BRICS DISRUPTION

BRICS countries held their 16th BRICS Summit, from October 22 to 24, 2024, in Kazan, Russia. Worth noting is the fact that South Africa and India, snubbed the Commonwealth Heads of Government Meeting, CHOGM Samoa right about the same time.

This, to me is a precursor to re-alignment of allegiance by the global south, further cementing the promise that BRICS holds in the eyes of the global south and emerging economies.
These developments will have marked impacts on Eswatini even though the country is not a member of the BRICS conglomerate. Today, I will weigh in on the likely impact that the BRICS bloc will have on Eswatini, given the current arrangement of the geo-political landscape and Eswatini trading relations.

The BRICS bloc
The BRICS bloc consists of Brazil, Russia, India, China and South Africa as its founding partners. However, the bloc has since rebranded to BRICS+ which saw the addition of Egypt, Ethiopia, Iran, and the United Arab Emirates into the conglomerate. A dozen of other countries are on the waiting list and have expressed interest to join the bloc. BRICS+ now represents approximately 45 per cent of the world’s population. The bloc accounts for almost 30 per cent of global oil output, a number expected to rise to 47 per cent of oil output once Saudi Arabia joins the bloc. Worth noting, Saudi Arabia has already formally accepted the invitation to join. Also, the bloc accounts for between 28 - 45 per cent of global output (GDP) and 21 per cent of global trade. Furthermore, the bloc controls a huge market share of rare earth elements (REE). These figures rival those of G7 countries. Already, the bloc accounts for a greater share in global output and global oil output compared to the G7 countries. The overall impact of the bloc will depend largely on its architecture.

The architecture
BRICS remains primarily an economic bloc. The goal of the bloc is to counterbalance Western power as represented by the G7, mainly through an agglomeration of emerging economic powers. The main avenues for this have been two new multilateral institutions, the New Development Bank (NDB, known as the ‘BRICS Bank’) and the Contingent Reserve Arrangement (CRA), which seeks to rival the World Bank and the International Monetary Fund to lessen the dominance of the Dollar. This will be done through the introduction of a BRICS currency or, at the very least, promote the use of domestic currencies for intra-bloc trade. The currency issue is one that has a lot of local economists and finance persons discussing, as this might have marked impacts on the Lilangeni and Eswatini’s trade relations.
The currency
 I contend that in the short to medium-term, the bloc might support the use of domestic currencies to trade among member states. I posit this because the bloc is not so unified in its stance and posture. Brazil, India, and to a lesser extent South Africa, view BRICS as a non-Western institution amplifying their claims to ‘nonalignment’ or ‘multi-alignment’ in international affairs. While China and Russia, on the other hand, increasingly view the BRICS as an institution meant to end Dollar hegemony. This intra-bloc fragmentation in approach and direction to be taken by the bloc has made for slow progress in materialisation of the bloc. Hence, I foresee yet another five to 10 years before the bloc agrees on what the currency should look like and what form will it take. The most likely scenario in my view will be the rise of one of the BRICS member currencies as a vehicle currency for intra-bloc trade, sidelining the US Dollar for intra-BRICS trade. This will be a continuation of the trend we are already seeing, with the Euro taking some ground from the Dollar as the store of value. The Chinese Renminbi also finding a place since 2015 in those rankings.

The peg
I contend that for the BRICS currency to impact the Lilangeni-Rand Peg, BRICS would have to attain the highest level of economic integration where all the countries in the bloc would have a unified monetary and fiscal policy framework. Even if this goal were to be pursued, it is decades in the making. The currency would be one which the bloc would use for intra-bloc trade. The peg would only be affected if the bloc were to adopt the currency as the sovereign means of exchange. Also, BRICS is not the only regional integration bloc that threatens the stability of the peg, we have SADC and COMESA in the region which present another challenge. These blocs seek to move towards greater integration, fiscal and monetary policy convergence. These moving parts, South Africa has to factor in their decision.

Trade diversion
In my view our immediate concern should be the future of SACU given the competing blocs. Eswatini’s major trading partners include South Africa, India and China; increase cooperation within BRICS may divert some of that trade to intra-bloc partners. The bloc may be insular in nature and Eswatini may lose some trade outflows and inflows to intra BRICS countries. Furthermore, the payment modality will dilute Eswatini’s gross official reserves with BRICS currency.

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