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The BRICS Summit in Durban: too soon to write it off

Written by Zhenbo Hou

Many in the mainstream media from the developed world have regarded the BRICS Summit held in Durban last week as more of a failure than a success. But I have a contrarian view and argue that criticism of its apparently nebulous proceedings misses the point.

First of all, the Summit in Durban has helped to institutionalise the grouping between the BRICS countries – Brazil, Russia, India, China and South Africa – by establishing some of the technical mechanisms for cooperation. For example, it agreed a $100 billion Contingency Reserve Arrangement (CRA), a reserve pool to buffer the BRICS from temporary reserve liquidity shortages. China, the biggest economy among the BRICS, is expected to inject as much $41 billion to the pot. The BRICS have also agreed to set up a Business Council to act as a bridge between senior government officials and business leaders, currently chaired by Patrice Motsepe the CEO of African Rainbow Minerals. The Durban Summit attracted more than 500 senior business leaders – a reflection of their strong interest.

On the other hand, the BRICS countries have not yet managed to launch a development bank in Durban, as differences remain on the exact contribution that needs to come from each Member State to make up the $50 billion start-up fund, and even on where the bank should be located. In their closing statement at the Summit, the leaders dubbed the idea of a BRICS development bank as ‘feasible and viable’ and stated they had agreed to establish the bank with capital ‘substantial and sufficient for the bank to be effective in financing infrastructure.’

Such modest progress has already sparked some serious doubts among some observers about whether the BRICS are ever going to get their acts together.  In my view, this adoption of a more cautious approach could instead by seen as a positive sign that the stakeholders want to ensure a bank that has a vigorous and enduring governance structure, rather than making a flimsy, unrealistic statement. Recall the disagreements between Harry Dexter White and John Maynard Keynes in creating the International Monetary Fund and the World Bank? The horse trading among EU nations before setting up the EBRD in London? Or Japan’s failed attempt to set up an Asian Monetary Fund after the 97-98 Asian Financial Crisis?

True, the BRICS are very different from each other. China’s economy is four times larger than that of India’s and Russia’s and 20 times larger than South Africa’s.  In the Financial Times  last week, Gideon Rachman was right to point out that all of the BRICS countries have something about them that makes them not quite ‘fit’ in the group – China is too big, India is too poor, Russia is too energy dependent, South Africa is too small (which, oddly enough, leaves just Brazil as the anomaly that ‘fits’). But that underlines a new trend: that such groupings don’t need to have a common history, a similar culture or religion, or even share a geographical neighbourhood. Instead, they can be born out of comparable stages of development and shared economic interests. Think of the OECD here.

Putting too much emphasis on the differences across the political systems of the BRICS is another idea rooted in the past. It is certainly not going to stop them from cooperating commercially. If China and the US can be the world’s largest trading partners, what is going to stop the BRICS from trading with each other?

Let’s not overemphasise how the BRICS should act as one player just yet. At this stage, the BRICS should start by concentrating on deepening the intra-group economic cooperation by unlocking the economic potential that already exist within these countries, while leveraging the group as a platform to seek opportunities further afield. The $30 billion currency swap signed between Brazil and China is one move in the right direction. The economic complementarities among them, with China and India being resource importers and the rest being resource exporters, could deepen the cooperation.  

One important demonstration of the relevance of the BRICS as a platform was the BRICS Leaders – Africa Dialogue Forum, attended by Heads of State from Angola, Cote d’Ivoire, Ethiopia, Senegal and Uganda, and even Egypt. Once again, this was a somewhat successful attempt by South Africa to legitimise its role as a convenor as well as a gateway, as President Zuma likes to call it, to Africa.

No one had heard of the BRICS until recently and the term was only invented in 2001. The BRICS are still in their embryonic phase and, in my view, the leaders are correct in aiming for pragmatic steps. They should focus more on consolidating intra-group economic cooperation before acting as one political entity. They should also be careful not to be carried away by the ambitious agenda that is often favoured by some in the media.