Ever since Goldman Sachs coined the BRIC acronym in 2001 (at that time, it excluded South Africa), its members have aspired to shape the club into a counterweight against Western hegemony. That aspiration took a step forward this week with the news from the BRICS Summit in Johannesburg that Argentina, Ethiopia, Iran, Saudi Arabia, Egypt and the United Arab Emirates are set to join the group from next year.
Together, the enlarged BRICS will account for 46.5% of the world population and about 30% of global GDP. With two of the world’s top five economies among its members (China and India) and around 35 more countries said to be interested in joining, BRICS could develop into a significant forum for “Global South “countries to advance their shared interests.
However, its ambitions to challenge the dominance of Western forums like the G7 and West-biased institutions like the IMF and World Bank are likely to be frustrated by the diverse and sometimes competing interests of the members. It’s also not yet clear exactly what BRICS aims to be, apart from a loose forum for economic and geopolitical cooperation.
BRICS doesn’t have many formal institutions, for example, besides the New Development Bank, which has yet to set the world on fire. Nor are the values that the group shares or the criteria for ascension particularly clear.
All of that said, a grouping the size of BRICS can’t easily be ignored, especially if it continues to grow into a more formal organisation and if objectives to trade in the group’s currencies rather than the dollar bear fruit. BRICS vocalises a growing desire from developing countries to have their concerns about everything from climate change to regional conflicts and trade taken more seriously.
In some instances, it’s a cover for autocratic nations to advance their interests without Western meddling—Iran and Russia have obvious concerns about how sanctions and the dollar are wielded against them. In other cases, developing nations’ concerns about the West’s disproportionate say in world affairs and the unilateral actions of nations like the US are understandable.
As “Global South” countries grow in economic power, it’s inevitable that their geopolitical clout will grow, too. Indeed, there were calls during this week’s summit for a shift from the old order, including from UN secretary-general Antonio Guterres, who said the global financial architecture is outdated, dysfunctional, and unfair.
Multilateral institutions should be reformed to reflect the emerging world order, rather than holding on to outcomes that are almost a century old, such as the creation of the UN and the Bretton Woods system after World War II, according to Guterres. Over the long term, failure to craft a stable multilateral world order could undermine peace and harm economic outcomes for all.
Although it could take many years for the BRICS nations to effectively challenge the might of the dollar or to eclipse the military and economic weight of the “Global North”, it is irrefutable that geopolitical forces have a major influence on financial markets. The expansion of BRICS is a significant development which is bound to have far-reaching impacts on businesses and global supply chains over time.
“Expanding BRICS to include six new members, underscores the potential for the expanded bloc to become the architect of a different world order – one that reflects the shift in global economic and financial geography towards the East.”
– Aathira Prasad, President of Nasser Saidi and Associates, Nasser Saidi, and its director of macroeconomics
“At present, the developed countries condescend to the developing ones.”
– George Soros
Global News
- President Cyril Ramaphosa declared this week’s BRICS summit a success, stating in a media release that: “BRICS has embarked on a new chapter in its effort to build a world that is fair, a world that is just, a world that is also inclusive and prosperous.” The Summit was marked by protocol issues, and its decision to admit six new members (Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE) could well cause tensions with the West. The disparate nature of the six new members is bound to spark debate about the real nature of BRICS. For a complete wrap, including specific outcomes, click here.
- Turning to the US, Jerome Powell, Chair of the Federal Reserve, is anticipated to detail the last steps in the US central bank’s campaign to tame inflation, and reinforce its commitment to finishing the job, when he speaks later today at Jackson Hole, Wyoming. Ahead of the event, stocks closed near session lows on Thursday as bond yields rose.
- Barry Ritholtz, chairman and chief investment officer of Ritholtz Wealth Management, lists the following five ways the Fed’s deflation playbook could be improved: recognise every inflation era is different, lose the 2% inflation targets as it’s meaningless, don’t be late reacting to emergencies, inflation expectation surveys are useless as there are too many unknown factors, and models and mental frameworks need updating.
- Investors are continuing their move to gold, often seen as a safe haven, as the Fed’s hiking cycle nears an end. Gold’s value is expected to increase next year after stumbling recently.
- China wants to defuse risks from its $9 trillion pile of off balance-sheet local government debt, without resorting to major bailouts, and dragging down the economy. The country is also on edge as the fallout from its real estate crisis spreads due to the fallout from debt-laden developers and sinking sales spreading to the broader economy. This follows Beijing seeking to cool its housing market, creating a bigger problem.
- Those selling property in the UK have cut prices by 1.9%, the sharpest pace since December, according to property portal Rightmove. This adds to evidence that soaring interest rates are affecting buying power.
- In an example of business mitigating their risks from geopolitical fallout, Huawei Technologies is allegedly building a collection of secret semiconductor-fabrication facilities across China to skirt US sanctions and further China’s technology ambitions.
- Nvidia announced on Wednesday that it had delivered a third-straight sales forecast that again beat Wall Street estimates of $12.5 billion, aided by surging demand for its AI processors, underscoring the chip maker’s place as the key beneficiary of the rising AI computing boom. Nvidia’s share price gained more than 6% in extended trading after it said sales will be about $16 billion in the three months to October.
- As at Thursday’s close the S&P was up 0.15% for the week.
Local News
- Business leaders Patrice Motsepe (founder and chair of JSE-listed African Rainbow) and Stavros Nicolaou (an executive at Aspen Pharmacare) have called on BRICS countries to increase trading activity with each other and African countries. South Africa and China will be working together to reduce a huge trade imbalance between the two countries.
- During the BRICS summit, South Africa entered talks with several BRICS countries, including a meeting between electricity minister Dr. Ramokgopa and eight Chinese power companies to help solve the energy crisis, and develop the country’s transmission and distribution infrastructure. The Chinese government donated R167 million in emergency power equipment and has offered a grant of about R500 million as developmental assistance for Eskom.
- Well-known broadcaster and writer, Stephen Grootes, argues that race, exclusion, and inequality are still central to our political reality, more than two decades into South Africa’s democracy. He makes this point based on articles in which Ramaphosa is quoted as saying that coloured and Indian people, who feel they are excluded, wrongly have this perception. It is politics, Grootes says, that is dividing this country. For Grootes’s analysis, click here.
- After a year-long investigation, the South African Reserve Bank has concluded that the president did not contravene any foreign exchange control regulations in the Phala Phala scandal — despite everyone knowing that he failed to declare the funds within 30 days, as required by law. The bank announced because the transaction between Ramaphosa and Mustafa had not been “perfected” ( the buffalos never changed hands ) this meant that neither Ramaphosa nor his farm was legally entitled to the dollars. The findings call into question the Bank’s independence and credibility especially given the fact that it is one of South Africa’s few remaining public centres of excellence.
- South Africa has a looming budget shortfall of R94 billion, as the commodity boom recedes, exposing a gaping hole in the public finances — with health and education expected to bear the brunt of this issue. To prevent a total collapse of finances, National Treasury told all provincial government departments that no new spending will be allocated to them, and there may be budget cuts next year.
- Consumer inflation fell even more in July, to 4.7% from 5.4% and below the Reuters’ consensus of 5%. This is its lowest level in two years, suggesting the Reserve Bank may leave rates unchanged at its next meeting on 21 September.
- South African clothing retailers are losing their shine as China-based Shein among other international outlets like Amazon.com are eating into their customer base. Shein is South Africa’s fastest-growing apparel retailer.
- SARS has accused Pepkor CEO Pieter Erasmus of being a party to an alleged “impermissible tax avoidance arrangement” in terms of the Income Tax Act. Erasmus, who returned as Pepkor’s CEO earlier in 2023 after five years, allegedly owes the taxman more than R300 million.
- As at the time of writing, the rand was 1.2% stronger and the ALSI was 2% higher for the week.
Sources: Dynasty, Daily Maverick, Bloomberg, NYT, BusinessLIVE, News24, BizNews, FM, Reuters, Moneyweb,The Conversation, etc.
