The annual BRICS summit held in Russia last week delivered few meaningful initiatives
Russia hosted the annual BRICS summit in Kazan on October 22-24. It was the first summit since the BRICS group expanded its membership earlier this year. As the current BRICS chair and summit host, Russia used the event to advance its political, economic and financial agenda, presenting several initiatives to reform the system of global governance and international financial system. However, member states adopted a cautious approach.
What next
Subsidiary Impacts
- The momentum to integrate BRICS countries may weaken when Brazil assumes the chair next year.
- The newly created BRICS Grain Exchange lacks detail and will be difficult to implement.
- Intra-BRICS trade in energy is most susceptible to de-dollarisation.
Analysis
Russia has actively sought to shape the BRICS agenda since the bloc’s inception in 2009. It used its 2015 and 2020 chairmanships to establish numerous working committees to promote intra-group coordination and cooperation.
Although the diverse and informal nature of the BRICS diminishes the group’s potential to formulate joint policies, countries from the Global South increasingly use relatively informal groupings like the BRICS to shape global governance in their favour, using them as a forum to coordinate policies while avoiding the constraints of formal treaties.
BRICS expansion
With the accession of Egypt, Ethiopia, Iran and the United Arab Emirates (UAE) earlier this year, the group now accounts for 37% of global GDP at purchasing power parity (PPP) and 44% of the world’s population. Before the summit in Kazan, President Vladimir Putin announced that 34 countries had expressed a desire to join the BRICS in one form or another.
37%
BRICS share of global GDP at PPP
Rising global geoeconomic fragmentation, high vulnerability to external shocks and growing sovereign debt vulnerabilities incentivise many low- and middle-income countries to seek solutions to the challenges confronting them. Some see membership in the BRICS bloc as a potential way to manage this uncertainty.
The bloc has so far adopted a cautious stance on political issues, preferring to focus on deepening intra-group trade, developing cross-border local currency payment solutions and securing membership of global value chains. The incorporation of new members with differing political priorities is likely to make progress on political issues even more difficult to achieve.
Russia’s use of BRICS
Russia’s political and economic isolation following its full-scale invasion of Ukraine gave its BRICS chairmanship added importance. The Kazan summit gave Moscow an opportunity to receive high-level delegations from 35 countries and six international organisations.
Putin conducted 20 bilateral meetings on the summit’s sidelines, including those with Chinese President Xi Jinping and Indian Prime Minister Narendra Modi. Russia’s top trading partners — China, India, Turkey and Kazakhstan — participated in the summit.
Russia vigorously promoted the BRICS Outreach Programme in advance of the summit, hoping to increase the scope and scale of intra-bloc cooperation (see RUSSIA: Moscow will seek to exploit BRICS chairmanship – July 2, 2024).
Attempts to expand the group’s membership yielded only limited results. According to a statement by Presidential Aide Yury Ushakov, the Russian government was particularly keen on former Soviet republics and Indonesia joining the group.
However, the group decided to refrain from outright expansion, opting to introduce a new partner country status instead. This is intended to serve as an intermediate step to full membership. Official invitations to receive BRICS partner status have been issued to 13 countries, with Belarus one of them. The full list will be announced after the invitees confirm their acceptance.
Slow progress on new BRICS financial infrastructure
Given the clear limitations of the BRICS format, it is unlikely that the Kremlin seriously viewed the summit as an opportunity to challenge the West, despite strong rhetoric. Nevertheless, Moscow’s two key objectives for the summit were to rally support against sanctions and secure commitment on building new BRICS financial infrastructure.
As expected, the Kazan Summit Declaration offered few firm commitments (see RUSSIA: BRICS summit delivers only superficial support – October 24, 2024). Members expressed clear but undefined support against sanctions and tariff wars.
The final declaration stated that BRICS members, as the world’s largest producers of natural resources, had agreed to strengthen cooperation across the entire value chain and take joint actions to oppose unilateral protectionist measures. It is unclear what, if anything, this will mean in practice.
The BRICS leaders also took a very cautious approach to the question of creating new financial infrastructure (see RUSSIA: Moscow will use BRICS to mitigate sanctions – June 11, 2024). They were presented with a detailed report prepared by Bank of Russia and Ministry of Finance on potential ways to safeguard and streamline intra-group cross-border payments and investment flows.
The proposals, however, gained little traction. The BRICS Cross-Border Payments Initiative (BCBPI) was included in the final declaration but only as a voluntary and non-binding mechanism.
The document also encouraged the strengthening of correspondent banking networks within the BRICS, which suggests that members were hesitant about exploring new innovative settlement solutions, such as the mBridge developed by China or the BRICS Bridge developed by Russia.
Equally, small steps were taken towards connecting financial markets infrastructure. Members agreed to study the feasibility of establishing BRICS Clear, an independent cross-border settlement and depositary infrastructure, and BRICS (Re)Insurance, again voluntarily.
Russian Finance Minister Anton Siluanov suggested that agreeing on new payment and settlement solutions would take at least a year. Establishing other financial market instruments might take at least five years. This timeframe will not help the Russian economy overcome the disruption to cross-border payments caused by US sanctions.
BRICS Grain Exchange
Putin also suggested creating a BRICS Grain Exchange at the expanded meeting of the summit on October 23. The Russian Union of Grain Exporters is reported to be behind this initiative.
The idea is to establish market benchmarks separate from those formed on the Chicago Mercantile Exchange, thus avoiding the US dollar as a clearing currency (see RUSSIA: Expanded BRICS will be target for grain sales – May 17, 2024). The new exchange is claimed to benefit BRICS members by setting fair and predictable prices for products and raw materials.
Several BRICS countries are among the world’s largest exporters of grains, leguminous crops and oilseeds. The idea was welcomed in the Kazan declaration, which added that trading on the new exchange could be expanded to other agricultural sectors.
However, experts argue that establishing a fully operational commodity exchange will be difficult. The new exchange would have to compete with more technologically advanced grain exchanges already functioning in four other BRICS countries (Brazil, China, India and South Africa).
As a result, the BRICS Grain Exchange is currently only an idea. What business model is being proposed, which commodities will be included, in what currencies trades will be denominated and the expected implementation timeline all remain unclear.
