There’s been no shortage of articles about Brics on these pages, but now that we’ve had our fun and hosted the summit without too much drama — or too much damage to our international reputation — perhaps another thought or two.
President Cyril Ramaphosa made a speech on the eve of the summit in which he ticked every possible policy box, plus some extras. Along the way he mentioned that SA’s foreign policy aimed to serve its national interest. So the question as we send the last delegation on its way today is whether SA’s national interest has indeed been served — and whether we achieve anything by being inside Brics that we could not achieve outside it.
The question is particularly pertinent in the light of the two agenda items that dominated this week’s summit — expansion and currency. And the short answer is that this was really a China showcase. Both of those items are high on China’s list of priorities as it seeks to increase its global influence to counter what it sees as American hegemony. SA should keep the dynamics carefully in mind as it navigates its way around a fractured world.
First, the currency. Nobody is seriously talking about a Brics common currency in the mould of the euro, nor even a new reserve currency to replace the dollar. Rather, what was on the agenda was a call for Brics members to do more trade and settlement in local currencies. But again, nobody is seriously proposing importers and exporters around the world should switch from the dollar to the Brazilian real or the rand.
The local currency that’s really in question here is the Chinese renminbi (also known as yuan). As Standard Bank’s economists put in a recent note: “The conversation around the creation of a Brics currency is a side note to the real topic, which is the expanded use of the Chinese RMB in Brics commercial exchanges.”
China accounts for 18% of global GDP and 11.5% of global trade, but less than 4% of global transactions in 2022 were in renminbi. China sees the currency as a proxy for its global status and its use as a sign of investor confidence. Internationalising the renminbi is a priority as it seeks to build its global influence. Its narrative is that this would enhance global financial stability. And the Brics is an obvious forum through which to push the narrative given that China accounts for about three quarters of trade within the bloc.
But local currency invoicing and settlement doesn’t need the Brics, at least not in practical terms. In SA it happens already, with Rand Merchant Bank’s John Cairns estimating that up to 25% of SA’s imports from China are denominated in yuan (though none of our exports). China has taken steps since the global financial crisis to liberalise its currency, creating an offshore yuan that avoids its internal capital controls and restrictions.
SA’s big banks trade in yuan and any of them can offer hedging products and the like for clients trading with China, (though the same is not true for Brazil’s less sophisticated banks, for example). But while the yuan plays a growing role in China’s own cross-border trade, it remains a tiny player in global foreign exchange markets, not remotely an alternative to the highly liquid and freely tradable dollar (or euro or yen). Hence the political push at the Brics summit.
A bigger Brics will obviously mean more clout in global markets for China. But that second, top priority Brics agenda item, expanding the bloc, is about global political clout not just economic or financial muscle. And it’s well known that China, and pariah Russia, led the expansion push. China is set on elevating its role in international affairs, and its influence in multilateral institutions, amid growing tensions with the US.
It is seeking to increase its leadership over the Global South to do this, using the language of multilateralism and a new world order, veteran China expert James Kynge argued recently in the Financial Times. “China is using its economic muscle to rally developing countries and reduce the West’s influence over the UN,” wrote Kynge, who cited a recent study showing a 10% increase in a country’s voting alignment with China at the UN General Assembly yielded a 276% increase in aid and credit from Beijing.
Risk
SA has long used its presence in forums such as the Group of 20 and the IMF to argue for a greater voice for emerging markets and developing countries in global institutions, so the multilateralism and development narrative chimes. But this is different. And the risk is that a new dominant global player simply replaces the old.
Certainly SA’s fiercely democratic constitution and its commitment to human rights do not loom large among the six new countries Brics announced on Thursday — despite Ramaphosa’s claim that SA’s foreign policy is founded on the values of human rights. The six country list is a real rogues gallery, one that is as notable for who is not included as for who is.
There’s a certain logic to oil exporters such as Saudi Arabia and Iran, however gross their human rights abuses. But it’s not clear why the bloc chose Ethiopia and Argentina, rather than Turkey or Indonesia (or any other country in Southeast Asia), other than that the chosen two have close ties with China. And Egypt traditionally has close ties to Russia.
For SA though, the bottom line is we were already the baby of Brics and now we will be an even smaller part of a larger bloc. SA is not (yet) a poor country; it can access international capital markets with ease and it gets more out of its trade and investment relationships with the Western democracies than it does from its unbalanced trade with China. We’ve never needed Brics to trade or raise finance, and we don’t need the aid. Arguably, we could have done better out of bilateral trade and investment agreements with the two big powers in the bloc — China and India — than we did out of Brics, and should seek such bilaterals anyway.
One argument for our participation in the bloc has long been that it’s given government the ear of China’s President Xi Jinping in a way we wouldn’t have otherwise had. That access might now diminish. All the more reason this is the moment for SA to step back and have a think about its role in the bloc and what our foreign policy would look like if — in Ramaphosa’s words — it aimed to promote our national interest, resting on the key pillars of human rights and strengthening trade and investment with other countries.
• Joffe is editor-at-large.
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