An Canadian Economics' Briefing Note: The expansion of BRICS & China’s influence on the G20

Issue

BRICS, the group of Emerging economies has decided to include Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates, challenging the G20. Additionally, China decided not to be present in this year’s G20, potentially influencing these and other emerging countries to reject institutions which are accused of being bias to the West. This could affect current and future trade between Canada and BRICS nations.

Background

BRICS is an association of five major emerging economies: Brazil, Russia, India, China, and South Africa. It was originally “BRIC” before South Africa joined in 2010. BRICS focuses on economic cooperation, hosts annual summits, and established the New Development Bank for infrastructure projects.

Prior to expansion, BRICS holds 26.3% of the world’s GDP, 20.2% of global exports and 40.8% of the world’s population. The G20, holds 80% of the world GDP, 75% of the global trade and 60% of the world’s population.

BRICS, especially China, has accused global institutions, such as the G20, to be biased towards the ‘West’ and its interests. BRICS, and China, is openly challenging the G20 and other global institutions to advance its own economic interests.

Current Status

BRICS will hold 36% of the world’s GDP and 47% of the population after its planned expansion.

The S&P Credit ratings of BRICS would be, BB- for Brazil, A+ for China, BBB- for India, BB- for South Africa and Russia is currently not rated. The expanding countries S&P credit scores would be CCC- for Argentina, B for Egypt, CCC for Ethiopia, A for Saudi Arabia, AA for UAE, and Iran is currently not rated.

Between the years of 2000–2021 BRICS have had an Average inflation rate of 6.01%. The largest contributor to this would be Russia with an average inflation rate of 9.93%. With the planned expansion, average inflation would increase to 8.81. The largest contributors would be Argentina & Iran with inflation approach 20%.

In 2022, BRICS accounted for 20.4% of the world’s Oil production. The largest contributor being Russia at 11.9%. After the expansion, BRICS would have a share of 43.1% of global oil production. The new largest contributor would be Saudi Arabia with 12.9%.

In 2022, Canada exported US$596.9 Billion worth of goods and services. 5% of these exports were to BRICS nations (China, India & Brazil). Canada’s largest import partner aside from the USA is China. In 2022, Canada’s largest trade deficit with BRICS nations is with China (-US$54.9 billion) and Brazil (-3.4 billion)

Key Considerations

The expansion of BRICS sees the average inflation increase amongst the group increase. The largest contributors to this increase would be Russia, Iran, Ethiopia & Argentina. Consistently high inflation would affect BRIC’s ability to; maintain a high standard of living amongst its population/skilled population, affect central bank(s) abilities to fund infrastructure at sustainable interest rates and dissuade economic activity in local currency. As the value of currency decreases in BRICS, this could affect Canada’s trade position with BRICS nations. Especially Brazil, China and India as these are Canada’s largest trade partners in BRICS.

The average credit rating of BRICS will be downgraded after the expansion. Countries such as Argentina, Iran, Egypt & Ethiopia are the largest contributors to this downgrade. Low credit score indicates a higher risk of a country defaulting on debt. This risk of default impacts a nation’s: Borrowing Costs, Currency, Foreign Direct Investment (FDI) and a overall decline in investor confidence. This could affect Canada’s position in BRICS, whether it be holding Bonds of BRICS nations or Foreign Direct Investment (FDI), these investments have increased risk after the expansion.

The addition of Saudi Arabia, Iran & UAE into BRICS has pushed the groups global oil production to 43%. Largely increasing the influence of BRICS may impose on both Canada and the ‘West’. Canada currently contributes 5.9% of the global oil product. This industry could be vulnerable to price manipulation form BRICS affecting Canada’s ability to compete. Canada could be forced to support the domestic oil industry with subsidiaries, quotas and/or tariffs.

China’s absence from the G20 sends a message to the members of the G20, as well as all emerging economies around the world. BRICS now holding 36% of the world’s GDP and 47% of the population after its planned expansion — is no longer accepting historical global institutions which are biased towards the ‘West’s’ agenda. This could affect Canada’s current and future trade with BRICS nations as economic institutions, such as the G20, facilitate global trade and relations. China’s absence from the G20 can also be viewed as insulting to other BRICS nations who were present. This would be especially true for India, as they were this year’s G20 host country. India, who is the second largest member by GDP in BRICS, and has continuous border disputes with China, could be dissuade from China’s actions and more inclusive of the West and G20.

Conclusion

The expansion of BRICS will increase the groups influence on global economics, particularly in the oil industry. The expansion will additionally dilute the groups global financial position in terms of Credit score and inflation, increasing the cost of debt and decreasing FDI. Canada would be potentially affected in the following ways: Active and future investments in these countries would have increased risk, Canada’s oil industry is at risk of being challenged by BRICS, Canada’s Trade Balance between itself and BRICS nations could be affected and the economic influence of economic institutions that Canada participates in, such as the G20 would be diluted.