Egypt’s ongoing need for financing and investment is well-documented. “Egypt faces two key challenges when it comes to financing,” Yomna Mohieldin, a Harvard University research fellow, said in an April blog on Finance for Development Lab, a think tank. “Firstly, a lack of funds due to a foreign liquidity squeeze … led to credit downgrading [which made borrowing more expensive and scarcer]. Secondly, a growing perception that regional partners’ support for the Egyptian economy is declining.”
Until the end of 2023, Egypt had to secure almost all its debt and external financing needs from developed wealthy nations (the United States, represented by the IFC, IMF and World Bank, and Europe, represented by EBRD) and the GCC. A small portion came from the African Development Bank and other international institutions.
To expand its options, the current administration sought membership in the Brazil, Russia, India, China and South Africa (BRICS) coalition in 2023, becoming a member in January.
The main benefit for Egypt is access to fresh loans from the BRICS National Development Bank (NDB). It “challenges the dominance of existing global institutions, such as the World Bank and IMF,” said a research note from Boston Consulting Group (BCG) in April.
The other significant upside for Egypt is “BRICS gives emerging markets the opportunity to align on global topics and new economic opportunities,” BCG said.
BRICS, BRICS+, BRICS++
In 2001, Jim O’Neil, then chairman of Goldman, grouped Brazil, Russia, India and China, calling them BRIC. All were emerging markets with similarly high potential to attract FDI. In 2011, South Africa joined, changing the acronym to BRICS.
That coincided with members agreeing to make BRICS a geopolitical intergovernmental coalition. It aims to align them on critical global topics and lobbies the rest of the world for their shared interest as one entity.
In 2012, BRICS founding members created the National Development Bank and pledged $75 billion to boost its lending power to governments, becoming an alternative to the IMF. They also announced plans to extend a dedicated fiber optic submarine cable to connect all BRICS member nations.
In 2016, the idea of increasing the number of members to improve the bloc’s global economic and political clout surfaced in response to rising economic fallout and sanctions by Western nations against China’s state companies and Russia. This year, BRICS added Egypt, the UAE, Ethiopia and Iran to create BRICS+. Saudi Arabia joined later.
The new members boosted BRICS’s presence on the global scene. According to the advocacy group Committee for the Abolition of Illegitimate Debt, BRICS+ accounts for 29% of the world’s GDP compared to 20% for BRICS. The expanded coalition also accounts for 25% of global trade, compared to 20% for BRICS, while its oil production share stands at 42% versus 20%.
Additionally, BRICS+ is home to 45% of the global population compared to 41% under BRICS, making it the biggest consumer market in the world, by far.
The coalition could grow further. In July, ahead of the BRICS+ annual summit, various media reports said up to “40 additional countries from Asia, South America, and Eastern Europe are eagerly seeking membership.”
An anonymous Russian government source told India-based Business Standard, a news portal, “Russia [which leads BRICS in this round] wants to create a partner-country group.” That entails asking each member nation to “list 10 countries out of the 33 … that have applied to join BRICS. The common 10 nations would have a better chance of becoming BRICS+ members.
Business Standard reported the front runners are “Pakistan, Turkey, Thailand, Malaysia, Venezuela, Cuba, Nigeria and Kenya.”
Digitization update
In late January, Russia and India announced they would work together to “promote digital economy initiatives as part of their expansion efforts within the BRICS alliance,” reported Elias Al Helou, a journalist for Economy Middle East.
Egypt could benefit from similar agreements, especially regarding artificial intelligence (AI), as it was the first MENA country to launch a National AI Strategy in 2019. The Government AI Readiness Index, which Oxford Insights Group published in December, ranked Egypt 62 out of 192 nations. In Africa, Egypt stands higher than fellow BRICS member South Africa, which ranks 77. Among the Arab countries in BRICS, Egypt ranks third after the UAE and Saudi Arabia.
However, Egypt significantly lags behind almost all BRICS+ nations in digital currencies. “There are few countries that have made serious progress in using national digital currencies,” Anatoly Aksakov, chair of the Financial Markets Committee of Russia’s State Duma, told the media in June. “However … it will be common practice within five years.”
China was first among the BRICS+ coalition to adopt a digital version of the yuan in 2019. “The central banks of Hong Kong, Thailand, the UAE and Saudi Arabia [both BRICS members] are working with Beijing and the Bank of International Settlements on the ambitious cross-border Project mBridge,” which experiments with linking countries’ digital currencies, Forbes reported in July.
In December 2022, India announced its pilot program for the digital rupee. Reuters reported, “The Reserve Bank of India [met] its target of 1 million daily transactions by end [of] 2023.” The newswire said digital rupees are used to pay employee benefits, hence the high number of transactions.
In August 2023, the Russian Central Bank launched the “pilot phase” of the digital ruble. “We are currently conducting consultations and negotiations with many friendly countries and, of course, with the BRICS countries on cross-border payments through digital currencies,” Elvira Nabiullina, Bank of Russia governor, said in June.
In July, 30 Russian banks accepted digital ruble transactions. Media reported that over 600 Russian consumers and 30 domestic companies executed at least one transaction using the new currency.
Brazil also is piloting its central bank-issued digital currency (Drex). A March research note from the Economist Intelligence Unit predicted it won’t officially launch until early next year, “given that regulatory agencies still need to outline the new legal framework for the digital currency and its infrastructure.”
In April, South Africa announced it had started testing the digital version of its currency under its Digital Payment Roadmap strategy. A statement from the South African Reserve Bank (SARB) said the country’s digital currency “will be used for regional payments in Africa.” SARB set a two-year timeframe for supporting domestic stablecoins.
Outside BRICS founding member states, the UAE issued an amendment in October 2023 to its 2018 law to expand the definition of currency to include a “national digital currency.” In June, Saudi Arabia joined Project mBridge but made no official announcement on a digital riyal.
In Egypt, a news report by state-owned Ahram Online in January said the Central Bank is “set to launch the electronic pound by 2030.” The project is under development by “committees [comprised of] all relevant ministries and national authorities,” the CBE said.
Politics update
Political and economic interests play significant roles in decision-making in the BRICS+ coalition. A paper by the Euro Mediterranean Economist Association in September said China’s response to Western sanctions on its state companies since 2016 has been to “urge a rapid expansion of BRICS … to become a geopolitical rival of the G7,” a group of wealthy nations.
In March, the BRICS+ coalition said it was developing an alternate payment system for members based on digital currencies issued by each member’s central bank. “We believe that creating an independent BRICS payment system is an important goal, … which would be based on state-of-the-art tools such as digital technologies and blockchain,” Kremlin aide Yury Ushakov told the media at the time.
In July, Iran proposed creating a “common mechanism to connect the financial systems of all BRICS nations,” reported Al Mayadeen, a Lebanon news portal. Their idea would “eliminate reliance on the U.S. dollar, expedite transactions, and fortify economic relations among the BRICS bloc’s developing economies by [effectively] establishing a common currency.”
As it stands, China, Russia, Brazil, India, Saudi Arabia and the UAE are partially bypassing the international payment system and the dollar, executing some of their cross-border trade transactions in their respective local currencies. In July, Russian Foreign Minister Sergey Lavrov told the media this “process cannot be stopped.”
Also in July, Russian officials discussed the need for a BRICS+ parliament to coordinate and align members’ policies. “Parliamentary dialogue, including within the BRICS framework, is more important today than ever,” a July statement from the Kremlin said. “The idea [of having a BRICS+ parliament] will definitely … materialize.”
Jean-Joseph Boillot, an associate research fellow at the French Institute for International and Strategic Affairs (IRIS), said in June that despite the diversity of BRICS+ member nations, “most of [them are] fundamentally united with a strong internal consensus to finally free themselves from the Western international order.”
However, Boillot noted, “BRICS+ [is not] a confrontational anti-Western club. In reality … with Saudi Arabia, the [UAE] and Egypt joining the group, … the consensus is more along the lines of multi-alignment, rather like India, which has recently moved closer to the United States without severing its relations with Russia.”
Panda in the room
With a GDP size almost twice that of the remaining BRICS members combined, China has a “dominant position in BRICS, … reflected in intra-bloc trade flows and the bloc’s foreign policy positions,” Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, an investment firm, said in an April op-ed on the East Asia Forum.
That means most countries aspiring to join BRICS mainly want more access to the Chinese market. “BRICS members are increasingly intertwined with China as far as trade is concerned, but the remaining members have very few ties among themselves,” Garcia-Herraro explained. “Bilateral trade between BRICS members other than China remains extremely low.”
Moving forward, that dependence is a significant risk for the BRICS+ coalition, as China’s economy is struggling to grow. Statistics show China’s GDP growth rate dropped from more than 10% in 2010 to 5.2% by the end of 2023. In the first half of this year, GDP growth rates dipped below 5% for the first time since 1990.
David Lubin, a senior research fellow for the Chatham House’s Global Economy and Finance Programme, said the reality is even worse. “The mood among Chinese households and corporates is much bleaker than the data suggest,” he said in January. “Growth looks set to weaken this year, limiting the support that China might provide for the rest of the world economy.”
“China is at the edge of a deflationary trap: consumer price inflation has been negative in four of the past six months,” he said. “This risks turning into a self-reinforcing spiral if households postpone purchases in the hope that prices continue to fall – a dynamic that isn’t helped by China’s falling population.
That means the cohesiveness of the BRICS coalition will look increasingly precarious in the coming years. Garcia-Herrero noted, “The future of BRICS is uncertain given its heavy dependence on China’s economic future and the … sentiment toward China among its members.”
