Photo by BRICS

Rajiv Biswas, Asia Pacific Chief Economist for IHS Markit

Key Points:

· The BRICS Summit to be held in Xiamen on 3-5 September will focus on the three pillars of economic co-operation, political and security co-operation and people-to-people exchanges.

· The New Development Bank created by the BRICS nations in 2014 announced USD 1.4 billion of new loans on 31 August in the lead up to the BRICS Summit. The new loans are for sustainable development projects in China, India and Russia. The main focus of the NDB’s lending is on sustainable infrastructure development projects in developing countries.

· A major milestone for BRICS economic co-operation that will be a focal point at the Xiamen Summit will be the annual report on the first year of operations of the New Development Bank, created in 2014 by the five BRICS nations. The New Development Bank became operational in 2016 and made its first loans last year.

· The decision by China and India to de-escalate border tensions in the Bhutan border area is a major positive for the future economic co-operation agenda of the BRICS grouping ahead of the BRICS Summit. The visit by Indian PM Modi to China for the BRICS Summit will provide an opportunity for the Chinese and Indian leaders to have a high-level dialogue to put in place measures to reduce bilateral tensions on the Bhutan border.

· The five BRICS nations currently account for approximately 23% of world GDP, making these nations a key part of the world economy. Since the Global Financial Crisis, the BRICS share of world GDP has risen from 16% in 2009 to 23% by 2017.

· The BRICS nations have accounted for 45% of the increase in world GDP since
2009, mainly driven by China and India.

· China, as the world’s second largest economy, has been the key driver for sustained global economic growth since the global financial crisis of 2008-2009, accounting for around 40% of the total increase in world GDP since 2009.

BRICS Economic Co-operation Agenda

The BRICS, led by China, have been a key driver for growth in world trade and investment flows over the past decade. In the face of rising protectionism in some parts of the world, BRICS can champion new initiatives for trade liberalization and development cooperation to boost South-South trade and investment flows and strengthen economic co-operation for sustainable development.

A key platform for economic co-operation among the BRICS has been the establishment of the New Development Bank by the BRICS nations. The focus of the New Development Bank’s financing will be on sustainable infrastructure development projects for developing countries, with an initial policy objective of providing 60% of total financing for renewable energy projects. In its first year of operations, the NDB approved USD 1.5 billion of new project loans, with a first green bond valued at USD 450 million also issued.

The NDB will utilise a full range of financing mechanisms, including long term loans, syndicated loans with private sector investors, co-financing with national and multilateral development finance institutions, as well as equity investments. The NDB will have a focus on using local currency financing mechanisms so as to limit risks to borrowers as well as to help recipient countries to strengthen their domestic capital markets.

The initial authorised capital of the New Development Bank was agreed at USD 100 billion when it was created by the BRICS nations in 2014, with paid-in capital of USD 10 billion and subscribed capital of USD 50 billion. The BRICS also agreed to establish a reserve currency facility of USD 100 billion at the same meeting.

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