• The BRICS are a group of leading emerging economies.
   
• Rising BRICS’s GDP share on the back of China and India.
   
• One fifth of Malaysia’s total trade goes thru BRICS.

• Beyond economy & external trade.

• Malaysia to attend BRICS Summit on 22nd-24th October.

• Malaysia since it will assume the chairmanship of ASEAN for the fifth time.

The BRICS are a group of leading emerging economies. BRICS is an acronym for a group of five major emerging economies: Brazil, Russia, India, China, and South Africa. The coalition was formed to enhance cooperation among these nations and to promote mutual interests in the global economic landscape. The idea of BRICS originated in 2001, and the term "BRIC" was to describe the fast-growing economies of Brazil, Russia, India, and China. The first official BRIC summit took place in 2009 in Yekaterinburg, Russia. This marked the beginning of formal political dialogue and cooperation among the four nations. In 2010, South Africa was invited to join, officially changing the group to BRICS. This addition aimed to increase representation of Africa in global economic discussions. In 2023, BRICS announced plans to expand its membership and the member countries have expanded to 10 countries in 2024. The five new countries that have joined are Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE).

Economic Cooperation. BRICS was formed to foster economic collaboration among its members, who represent a significant portion of the world’s population and resources. The coalition aims to provide a counterbalance to Western-dominated global institutions like the IMF and World Bank, advocating for a multipolar world order. BRICS nations focus on sustainable development, infrastructure investment, and enhancing trade among member states. Importance of BRICS:

1. Economic Significance: BRICS countries collectively account for about 40% of the world's population and roughly 25% of global GDP. Their combined economic growth has significant implications for global markets.

2. Trade and Investment: The bloc promotes intra-BRICS trade and investment, facilitating economic ties and reducing reliance on Western economies.

3. Global Governance: BRICS serves as a platform for addressing global issues such as climate change, security, and development, representing the interests of emerging economies.

4. Cultural Exchange: Beyond economics, BRICS fosters cultural and educational exchanges, strengthening ties among member nations.

Contribution to the Global Economy. As of recent estimates, BRICS nations contribute around 25% to 30% of the global GDP. Their economies have been among the fastestgrowing in recent decades, playing a critical role in global economic trends. With the expansion to BRICS+, which is now informally called after the inclusion of new member countries, the group's total GDP would rise to 35.6 % of global GDP. BRICS represents a significant force in the global economy, emphasizing the importance of emerging markets in shaping future economic policies. By fostering collaboration among diverse nations, BRICS aims to enhance its members' global influence and contribute to a more balanced international order.

Two major institutions have been established. The BRICS countries formed their alliance with the primary aim to increase the influence of emerging economies and developing countries in global financial institutions. Despite BRICS+ having a larger combined GDP than the G7, its capital share and subsequent voting influence within institutions such as the International Bank for Reconstruction and Development (IBRD) remain significantly smaller, as each member country's voting power is weighted on the basis of its financial contribution to the World Bank. On the other hand, India and Brazil were the largest recipients of IBRD loans in 2023, yet contributed just 5% of the capital.

To address these issues, BRICS established the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA). Founded in 2014, the NDB aims to provide funding for infrastructure and sustainable development projects in BRICS countries and other emerging economies. The bank focuses on projects that enhance economic growth and improve the quality of life in member nations. Established in 2015, the CRA provides financial support through currency swaps to member countries facing balance of payment issues. This arrangement helps to enhance financial stability among BRICS nations. These institutions reflect BRICS's commitment to fostering economic cooperation and addressing common challenges among its members.

BRICS+ countries also back the idea of 'de-dollarisation', that is, reduced dependence on the US dollar (USD) in trade. Accordingly, some countries, such as Iran, Russia and China, have already finalised agreements to trade with each other in their local currencies instead. While there have been discussions about a common BRICS+ currency, however, this was viewed as a distant possibility, especially now that the alliance has been enlarged.

Rising BRICS’s GDP share on the back of China and India. Based on the original BRICS, the bloc shares to global GDP surged handsomely from 10.8% in 1989 to 26.1% in 2023. Their economic growth rates have outpaced those of developed economies and the bloc’s shares even surpassed USA’s GDP share since 2019. However, the rise of BRICS economically fuelled only by China and India. The GDP shares of Russia, Brazil and South Africa do not move much over more than three decades. China was 2.8% of global economy in 1989 while India at 1.3%. In 2023, China hit 18.5% while India almost doubled its shares to 3.4%.

One fifth of Malaysia’s total trade goes thru BRICS. Based on the original BRICS members, the bloc covers more than 20.0% of Malaysia’s total trade since 2015. During 2000-2023, the average annual growth rate of total trade with BRICS expands by 12.4% which is more than double of overall trade growth of 6.0%. By segment, Malaysia imports more than exports with BRICS. Like global GDP patterns, Malaysia’s total trade is highly associated with the robust expansion of China and India economies. China is Malaysia's largest trading partner, with significant trade in electronics, machinery, and palm oil. The trade volume has grown substantially, with Malaysia exporting raw materials and importing manufactured goods. Chinese investments in Malaysia cover various sectors, including infrastructure, real estate, and technology. Trade between Malaysia and India includes palm oil, rubber, and electrical machinery. Both countries have been working to enhance trade ties, with initiatives to reduce tariffs and increase bilateral investments. Trade with Brazil, Russia and South Africa remain below 1.0% since 2000. Malaysia's trade with BRICS nations is characterized by a mix of established and emerging partnerships. As Malaysia continues to diversify its economic relationships, engagement with BRICS countries is likely to deepen, offering mutual benefits and increased economic resilience.

Beyond economy & trade. For decades, Malaysia’s foreign policy planks were the Organisation of Islamic Cooperation (OIC) and Association of Southeast Asian Nations (ASEAN). End-July this year, Prime Minister announced that Malaysia had submitted an application to Russia’s government for membership in the expanding BRICS grouping. Joining BRICS could provide Malaysia with greater access to large and growing markets, particularly in China and India. Malaysia can enhance trade partnerships, diversify exports, and reduce reliance on traditional markets. On the other hand, from economic and external trade standpoints, Malaysia has little advantage to join the bloc since there are existing bilateral and multilateral FTAs with China and India. The surge of trade with both countries among others driven by the FTAs. Plus, having access to other BRICS members may generate meagre economic growth since these economies’ GDP shares have not improve much over the years. Nonetheless, we view the major reason for Malaysia to be part of the bloc is beyond economy and external trade purposes. BRICS is seen as a new geopolitical voice in the global political economy landscape and Malaysia’s application to join BRICS is to see it as an additional platform for Malaysia to gain a larger international voice as a middle power, and to benefit economically. Being part of BRICS could give Malaysia a platform to influence global governance and policies, representing the interests of Southeast Asian nations. Joining the BRICS could also offer Malaysia several strategic advantages, including a platform for enhanced diplomatic engagement and cooperation with major global players. Hence, aligning with BRICS would support a multipolar world, reducing reliance on Westerndominated institutions. Malaysia can collaborate with BRICS nations on pressing issues such as climate change, sustainable development, and economic stability. Therefore, beyond economic benefits, joining BRICS could provide Malaysia with a platform for enhanced political influence, cultural exchange, scientific collaboration, and cooperation on security and social development issues. These aspects can contribute to Malaysia's holistic development and strengthen its position in the global arena.

Malaysia to attend BRICS Summit on 22-24th October. Prime Minister Datuk Seri Anwar Ibrahim has accepted the invitation to attend the upcoming BRICS Summit in Kazan, Russia next month. Potentially, Malaysia could be announced officially as a new BRICS member. Moving into 2025, it is interesting juncture for Malaysia since it will assume the chairmanship of ASEAN for the fifth time. Joining BRICS aligns with Malaysia’s membership of ASEAN, especially in tackling global challenges whilst the knowledge gained through these partnerships can be shared with ASEAN, elevating Malaysia’s influence in both blocs. Malaysia’s participation in BRICS and ASEAN, will allow the application of best practice across both forums, strengthening its role in ASEAN. As ASEAN Chair in 2025, Malaysia has a strategic opportunity to steer the region towards greater global presence, including with BRICS, on the issues of trade, sustainable development and technological innovation.

The analysis of the ASEAN and BRICS economies reveals vast economic differences between the two organizations. ASEAN comprises countries with diverse economic structures at different stages of development and the BRICS economies have substantial manufacturing sectors and opportunities to exert global influence. Both organizations have remarkably diverse populations and the workforce with a range of skill sets and levels sufficient to span their countries’ various industries. While ASEAN’s major strength may be seen in its diversity, the BRICS countries are economic powerhouses with substantial influence. Both groups play vital roles in the global economy, each with its unique challenges and opportunities. In its effort to foster economic integration among member states and beyond, the ASEAN association has actively pursued free trade agreements. In contrast, the BRICS group has prioritized financial cooperation, characterized by the establishment of NDB and CRA. Differentiation of objectives and the resulting implications of their diverse approaches point to potential complementarity between ASEAN and BRICS. Hence, there are abundant possibilities of collaboration between the two organizations given their economic strengths, regional influences, and collective potential. The existence of bilateral and multilateral trade agreements between the ASEAN and BRICS member countries would not only facilitate trade and economic exchanges but also open the doors to joint investment initiatives. BRICS has not yet developed into a free trade area like ASEAN, but there are free trade agreements between ASEAN and BRICS countries. Global economic outlook of 2025 is predicted to remain challenging particularly with potential heightening of trade wars between major economies and unceasing geopolitical conflicts in the Middle East and Europe. Hence, as Malaysia assumes the ASEAN Chair in 2025, Malaysia’s leadership will be crucial in guiding ASEAN through these challenges and might also help align ASEAN’s BRICS engagement with its values of inclusivity and stability, enhancing ASEAN’s influence in global economic governance.

Source: BIMB Securities Research - 27 Sept 2024