Who would have expected that the BRICS nations could rise as the potential rival of the G7 countries, the World Bank and the IMF combined? But that once seemingly distant possibility now has real prospects which could change the political equilibrium of world politics, writes “The Counter Punch’.
BRIC’s first official summit took place in 2009. Then, the discussion seemed largely abstract.
However, not until 2014 did BRICS begin taking serious steps towards greater integration, when the nascent alliance, now including South Africa, launched the New Development Bank with seed money of $50 billion. This decision meant that the group was now ready to take its first practical steps in challenging the dominance of the West over international monetary institutions, namely the World Bank and the IMF.
The geopolitical global conflict, thus shifts, resulting from the Russia-Ukraine war, however, proved to be the driving force behind the massive expansion underway at BRICS, especially as financially powerful countries began showing interest in the initiative. They include Argentina, UAE, Mexico, Algeria and, particularly, Saudi Arabia.
Recent financial reports suggest that BRICS is already the world’s largest gross domestic product (GDP) bloc in the world, as it currently contributes 31.5% to the global GDP, ahead of the G7, which contributes 30.7%.
One of the greatest opportunities, and challenges, facing BRICS now is its ability to expand its membership base while maintaining its current growth. The issue of helping new members maintain economic and political independence is particularly vital.
The IMF and World Bank are notorious for stipulating their monetary support of countries, especially in the Global South, on political conditions. This position is often justified under the guise of human rights and democracy, though is entirely related to privatization and opening markets for foreign investors – read western corporations.
As BRICS strengthens, it will have the potential to help poorer countries without pushing a self-serving political agenda, or indirectly manipulating and controlling local economies.
As inflation is hitting many western countries, resulting in slower economic growth and causing social unrest, nations in the Global South are using this as an opportunity to develop their own economic alternative. This means that groups like BRICS will cease being exclusively economic institutions.
The struggle is now very political.
For decades, the US’s greatest weapon has been its dollar which, with time, ceased being a normal currency per se, to become an actual commodity. Wars have been fought to ensure countries, like Iraq and Libya, remain committed to the dollar. Following the US invasion of Iraq in March 2003, Baghdad returned to selling its oil in US dollars.
This struggle over the dominance of the dollar was also painfully felt in Venezuela which has the world’s largest oil reserve, yet was reduced to abject poverty for attempting to challenge the supremacy of Washington its currency.
Though it will take time, the process of lessening the reliance on US dollars is now in full swing.
On March 30, Brazil and China announced a trade agreement that would allow them to use the two countries’ national currencies, the yuan and the reais, respectively. This step shall prove consequential, for it will encourage other South American countries to follow suit. But that move was neither the first, nor will it be the last of its kind.
One of the main decisions by finance ministers and central bank governors of the Association of Southeast Asian Nations (ASEAN) following their March 30-31 meeting in Indonesia is to reduce their reliance on the US dollar. They agree to “reinforce financial resilience… through the use of local currency to support cross-border trade and investment in the ASEAN region.” This too is a game-changer.
While the West is busy trying to keep its own economies afloat, it remains wary of the changes underway in the Global South. Washington and other western capitals are worried. They ought to be.
To argue that BRICS is a purely economic group is to ignore a large part of the story. The timing of BRICS’ expansion, the stern political discourse of its members, potential members and allies, the repeated visits by top Russian and Chinese diplomats to Africa and other regions in the Global South, etc., indicate that BRICS has become the South’s new platform for geopolitics, economy and diplomacy.
The more successful BRICS will become, the weaker Western hegemony over the South will grow.
Though some Western politicians and media insist on downplaying BRICS’ role in shaping the new world order, the change seems to be real and irreversible.
Russian response to sanctions: billions in dollar terms are stuck in Russia
“Tens of billions in dollar terms are stuck in Russia,” the chief executive of one large company domiciled in a country told ‘The Financial Times’. “And there is no way to get them out.”
Western companies that have continued to operate in Russia since Moscow’s invasion of Ukraine have generated billions of dollars in profits, but the Kremlin has blocked them from accessing the cash in an effort to turn the screw on “unfriendly” nations.
Groups from such countries accounted for $18 billion (€16.8 billion) of the $20 billion in Russian profits that overseas companies reported for 2022 alone, and $199 billion of their $217 billion in Russian gross revenue.
Many foreign businesses have been trying to sell their Russian subsidiaries but any deal requires Moscow’s approval and is subject to steep price discounts. In recent days British American Tobacco and Swedish truck maker Volvo have announced agreements to transfer their assets in the country to local owners.
Local earnings of companies from BP to Citigroup have been locked in Russia since the imposition last year of a dividend payout ban on businesses from “unfriendly” countries including the US, UK and all EU members. While such transactions can be approved under exceptional circumstances, few withdrawal permits have been issued.
US groups Philip Morris and PepsiCo earned $775 million and $718 million, respectively. Swedish truck maker Scania’s $621 million Russian profit in 2022 made it the top earner among companies that have since withdrawn from the country. Philip Morris declined to comment. PepsiCo and Scania did not respond to requests for comment.
Among companies of “unfriendly” origin that remain active in Russia, Austrian bank Raiffeisen reported the biggest 2022 earnings in the country at $2 billion, according to the KSE data.
US-based businesses generated the largest total profit of $4.9 billion, the KSE numbers show, followed by German, Austrian and Swiss companies with $2.4 billion, $1.9 billion and $1 billion, respectively.
‘The Financial Times’ reported last month that European companies had reported writedowns and losses worth at least €100 billion from their operations in Russia since last year’s full-scale invasion.
German energy group Wintershall, which this year recorded a €7 billion non-cash impairment after the Kremlin expropriated its Russian business, has “about €2 billion in working interest cash… locked in due to dividend restrictions”, investors were told on a conference.
“The vast majority of the cash that was generated within our Russian joint ventures since 2022 has dissipated,” Wintershall said last month, adding that no dividends had been paid from Russia for 2022.
Russian officials are yet to outline “a clear strategy for dealing with frozen assets”, said Aleksandra Prokopenko, a non-resident scholar at the Carnegie Russia Eurasia Centre. “However, considering the strong desire of foreign entities to regain their dividends, they are likely to explore using them as leverage – for example to urge western authorities to unfreeze Russian assets.”
Transforming Africa’s Transport and Energy Sectors in landmark Zanzibar Declaration
A special meeting of African ministers in charge of transport and energy held from 12-15 September on the theme, “Accelerating Infrastructure to Deliver on the AU Agenda 2063 Aspirations” has concluded with an action-oriented Zanzibar Declaration aimed at spurring the Continent’s transport and energy sectors.
Convened under the auspices of the African Union’s Fourth Ordinary Specialized Technical Committee on Transport, Transcontinental and Interregional Infrastructure and Energy, the meeting was organized by the African Union Commission (AUC) in collaboration with the African Union Development Agency (AUDA-NEPAD), the African Development Bank (AfDB) and the United Nations Economic Commission for Africa (ECA).
Speaking at the Ministerial segment of the meeting, Robert Lisinge, Acting Director of the Private Sector Development and Finance Division at the ECA called on member states to address the barriers limiting private sector investments in infrastructure and energy, urging them to facilitate investments by creating conducive policy and regulatory environments. “The requirements of continental infrastructure development and the aspirations of Agenda 2063 and Agenda 2030 far exceed current levels of public sector investment,” he said.
He stressed that over the next ten years, there is a need for concerted action to address energy transition and security issues, in order to open up opportunities for the transformation of the continent. He cited ECA’s analytical work on the AfCFTA, which demonstrates there are investment opportunities for infrastructure development in the area of transport and energy and added that digitization and artificial intelligence offer great opportunities for the efficient operation of infrastructure.
According to the Zanzibar Declaration, the Ministers adopted the AUC and ECA continental regulatory framework for crowding-in private sector investment in Africa’s electricity markets. This framework will be used as an instrument for fast-tracking private sector investment participation in Africa’s electricity markets. The Declaration also called on ECA and partners to develop a continental energy security policy framework as called for by the 41st Ordinary Session of the Executive Council and an Energy Security Index and Dashboard to track advancements in achieving Africa’s energy security.
The meeting acknowledged the efforts by ECA to support Member States in coordinating Public-Private Partnerships (PPP) with development partners and the establishment of the African School of Regulation (ASR) as a pan-African centre of excellence to enhance the capacity of Member States on energy regulation.
The Declaration requested the ECA and partner institutions to further act in the following areas:
The AUC, in collaboration with AUDA-NEPAD, ECA, AfDB, RECs, Africa Transport Policy Programme (SSATP), and the African Continental Free Trade Area (AfCFTA) Secretariat to implement the roadmap on the comprehensive and integrated regulatory framework on road transport in Africa.
ECA, in collaboration with AUC, to identify innovative practices and initiatives that emerged in the aviation industry in Africa during the COVID-19 pandemic and propose ways of sustaining such practices, including the development of smart airports with digital solutions for improved aviation security facilitation and environmental protection.
ECA, in collaboration with AUC, to establish mechanisms for systematic implementation, monitoring and evaluation of continental strategies for a sustainable recovery of the aviation industry.
The AUC, AUDA-NEPAD, AfDB and UNECA to engage with development partners and Development Finance Institutions (DFIs) to mobilize resources for projects preparation and implementation of PIDA-PAP 2 projects.
ECA and AUC, in collaboration with partners, to coordinate PPP initiatives to avoid duplication of efforts and strengthen complementarity.
The AUC and ECA to work with continental, regional and specialized institutions to support the design and implementation of programmes, courses, and capacity development initiatives of the African School of Regulation (ASR) to support the implementation of the African Single Electricity Market and Continental Power System Master Plan.
The AUC to work with AUDA-NEPAD, AfDB, ECA and RECs, respective power pools, regional regulatory bodies, and relevant stakeholders to design continental mechanisms for regulating and coordinating electricity trade across power pools.
AUDA-NEPAD, AUC, AFREC, ECA, AfDB, Power pools and development partners to comprehensively assess local manufacturing of renewable energy technologies and beneficiation of critical minerals for battery manufacturing.
ECA and AFREC to accelerate the implementation of the Energy4Sahel Project to improve the deployment of off-grid technologies and clean cooking in the affected Member States.
World Trade Report 2023: “re-globalization” amid early signs of fragmentation
The 2023 edition of the WTO’s World Trade Report presents new evidence of the benefits of broader, more inclusive economic integration as early indications of trade fragmentation threaten to unwind growth and development.
“The post-1945 international economic order was built on the idea that interdependence among nations through increased trade and economic ties would foster peace and shared prosperity. For most of the past 75 years, this idea guided policymakers, and helped lay the foundation for an unprecedented era of growth, higher living standards and poverty reduction,” WTO Director-General Ngozi Okonjo-Iweala says in her foreword to the report. “Today this vision is under threat, as is the future of an open and predictable global economy.”
In introducing the report at the opening of the WTO’s annual Public Forum on 12 September, WTO Chief Economist Ralph Ossa said: “In particular, the report makes the case for extending trade integration to more economies, people, and issues, which is a process that we call “re-globalization.”
Starting with an analysis of the current state of globalization, the report confirms that geopolitical tensions are beginning to affect trade flows, including in ways that point towards fragmentation of trading relationships. WTO Secretariat calculations find, for example, that goods trade flows between two hypothetical geopolitical blocs — based on voting patterns at the UN General Assembly — have grown 4-6 per cent more slowly than trade within these blocs.
However, the report contends that, despite these findings, international trade continues to thrive, implying that talk of de-globalization is on balance still not supported by the data. The publication points to the expansion of digital services trade, environmental goods trade, and global value chains in addition to the resilience of trade to recent global crises.
The report goes on to examine the relationship between economic integration and three major challenges facing today’s global economic order: security and resilience, poverty and inclusiveness, and environmental sustainability — areas in which arguments have gained ground that globalization has not delivered as expected or exposes countries to excessive risks.
Looking at the evidence, the report makes the case that “re-globalization,” which is the renewed drive towards integrating more people, economies and pressing issues into world trade, is a more promising solution to these issues than fragmentation.
The report shows that trade openness is strongly linked with a reduced likelihood of conflict and has led to sharp declines in poverty for over four decades. Also, technology improvements enabled by trade have had a strong impact in reducing carbon emissions.
WTO trade monitoring data shows, for instance, how the onset of the war in Ukraine was followed by an increase in export restrictions, a trend also observed during the COVID-19 pandemic. Export restrictions on critical raw materials have increased more than five-fold in the last decade.
Figure C.3 displays the share of trade affected by sanctions using the Global Sanction Database (GSD) which includes data on trade sanctions from one economy to another by year.
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