By: Siyabonga Hadebe
As BRICS prepares to expand and include even more countries possibly at its leaders’ summit in South Africa, one aspect that appears to be in everyone’s blind spot concerns how global commerce and economic relations, especially those involving BRICS countries, could be impacted by geopolitics. The BRICS framework could be put under new pressure as businesses may be forced to choose sides in the rapidly increasing rivalry between China and the US, that is if they are not already impacted.
The ongoing global tensions are already playing out in crucial sectors like food and technology. This op-ed explores these issues and their implications for global commerce in the context of BRICS. While the BRICS nations have historically sought to maintain neutrality, businesses from these countries and beyond may be pushed to go with either side as the competition escalates.
As it currently stands, Russia is contending with stringent economic sanctions that have a profound impact on the economic activities of its companies. These sanctions, imposed by various Western nations, impose significant limitations and restrictions on Russia’s ability to engage in international trade, access global financial markets, and establish partnerships with foreign entities.
Of course, the impact of these sanctions has not been as significant as anticipated by Western countries. According to recent calculations by the European Central Bank, the trade volume between the euro area and Russia has decreased by 50% since February 2022.
Russia mitigated the impact of sanctions by diversifying its trade partners, strengthening economic ties with non-Western nations, and thus reducing reliance on Western markets. It has utilised its energy sector to maintain a certain level of economic stability and resilience. China, India, Turkey and Bulgaria are among the biggest buyers of Russian crude. And these, countries are buying so much Russian oil than it was before the Ukraine conflict.
In the meantime, South Africa is encountering growing pressure from Washington. In February 2023, a US Congress resolution called for the Biden administration to conduct a comprehensive review of the US-South Africa relationship in light of the joint military exercise with Russia and China. Now at stake is South Africa’s participation in the African Growth and Opportunity Act (AGOA) and the US-South Africa Trade and Investment Framework signed in 2012.
Trade, industry, and competition minister Ebrahim Patel acknowledges that a considerable portion of South Africa’s exports to the US has benefited from the preferential treatment granted under AGOA (at USD 2.7 billion in 2021). Some exports enter the market under the Most-Favoured Nation treatment, which is provided for under the WTO rules.
Additionally, as a signatory of the Rome Statute and as BRICS chair at the same time, South Africa is expected to take action to apprehend Russian President Vladimir Putin, following the issuance of an arrest warrant against him by the International Criminal Court (ICC) judges in March 2023. Western countries fervently wish to see Putin’s arrest on African soil, a scenario that Pretoria is expected to vehemently oppose.
These political developments plus the allegations sale of weapons to Russia could potentially impact South Africa’s trade relationship with the US and have significant implications for its economic ties with the American market. Should the country be kicked out of the scheme now or in 2025 when the current AGOA window elapses, South African companies will lose out.
In recent years, China has been actively strengthening its “no limits” partnerships with various countries. Its efforts to bolster these partnerships demonstrate its intention to assert its influence on the global stage and pursue its strategic goals in a rapidly evolving geopolitical landscape.
In April 2021, Chinese President Xi Jinping emphasised the significance of food security as a fundamental component of national security, especially against the backdrop of a growing global food crisis. As a major consumer of crops like corn, wheat, rice, and soybeans, China has been seeking alternative sources to reduce its reliance on the US and Ukraine.
According to Kristen Hopewell’s book ‘Clash of Powers: US-China Rivalry in Global Trade Governance’, the WTO negotiations regarding agricultural subsidies have dramatically shifted from a Global North versus Global South showdown to a conflict primarily centred on the US and China. America, as the world’s largest agricultural exporter, is keen on curbing China’s subsidies and insists that it will only agree to stricter regulations on its own subsidies if similar rules are applied to China.
Beijing’s firm stance asserting that as a developing nation, and therefore seeking exemption from new subsidy restrictions, has led to a deadlock in negotiations. Due to this tense trade war playing out in the WTO and strained relations with the West, Beijing has also been actively seeking to diversify its sources of wheat imports.
Also address food security challenges created by factors such as adverse climate conditions, the COVID-19 pandemic, and the situation in Ukraine, China has traditionally relied on external sources for its agricultural supplies, particularly from the US, Ukraine, and Brazil. In April, China took a significant step by cancelling substantial orders of corn from the US, opting to import from countries like South Africa and Brazil.
Global markets are expecting an even more tense hype of activity after former Russian president Dmitry Medvedev said if the G7 banned exports to Russia, Moscow would terminate the shipping deal enabling exports of grain from Ukraine. Bloomberg argues that China could cancel even more purchases of grain from the US because the country can buy more cheaply from Brazil, another BRICS partner.
Though none of the BRICS countries have political relations with Taiwan. Despite this, Taiwan maintains economic and trade ties with individual companies and businesses in BRICS countries, including China. The Economist argues that Taiwan “has long depended on America for defence and China for growth”.
However, the intensifying geopolitical and military risks between the US, China, and Taiwan have significant implications for businesses. Taiwan, as one of the world’s top 25 economies, plays a crucial role in the global supply chain, serving as a home to major suppliers for Apple and producing advanced semiconductors.
Warren Buffett’s Berkshire Hathaway’s unexpected sale of a USD4 billion stake in Taiwan Semiconductor Engineering is believed to have been driven by geopolitical tensions. On the other hand, US President Joe Biden signed the CHIPS and Science Act into law in August 2022, allocating USD280 billion for domestic semiconductor manufacturing.
Reading from this, co-author of ‘U.S.-Taiwan Relations: Will China’s Challenge Lead to a Crisis?’, Bonnie Glaser thinks that China could pressure companies, as in countries under its One China policy, to choose to do business with either the Mainland or Taiwan or could even interfere with shipping in the Taiwan Strait. At this stage, it is plausible to consider this possibility.
Encouraging diversification of trade partners, strengthening regional economic integration, and fostering intra-BRICS cooperation can help mitigate risks and enhance resilience against external pressures.
Si ya yi banga le economy!
