Why Saudi Arabia wants to join the BRICS bank: is Riyadh becoming Chinese?
The BRICS bank (focused on China) is negotiating the entry of Saudi Arabia, useful to offset the impact of the sanctions on Russia. All the details
The New Development Bank, the Shanghai-based BRICS financial institution, is negotiating Saudi Arabia's entry. The Financial Times , which broke the news, wrote that Riyadh's possible entry would strengthen the bank's financing capacity in a difficult moment for the group and for Moscow, which is feeling the impact of the sanctions imposed by the West.
The BRICS include Brazil, Russia, India, China and South Africa.
WHAT IS THE NEW DEVELOPMENT BANK
Just as the BRICS has the ambition to act as a counterweight to the G7, the organization of the seven leading advanced economies in the world, so the New Development Bank stands as an alternative to the Bretton Woods institutions, such as the World Bank and the International Monetary Fund Western-style. It was created in 2015 with the aim of financing development projects in emerging economies: it granted loans for 33 billion dollars to over ninety-five projects in the BRICS countries, later expanding to the United Arab Emirates, Egypt and Bangladesh.
SAUDI ARABIA IN THE BRICS BANK: WHO WINS
Saudi Arabia's entry into the bank would strengthen cooperation between the BRICS and the second largest oil producer on the planet. In a statement sent to the Financial Times , the New Development Bank said it attaches "great importance to the Kingdom of Saudi Arabia" and is currently engaged in a "qualified dialogue".
Dialogue which, moreover, was revealed in a very important moment for the institute, which will hold its annual meeting this Tuesday in which it will evaluate its financing options, reduced following the Russian invasion of Ukraine. As a founding member, Russia owns an approximately 19 percent stake in the bank. Riyadh's participation would therefore benefit its ability to mobilize funds.
Seen from Saudi Arabia, on the other hand, any entry into the BRICS bank would allow it to tighten its ties with the five countries and in particular with China, given the energy affinities: Riyadh is the largest oil exporter in the world, Beijing the largest importer. Things are going very well between the Saudis and the Chinese: last year the president of the People's Republic, Xi Jinping, visited the kingdom and announced the beginning of a "new era" in bilateral relations; last March, China mediated between Saudi Arabia and Iran, historical regional adversaries, for the reactivation of diplomatic relations.
RUSSIA IS A PROBLEM FOR BRICS FINANCES
The New Development Bank had to suspend its $1.7 billion exposure to Russia (roughly 6.5 percent of its total assets) and halt financing of new Russian projects to reassure international investors on the compliance with Western sanctions against Moscow.
Ashwani Muthoo, director general of the bank's valuation office, admitted that "we are having difficulty mobilizing resources". He did not comment on the talks with Saudi Arabia, but said the institute wants to look into alternative instruments and currencies (such as the Chinese yuan, and in the future the South African rand) to raise funds. “We will have to analyze the situation in Russia, the war,” he concluded.
WHAT IS RUSSIA DOING?
Russia has said it sees the BRICS bank as a tool to ease the impact of the sanctions and allow for a detachment from the US dollar-pegged oil trade. Prime Minister Mikhail Mishustin said in this regard that "one of the bank's main objectives" is to defend the group from "illegitimate sanctions from the West".
Yet the New Development Bank has suspended Russia-related activities. The same was done last year by the Asian Infrastructure Investment Bank, another institution strongly linked to China (but much less exposed to Moscow).
As the Financial Times explains, the decisions of the New Development Bank and the Asian Infrastructure Investment Bank demonstrate how even the institutions that set themselves up as alternatives to the West then actually collaborated in the implementation of the sanctions against Russia. However, it is an obligatory cooperation, in a certain sense, because BRICS and China cannot – at least not at the moment – do without the dollar in international exchanges.
IS CHINA LEADING BRICS ENLARGEMENT?
Last month, South Africa's ambassador to the BRICS, Anil Sooklal, announced that there are nineteen countries interested in joining the group : in addition to Saudi Arabia and Iran, which have formally applied for membership, among those who have shown interest there are Algeria , Argentina, Bahrain, Egypt, the United Arab Emirates and Indonesia.
If it is true that the BRICS want to increase their international influence to better rival the US-led world order, on the other hand the expansion of the group is viewed with some concern by Brazil, Russia, India and South Africa: they fear that their relevance could be diluted if China were to bring in many of its allies, such as the Saudis and the Iranians.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/arabia-saudita-brics-nuova-banca-sviluppo/ on Mon, 29 May 2023 09:03:58 +0000.