BRICS - A New World
Order
Submitted By:-
Harish K. Raman
Symbiosis Law School, Pune
(Constituent of Symbiosis International University) BBA.LL.B(C)
P.R.N. No.-13010124268
E-Mail Address - [email protected];
[email protected]
BRICS -A New World Order
ABSTRACT:-
The emergence of BRICS represents a vital amendment within the international political and economic framework. Reactions to the establishment of this new ‘club’ vary from cautious optimism to outright skepticism. There's anticipation that the BRICS – building on their own lessons and initiatives – can play a progressive role on economic and social problems at regional and international levels. The essential view, on the opposite hand, includes doubts regarding the character and coherence of the cluster. There's additionally a concern that the economic agenda of BRICS might create new challenges to human rights and development, significantly given the absence domestic frameworks for answerability on international engagements. Despite theseconsiderations, the talk on financial conditions and difference is integral to any engagement with the BRICS, given its specialization in growth and
infrastructure. BRICS-led aid and investment activities are expected to be pertaining to problems like the exploitation of natural resources, land grabs, agriculture and food security across regions. There's a growing awareness that civil society in BRICS
countries shouldbuild a broader agenda of rights and answerability round the international roles of their government and personal sector. This paper seeks to bring these issues to light and address specific issues. It discusses effect of BRICS on Low Income Countries and its impact on the global level. It also brings to light the ascent of BRICS countries from developing nations to emerging economic powers and evaluates its feasibility. Trends in Foreign Direct Investments have also been discussed. Further it also sheds light as to whether these nations will emerge as a guiding force in the 21st Century. Finally this paper also gives out a set of recommendations for solving several issues at both individual and the group level.
Key Words:BRICS; Low Income Countries (LICs); Foreign Direct Investment (FDI);
Emerging Economic Powers
BRICS –A New World Order
In a country well governed, poverty is something to be ashamed of.
In a country badly governed, wealth is something to be ashamed of.
- Confucius
The role of Brazil, Russia, India, China and South Africa (BRICS) as emerging protagonists in international development co-operation is significantly and rapidly changing. Over the last decade, BRICS have increased their financial as well as technical assistance and established distinct ways and means of economic cooperation, especially through south-south-
cooperation with Low Income Countries (LICs). BRICS are striving for more political influence, thereby challenging traditional western donors such as the EU. BRICS impact on LICs through trade, foreign direct investment and development financing are significant and these south-south-efforts need to be reflected in EU development strategies. The high level conferences in Paris, Accra and Monterrey have not appreciated BRICS’ role as emerging donors, but the Busan Global Partnership strategy has considered obvious changes in global development architecture more openly. Size, key areas and institutional settings of foreign assistance are differing among BRICS. The overall focus of development cooperation lies on neighbouring countries, regional integration and technical assistance. Economic growth is perceived to be crucial for sustainable development; non-interference and national
sovereignty are guiding principles. Eye-to-eye level dialogue and trilateral settings of cooperation are means of addressing BRICS as new stakeholder in 21stcentury development politics.
BRICS are at the forefront of using their economic weight to induce change, which is challenging traditional western donors in general and the EU in particular. Among the five countries the role of South Africa is somewhat different as its economy is much smaller than that of the other four countries, and strictly speaking, the country does not comply with all the characteristics generally adopted to distinguish the country group:
(1) the outstanding size of their economies,
(2) strong growth rates, leading to increasing significance in world economy, and
(3) the demand for a stronger political voice in international governance structures, which corresponds to their economic status.
Nevertheless, BRICS are a heterogeneous group with individual countries also forming other coalitions. Beside the differentiation made above for South Africa, China is in an exceptional position at the other end concerning most aspects of economic cooperation and Russia stands out as a former superpower.
The high level conferences in Paris and Accra were attended by Brazil, India, China and South Africa both as recipient and donor countries. In the European Consensus on
Development and the Agenda for Change the BRICS, however, are not considered as donors.
The philosophy of approaching aid varies considerably between emerging donors and traditional donors. BRICS are not eager to join the Development Assistance Committee but are influencing development policies through loose multilateral coalitions and international forms such as the G20. BRICS need to be taken seriously as increasingly important actors who are influencing EU development policies and should be included in dialogues on aid effectiveness and development strategies in a constructive way.
The formulation of the Global Partnership by June 2012 represents a window of opportunity for the international community to credit the new donors with the right to their own opinion and agenda. Eye-to-eye level dialogue and trilateral settings of cooperation are ways of openly addressing BRICS as new stakeholders in 21stcentury development politics.
BRICS and Low Income Countries
LICs are the most vulnerable countries, and more than one billion of the world’s 1.4 billion poor people living on less than 1.25 US-Dollar per day are living in LICs. LICs are very fragile in terms of external shocks, volatility in commodity prices and rising food costs. The International Monetary Fund estimates that more than 23 million people could fall below poverty line in the case of no recovery in the world economy in 2012. The European debt crisis is challenging LICs directly as trade and development partners of the European Union and indirectly through decreasing demand from BRICS. Therefore, it will be of utter importance to find tools to prevent LICs from suffering an increase in poverty and food shortage in case of on-going global economic recession.
The impacts of BRICS’ development policies are with regard to Low Income Countries.
These relations follow the idea of South-South-Cooperation, which is based on solidarity, shared experiences and self-reliance of the South. Thereby, BRICS – LICs relations are not restricted to financial assistance. Trade, foreign direct investment and development financing
are often intertwined and come as a package. By and large, there are remarkable spillovers and positive impacts, especially regarding trade. These ties have helped lessening the effects of the recent financial crisis on LICs and contributed to economic development. However, many LICs still rely too much on exports of primary commodities and are in need of diversification and improved technologies for their industries. Overall, size, key areas and institutional settings of foreign assistance are differing among BRICS, yet a number of similarities can be identified: The overall focus of development cooperation lies on
neighbouring countries and regional integration. Trade, investments and economic growth are perceived to be the main vehicle for improvement in development. Non-interference and national sovereignty are guiding principles, whereas social standards and governance issues are not the main concern. BRICS are concentrating on technical rather than financial assistance and a considerable share of aid is disbursed through bilateral channels.
BRICS are causing changes in the architecture of international development cooperation, not only with regard to trade and financial flaws but also as emerging donors. Overall, clear cut definitions of economic characteristics and performance to identify groups of countries are not easy to obtain. Not only BRICS but also other countries, such as CIVETS and the “next eleven” are self-confident players perforating traditional donor-recipient patterns. Mexico, Indonesia, Argentina, Turkey, Saudi Arabia and others form part of new global development structures as for example within the G20. In total, emerging donors have contributed USD 87.1 million to the World Food Programme of the United Nations and USD 90.6 million to UN Emergency Response Funds in 2010. Even traditional classifications based on the Gross Domestic Product into Middle Income Countries and LICs are not always appropriate since countries of the same group might face very different challenges.
BRICS: From Developing Countries To Emerging Economies
Within the last 10 years, BRICS have consolidated and even further expanded their strong position in the world economy.
The quest for higher representation and political say in global governance might be the most important aspect highlighting the relevance of the BRICS group. During their first meeting, a joint statement was adopted, in which they called for a more democratic and multi-polar world order based on cooperation, coordinated action and collective decision-making of all states.
Considering the political dimension, some analysts are interpreting the emergence of BRICS in a neo-realistic way, assuming that BRICS want to challenge and counter-balance US and western hegemony. Yet, the coherence of BRICS is undermined by a number of aspects. One also has to keep in mind, that BRICS are actually winners of the globalization process of the last decade and are opting for participation and influence in rather than opposition to
multilateral economic and political institutions. There are mutual economic interests and interdependencies among BRICS, the US and the EU. Thus, their political strategy is targeting multilateral negotiation and cooperation rather than confrontation and power politics.
As a consequence of respective trade in goods and services, capital flows and foreign direct investment, the focal point of global economic dynamics might be shifting slowly from OECD-countries to the BRICS in coming years. Next to other emerging economies like Saudi Arabia or Venezuela, BRICS are also becoming more important as donors in the international financial architecture. However, there are significant differences in dimension and orientation of development cooperation among BRICS correlating to differences in growth intensity, economic and trade structures, degree of market liberalization, per-capita-income as well as history and tradition of SSC.
Naturally, some BRICS try to strengthen their own positions and national interests through SSC. In their endeavor for more political say in global governance, BRICS claim to speak on behalf of the “global south” in a number of topics. This eventually leads to tension among emerging economies and is also causing skepticism in developing countries. Some countries of the “next eleven” are questioning the gain in power of BRICS, also because they are hoping to play a bigger part in international organizations themselves. In that respect, also other emerging economies are implementing SSC according to BRICS patterns.
BRICS are not among the most prosperous countries according to per capita income. India has only recently moved from LIC to MIC status and all BRICS are facing serious disparity and poverty challenges themselves. However, through their strong economic dynamics as well as territorial and demographic dimensions BRICS are influencing global economic development to a great extent.
Reflecting their increasing relevance, BRICS have started to constitute a strategic alliance with institutionalized meetings on ministerial and presidential level. Although a primary objective is to gain influence in institutions of global governance, their strategy is based on
multilateral soft balancing and SSC. This has considerable impact on the international aid- architecture and needs to be taken seriously in EU development policies.
Engaging BRICS – Opportunity or Downfall
From an advocacy viewpoint, perhaps the most important observation is with regard to the ad-hoc nature of the BRICS. This group, unlike the WTO for instance, is not bound by a treaty and does not have any legal obligations. This is yet another elite club, a southern G5, and in the absence of legal enforcements, moral and political pressure must be mobilized to that the policies adopted by the BRICS are coherent with existing national and international agreements in relation to aid, trade, human rights and development. Processes for broader engagement have not been thought through within BRICS or perhaps altogether dismissed.
The most recent Summit in New Delhi too has not provided any cause for optimism in relation to opportunities for broader public engagement. For all the excitement about India hosting a significant global consultation, there is much disappointment about the lack of information about and access to the Summit. The problem though is not so much the lack of information, but the absence of relevant outcomes that can be demonstrated by BRICS. While it is true that each country is at an interesting stage of growth, what it can achieve as a group is still questionable. The BRICS countries at this point are at best a ‘ginger group’ for the G20.
According to Advocacy organizations in Europe, less than thirty years ago there was little interest among the public and media for what governments and corporations were doing in other regions, and scant information on the impact of their trade and aid related initiatives on communities in other regions. The array of political and legal oversight mechanisms that are operational within the European Union today have come about after decades of work by civil society organizations and the use of innovative campaigns to educate and engage the public on these issues.
Trends in FDI - Inflows and Outflows
Sustained economic activities buoyed by and coupled with a growth-oriented strategy in BRICS countries since the 1990s have resulted in significant infrastructural and other favorable changes. Together these have put the countries on a higher growth trajectory and
increased market size of products and services. In other words, they have transformed BRICS countries into attractive destinations for FDI.
Data demonstrates that FDI inflows in BRICS countries have increased at a Compound Annual Growth Rate (CAGR) of nearly 11% over a ten-year period, from nearly $81 billion in 2000 to over $221 billion in 2010. In comparison, FDI inflows in some industrially advanced countries show a declining trend. The trend of FDI outflows is similar to that of inflows. FDI outflows from the BRICS countries have increased at a CAGR of over 35%, compared with a declining trend in some industrially advanced countries. This is proof that BRICS economies are not only major destinations for FDI, but are also playing an
increasingly important role in meeting global demands for capital.
Turning to the FDI activities of the BRICs in the EU, the most important conclusion is that the investment activities of the BRICs remain at a low level. All BRICs are on an
international expansion course recently. By the number of outward FDI projects India is ahead of China. The EU is not the primary destination of the expansion as confirmed by both databases. The share of the BRICs (including Hong Kong) in total EU inward FDI flows is small, amounting to only 5.5% on average during the period 2002-2007 with no clear trend over time. This is lower than their share in global FDI which stood at 7.1% in 2007. One major explanation for this pattern is that a large part of the BRICs’ FDI is resource-seeking, particularly of China and India which targets Asia and Africa. Brazil is still rather a regional than a global player. For Russia the neighbouring EU is a major outward FDI target region, and by the amount of invested capital it is the most important BRIC investor there.
The low level of FDI activity of the BRICs in the EU leads to the conclusion that the
preferred channel of competition for BRICs’ firms in the markets of the EU (but also the US and Japanese markets) remains exports. For the EU this means that EU firms experience only very limited competition from the BRICs via the FDI channel. The downside of this is that the BRICs as FDI investors only create limited additional investment and employment opportunities.
Indian FDI in Africa has traditionally been concentrated in Mauritius, taking advantage of the latter country’s offshore financial facilities and favourable tax conditions; as a result, the final destinations of these investments have often been elsewhere. Indian investors have, however, been investing in other countries in the region, too, such as Côte d’Ivoire, Senegal and Sudan.
In 2010, India’s Bharti Airtel acquired the African mobile phone networks of Kuwait’s Zain
for US$10.7 billion (the value of which is recorded outside Africa). India’s total FDI stock in Africa stood at about US$14 billion, making the country the seventh largest investor in the continent.
As far as the share of BRICS economies in global FDI inflows is concerned, in 2010 the group accounted for nearly 18% of total global FDI. What is more important is the fact that since 2000, there has been a sharp increase in the share of these countries in global FDI, when it was recorded at less than 6%.
Will BRICS Emerge As A Guiding Force In The 21st Century
Given the divergences among the BRICS, it is highly unlikely that they will be able to create a power bloc that is formidable enough to be a guiding force in the 21st century. What the BRICS can hope for is significant influence that will grow as the group itself institutionalizes trust and consolidates. To be a guiding force there is a need for the convergence of ideas on global governance. There is indeed a tendency to focus on the negative aspects of the BRICS but, as issues currently stand, the countries have different ideological approaches to how a new approach to global governance should be crafted. There seems to be broad consensus on the need for an alternative world order without proper articulation of what that order should be.
This is not to mention the security concerns between China and India, and China and Russia, for instance. There are differences within the group on values, economics, political structures and geopolitical interests and at the moment the group is probably incapable of playing a leading geopolitical role in the world. Nevertheless, the political reality of the BRICS, and the strength of that political reality, when its members choose to rally together, should be acknowledged.
Conclusion and Recommendations
The BRICS appears to be on its way to realizing the predictions made in 2001, with the emerging dynamics over the last decade further establishing these predictions. Starting with a share of a little over 10% in world GDP, and less than 4% in world trade in 1990, BRICS now constitutes about 25% of the world GDP and 15% of world trade. The increase in GDP implies that the economic size of BRICS in terms of its share in world GDP has expanded by 150% in the two decade periods. In addition, all the BRICS countries have now become
active members of major international and multilateral institutions, such as the WTO, the UN, the G-20 and the UNFCCC. Their importance in global economic and political affairs is also reflected by various other indicators, such as trends in FDI inflows and outflows, trade openness, current account balance, forex reserves and economically active labour force, which could make BRICS a formidable force to reckon with in the future.
Despite positive developments on various fronts, however, several issues remain to be addressed at both individual and the group level. One such issue is the relatively low ranking of the BRICS countries – with the exception of South Africa – in the World Bank’s annual report, Doing Business 2012. Other issues that pose obstacles for the BRICS countries include inadequate infrastructure; a lack of institutionalization; the heterogeneous nature of the group and lack of cohesive identity; the fragile nature of trade and investment linkages among the BRICS countries; and differences within the group on values, economics, political structures and geopolitical interests. Based on current experience, one can argue that it is highly unlikely that BRICS countries will be able to create a power bloc capable of becoming a political and economic guiding force in the coming years. However, the group can
definitely expect to increase its influence significantly as the members institutionalize trust and consolidate the BRICS grouping. It needs to be made clear that if not addressed urgently, the issues indicated above could pose serious challenges to the group’s realization of what was predicted by Goldman Sachs.
The opportunities ahead and the challenges faced by these countries call for changing how individual member countries view BRICS as a group. A more co-operative and collaborative approach on issues of common and global interests is required, which can perhaps help in actualizing the co-operation. Some of these are delineated below.
1. There is a need to facilitate closer co-operation and co-ordination of positions on various international issues, keeping broader interests in mind. BRICS needs to consolidate as a group and to find common positions on issues of international importance.
2. The current institutionalization mechanisms are lacking a grassroots civil society dimension. Civil society is well known for its close linkages with the citizenry, and could be indispensable when it comes to the mobilization of the people in support of the BRICS project. One can expect that since these processes are still evolving, this vacuum will be filled.
3. There is a need for target-driven and time-bound deliverables accompanied by
appropriate measures and mechanisms for delivery and implementation that are tied to adequate monitoring systems. The implementation of commitments made is a definite way of cementing the institutionalization of BRICS.
4. For BRICS to gain formidable ground in its role in international affairs, such as leadership of the WTO, IMF and the World Bank, there is a need to decide on common candidates and to field or support common candidates for such positions. A failure to do so will consolidate the perception of a lack of solidarity and weaken the BRICS position in global affairs. There is also a need to take a common stand in the G-20. Such a move would speak to the stated desire of the BRICS to see a reform of global economic governance to give them a greater voice and increased
representation.
5. To address issues such as food security, there is a need to promote peer learning and to exchange best practices in the BRICS countries.
6. To successfully face challenges at the domestic front and at the group level, there is a need to increase expenditure on R&D, especially in the areas of sustainable
development, including food security. One way of actualizing this co-operation in R&D would be by taking advantage of the existing co-operation among think tanks in the BRICS. Different institutes that specialize in different research areas could come together and share knowledge in the promotion of R&D.
If they can succeed in overcoming some of their differences, there is plenty of scope for the BRICS countries to organize themselves into a formidable power bloc.
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