Representatives from the BRICS nations of Brazil, Russia, India, China and South Africa have this month been taking part in the group's 15th annual summit in Johannesburg. Among the outcomes of the talks was a confirmation that the bloc is set for a major expansion, with six new nations invited to join.
Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates will take their place alongside existing members from the start of next year. This will mean the expanded BRICS group will increase its share of global GDP from 26 percent to 29 percent, while its proportion of worldwide goods trade will rise to 21 percent from 18 percent, according to Chinese foreign ministry official Li Kexin.
So what else will the expansion of BRICS mean for world trade, and how could it reshape the global economy?
A shakeup of global trade
The enlargement of BRICS may boost an already powerful trading bloc. Although its largest member, China, has been struggling with a weak economy this year, other members such as India continue to enjoy significant growth. Bloomberg Economics predicts that the existing BRICS members' share of global GDP could reach more than 40 percent by 2040, even before the impact of new members is taken into account.
One of the biggest beneficiaries is expected to be Saudi Arabia, which has already been building strong trade links with BRICS members in recent years. These nations currently make up around 30 percent of the Kingdom's imports, while the country may also find new markets for its principal oil exports.
Iran, meanwhile, may be able to take advantage of expanded ties with the likes of Russia and China in order to bypass Western sanctions. Meanwhile, existing members will also enjoy new sources for critical imports.
"China, Brazil and India will benefit in terms of easy access to oil, and Argentina and notably Iran will benefit in terms of access to markets and foreign direct investment," Jakob Ekholdt Christensen, senior emerging markets fixed income strategist at BankInvest in Copenhagen, told Reuters.
What can new members bring to the table?
The new members of BRICS represent a diverse mix of economies, both geographically and in terms of resources. However, while Saudi Arabia and the UAE enjoy booming economies, other new members have issues such as sanctions in the case of Iran, economic crises in Argentina and Egypt and the aftermath of civil war in Ethiopia.
The influence of the expanded BRICS bloc may also go far beyond the borders of its new members, as each also offers more access to other markets through existing memberships of multilateral trade blocs.
Argentina, for instance, will provide BRICS nations with another route into the Mercosur group of South American nations alongside Brazil, while Ethiopia is also a member of the African Continental Free Trade Agreement and Egypt, Saudi Arabia and the UAE all belong to the Greater Arab Free Trade Agreement.
In total, this could increase the number of countries within the reach of FTAs with BRICS members to 84, representing a combined GDP of some $92 trillion, compared with $24.05 trillion for the EU and $21.5 trillion for the US.
Challenging the existing global order?
As well as the direct trade implications, the growth of BRICS could also help give the group more political influence, and offer a 'Global South' focused alternative to Western-led blocs like the G7 and G20.
This may already be seen with efforts made at the BRICS summit to move away from the use of the US dollar in trade transactions in favor of national currencies. Though suggestions of a single currency to replace the dollar were dismissed as far fetched, the expansion could give member nations more bargaining power and make them less vulnerable to fluctuations in the US economy.
Several commentators have therefore noted that the big winner of the expansion is therefore likely to be China. Happymon Jacob, a professor of international studies at New Delhi’s Jawaharlal Nehru University, for example, told CNN: “Being a leader of non-Western forums and the Global South, which in general is dissatisfied with the US-led institutions, will invariably help China become a counterweight to the US and the world order led by the US.”
However, it has also been suggested that the diverse nature of the new entrants may increase divisions in the group and make consensus harder to reach.
Meanwhile, a recent paper from Simon Evenett and André Brotto Reigado at the University of St. Gallen in Switzerland has highlighted three key areas where BRICS trade policies tend to differ from other economies - namely a heavier reliance on subsidies, fewer outright export bans and higher use of tax-based export incentives.
Therefore, Bloomberg noted that BRICS expansion could lead to "a new era of statecraft where government intervention plays a more pervasive role in global trade flows."
