At first just a rather silly Goldman Sachs acronym to describe the “big emerging” market (Brazil/Russia/India/China/South Africa), the BRICS has evolved into an actual organization that is increasingly relevant.
Unfortunately, quite a few things have changed since. So I would argue that the only viable long term formula would be the BRICA:
Adding Iran
Removing South Africa
Removing India
Adding Argentina
I will explain each point and how they would stabilize the BRICS organization from a general idea to an actually powerful and coherent bloc.
Inclusion of Iran
Since I started this blog, I have argued that the Russia-China alliance is actually what I called the Eurasian tripod, including Iran as the center of the Eurasian anti-Western alliance.
In my last report on Saudia Arabia, I discussed how China is trying to bring in its fold the Arab countries from the Gulf, away from an increasingly unreliable American influence.
The problem is of course to not antagonize Iran in the progress, despite the century-old enmity between Iran and the Arab countries, fuelled by conflicting interests and religious conflict.
This is still true, and China needs to prove to Iran it is still a reliable partner even when getting friendly with the other side of the Persian Gulf. No doubt the recent royal reception of the Iranian president, the first such visit in 20 years, was designed to listen to such concerns and calm a worried Iranian leadership.
In the long run, Iran will be a provider of cheap resources and manpower to both Russia and China. We already see this with Iranian drones in Ukraine. And will also provide access and influence in the Indian Ocean to both.
Exclusion of South Africa
The more pressing problem of the BRICS bloc is South Africa. Being from beginning a smaller, odd duck in the bloc, it has only gotten worse since. While everyone is politely avoiding the issue, all can see the country collapsing in real time and turning into a new Zimbabwe.
The 2021 riots have shattered any idea of an improving or peaceful South Africa. According to Amensty International “Authorities watched while organised groups blocked the roads, burnt properties and looted shops and factories last week“.
The infrastructure is not doing better. The coal-rich country is failing at producing enough electricity. Blackouts are now 12h long every day. More problematic, when the CEO of the power company Eskom went on to break the power of unions, thefts, and corruption destroying the company, he was almost assassinated with coffee laced with arsenic. That’s a message the next CEO will likely have received loud and clear…
This is also a country with record levels of murder, rape, and kidnapping.
Simply put, South Africa is getting more dysfunctional by the day. In the long run, it might still be in the BRICS but will be excluded from any decision-making. The sad truth is that the rest of the Global South will be unwilling to help much, and only internal change could improve the future of the country.
More likely, it will be replaced by actually successful African countries on the rise, like Kenya, Tanzania, or even Ethiopia.
Exclusion of India
Now this will be a controversial one. This is quite the opposite of the South African situation. If anything, India will not fit the reformed BRICS because it is TOO successful. The country is large enough and developing enough to be ambitious.
But the truth of the BRICS is that it is in practice China + the rest. China's sheer weight in technological capacity, demography, and industrial capacity makes it the uncontested and natural leader of the BRICS.
India will be at the very least for a few decades less rich and powerful than China. But it is equally unlikely to accept a subordinate role.
Explaining the geopolitics of India would require a full dedicated report. So I will go with the short version (for now):
India is too big and too ambitious to submit to China like the rest of the BRICS.
But it is equally too poor to be accepted in the alliance as an equal.
In addition, it is actively trying to court the West in the US-China rivalry.
The proximity of China to Pakistan, India's archenemy, does not help either.
This is not to say that India and China are necessary on a collision course. The best path for India is a tight middle ground, not antagonizing either the West, or China.
The thing is that India needs deeper integration with Eurasia for vital supplies like Iranian energy + Russian energy and military equipment.
But there is already a much larger and more balanced organization for that: The SCO (Shanghai Cooperation Organization). It is already designed to gather everyone in Eurasia willing to discuss, small and big, and India in it offers a good alternative to having the SCO purely dominated by China.
Together with friendly relations with the ANSEAN (South-East Asia), this is a better forum for India to discuss its interests, especially with the SCO likely to expand to Turkey and other Middle-East power.
Meanwhile, the BRICS can become something else instead of an awkward SCO duplicate.
Ideally, India and China can rise economically without hostility. But this is a difficult path and we will see if it happens. I would consider a neutral India playing a little bit on both sides is the most likely scenario.
Eurasian India After All?
The only thing I could imagine making India turn to Eurasia permanently would be the blunder of pressuring it too hard into compliance.
Something the recent spat between the Indian government and George Soros make entirely possible.
India’s foreign minister, Subrahmanyam Jaishankar, told a conference in Sydney that Soros’ comments were typical of a “Euro-Atlantic view” and rejected his accusations.
“There are still people in the world who believe that their definition, their preferences, their views must override everything else,”
After pushing Russia into an alliance with China, a historic failure of Western diplomacy, will the geniuses in Washington think tanks achieve the same wonderful results with India?
Who knows…
I am regularly surprised at their sheer stupidity and disconnection from basic realities, including apparently NATO running out of ammunition, so it is entirely possible India will stay in the BRICS (BRIICA?).
NATO Allies Would Run Out of Ammo Within Days of War With Russia
Inclusion of Argentina
You might have noticed that the one BRICS country I did not mention yet is Brazil.
This is because Brazil is an oddity in the burgeoning BRIC. It is isolated away in South America. It nevertheless fit the profile of the other BRICS country excluding India: a major country relying on exporting natural resources (metal, wood, energy, and food), with its main trading partner being of course China.
The limit of having only Brazil in the BRICS is that while it IS the biggest South American country, it is not influential enough to de facto represent the continent. It does not even speak the same language as the rest.
This is an issue, as this means Chinese influence on the region is entirely dependent on its appetite for natural resources and converts into little direct connections.
This is of course to the advantage of the USA, which has for more than a century determined that the Americas were its private fiefdom, under the Monroe Doctrine.
By adding Argentina, the largest of the South American landmass and population would be brought into the BRICS (49% for Brazil and 10% for Argentina).
Argentina is also likely to turn into a major energy exporter in the next 10 years, thanks to its shale deposits in the Vaca Muerte. Meanwhile, Brazil is “cornering the market for offshore drilling rigs”, trying to secure as much capacity for oil production growth as possible, while prices are still acceptable.
And lastly, Argentina is key in lithium mining, so if you hope for renewables to avoid the power of oil cartel, tough luck!
With Russia + Brazil + Argentina, you also have a major portion of the prime farmland in the world. And almost the only part that is able to drive the massive volume of export out of the USA & EU.
Ideally, adding Columbia (for its population weight) or Chile (for its mining importance and GDP weight) would close the deal on making the BRICS an Eurasia+South America alliance.
Even out of the BRICS, Brazil+Argentina seem to be aware of their potential in leading South America into becoming an independent pole of power. The proof is the recent idea of the “Sur: a Euro-like (or more like the old ECU) common currency for interstate trade between the two. The idea is half-baked for now, but shows the intention.
The Rest of the possible BRICS changes
For now, the headlines have been only about adding more and more potential members to the BRICS. The map below shows all the potential new members, including the unlikely ones like Afghanistan.
If accepted, the new proposed BRICS members would create an entity with a GDP 30% larger than the United States, over 50% of the global population and in control of 60% of global gas reserves.
You could add to this comment :
Most of the food exports (hence a total control on the Middle East and Africa)
80-90% of global oil reserves.
Most of the sea trade chokepoints (Suez, Hormuz, Straight of Malacca), with really only Panama, Istanbul and Gibraltar missing.
For a while I expect this aggressive expansion will be the priority. But so many diverging interests would probably result in paralyzing the organization decision-making, EU-style.
So I expect we might see emerging a “core" BRICS” (the BRICA I suggested, maybe with Saudia Arabia) and an extended one for the “global South”.
I hesitated in calling the new proposed structure BRICAS to include Saudia Arabia. I somehow doubt it can stay in the alliance stably together with Iran.
Although their collective multi-decade cohabitation in OPEC might prove that I am wrong on this one. (refer to my last Saudia Arabia report for more detail on the country’s future).
Leveraging BRICA to Challenge the West
Russia and China are increasingly framing their struggle against the West as the fight of the “Global South”. But in practice, this struggle is really of the old colonial empires vs the commodities producers + China.
The structure makes sense. Commodities producers from the Arabic desert to the Russian tundra and the Argentinian pampas have been unhappy with the world trade structure for decades.
Oil producers have the OPEC to help balance out a bit of the power between Western buyers and “South” producers. But the suppliers of metal and food have always been price takers.
If you think I am exaggerating by describing this as an old grievance from the “third world” against the West, apparently this is a 100-year-old cartoon from a communist publication.
Notice the Soviet/Russian soldier in the back: the more things change…
By gathering in one bloc most of the commodities, this turns the BRICS into a supercharged version of the 1970s OPEC. They could form a producer cartel for EVERY necessity: LNG, oil, soybean, coffee, chocolate, sugar, iron, copper, aluminum, lithium, rare earth minerals, etc.
But once again, India is more of a mini-China than a common profile with the other commodity producers. And it tends to lean West if it has to choose between China+Pakistan and the West.
China’s Role in the New BRICS
Defense / Intelligence
China is funnily enough both the leader of the BRICS and the one that really doesn’t fit in it. Mostly because it is a massive commodity IMPORTER. But its real role is security guaranteer and technology supplier.
What kept down countries like Brazil or Argentina for decades was a mix of:
Incapability to keep Western armies from supporting coups and other insurrections if they felt like it.
Incapability in replacing Western technology in computing, power generation, mining equipment, oil drilling, consumer goods, etc…
The history of South America is an endless pendulum between right-wing dictatorship and socialist dystopia, each in reaction to the other in a vicious circle.
Whether the CIA-sponsored right-wing government stayed in power or not is kind of irrelevant, the country was not going to be powerful anyway as the socialist overreaction would turn it into Venezuela.
So by providing support China's goal is to “stabilize” these countries and make them more reliable suppliers. This includes increased military collaboration.
In one sense, the Global South might be trading one master (the West) for another (China). But considering China's dependency on the same South imports, this is also creating a balance of power inside the break. Sort of.
Technology
The second role is a technology provider. China needs to build its own autonomous semiconductor industry, including its own semiconductor manufacturing equipment, not just fabs.
Only then will it succeed in this role. If not, even if it manages every other topic, the BRICS+ will still be very vulnerable to the sanction weapon and think twice before angering the USA.
And it is the only one with the governance efficiency (excluding India) and the critical mass of population and internal market (excluding Russia) to fit these shoes.
On the technology front, China + India are also completely controlling pharmaceutical drug production and imports to the West.
The Currency Dilemma
Now, coordinating price pressure on Western commodity buyers will be hard. The more intervention occurs, the more currencies get destabilized, and the harder it is to price correctly how many barrels of oil a ton of soybeans is worth.
And you can be sure semi-functional governments like Argentina and Saudia Arabia will not be very efficient at it.
The most urgent need is to develop their own banking backbone. SWIFT sanctions against Iran and then Russia have proven that no one is safe. With the growing integration of Russian-Chinese-Indian-Iranian banking system out of SWIFT, this process is well advanced.
While it will ultimately weaken the role of the dollar, I think this will be a happy side effect for the BRICS.
The parallel step is building a means of exchange that can be accepted by all members without too much squabbling about the value of each currency.
A basket of currencies will work at first. But differences in economic growth will make it complicated to maintain.
In the long run, the only likely candidate is gold, as a neutral commodity that everyone will be okay to accept for settling down the balance of payment.
But we are talking of a timeframe of probably 5-15 years. In the short term, a currency basket is likely good enough and easier to agree upon and can be rebalanced once per year. And it will give time for each of the BRICS central banks the time to build up a predetermined amount of gold in % of GDP.
Not the Yuan!
Please note that it will NOT be the yuan. China saw the USA hollowing out its industrial base and real power due to the Triffin dilemma, and will not want that happening to the yuan.
They do NOT want the yuan to become the world reserve currency.
A Mercantilist gold-standard yuan would be another story and is probably the targeted end game in 20+ years.
Investment Takeaways
Australia and South America look more attractive for investors by the day.
Australia
Australia because it is the only Western country with a powerful enough mining lobby to escape the Green Leap Backward.
I already own a bit of Rio Tinto (iron, copper, aluminum, lithium) and X64 (former Medusa Mining, mining gold) in my portfolio.
The other Australian miners seems fine as well, with the exception of Fortescue that seems determined in squandering its iron-mining money in green hydrogen.
South America
South America because even if part of the BRICS, they are unlikely to be dragged into war, even in case of a generalized conflict.
My next stock report will cover a hard-to-invest-in and off-the-radar South American country that I think will be the Qatar of South America.
If you had invested in Qatar in the 1960s.
Stay tuned.