Last Thursday, the BRICS grouping of emerging economies — Brazil, Russia, India, China and South Africa — invited Egypt to join as of January 2024.
Membership will help Egypt strengthen its relationship with key emerging market economies, N Gage Consulting’s Sherif Fahmy told Al-Ahram Weekly.
Noting that existing BRICS members account for 20 per cent of the world economy, 17 per cent of global trade, 43 per cent of the world’s population and contribute over one-third of the world’s grain production, Fahmy told the Weekly that membership “is expected to provide Egypt with both political and economic advantages” though he cautioned that the benefits will not materialise in the short term given the economic challenges Egypt faces.
In the long term, however, he believes membership will have a beneficial impact on Egypt’s trade position, facilitate access to new investments, reduce reliance on the dollar for trade exchange and help secure supplies of strategic goods.
Alongside Egypt, BRICS invited Iran, Saudi Arabia, Argentina, Ethiopia, and the United Arab Emirates (UAE) to become full members. While there are no specific eligibility requirements, countries seeking to join the group should have a growing economy and a significant role in global affairs, criteria that clearly fit Egypt, explains economic consultant Perrihan Al-Riffai.
While three new entrants to the group — Egypt, Argentina and Ethiopia — are experiencing economic difficulties, each brings an advantage to the bloc. Egypt has a population of over 100 million and is the second largest economy in Africa; Argentina has a population of over 45 million people and is the second largest economy in South America, and Ethiopia is one of the fastest-growing economies in Africa with a population of over 100 million people, said Al-Riffai.
Though not obliged to do so by the bloc, to reap the greatest benefit from its membership Egypt will have to work on addressing internal challenges by placing greater emphasis on implementing rigorous structural reforms, and that will take time, says Fahmy.
According to Al-Riffai, reforms should include strengthening macroeconomic fundamentals by reducing debt to more sustainable levels, stabilising foreign currency markets and unifying the exchange rate, a more efficient allocation of scarce resources, improving the business environment, levelling the playing field by reducing the state’s economic footprint and removing long standing obstacles to doing business in Egypt faced by both foreign and local investors.
According to Fahmy, Egypt’s membership of the New Development Bank (NDB) — it joined in February 2023, as a precursor to its BRICS application — is likely to bring the most immediate benefits. The NDB was established by BRICS to mobilise resources for infrastructure and sustainable development projects in emerging markets and developing countries. Egypt’s membership, says Fahmy, makes it eligible to seek financing from the bank’s $100 billion capital and lending pool and to access the bloc’s Contingent Reserves Arrangement, a framework that provides liquidity to counter balance of payments deficits and deficiencies in dollar reserves.
The NDB could also support Egypt’s mega projects, as part of BRICS’ strategy to empower the Global South. Since it was established, the NDB has approved around 70 projects related to infrastructure and sustainable development with a value of around $25 billion.
In the long-term, Egypt will benefit from a reduction in reliance on the dollar for global trade given that one aim of BRICS is to lessen dollar dependence by replacing the greenback with national currencies, says Rana Abdelmoneim, a researcher at N Gage Consulting. But while this could help address the depletion of foreign currency in Egypt, at least in part, the primary challenge for Egypt will continue to be to increase foreign currency inflows by growing exports.
Al-Riffai agrees. Trading in local currencies through the BRICS is not the solution to a foreign currency deficit, she says. It is important for a BRICS member, like Egypt, to implement the reforms needed to increase foreign currency earnings. Trading in local currencies may ease the demand for foreign currency but, in the absence of a single BRICS currency, member’s bilateral trade structures will ultimately determine their trade balance and currency holdings vis-à-vis other members.
For a country that imports around 60 per cent of its basic food needs, being a member of BRICS will help secure Egypt’s supply of strategic goods since the bloc, as Abdelmoneim pointed out, produces a third of the world’s grains. Minister of Supply and Internal Trade Ali Moselhi has already discussed, with both Russia and India, the possibility of trading essential commodities, including wheat, in Egyptian pounds, rupees and rubles, though no agreement has been reached. Joining BRICS could move these discussions forward, suggests Abdelmoneim.
On a less optimistic note, Magda Shahin, former assistant foreign minister for international economic affairs, believes the agreement could leave Egypt vulnerable to exports from other members. BRICS is not, she points out, a negotiated free trade area agreement with boundaries and timelines of what can be exported and when, she explained. Export engines like China and India will have untamed access to the Egyptian market. The trade balance with these countries is already in their favour and is likely to increase with the agreement, says Shahin. She believes it would have been better for Egypt to concentrate on expanding relations with its natural extensions, Africa and the EU.
Given the bloc includes trading giants like China and India, a net importing country facing a foreign currency crunch could find itself “stuck” if it is unable to grow its export base, warns Al-Riffai. “It remains paramount for member countries to address their macroeconomic vulnerabilities and implement the necessary policies to generate foreign earnings,” she stressed.
Fahmy does not believe Egypt’s membership of BRICS will affect relations with Western economies. Egypt’s international relations are balanced, especially when it comes to political coalitions: over many years Cairo established strategic ties with countries beyond BRICS while simultaneously maintaining economic and political connections with BRICS members.
Nor does Fahmy expect Egypt’s accession to impact relations with Western financial institutions such as the IMF given the magnitude of loans and projects with such institutions. “The country will have a source of financial lending other than the IMF and that could come with more lenient conditions,” he says.
Al-Riffai argues that despite the lack of a political consensus among BRICS founding members or equivalence in their opposition to the US-led West, different per capita GDP and different trading patterns and policy styles, the Covid pandemic, combined with supply chain fragmentation and the food and energy crises brought about by the Ukraine war will act to propel the group’s expansion.
“The fallout from the triple crises and the disproportionate effects they are having on non-advanced economies, and the lack of even-handedness currently existing on the global economic front, mean that BRICS will continue to expand and increasingly represent the voice and interests of the Global South,” she says. (see p.6)
* A version of this article appears in print in the 31 August, 2023 edition of Al-Ahram Weekly