends in the relationships between the BRICS. We highlight three key takeaways:
Limited cohesion makes for limited action: The BRICS are highly diverse in terms of their economic structures and political systems, and therefore find it difficult to form common goals and policy initiatives.
Trade liberalisation a priority: At this year's summit, China's President Xi put an emphasis on enhancing trade, although we expect that the Chinese authorities will continue to prioritise their Belt and Road initiative over measures to boost intra-BRICS trade.
Desire to move up the value chain: India's Prime Minister Narendra Modi led a focus on technology and innovation, urging a BRICS partnership on this front.
Limited Cohesion Makes For Limited Action
The BRICS have always been a diverse group in terms of the size and structure of their economies, as well as their governance regimes. China, for instance, has a nominal GDP of USD12trn, and is a de facto one party state, while Brazil is much smaller at USD2trn and has a thriving democracy. India is a net commodity importer, while Brazil, Russia and South Africa are heavily dependent on commodity exports. China and India are experiencing relatively swift economic growth of 6-7% annually, while Brazil, Russia and South Africa are struggling to recover from recessions (see 'Two-Speed BRICS', August 31). This diversity makes it inherently difficult for the BRICS to agree on common goals. Moreover, the BRICS are competing with one another to some degree, further reducing their ability to act in concert. For instance, Russia and China are vying for economic influence in Central Asia. China and India have been at loggerheads of late over disputed land in the Himalayas, although the 10-week stand-off was resolved a few days prior to the BRICS summit.
|China's Dominance Has Grown|
|Nominal GDP, % of Global GDP|
Against this backdrop, it is unsurprising that the outcomes from the annual BRICS summits have been somewhat piecemeal. Perhaps the greatest achievement of the BRICS has been the establishment of a development bank. The bank was set up in 2015 as an alternative to the World Bank, and has been gradually increasing its loans over the years, with USD1.5bn recorded in 2016, and USD2.5bn planned for 2017, followed by USD4bn in 2018. Aside from this, the results stemming from the BRICS summits have been limited. At the Xiamen 2017 meeting, four agreements were signed: the BRICS Action Agenda on Economic and Trade Cooperation, the BRICS Action Plan for Innovation Cooperation, the Strategic Framework of BRICS Customs Cooperation, and a Memorandum of Understanding between the BRICS Business Council and the New Development Bank on Strategic Cooperation. However, none of these contained 'game-changers' in terms of policy initiatives.
Trade Liberalisation A Priority
One of the most notable themes in the discussion was an emphasis on promoting global trade, spurred by the desire to push back against the US's protectionist trade agenda. Given China's dependence on trade, and the fact that China is highly likely to be targeted by the US with tariff and non-tariff barriers, it is unsurprising that China's President Xi Jinping was vocal on this topic. He commented that 'we should push for an open world economy, promote trade liberalisation and facilitation... the development of emerging markets and developing countries won't touch anyone's cheese, but instead will diligently grow the world economic pie'. Trade between the BRICS has certainly grown over the years, but this has largely been due to rising Chinese demand.
|Chinese Demand Has Fuelled Intra-BRICS Trade|
|Export Destination, % of Total|
|Source: International Trade Centre|
We expect that China's focus in terms of trade policy will be squarely on the Belt and Road initiative (see our Hot Topic online), which encompasses over 65 countries, rather than the BRICS specifically. On this note, the Belt and Road is likely to raise tensions within the BRICS, given that it includes projects worth tens of billions of dollars in Pakistan, which India has an uneasy relationship with, and given that it could challenge Russia's dominance of Central Asia.
Desire To Move Up The Value Chain
A further notable point from the discussions was the desire to move the economies up the value chain. India's Prime Minister Narendra Modi was particularly vocal on this front, commenting that a strong partnership among member nations on innovation and the digital economy can help spur growth, promote transparency and support sustainable development goals. South Africa's Jacob Zuma also alluded to the value chain, in that he voiced concerns regarding his country's dependence on raw materials. He commented that 'the character of trade has been highly inequitable... the dominance of raw material exports has adversely impacted South Africa'. Zuma called on the other BRICS to invest in supply and development programmes in Africa as well as technology transfer.