Russia's President Vladimir Putin, right,and China's President Xi Jinping attend the 11th edition of the BRICS Summit in Brasilia on Nov 13, 2019.SERGIO LIMA/AFP/Getty Images
Keith Porter is the co-chief investment officer of Mount Murray Investment.
There is talk about the BRICS anti-Western economic alliance (Brazil, Russia, India, China and South Africa) creating a new currency, ironically called the “bric,” to rival the U.S. dollar in international trade. My thoughts immediately turned to The Hitchhiker’s Guide to the Galaxy by Douglas Adams: “The ships hung in the sky in much the same way that bricks don’t.” A BRICS currency would fall to Earth just like, well … a brick.
For the bric to work, you’d need BRICS to work. So, will it? Spoiler alert: not in my lifetime. Why? Because no one knows what a successful BRICS actually means.
BRICS was founded in 2009. The group seems to be having a resurgence amid the isolation of Russia after its invasion of Ukraine. Many countries outside the Western orbit, such as Saudi Arabia, Iran and Mexico, have expressed interest in joining.
But when the British economist Jim O’Neil came up with the BRIC acronym in 2001 (South Africa was added in 2010), it was – as much as anything – a Goldman Sachs marketing gimmick, based on the idea that Western capitalism had triumphed and that growth was to be found elsewhere. The countries did not formally band together until eight years later.
It was a classic “It’s different this time” piece by a broker trying to stump up trade. Later, we got other clever groupings of countries such as The Bottom Billion, CIVETS (Colombia, Indonesia, Vietnam, Turkey and South Africa) and MINTs (Mexico, Indonesia, Nigeria and Turkey), as investment bankers tried to market their vision and, coincidently, charge you a very reasonable fee to help you position yourself for this once-in-a-lifetime opportunity.
Many of the countries now proposing the bric have common interests, not least a dislike of U.S. hegemony. But while the enemy of my enemy may be my friend, a successful BRICS needs more than that. It needs genuine aims, rules and commitment. No amount of backslapping and fist-pumping will change that.
India sees China as a strategic rival. It is aggressively positioning itself as a palatable alternative to China for manufacturing. Meanwhile, the skirmishes between India and China on the Tibetan plateau have turned more deadly. If China is promoting a BRICS concept as cover for Chinese hegemony, India is determined to use that same organization to block Chinese influence. Saudi Arabia and Iran feel the same way about each other.
South Africa is rapidly becoming a failed state. Its power crisis threatens value-added exports. How can the country possibly lead any alliance? Mexico? Every Mexican company I talk to tells me how it is expanding in the United States.
Brazil’s President, Luiz Inacio Lula da Silva, recently lamented, “Every night, I ask myself why all countries have to base their trade on the dollar.”
Simple answer: Brazilian mining giant Vale SA can sell iron ore to China in Chinese yuan, or renminbi (RMB), all it wants, but what would it do with those RMB afterwards? Vale’s debts are all in U.S. dollars. The heavy construction equipment the company uses is often built by Caterpillar Inc. or Japan’s Komatsu Ltd., so Vale needs dollars and yen to buy it. RMB is valueless for Vale’s operations in Sudbury or Sulawesi (part of Indonesia).
Meanwhile, China has bought considerable influence outside of BRICS via its “One Belt, One Road” initiative, which invests in more than 150 countries. Why would China give that influence away to others via BRICS?
We have seen the BRICS movie before, with the same macho hugs. When Hugo Chavez and Fidel Castro set up ALBA (the Bolivarian Alliance for the Peoples of Our America), based on integrating Latin America and promising a realignment, they drew on Russia and China. Yet it was Russia and China who ensured ALBA would remain nothing more than a talking shop. When it was launched, many officials predicted the euro would replace the U.S. dollar as the dominant currency, hands raised high in triumph, but in moments of stress, the dollar is still the safe haven.
I love Brazil. Botafago Bay in Rio de Janeiro is breathtakingly beautiful. Seriously, you should go. Salvador may be even more beautiful, yet for some reason, Russian oligarchs and Saudi princes generally choose to enjoy their luxury yachts in the south of France instead.
When they start buying luxury properties in Moscow or Riyadh, then the BRICS have a genuine purpose.