Analysis: Investors see long wait for enlarged BRICS’ economic boon

Summary

• Investors sceptical larger BRICS will lead to investment boom
• Saudi Arabia, UAE, Iran among those joining club
• Fuels speculation oil producers to switch to non-USD trade

Companies

JOHANNESBURG/LONDON, Aug 25 (Reuters) – The expansion of the BRICS group of developing countries could provide a lifeline to capital-starved new entrants Iran and Argentina, but investors and analysts say a broader economic boon for the bloc’s members is far from certain.

Leaders of the BRICS – Brazil, Russia, India, China and South Africa – invited the two as well as Saudi Arabia, the United Arab Emirates (UAE), Ethiopia and Egypt into the club at a summit this week in Johannesburg.

The move is aimed at increasing the BRICS’ clout as a champion of “Global South” nations, many of which feel unfairly treated by international institutions dominated by the United States and other wealthy nations.

The additions are a mixed bunch: Saudi Arabia and the UAE are wealthy oil producers, inflation-wracked Argentina is desperate for foreign investment, Iran is isolated by Western sanctions, Ethiopia is recovering from a civil war and Egypt’s economy is in crisis.

Some investors and economic analysts are sceptical that expansion will lead to increased foreign direct investment (FDI) within the bloc.

“Egypt has already been expecting a lot of FDI from Saudi… and the Gulf money is not coming – and it is not because they are not in the BRICS organisation, it is because the proposition is not attractive,” said Viktor Szabo, a portfolio manager at abrdn in London.

Still, BRICS leaders and other investors touted the increased economic heft from the expansion. The new members would grow the bloc’s share of global GDP to 29% from 26% and trade in goods to 21% from 18%, Li Kexin, a senior Chinese foreign ministry official, told a press briefing on Thursday.

“I don’t know if I would say it’s a game changer, but in terms of opening up consumer markets there is scale there,” said Ola El-Shawarby, deputy portfolio manager for the Emerging Markets Equity Strategy at Van Eck in New York.

Increasing trade links between existing and prospective members of the bloc have garnered attention.

SDG 10: Reduced Inequalities

SDG 10.1: By 2030, progressively achieve and sustain income growth of the bottom 40% of the population at a rate higher than the national average.

Income growth rate of the bottom 40% of the population

SDG 10.2: By 2030, empower and promote the social, economic and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status.

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SDG 17: Partnerships for the Goals

SDG 17.11: Significantly increase the exports of developing countries, in particular with a view to doubling the least developed countries’ share of global exports by 2020.

Share of global exports by developing countries and least developed countries

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Source: reuters.com

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