BRICS and Global Fragmentation

Geopolitical tensions and the potential shift in the global epicenter must be utilized for domestic interests. Hopefully, internal political tensions during the 2024 elections will not divert our focus on the welfare of the people.

Jakarta, August 29, 2023 - Beware what you wish for! This statement is relevant to Jim O'Neill who in 2001 popularized the term BRIC-Brazil, Russia, India and China. At that time, O'Neill, who worked at the large investment firm Goldman Sachs, put forward the idea of the potential of developing countries that needed to be taken into account in the global investment map.

The idea was then followed up by the foreign ministers of the four countries in an informal meeting on the sidelines of the G8 meeting in St Petersburg, Russia, July 2006. They quickly agreed on the formation of the BRIC group and the first official meeting was held by the foreign ministers on the sidelines of the United Nations General Assembly in September 2006. The first summit was held in June 2009 in Yekaterinburg, Russia. In 2010, they agreed to add South Africa as a new member.

O'Neill admits that he never imagined that his term would become a political movement that counts. Even so, O'Neill did not deny that the BRIC idea was based on the hypothesis that the global (investment) constellation would change, in which the group of developing countries played an increasingly important role.

Actually, at that time Indonesia was mentioned as a candidate country that could be included in the BRIC category, becoming BRIIC by adding Indonesia after India.

The idea of BRIC is based on the hypothesis that the global (investment) constellation will change, in which the group of developing countries plays an increasingly important role.

During the 15th summit in South Africa on August 22-24, 2023, BRICS announced the addition of six new countries, namely Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. President Joko Widodo, who attended the meeting, stated that Indonesia is friends with them, but will not join as a member. The move is appropriate given that the group is still fluid and its future is unclear.

The economic potential of the five BRICS countries allows them to become an influential group in the future. Brazil, Russia, India, China and South Africa control about 30 percent of the world's territory, 42 percent of the population, 23 percent of the economy and 18 percent of global trade.

In recent developments, with economic fragmentation amid rising geopolitical tensions, the role of the BRICS has surpassed that of the G7 grouping of the United States, United Kingdom, Germany, France, Japan, Italy and Canada.

When the BRICs were launched by O'Neill in 2001, the G7 group of developed countries still controlled 45 percent of the global economy and the group of four countries contributed only about 20 percent. However, by 2022, the BRICS controlled 31.5 percent of the global economy, while the G7 only 30 percent. With the addition of new members, by 2030 it is estimated that this group of Southern countries will control more than 50 percent of the world economy.

In 2022, BRICS controlled 31.5 percent of the global economy, while the G7 only 30 percent.

The projection is in line with the International Monetary Fund's calculations in its World Economic Outlook (April 2023) that shows Asia contributing 70 percent to global growth this year. China contributed 34.9 percent, India 15.4 percent, and Indonesia 4.4 percent.

In 2009, investment firm CLSA floated the idea of Chindonesia or China, India and Indonesia as potential global economic giants. This idea did not develop because there was no political interest driving it. Unlike the BRICs, which later consolidated political sentiment, it played an important role.

The role of developed countries in the global economy is retreating, while developing countries are gaining importance. This phenomenon has occurred since the 2007-2009 global financial crisis, which was exacerbated by the crisis caused by the Covid-19 pandemic.

Economic productivity

A common problem in developed countries is that growth is relatively low, but the burden of living now (inflation) and in the future (debt levels) is soaring. There has been a slump in economic productivity. This will affect people's welfare in the long run. Consequently, people in developed countries will slowly become poorer. Conversely, people in developing countries will slowly become richer.

The World Bank's study on productivity shows that developed countries are experiencing a sharper productivity decline than developing countries due to demographic factors. Developing countries have better potential because their labor productivity still has the potential to be improved, while in developed countries it is already stuck because the population is aging.

People in developed countries will slowly become poorer. Conversely, people in developing countries will slowly become richer.

Although the group of developing countries has the potential to grow in the future, BRICS will not necessarily replace the G7 or the 34-member group of developed countries (OECD). The motive of expanding BRICS members to 11 countries and will continue to increase is oriented to become like the OECD or even the "Southern version of the UN".

Amidst such sharp geopolitical fragmentation, multilateral cooperation has more political dimensions than economic considerations. In the context of BRICS, their main spirit is to provide an alternative to the dominance of developed countries. However, among themselves, there is considerable potential for conflict, such as between China and India.

Moreover, history does not move like a straight line. The declining role of the United States does not necessarily place China as a substitute. China's economy has the potential to experience a structural slowdown, as Japan experienced in the late 1980s.

There are similar indicators, such as the collapse of the large-scale credit cycle in the property sector. The bankruptcy of China's property giant, Evergrande, coincided with a trend of falling prices (deflation) as an early indicator of structural slowdown. Many observers even predict that China will experience a Japanese deflationary-trap.

History does not move like a straight line. The declining role of the United States does not necessarily put China in its place.

President Joko Widodo's presence at the BRICS summit in South Africa without becoming a member was appropriate. First, the future of BRICS with the addition of new members is unclear. Referring to the G20 experience, effectiveness is not determined by the magnitude of economic potential, but by the magnitude of the realization of agreements that rest on the principle of mutual benefit among members. If there are no direct benefits, membership in a large group will not be effective.

Secondly, Indonesia is currently playing the ASEAN chairmanship, where the opportunities are clearer. Focusing on ASEAN will be more productive than being busy in a large organization whose future direction is unclear. Third, in its position as ASEAN Chair, Indonesia can act as a "counterweight" to the political fragmentation between developed and developing countries or the North and South.

Essentially, geopolitical tensions and potential shifts in the global epicenter should be utilized to the greatest extent for domestic interests. Hopefully, internal political tensions during the 2024 elections will not divert our focus from playing a role in the global constellation to realize a more prosperous Indonesian society in the future.