BRICS is an intergovernmental organisation comprising Brazil, Russia, India, China, and South Africa. At its summit in Johannesburg in August, BRICS expanded its reach and influence with the announcement that Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) have been invited to join the bloc in January 2024.
Saudi Arabia has yet to make a final decision on whether to join BRICS. H.H. Prince Faisal bin Farhan Al Saud, the Saudi Minister of Foreign Affairs, said during a recent event that an “appropriate decision” will be made by the beginning of 2024.
Decision of necessity
In Egypt’s case, the decision to become a BRICS member is motivated chiefly out of economic necessity. The government is facing a currency crunch and is running out of dollars, which it needs to import products, such as wheat, says Amir Marghany, managing partner of Marghany Advocates, LEX Africa’s member in Egypt. “Egypt is the world’s largest importer of wheat, mainly from Ukraine and from Russia – which is already a member of BRICS. Russia and China are two of Egypt’s largest trading partners.” Marghany says Egypt imports refined petrol products from countries like Saudi Arabia. Saudi Arabia and the UAE have also been invited to become BRICS members.
Egypt has few fully integrated industries and therefore remains dependent on imports. So, if it grows cotton and exports textiles, for example, it still needs to import the dyes, and if it exports medication, it needs to import the ingredients. “This is where countries like China and India come into play, as BRICS members,” says Marghany.
He says Egypt does not have a tradeable currency, and neither does Russia or India. “So, we have to trade in a median currency, which is the US dollar, and this is inefficient. But by joining BRICS we will be able to trade in our own currencies.”
Marghany says the firm is establishing a practice group to see how it can use BRICS as a trading bloc to advance its business, “because we expect to be working on new instructions, especially when it comes to trade between BRICS countries.”
“In the absence of a formal legal framework for BRICS countries, we will use available existing frameworks. At least Africa has the African Continental Free Trade Area (AfCFTA) as a free trade area encompassing most of Africa, and it has the Common Market for Eastern and Southern Africa (COMESA). Egypt (a COMESA member state), the UAE and Saudi Arabia also have the Pan Arab Free Trade Area (PAFTA), “And we are definitely going to use these frameworks to move goods from one country to another with minimal barriers,” says Marghany.
“What still remains is the economic barrier of the currency in which to trade,” he added. One factor restricting Egypt from exporting to South Africa is the exchange rate with the US Dollar. But this economic barrier will be removed if these two countries trade in their own currency through the BRICS framework.
Relieving currency pressures
In September the Central Bank of Egypt and the Central Bank of the UAE entered into a bilateral currency swap agreement that allows for the exchange of the UAE Dirham and the Egyptian Pound of up to 5 billion dirhams and 42 billion Egyptian pounds. This will enable Egypt to import more goods from the UAE without putting US dollar pressure on the Egyptian pound. “So, we will be using Egyptian pounds against the Arab Emirates currency directly without going through the interim currency of the US dollar. This sets a precedent that needs to be replicated between the BRICS member countries,” says Marghany.
He said joining BRICS presents a lot of opportunities, including an increase in the volume of international trade, and a better chance of integration so that if one country does something well, another can complement it. For example, Saudi Arabia is a producer of the raw materials used in plastic and Egypt is a manufacturer of plastic products. Raw materials produced in Saudi Arabia and further processed in Egypt will give Egypt greater access to African markets like the COMESA countries without putting pressure on its hard currency reserves.
“But we still need BRICS to adopt currency stabilisation and currency swap agreements, and we are waiting for BRICS countries to unify rules of origin and harmonise them so that we can have access to each other’s markets,” says Marghany.