BRICS countries are finally going steady
Goa is perhaps best known as a beach holiday destination in India but this year India will host its new partners in international politics, Brazil, Russia, China and South Africa, there.
The focus of India’s Chairmanship of the BRICS Heads of State forum this year is to work on bringing people together. To this end, the Goa summit is about deepening and reiterating the goals and ambitions of the BRICS states through enhanced, people-to- people contacts, with particular emphasis on youth. India during its Chairmanship has planned activities like an U-17 Football Tournament, Youth Summit, Young Diplomats’ Forum and Film Festival just to name a few.
While this reads more like a fun day out, the Indians do have some serious intent. Specifically, they plan a five pronged approach to the Summit this year:
(i) Institution building to further deepen, sustain and institutionalise BRICS cooperation;
(ii) Implementation of the decisions from previous Summits;
(iii) Integrating the existing cooperation mechanisms;
(iv) Innovation, i.e., new cooperation mechanisms; and
(v) Continuity, i.e., continuation of mutually agreed existing BRICS cooperation mechanisms.
The October Summit will undoubtedly be a continuation of the strides previously made at prior summits. So far this year the Indian State has been attempting to keep up with its goals for creating a people centred approach to diplomacy, having held the BRICS Women Parliamentarians meeting August 20-21, a Youth Summit in July and a Joint- Task force meeting on Disaster Management. Key to the Indian agenda is keeping in mind the 2030 Sustainable Development Goals.
This year’s BRICS summit itself seems to be a modest, apolitical affair in comparison to previous years. Nonetheless, the summit will be keenly watch watched as the members begin to better articulate their long-term geopolitical ambitions. As part of BRICS’s nature, greater cooperation with developing countries there is an ‘outreach event’ for states in the region of the host, an initiative started in 2013 by South Africa. In this case, India has decided to invite members of BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), an organization that leaves out a key geopolitical player, Pakistan. The diplomatic relationship between India and Pakistan has been tense for decades from the partition that created both countries to the recurring skirmishes in the region of Kashmir between armed groups; the fact that Pakistan-Indian diplomatic relations are fraught with difficulties would be an understatement. To complicate the matter further, China has had interests in its long land border with India and the Himalayan states of Tibet and Nepal, resulting in multiple skirmishes with India, but not Pakistan which has been China’s long standing ally.
Chinese geopolitical influence and increased role in global affairs has indirectly put strain on its ‘special relationships’ with BRICS states. The creation of the AIIB (Asian Infrastructure Investment Bank), a Chinese proposition as a conduit for regional infrastructure development for Asia with a Central Asian view, leveraging its ‘Silk road’ initiative from 2013, challenges Russia’s traditional influence in the region following the Soviet era. These sentiments have been best expressed by BRICS members giving a lukewarm reception to a Chinese proposal for a BRICS free trade agreement. As South-South cooperation increases, strategic influence will increasingly become an area of contention, and ultimately the defining factor for success.
A key development this year on BRICS matters has been the issuance of the New Development Bank’s (NDB) three billion in yuan-denominated green bonds ($449 million) on China’s interbank market in July of this year, a move that will further internationalize the use of the Chinese yuan. Through issuing the 5- year bonds, the NDB aims to support clean and renewable energy projects to reduce carbon emissions. Furthermore, the NDB has achieved a domestic AAA domestic credit rating in China.
Closer to home, the current debacle of certain private investors choosing not to invest further in state-owned enterprises (SOEs) in South Africa highlights the unstable macroeconomic situation in which South Africa finds itself. In this light, the NDB pledged at the recent G20 summit in China to help SOEs in member states as a means of development. Eskom, the South African energy producer, in July of this year was granted approval to receive $US 180 million from the NDB’s ‘green financing’ projects initiative. However, a potentially worrying trend is that the bank would be directly involving itself in an internal political crisis, since the funding for SOEs in South Africa was halted not because of the lack of funds but rather the perceived lack of corporate governance.
As a five state member bank, the onus of accountability is held by each member state, in areas that concern the NDB’s prerogatives, including state politics. In China for instance where the bank is head quartered, SOEs represent approximately 20% of economic output. The managers of Chinese SOEs are chosen through the Communist Party personnel system, effectively making them political appointments. Though the Chinese boom is unquestionable, SOEs are more indebted and less profitable than their private counter parts. The most alarming aspect of SOEs in China is their lack of profitability, and recurring default of SOEs on bond issuances. Since 2014, there have been 18 notable defaults in the public space. Of these, seven are privately held companies that have made a full recovery. The SOE defaults however are yet to be solved.
The question is, if the NDB can and does fund SOEs in member states, what is the likelihood of the funding being more politically motivated than a commercial decision? Given the current political economy of South Africa and the necessity of China to somehow maintain inefficient SOEs, is the BRICS bank no more than a PR-friendly funding mechanism for national political interest groups? Only a year into operation, we will be watching closely.
As leaders gather in October to discuss further BRICS possibilities for cooperation and development, a BRICS pecking order of influence will increasing reveal itself. For now, the influence is in China’s court and therefore the mode of conducting corporate governance in the institutions. As it stands, each BRICS member can be seen to be a hegemon within their respective regions, though bordered by countries with relative economic or political instability. As BRICS members get to know each other more closely, each state will come to terms with what’s truly at stake, global influence.