SIYABONGA HADEBE: How geopolitics could affect Brics countries’ commerce and economic relations

As the Brics bloc prepares to expand and include more countries, possibly at its leaders’ summit in SA in August, 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 affected 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 affected. 

The ongoing global tensions are already playing out in crucial sectors such as food and technology. 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.  

Russia is contending with stringent economic sanctions that have a profound impact on the economic activities of its companies. The 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 effect 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 effect of sanctions by diversifying its trade partners and strengthening economic ties with non-Western nations, thus reducing reliance on Western markets. It has used 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 in some cases they are buying far more Russian oil than they were before the Ukraine conflict.  

Preferential treatment

Meanwhile, SA is encountering growing pressure from Washington. In February, a US Congress resolution called for the Biden administration to conduct a comprehensive review of the US-SA relationship due to the joint military exercise with Russia and China. Now at stake is SA’s participation in the African Growth & Opportunity Act (Agoa) and the US-SA Trade & Investment Framework signed in 2012.  

Trade, industry & competition minister Ebrahim Patel acknowledges that a considerable portion of SA’s exports to the US have benefited from the preferential treatment granted under Agoa ($2.7bn in 2021). Some exports enter the market under Most Favoured Nation treatment, which is provided for under World Trade Organisation rules.  

Additionally, as a signatory of the Rome Statute and as Brics chair, SA is expected to take action to apprehend Russian President Vladimir Putin after the issuance of an arrest warrant against him by the International Criminal Court in March. Western countries fervently wish to see Putin’s arrest on African soil, a scenario Pretoria is expected to vehemently oppose. 

These political developments and SA’s alleged sale of weapons to Russia could affect SA’s trade relationship with the US and have significant implications for its overall economic ties with America. Should the country be kicked out of the scheme now or in 2025 when the current Agoa window elapses, SA companies will lose out significantly. 

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. 

Dramatically shifted

In April 2021 Chinese President Xi Jinping emphasised the significance of food security as a fundamental component of national security, especially amid a growing global food crisis. As a major consumer of crops such as maize, wheat, rice and soybeans, China has been seeking alternative sources to reduce its reliance on the US and Ukraine. 

According to Kristen Hopewell’s Clash of Powers: US-China Rivalry in Global Trade Governance, the WTO negotiations regarding agricultural subsidies have dramatically shifted from a Global North vs 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 it is a developing nation and should therefore be exempt 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.  

China also needs to address food security challenges created by factors such as adverse climate conditions, the Covid-19 pandemic and the situation in Ukraine. It 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 maize from the US, opting to import from countries such as SA and Brazil.  

Maintains ties

Global markets are expecting an even more tension after former Russian president Dmitry Medvedev said if the G7 bans exports to Russia Moscow will terminate the shipping deal enabling exports of grain from Ukraine. Bloomberg reports 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, it 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 $4bn stake in Taiwan Semiconductor Engineering is believed to have been motivated by geopolitical tensions. US President Joe Biden signed the Chips & Science Act into law in August 2022, allocating $280bn for domestic semiconductor manufacturing.  

Reading from this, Bonnie Glaser, co-author of US-Taiwan Relations: Will China’s Challenge Lead to a Crisis?’, thinks 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 co-operation can help mitigate risks and enhance resilience against external pressures. 

• Hadebe is an independent commentator on socioeconomic, political and global matters based in Geneva, Switzerland.