The Shanghai-based New Development Bank (NDB), sometimes known as the “BRICS bank,” is in negotiations with Saudi Arabia about becoming its ninth member, a move that would enhance its funding alternatives as founding shareholder Russia suffers under the impact of sanctions.
The accession of the kingdom would strengthen connections between the bank, which was founded as an alternative to western-led Bretton Woods institutions by the world’s top developing economies, and the world’s second-largest oil producer.
“In the Middle East, we attach great importance to the Kingdom of Saudi Arabia and are currently engaged in a qualified dialogue with them,” said the New Development Bank in a statement.
The meetings with Saudi Arabia take place as the NDB prepares to conduct a formal assessment of its funding options, which have been called into question by Russia’s invasion of Ukraine. The bank’s annual meeting is held on Tuesday and Wednesday.
Membership would boost Riyadh’s ties with the BRICS nations at a time when Saudi Arabia, the world’s top crude oil exporter, is also seeking tighter ties with China. When Chinese President Xi Jinping visited the kingdom late last year, he hailed a “new era” in the nations’ relations, and Beijing in March secured an accord between Saudi Arabia and Iran to resume diplomatic relations.
According to experts, Saudi Arabia’s probable membership in the NDB will strengthen the BRICS nations’ ability to hedge against risks amid the global wave of de-dollarization.
The NDB was established in 2015 by the so-called BRICS countries — Brazil, Russia, India, China, and South Africa — to lend to emerging-market development initiatives. It has lent $33 billion to over 96 projects in the five founding member countries and has expanded its membership to include the United Arab Emirates, Egypt, Uruguay and Bangladesh.
The five founding member-countries of BRICS represent 25 percent of global GDP. Since its inception, the NDB has granted more than 90 projects worth $32 billion in loans, according to yicai.com in October 2022.
Saudi Arabia would be another wealthy stakeholder as the NDB analyzes its ability to acquire cash in the aftermath of the Ukraine conflict, which prompted concerns about the bank’s reliance on Russia. Russia, as a founding member, owns approximately 19% of the bank.
To reassure investors that it was complying with Western-led sanctions against Moscow, the NDB was compelled to halt funding new Russian projects worth $1.7 billion, or approximately 6.7% of its total assets.
In an interview, Ashwani Muthoo, director-general of the NDB’s independent evaluation office, which was established last year, stated that fundraising choices are “the most important thing at the moment.”
Moscow has stated that it sees the bank as a tool to help mitigate the impact of Western sanctions and shift away from dollar-pegged oil sales. On a visit to China this week, Russian Prime Minister Mikhail Mishustin stated that defending the bloc from “illegitimate sanctions from the collective west” was “one of the bank’s main goals.”
Rating agency Fitch reduced the NDB’s credit rating from double-A plus to double-A in July, warning that “reputational risk” from its Russian ownership could limit access to the dollar bond market.
The agency changed the bank’s rating from “negative” to “stable” this month, citing the actions it had made to reduce its exposure to Moscow. To lend more cheaply, multilateral lenders often rely on strong ratings and low funding costs.
BRICS has been reportedly mulling creating a common currency according to Russian Foreign Minister Sergey Lavrov. He said that “serious, self-respecting countries” are well aware of what is at stake, and want to create their own mechanisms to ensure sustainable development, which will be protected from outside influences.
But BRICS’ building blocks have cracks among its structure. The South African government recently confirmed that it would have “no option not to arrest [Russian President Vladimir] Putin” following the arrest warrant issued by the International Criminal Court last March.
South Africa has so far refused to support sanctions against Russia since it began its invasion of Ukraine. But, as a signatory of the Rome Statute, it is obliged to comply with the decisions of the ICC. The ICC issued an arrest warrant for the Russian dictator on March 17, accusing Putin of illegally deporting children from Ukraine to Russia since February 24, 2022.
President Cyril Ramaphosa earlier said that the ruling party, African National Congress, intended to end its membership in the ICC but quickly took it back after its foreign ministry warned that ignoring the warrant would be in breach of the country’s international obligations as well as some of its own laws.
BRICS was established in 2009. The gang appears to be resurrecting in the aftermath of Russia’s invasion of Ukraine. Many countries outside the Western orbit have indicated interest in joining, including Saudi Arabia, Iran, and Mexico.
The member-countries are unified in their–on some level–dislike for US hegemony. But BRICS is far from being a potent alternative to its Western counterpart.
Brazilian President Luiz Inacio Lula da Silva recently lamented, “Every night, I ask myself why all countries have to base their trade on the dollar.”
Most of the global companies based in Brazil, while they can trade with China in renminbi, have to settle their debts in US dollars. For example, the Brazilian mining company Vale frequently uses heavy construction equipment manufactured by Caterpillar Inc. or Japan’s Komatsu Ltd., therefore Vale requires dollars and yen to purchase it.
China has also been a strong global player amassing influence through its so-called debt trap diplomacy. Observers question if Beijing would yield that power to BRICS, especially on its road to the “One Belt, One Road” initiative.
Another member–India–sees China as a strategic rival, punctuated by tech firm Apple’s shift of its manufacturing chain.
India and China are also locked in skirmishes on the Tibetan plateau. If China is using the BRICS concept to justify its hegemony, India is resolved to use the same organization to counter Chinese influence. Saudi Arabia and Iran have the same feelings about one another.
According to China’s Foreign Ministry Spokesperson Wang Wenbin, BRICS leaders reached an important consensus on BRICS expansion in October 2022 and expressed support for the discussion on the standards and procedures of the expansion at the 14th BRICS Summit on June 23, 2022, and many countries expressed a desire to join BRICS cooperation.
Wang stated that China will collaborate with the other BRICS members to accelerate the growth process so that additional partners can join the BRICS family.
Information for this briefing was found via Financial Times, Global Times, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.