The BRICS alliance, originally formed by Brazil, Russia, India, China, and South Africa— has become a focal point for economic cooperation and influence outside the traditionally Western-dominated global financial system.
With the recent decision to expand its membership, BRICS stands on the brink of potentially reshaping the world order, altering global trade dynamics, and attracting investments from emerging economies. The expansion signals the bloc’s commitment to amplifying its influence and creating a multipolar world that challenges the longstanding power of the U.S. and the EU.
From October 22 to 24, 2024, Russian President, Vladimir Putin hosted the first-ever summit of BRICS+ in Kazan, Tatarstan. This landmark event marked a significant expansion of the BRICS coalition, as the founding members— Brazil, Russia, India, China, and South Africa— welcomed five new members: Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE). Putin extended invitations to over two dozen other nations that have expressed interest in joining this growing bloc, signaling a determined response to Western isolation efforts. This gathering sends an unmistakable message: despite geopolitical tensions, Russia has built strong relationships worldwide.
A Fragmenting World Order
The emergence of BRICS+ raises concerns in the West, as it reflects a world increasingly divided into competing blocs amid intensifying geopolitical rivalries between East and West, and growing divisions between North and South. Analysts suggest that Beijing and Moscow are leveraging certain nations’ dissatisfaction with the U.S. and its allies to establish a counterweight to the G7. This trend could further hinder global cooperation within multilateral platforms like the G20, which has already become a microcosm of increasing global rifts. The potential for BRICS+ to exacerbate these divisions poses a challenge to the G20’s essential purpose: bridging gaps between diverse countries.
Initially formed in 2006 as BRIC and later including South Africa in 2010, the BRICS alliance was developed to give emerging economies a stronger collective voice in international economic discourse. For years, the bloc has promoted policies emphasizing sustainable development, trade cooperation, and mutual economic growth among its members, which collectively account for over 40% of the world’s population and approximately 25% of global GDP.
While BRICS has made strides in its objectives, member countries have also recognized that expanding the group could increase its clout. The recent invitation of additional countries, including Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates, underscores this strategic shift. This expansion could lead to an alliance with an even greater share of global economic influence, rivaling Western institutions like the International Monetary Fund (IMF) and World Bank.
Motivations Behind BRICS Expansion
One of the primary motivations for BRICS’ expansion is the desire to challenge the Western-dominated financial and political systems. By including more countries with varying degrees of political and economic influence, BRICS aims to create an alternative alliance that can better advocate for the needs of developing and emerging economies. The bloc’s expansion represents a shift toward a multipolar world order where power is more evenly distributed, reducing dependency on the U.S. dollar and Western financial institutions.
New members bring unique economic opportunities to BRICS. For instance, Saudi Arabia and the UAE contribute vast oil reserves and financial resources, while Argentina and Ethiopia bring agricultural and mineral wealth. By creating a diverse portfolio of economic assets, BRICS can foster stronger trade partnerships and reduce dependency on Western economies, which are often susceptible to volatility and policy changes.
Infrastructure development has been a core priority for BRICS, as many member countries are still developing their economies. By inviting additional countries, BRICS can increase its capital base, enabling the bloc to fund large-scale infrastructure projects more effectively. This expansion also gives the New Development Bank (NDB), established by BRICS as an alternative to the IMF, greater capacity to fund regional development projects and foster financial inclusion across more countries.
The reliance on the U.S. dollar for international transactions has created vulnerabilities for countries affected by U.S. monetary policy changes. The expansion of BRICS could strengthen the push for a BRICS currency or, at the very least, increase the use of local currencies for trade among member countries. This could reduce exposure to dollar-related risks and boost economic resilience.
The Bearing of BRICS Expansion on Global Trade and Investment
An expanded BRICS coalition can establish new trade routes that connect members from different continents, boosting economic exchange across Africa, Latin America, Asia, and the Middle East. For instance, direct trade routes between South America and Africa could be developed, reducing reliance on Western supply chains. This shift would lead to greater regional trade and economic resilience among BRICS members.
The inclusion of oil-producing nations such as Saudi Arabia and the UAE provides BRICS with greater control over energy resources. By coordinating energy policies and trade among members, BRICS can reduce its dependency on Western energy markets and gain influence over global oil prices. This could, in turn, create more stable trade conditions for BRICS countries.
As BRICS expands, the alliance can offer a forum for emerging markets to develop trade policies aligned with their economic interests. Many emerging economies face challenges due to restrictive trade policies imposed by Western countries, such as tariffs, sanctions, and export controls. The BRICS bloc could help advocate for fairer trade practices and offer alternatives to restricted markets, which would stimulate economic growth and support local industries.
With more member countries, the New Development Bank (NDB) can expand its reach and provide trade financing options tailored to the needs of emerging economies. As BRICS looks to bolster intra-bloc trade, the NDB could play a crucial role in funding projects that facilitate trade infrastructure development, such as transportation networks, ports, and digital trade platforms.
Ways BRICS+ Can Shift the World Order
BRICS+ comprises some of the world’s largest energy producers and consumers. With the inclusion of Iran, Saudi Arabia, and the UAE, BRICS+ nations collectively account for approximately 32% of global natural gas output and 43% of crude oil production. This coalition also represents 38% of global petroleum imports, with the potential to rise to 55% if all new applicants are admitted. The formation of a parallel energy trading system among BRICS+ economies could enable transactions outside the Western financial system, offering greater influence over oil prices during market volatility.
Trade has been a vital driver of BRICS+ economic development. The share of global trade in goods among BRICS+ members more than doubled, reaching 40% from 2002 to 2022. China’s role as a supplier of industrial and consumer goods and a major importer of commodities has significantly enhanced intra-BRICS+ trade. Despite the absence of a comprehensive free trade agreement covering the entire group, BRICS+ serves as a platform for increasing market access and facilitating cooperation in sectors like digital economy and professional services.
BRICS+ has made significant strides in project and development finance, exemplified by the New Development Bank (NDB) with $100 billion in capital, complementing China’s Belt & Road Initiative. By 2023, the NDB and the Asian Infrastructure Investment Bank (AIIB) had committed over $71 billion in credit across various sectors. The inclusion of cash-rich economies like Saudi Arabia could further diversify BRICS+’ financial resources.
BRICS+ countries are eager to reduce their dependence on the Western-dominated international monetary system, where around 90% of global foreign exchange transactions are conducted in dollars. The group’s emphasis on alternative currencies for foreign exchange transactions could diminish reliance on the U.S. dollar, bolstered by initiatives such as BRICSpay, a payment app facilitating transactions in multiple currencies. Additionally, the establishment of a Payment Task Force and Contingent Reserve Arrangement could provide a buffer against financial crises.
Investment Opportunities and Challenges in an Expanded BRICS Bloc
As BRICS grows, it will attract attention from investors seeking new opportunities in less-explored markets. However, these opportunities come with challenges. The new BRICS members have varying levels of economic development, creating a complex environment for investors. While countries like the UAE and Saudi Arabia offer stable, high-income economies with significant oil wealth, others, like Argentina and Ethiopia, face economic challenges such as inflation and political instability. Investors will need to navigate these disparities and tailor their strategies to specific market conditions.
BRICS aims to promote intra-bloc investment by providing alternative financial channels that bypass traditional Western financial institutions. The NDB, for instance, has the potential to facilitate direct investments into infrastructure, renewable energy, technology, and other priority sectors. This move could create new opportunities for global investors, especially those interested in diversifying away from Western markets.
Some BRICS members, such as Iran, face international sanctions and geopolitical tensions, which could affect investments in the bloc. Additionally, varying regulatory frameworks across BRICS countries present challenges for investors unfamiliar with local laws. To succeed in this expanded bloc, investors will need to develop robust risk management strategies that account for political, regulatory, and currency risks.
While BRICS expansion holds immense potential, it also faces obstacles. However, the opportunities are significant. BRICS can transform global trade and investment by promoting regional economic integration, advocating for fair trade practices, and creating alternative financial systems. For investors, BRICS offers access to high-growth markets and a chance to diversify portfolios. Additionally, BRICS’ focus on digital and infrastructure development provides promising opportunities for sectors such as technology, energy, and transportation.