A Cost-Benefit Analysis
The recent announcement of Ethiopia’s accession to the BRICS alliance signifies a transformative milestone for the country and the broader African continent. As BRICS expands its ranks, its influence in the global economy also increases and offers more opportunities as an alternative source of development finance. This move is very beneficial to Ethiopia, which has been looking for alternative sources of finance. However, there are concerns that this move will bring as Western countries are wary of the growing influence of China and Russia, two of the major superpowers that are contending against America’s dominance of the current global order. EBR’s Eden Teshome highlights the potential benefits and implications of Ethiopia’s membership in BRICS.
During the 15th BRICS summit held in Johannesburg last August, South African President Cyril Ramaphosa, whose country is the current BRICS chair, announced that the existing five-member block, consisting of Brazil, Russia, India, China, and South Africa (BRICS), had taken a significant step to expand by inviting six new emerging economies to join. Accordingly, out of the 22 countries that have officially made formal requests for membership, Ethiopia, Egypt, Argentina, Iran, Saudi Arabia and the United Arab Emirates were formally invited to join the block. The membership will start in January 2024. These countries bring 420 million people and a USD3.2 trillion economy, almost equal to India’s GDP, to the block.
The original five BRICS member countries have a combined GDP of USD27.6 trillion in 2023, representing 26.3Pct of the global economy. With the new members included, BRICS GDP climbs slightly to USD30.8 trillion, enough for a 29.3Pct global share. Population-wise, 40Pct of the world’s population lives in the five countries, which account for 26Pct of the world’s GDP. However, with the addition of the six additional members (BRICS+6), their population share will increase to 46Pct. With this, the BRICS has become more prominent than the G-countries blocks in economic size.
Indeed, the BRICS alliance has emerged as a powerful in the ever-evolving global landscape. Initially coined as BRIC by Goldman Sachs economist Jim O’Neill in 2001, the coalition expanded to include South Africa in 2010, envisioning a future where these nations would dominate the global economy by 2050.
The BRICS countries operate as a loose organization, united by a common goal to enhance economic cooperation and bolster their political influence on the global stage. Regarded as a counterweight to the traditional Western-led international order, the BRICS alliance has attracted the attention of over 40 countries eager to join its ranks.
At the heart of the alliance lies the annual BRICS convention, where heads of state and member nations convene to foster economic cooperation and strengthen ties. With each member nation taking turns as chairman, the alliance showcases a commitment to equality and shared leadership.
One significant outcome of the BRICS alliance is the establishment of the New Development Bank in 2015 at a subscribed capital of 100 billion dollars. This institution is a vital funding source for infrastructure and sustainable development projects in emerging markets and developing countries, providing a much-needed alternative to traditional financial institutions.
Moreover, the creation of the BRICS Parliamentary Forum has further solidified the alliance’s influence. This platform facilitates inter-parliamentary exchanges, consultations, and the development of innovative mechanisms for cooperation, empowering lawmakers to shape policies that align with the alliance’s objectives.
While the BRICS alliance presents immense potential, challenges remain. Disagreements among member nations on transparency and a balanced approach pose hurdles to the group’s growth. However, the collective ambition to redefine global economic dynamics and reduce reliance on Western powers continues to drive the alliance forward.
In a recent announcement, President Cyril Ramaphosa of South Africa stated that BRICS will expand its global engagement by welcoming six new full members in the coming year. Including Ethiopia, Egypt, Saudi Arabia, the UAE, Argentina, and Iran will increase the number of BRICS members to eleven. This expansion will propel the bloc’s economy beyond the size of the Organisation for Economic Cooperation and Development (OECD) ‘s economic block, signaling significant growth and influence for BRICS on the global stage. The expansion has generated considerable interest and raised questions about the benefits for the participating countries, the selection criteria for new members, and the implications for Western nations.
The inclusion of new members in BRICS marks the culmination of extensive efforts by various nations to assert their autonomy in global affairs. While numerous countries, more than 40, have expressed their desire to join BRICS, Ethiopia stands out with its rich historical significance as the birthplace of coffee and its longstanding heritage as one of the oldest nations on earth with a long history of civilization, which has shielded it from the influence of major powers. Nigeria, a prominent African nation, and Algeria also actively campaigned for admission but will have to wait for future opportunities.
Analysts suggest that African countries’ eagerness to join BRICS stems from their aspirations for growth and their disillusionment with Western policies toward developing nations. Additionally, African countries seek alternatives to the reliance on the US dollar and hope to benefit from BRICS’ de-dollarization approach. The decision to expand BRICS comes at a challenging time for many African countries, grappling with economic and political crises exacerbated by the Ukraine war and the COVID-19 pandemic. The pressure from the US to align with its position in the Ukraine conflict has further motivated African leaders to align themselves with BRICS member states.
The recent expansion of BRICS has significantly increased its representation, accounting for 42Pct of the world’s population and 36Pct of global GDP. Originally established as an economic bloc, BRICS aimed to provide developing nations in the Global South with an alternative to Western institutions, challenging the dominance of the US-led international order.
According to Zemedeneh Negatu, Global Chairman of Fairfax Africa, “Ethiopia’s selection and invitation to join BRICS as a member is grounded in its economic performance over the past 15 years, even amidst challenges such as the COVID-19 pandemic and internal conflicts.” In an interview with the BBC on Focus on Africa, Zemedeneh highlighted that Ethiopia has consistently achieved impressive economic growth, with the International Monetary Fund reporting a 6.2 Pct expansion.
“Ethiopia’s significance stems not only from its economic resilience but also its demographic strength. As the second most populous country in Africa, Ethiopia’s inclusion in the BRICS holds substantial implications for the alliance. With a projected GDP of USD 156 billion, Ethiopia has the potential to become one of the leading economies globally, solidifying its position as a key player in the business landscape.” Said Zemedeneh.
Zemedeneh believes Ethiopia’s selection and invitation to join the BRICS member states is rooted in its impressive economic performance over the past 15 years, despite challenges such as the COVID-19 pandemic and internal conflicts. With a consistent average GDP growth rate of 6.2Pct, Ethiopia has showcased its resilience and potential for becoming a key player in the global business landscape. As Africa’s second most populous country, Ethiopia’s inclusion in BRICS holds significant implications for the alliance’s economic growth and influence.
In other ways, the BRICS alliance also offers African nations a compelling platform for de-dollarizing their economy, fueling economic diversification and fostering South-South cooperation. As African economies reduce reliance on the US dollar and strengthen ties with BRICS member states, they stand to gain enhanced trade opportunities, increased investment, and improved infrastructure funding. Simultaneously, this trend reshapes global power dynamics and presents Western powers with the challenge of adapting to a changing economic order. By embracing de-dollarization within the BRICS framework, African nations position themselves to thrive in a rapidly evolving business and political landscape, asserting their agency on the global stage.
“I don’t see the USD being abandoned as the main currency of the world at least not anytime soon,” says Zemedeneh. “However, why can’t the Ethiopian Birr be used in place of the Chinese Yuan, for instance, if you are trading with China from Ethiopia? That is how I understand de-dollarization.”
One of the benefits of a country joining BRICS is investment and infrastructure funding: BRICS, through institutions like the New Development Bank (NDB), provides African countries with alternative sources of funding for critical infrastructure projects. This bank reduces reliance on Western financial institutions and enables tailored development finance, attracting foreign direct investment and fostering sustainable growth.
The New Development Bank, formerly the BRICS Development Bank, is a multilateral development bank established by the BRICS states in 2014. According to the Agreement on the NDB, “the Bank shall support public or private projects through loans, guarantees, equity participation and other financial instruments.” NDB presents a significant opportunity for the country to access funding outside traditional Western institutions. This alternative financial institution aims to provide Ethiopia with greater flexibility in pursuing development projects aligned with its domestic economic priorities.
With an initial authorized capital of the bank of USD100 billion divided into one million shares having a par value of USD100,000 each, a substantial capital backs the NDB. The initial subscribed capital of the NDB is USD50 billion divided into paid-in shares (USD10 billion) and callable shares (USD40 billion). Each founding member has an equal contribution to the initial subscribed capital of the bank.
Led by Dilma Rousseff, former president of Brazil, the NDB specifies that every member will have one vote and that no member would have any veto powers, making it quite different from the Western-backed financial institutions such as the World Bank and the IMF, which have faced criticism for imposing strict economic conditions on developing countries. By joining the Shanghai-based NDB, Ethiopia gains access to funding without the same policy strings attached, offering a counterbalance to Western institutions.
Ethiopia’s participation in the New Development Bank offers a promising avenue for economic independence and tailored development financing. By accessing funds through the NDB, Ethiopia can pursue development projects that align with its domestic economic priorities and needs. This alternative funding source gives the country greater flexibility, policy autonomy, and the opportunity to diversify its financial partnerships. As Ethiopia continues to leverage the benefits of the NDB, it can pave the way for sustainable economic growth and assert its agency in shaping its developmental path.
Misheck Mwanza, an economist and former director at the Zambia Institute of Diplomacy and International Studies, was quoted as saying by Xinhua emphasizing the significant role of BRICS as powerful influencers of development and economic anchors in specific regions. Mwanza urges developing countries to embrace opportunities for collaboration with BRICS nations, as doing so can lead to substantial economic benefits.
According to Mwanza, by opening their doors and engaging with these influential players in global development, developing countries can tap into the spillover effects of the progress and advancements within the BRICS nations. He stresses the importance of focusing on the potential gains rather than getting caught up in opinions or perceptions about specific countries.
Mwanza highlights the transformative potential of interacting with BRICS, as these alliances can help developing nations actualize their economic aspirations. Developing countries can accelerate their economic growth and development by fostering partnerships and leveraging the expertise and resources of BRICS.
Indeed, joining the BRICS is a big diplomatic success for Ethiopia. While Western nations were using global institutions they dominate to levy sanctions, two BRICS members, China and Russia, were time and again defending Ethiopia at the United Nations Security Council from the United States and Europe’s unfair attempt to meddle in the internal affairs of Ethiopia. The two superpowers’ consistent appeal to these institutions to Give Ethiopia a chance to resolve its internal challenges by its means has won the support of not only the Ethiopian Government but also the country’s citizens to develop a positive attitude towards Russia and China. That’s why some researchers see Ethiopia’s decision as a strategic move to depart from the American-dominated global order.
Some political analysts have a different opinion on this. For Dareskedar Taye (PhD), Lead Researcher at the Institute of Foreign Affairs, a premier Foreign Policy Think Tank of the Ethiopian Government, “BRICS isn’t an anti-America block; it’s a loose economic coalition with no major institutional arrangements to put political, security and diplomatic issues on the table.” So Ethiopia’s joining of the block should never be taken as a move to depart from its robust security, political, and diplomatic ties with the West, he argues. He says joining BRICS is strategic for Ethiopia from the perspective of diversifying development finance alone. Even though the US and its allies are developing a perception of Ethiopia as a Chinese and Russian ally in Africa, Ethiopia is still a powerful ally of the United States in fighting terrorism in the African continent.
Indeed, BRICS membership can be a step in the right direction to assist Ethiopia in overcoming its age-old development challenges. As the second most populous country in the continent, Ethiopia offers a market of 126 million people whose size and purchasing capacity are constantly increasing; that’s why the country offers enormous untapped potential for investment. With its vast majority of a youthful population and 70Pct of the population under 30, Ethiopia truly offers a green pasture as a preferred investment destination for BRICS members’ investors, especially in light manufacturing industries targeting the export market. Ethiopia has a true manufacturing potential as BRICS economies are increasing in the value chain and becoming more expensive.
11th Year • September 2023 • No. 121 EBR