Obviously, the BRICS bank claims to be working independently without any political strings. In the current conditions, it is not easy to do so, given the developments in global finance and the use of the dollar as a political weapon. Now the world is indeed going through many challenges. There are crisis trends and inflation in the advanced countries, and in the developing world, nations are facing debt problems. Of course, the countries in the developing world are now primarily in serious condition.
Introduction
Ultimately, BRICS (Brazil, Russia, India, China and South Africa) has established itself as an informal association pursuing a comprehensive and multi-dimensional cooperation. It has also, in the course of its operations, created the platform for discussing important topics relating to economic growth, developing trade and economic exchanges, ensuring security as well as promoting education and culture. According to several previous summit reports, the economic power is shifting from the West to the Global South. One of the landmarked achievements was the ascension of three African countries: Ethiopia and Egypt (Jan. 2024) and South Africa (2010). Russia is chairing the association this year. The main event of 2024 for BRICS will be the summit, which will be held in Kazan in October.
Under Russia’s chairmanship, integrating more new members into BRICS has been suspended, although the ‘strategic expansion’ was considered as an explicit testament to the association’s remarkable growing attraction and its commitment to reshaping the global economic landscape.
While the geopolitics intensifies, BRICS has prioritized economic dimension of its operations, desirous to design the necessary instruments for substituting those of the multinational organizations such International Monetary Fund (IMF) and the World Bank. Closely related to this are the loans for investment projects and the financial payment systems. The analysis here, thus focuses on the economic architecture of Ethiopia, Egypt and South Africa – African members of BRICS.
BRICS Bank
Regarding the broader historical significance of this association, the founding members consisting of Brazil, Russia, India, and China held the first summit in Yekaterinburg in 2009, with South Africa joining it a year later, discussed creating the BRICS bank as geopolitical ‘alternative’ to IMF and the World Bank. The summit documents contained an explanatory reasons as ‘operating financial activities mainly based on non-interference, equality, and mutual benefit’ among members and other developing countries. They planned to set up this New Development Bank by 2014, but was later established in 2015.
The financial architecture of BRICS is made of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA). These components were signed into a treaty in 2014 and became active in 2015. (See its report April 2024). New Development Bank, sometimes referred to as the BRICS Development Bank, by definition is ‘a multilateral development bank’ operated by the five BRICS states. In 2021, Bangladesh, Egypt, the United Arab Emirates and Uruguay joined the NDB. The bank’s primary focus of lending is infrastructure projects with authorized lending of up to $34 billion annually. As of 2023, it had 53 projects worth around $15 billion. Its plan on giving out $15 billion to member states to help their struggling economies never materialized.
Financial Commitments
The core question was the initial financial shareholding. In July 2014, during the sixth BRICS summit in Fortaleza, the BRICS signed the document to create the $100 billion as the startup capital and the currency pool for the bank. China committed $41 billion towards the pool; Brazil, India, and Russia $18 billion each; and South Africa $5 billion. China, which held the world’s largest foreign exchange reserves and contributed the bulk of the currency pool, wanted a more significant managing role. China also wanted to be the location of the reserve, thus made the bank to be headquartered in Shanghai, China. Until 2024, it has a skeleton office in Moscow, Russia, and in Johannesburg, South Africa, as compared to many representative offices and normal-size staff of IMF and World Bank across Africa.
BRICS payment system
At the 2015 BRICS summit in Russia, ministers from the BRICS states initiated consultations for a payment system that would be an alternative to the SWIFT system. The stated goal was to initially move to settlements in national currencies. The Central Bank of Russia highlighted the main benefits as backup and redundancy in case there were disruptions to the SWIFT system. China also launched its alternative to SWIFT: the Cross-Border Interbank Payment System, which enables financial institutions worldwide to send and receive information about financial transactions. India also has its alternative Structured Financial Messaging System (SFMS), as do Russia SPFS and Brazil Pix, (according to BRICS report July 2024).
Ethiopia, Egypt and South Africa’s Demography
Ethiopia: With Ethiopia and Egypt taking full membership with effect on 1 January 2024, joining South Africa illustrated BRICS expansion from Maghreb through East African down to Southern Africa. South Africa and Egypt being the economic power houses, while Ethiopia ranks 8th position in the continent. Angola and Nigeria rank above Ethiopia. With about 126.5 million people (2023), Ethiopia is the second most populous nation in Africa after Nigeria (June 2024 stands at 229.6), and one of the fastest-growing economies in the region. Ethiopia aims to reach lower-middle-income status by 2025. Ethiopia holds the headquarter of the AU.
Egypt: Located in the topmost north Africa along the Mediterranean Sea, Egypt considers itself as part of the Arab world. The permanent headquarters of the Arab League are located in Cairo and the body’s secretary general has traditionally been an Egyptian. At approximately 100 million inhabitants, Egypt is the 14th-most populated country in the world, and the third-most populated in Africa. Egypt’s economy depends mainly on agriculture, petroleum exports, natural gas, and tourism. There are also more than three million Egyptians working abroad, mainly in Libya, Saudi Arabia, the Persian Gulf and Europe. Egypt is a member of the Association of Arab States and the African Union (AU).
South Africa: South Africa is the southernmost country on the African continent. Its remoteness—it lies thousands of miles distant from major African cities such as Lagos and Cairo and more than 6,000 miles (10,000 km) away from most of Europe, North America, and eastern Asia, where its major trading partners are located. According to the 2023 census, the population of South Africa was about 62 million people of diverse origins, cultures, languages, and religions. South Africa has a mixed economy, emerging market, and upper-middle-income economy, one of only eight such countries in Africa. the country has a comparative advantage in the production of agriculture, mining and manufacturing products relating to these sectors. Several reports indicate that, in principle, its principal international trading partners—besides other African countries—include Germany, the United States, China, Japan, the United Kingdom, Bangladesh and Spain. Over the last few decades, South Africa has also established itself as a popular tourist destination. Further that, it is among the G20, and is the only African country that is a permanent member of the G20 group, and as a member of the Southern African Development Community (SADC) and the African Union (AU).
Development Challenges
According to World Bank report (2023), Ethiopia seeks to chart a development path that is sustainable and inclusive in order to accelerate poverty reduction and boost shared prosperity. Achieving these objectives will require addressing key challenges including the following:
(i) addressing macroeconomic private sector development, structural transformation, and generation of jobs,
(ii) reducing the incidence of conflict that has been having a substantial impact on lives, livelihoods, and infrastructure. Overcoming the effects of the coronavirus pandemic.
(iii) addressing food insecurity, which is growing due to adverse weather events, locust invasion, conflict, and global conditions leading to high inflation of food prices.
(iv) improving human capital which is far lower than the average for the Sub-Saharan Africa region.
(v) generating good jobs. The country’s growing workforce (with roughly 2 million persons reaching working age per year) puts pressure on the absorption capacity of the labor market, necessitates improving current jobs, while creating sufficient new jobs.
In its annual report (2024), the International Monetary Fund (IMF) has rated Egypt as one of the top countries in Africa undertaking economic reforms. But a lot more economic lapses have still engulfed the economy, and greater part of the population lives below the average subsistence level. An estimated 2.7 million Egyptians abroad contribute actively to the development of their country through remittances ($7.8 billion in 2021), as well as circulation of human and social capital and investment. Remittances, money earned by Egyptians living abroad and sent home, reached a record $21 billion in 2023, according to the World Bank.
Brazilian Dilma Rousseff and BRICS Bank
During the latest meeting held on June 6, 2024, President Vladimir Putin and President of the BRICS New Development Bank, Dilma Rousseff, agreed on some important issues. These include the fact that the bank becomes more sustainable and operational, and moreover operate within developing multipolar economic architecture and strengthening its economic base. In 2024, Russia presides over BRICS, Russia and Brazil are co-founders of this bank, now headed by Dilma Rousseff. In the new emerging multipolar world, BRICS members and other developing countries, especially those in the Global South have consistently criticized the IMF and the World Bank, and further called for reforms. Nevertheless, Putin and Rousseff have taken common position that the BRICS bank has an essential role to play in the multipolar economy. Of course, the multipolar world is also reflected in national currencies, which is another obligation of the bank: to attract and carry out settlements in national currencies. This is very important for developing countries that do not have their own strong currencies and suffer greatly from exchange rate volatility. (See Kremlin report – June 6, 2024).
Obviously, the BRICS bank claims to be working independently without any political strings. In the current conditions, it is not easy to do so, given the developments in global finance and the use of the dollar as a political weapon. Now the world is indeed going through many challenges. There are crisis trends and inflation in the advanced countries, and in the developing world, nations are facing debt problems. Of course, the countries in the developing world are now primarily in serious condition. According to Rousseff remarks: “The bank should play a major role in the development of a multipolar, polycentric world. Russia is a very important partner in BRICS and the New Development Bank, and is really fulfilling all of its commitments. And, indeed, the bank is facing a number of problems, primarily concerning liquidity.” (See Kremlin report – July 26, 2023)