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BRICS building

The long-term challenges to its success are geopolitical rather than economic

Written by Minxin Pei |
Updated: July 18, 2014 12:59:10 am
In the short term, cooperation among the BRICS will be measured almost solely on the success or failure of the NDB. In the short term, cooperation among the BRICS will be measured almost solely on the success or failure of the NDB.

Finally, the BRICS put money where their mouths used to be. At the sixth summit of the BRICS (Brazil, Russia, India, China and South Africa), held in Fortaleza, Brazil, the leaders of five of the largest developing economies unveiled the New Development Bank, which is unofficially known as the BRICS bank. This announcement marks a new phase in the evolution of the BRICS. Until these five powerful countries agreed on this new vehicle of development financing, most observers had doubted whether the BRICS could accomplish anything more than the production of the rhetoric of cooperation and mutual respect.

To be sure, despite its name, the New Development Bank (NDB) is a relatively modest financial undertaking. According to the agreement reached by the BRICS, the NDB will have only $10 billion in paid-in capital (to be funded over seven years), with each country contributing $2 billion. In addition, the NDB will have $40 billion that will be paid “upon request”. The $50 billion forms the initial funding pool for the NDB. Another $50 billion will also be made available to the NDB by the BRICS in the future. Of the $100 billion capital, China will provide $41 billion, India, Russia, and Brazil will contribute $18 billion each. The remaining $5 billion will come from South Africa, the smallest economy in the BRICS.

Based on the agreement on the governance and location of the NDB, it appears that the leaders of the BRICS worked hard to overcome their differences. To everyone’s relief, a face-saving solution was found. Shanghai gets the headquarters, India gets the first presidency, Russia and Brazil get the chairmanships of the two supervising boards.

In the short term, cooperation among the BRICS will be measured almost solely on the success or failure of the NDB. In this regard, perhaps, the BRICS should be given the benefit of doubt.
Given the tremendous technical difficulties involved, the NDB is unlikely to quickly deliver eye-popping results in fulfilling its mandates — infrastructural financing and currency stabilisation, primarily in the BRICS and secondarily in other developing countries.

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In the long run, the challenges to the success of the BRICS are chiefly geopolitical, not economic. Although the BRICS may aspire to be the developing world’s answer to the G-7, it would be a mistake to overlook some of the fundamental differences between the BRICS and the G-7 that will greatly influence how the BRICS work with each other.

The first notable difference is in terms of political systems. While the G-7 countries are all mature, wealthy democracies, the BRICS contains two authoritarian colossi (China and Russia) and three democracies. The heterogeneity in political regimes is likely to hamper the development of mutual trust and respect.

The second stark difference is the level of development. The G-7 countries have similar levels of wealth, but per capita income varies widely among the BRICS. According to World Bank data, per capita income in 2013 was $14,612 in Russia, $11,208 in Brazil, $6,807 in China, $6,618 in South Africa and $1,499 in India. Such large economic disparities imply that each member country has different development needs and priorities. More problematically, on the economic front, just as the US is seen as too dominant among G-7 countries, China risks the same perception. The total size of the GDP of the BRICS is roughly $15 trillion (2012 data), but China alone accounts for 55 per cent of the GDP of the BRICS. Economic cooperation based on equality sounds rhetorically appealing, but it is realistically impossible.

The third, and by far the most striking, difference is on the geopolitical front. The G-7 countries are all allies. But the BRICS have potential adversaries among them. China and India are regional rivals and have unresolved border disputes. China and Russia may be partners today, but they have had a long history of mutual animosity and lingering strategic distrust. Overcoming the underlying geopolitical rivalry and distrust inside the BRICS is a tough challenge on its own. It will be compounded by the hidden geopolitical agendas of China and Russia, both of which see the West as a threat and want to use the BRICS as a counter-balancing tool. Obviously, this is an agenda countries like India, Brazil and South Africa are not eager to embrace.

In the coming years, the fortune of the BRICS will, to a significant extent, ride on the evolving Sino-Indian relationship. If ties between Beijing and New Delhi remain relatively friendly and stable, the BRICS will thrive. If this bilateral relationship grows more antagonistic, institution-building in the BRICS will be impossible.

Fortunately, judging by the interactions between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping at the Fortaleza summit, both leaders seem eager for a fresh start. On the sidelines of the BRICS summit, Xi and Modi met for the first time and pledged to work to resolve the Sino-Indian border disputes. As a friendly gesture, Xi, as the host of this year’s Asia-Pacific Economic Cooperation (APEC) summit in Beijing, formally invited Modi to attend (India is not part of APEC).

We can only hope that the promising start of the Xi-Modi relationship will continue and prove that the Indian and Chinese governments both understand that an unnecessary conflict is not among their priorities for governing 40 per cent of humanity.

The writer is professor of government and non-resident senior fellow at the German Marshall Fund of the US

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