The 2015 BRICS-SCO Summits In Ufa: New Developments In Multilateralism
By Alvin Cheng-Hin Lim

The 2015 BRICS-SCO Summits In Ufa: New Developments In Multilateralism

Mar. 01, 2016  |     |  0 comments


In mid-July 2015 the Russian city of Ufa was the venue for the 7th BRICS (Brazil, Russia, India, China, South Africa) Summit and the 15th SCO (Shanghai Cooperation Organization) Summit (“BRICS, SCO,” 2015). The convergence of the BRICS and SCO Summits at Ufa was due to the coincidental timing of the rotating leaderships of the BRICS and SCO falling to Russia this year (“SCO heads,” 2015; “Ufa ready,” 2015). Both the BRICS and the SCO are multilateral forums that exist for emerging economies from the developing world, and they offer alternative multilateral venues for developing nations to pursue practical cooperation outside of the Euro-American sphere (“Just-concluded,” 2015). While the SCO, unlike the BRICS, was originally focused on security cooperation, economic concerns for the SCO members have risen in importance in recent years, and the BRICS-SCO Summits in Ufa have highlighted the convergence in issues of economic cooperation among both the BRICS and SCO member states.

BRICS

Despite the current economic difficulties faced by the BRICS member states, Chinese President Xi Jinping noted at the BRICS Summit in Ufa that these nations still have significant potential for economic growth, and deeper cooperation within the BRICS framework and with other economic powers will help unlock this growth potential. After all, the BRICS economies currently have a combined GDP that has grown to be almost the same size as that of the US; just 8 years ago the US GDP was double that of the BRICS economies. One strategy to unlock this growth potential would be to deploy the BRICS Economic Partnership Strategy to align each BRICS member state’s individual development plan with that of the others. Such strategic alignment is expected to increase the overall competitiveness of the BRICS economies (Borg, 2015; Scott, 2015; “Xi voices,” 2015).

In the run-up to the BRICS Summit, the member states ratified their participation in the BRICS US dollar currency reserve, which will become operational by the end of July 2015. The currency reserve, which will offer its members US$100 billion in emergency funding for liquidity crises, will primarily be funded by China, which will contribute US$41 billion, followed by Brazil, India, and Russia, which will each contribute US$18 billion, and South Africa, which will contribute US$5 billion (“BRICS Contingency,” 2015; “China to inject,” 2015).

Apart from the currency reserve, the Ufa Summit also established the groundwork for an eventual free trade agreement for the BRICS economies (Saran, 2015). However, it was the launch of the BRICS New Development Bank (NDB) that was the major achievement of the Ufa Summit. The NDB is not intended to replace existing international financial institutions (IFIs) like the IMF or World Bank, but is instead intended to supplement them by offering financing that the existing IFIs are unwilling or unable to provide. While the NDB will focus on offering financing to projects within the BRICS member states, projects in other developing countries will also be considered. The BRICS member states will select the first projects to be financed by the NDB by the end of 2015, and the bank is expected to issue its first loans by April 2016. The NDB will focus on financing large-scale projects in the areas of industrialization as well as energy and transportation infrastructure. As this fits with the focus of China’s Asian Infrastructure Investment Bank (AIIB), the NDB is expected to collaborate with the AIIB when both IFIs begin operation (“First Loans,” 2015; “Leaders agree,” 2015; “New bank,” 2015).



The BRICS economies currently have a combined GDP that has grown to be almost the same size as that of the US.



While governments may establish frameworks for economic development and other forms of practical cooperation, it is the business community that has to take advantage of these opportunities. The leaders of the BRICS member states hence took the opportunity of the Ufa Summit to call on their entrepreneurs and business leaders to pursue trade and investment opportunities in the framework of BRICS cooperation, especially in the key economic sectors of infrastructure development, green energy, and industrial manufacturing. Russian President Vladimir Putin, for example, invited Chinese enterprises to explore business, trade and investment opportunities in Siberia and the Russian Far East. Such intensification of business activity can help stimulate an economic recovery in the BRICS member states (“Putin expects,” 2015; “Xi urges business,” 2015).


In the case of China, President Xi used the opportunity afforded by the BRICS Summit to advance his country’s “Belt and Road” development framework, as well as the initiative’s primary financing instrument, the AIIB (Lim, 2015d; Lim, 2015g; “BRICS, SCO,” 2015). Apart from the AIIB and the NDB, China is also involved with two other IFI initiatives: the Silk Road Fund, which has already selected its first project — the Karot hydropower plant in Pakistan — and the proposed SCO Development Bank, which will be discussed in the following section (Chen, 2015; “New Development Bank,” 2015).

China’s practical cooperation with fellow BRICS member Brazil through the BRICS framework, the AIIB, and bilateral projects, highlights China’s interest in practical cooperation beyond the Eurasian landmass. Chinese engagement in Latin America has attracted Venezuelan President Nicolas Maduro to seek Venezuelan membership in the BRICS, and also to recommend the Latin American regional grouping of leftist nations, the Alianza Bolivariana para los Pueblos de Nuestra América, to participate in the NDB (Lim, 2015f; “China-Brazil,” 2015; “Venezuela to apply,” 2015). Apart from Latin America, Africa will also be targeted for cooperation with the BRICS, and China has called on the BRICS to establish a regional center on the African continent. BRICS development projects in Africa will complement Chinese projects there that have been established through bilateral agreements as well as under the framework of China’s 21st Century Maritime Silk Road development plan (Lim, 2015b; “Xi voices,” 2015).

SCO

The SCO Summit at Ufa saw the expansion of the SCO’s development strategy to include greater practical cooperation including deeper security cooperation and economic integration between the organization’s member states: China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. The acceleration of economic cooperation was established during the Ufa Summit as a key goal for the SCO’s official development strategy for the next decade. By 2025 the SCO member states will be expected to have accelerated their economic development through greater practical cooperation and increased trade. China also has a long-term vision for a SCO free trade area, which, when it comes to fruition, will provide a boost for trade between the SCO economies (Rakhimov, 2013, p. 73). In the case of Russia, deeper economic cooperation through the SCO and BRICS can help alleviate the economic and social challenges of Euro-American sanctions over the Ukraine crisis (“BRICS, SCO,” 2015; “Future development,” 2015).

In the field of economic integration, the SCO offers a useful framework for China and Russia to connect their respective regional development initiatives: the Silk Road Economic Belt and the Eurasian Economic Union (EEU), in particular through the construction of key energy and transportation infrastructure like high-speed rail. China and the EEU will also pursue an economic partnership agreement through the SCO framework (Lim, 2015c; “China, Eurasian,” 2015; “Xi pushes,” 2015; “Xi urges China,” 2015). Indeed, President Xi has called for greater collaboration between the SCO, BRICS, and the EEU to accelerate common development between their member states (“Xi urges BRICS,” 2015). A good example of regional economic integration would be the proposed China-Russia-Mongolia economic corridor project which would connect China’s Silk Road Economic Belt, Russia’s transcontinental rail project, and Mongolia’s Prairie Road development plan (“Xi urges quickened,” 2015).

While the focus of the SCO has primarily been security cooperation, its members have long used the multilateral forum to facilitate economic cooperation. In 2005, for example, the SCO Inter-Bank Association was established, and by 2007 had helped its members agree on an estimated US$2 billion in loans and business deals, including a Tajik-Uzbek highway and a Kazakh hydropower plant (Wang & Lim, 2007, pp. 2-3). This inter-bank mechanism was the first stage of the process that will eventually lead to the establishment of the SCO Development Bank, which could serve as a secondary source of financing for China’s Central and South Asian partners in the Silk Road Economic Belt projects (Pan, 2008, p. 242). In 2007 Russia started delivering oil to China through the Sino-Kazakh pipeline, an example of energy cooperation which was negotiated through the SCO framework (Pan, 2013, p. 24).



The meeting of the Indian and Pakistani leaders at the SCO Summit has already triggered greater bilateral dialogue and exchanges.


The Ufa Summit also saw the expansion of the SCO into South Asia, with the organization initiating the accession process for India and Pakistan, both of which currently have observer status at the SCO. The longer term vision for the grouping will see the SCO include more countries from South Asia and the Middle East, including Iran (Standish, 2015; “Acceptance of,” 2015; “BRICS, SCO,” 2015). India’s and Pakistan’s accession into the SCO will not only provide these South Asian powers with an additional forum for dialogue concerning their troubled bilateral relationship, it will also offer them access to the experience of the SCO’s member states in combatting the “three evil forces” of extremism, separatism and terrorism that both nations currently face (“SCO starts,” 2015; “Russia hopes,” 2015). Indeed, the meeting of the Indian and Pakistani leaders at the SCO Summit has already triggered greater bilateral dialogue and exchanges (Som & Singh, 2015).


Pakistan’s coming accession to the SCO is particularly important to China given their long-standing bilateral cooperation, including the recently announced China-Pakistan Economic Corridor infrastructure megaproject (Lim, 2015e; “Chinese president,” 2015). India’s accession is also of great importance to China, as China recognizes India as being a strategic link in the planned integration between the Silk Road Economic Belt and the EEU. China and India are already cooperating on the AIIB and NDB finance initiatives, and both countries are already exploring the proposed BCIM (Bangladesh, China, India, Myanmar) Economic Corridor infrastructure megaproject. Further cooperation to link China’s “Belt and Road” projects with India’s development projects can also be expected in the future (Sahoo & Bhunia, 2014; Van der Kley, 2015; “SCO summit,” 2015; “Xi calls,” 2015).

Afterword

This paper was originally published in Eurasia Review (Lim, 2015a). Since that time of writing, the global collapse in commodity prices has adversely impacted Brazil and Russia, plunging both countries into recession. With China also experiencing an economic slowdown and India enjoying over 7 percent growth, observers like IMF Managing Director Christine Lagarde note that the BRICS are no longer functioning like a coherent bloc (Talley, 2016; “IMF Chief,” 2016). Goldman Sachs closed its BRICS fund in November 2015, signaling the end of the finance sector’s interest in the BRICS. Investment bankers specializing in emerging markets have since moved on to the TICKS, with Taiwan and Korea supplanting Brazil and Russia (McLannahan, 2015; Johnson, 2016). Nonetheless, the BRICS themselves are keen to continue their collaboration. The BRICS nations have contributed their first of seven tranches to the NDB, giving the new IFI US$750 million in paid up capital. The NDB is expected to have US$10 billion in paid up capital once all seven tranches of contributions have been paid. The NDB’s subscribed capital is expected to be US$40 billion (“BRICS member-states,” 2016).

With the UN’s recent lifting of sanctions from Iran, the SCO is now able to consider Iran’s 2008 application for full membership. President Xi announced during his recent state visit to Iran that Tehran has China’s support for its application for full SCO membership (Lim, 2016; Kucera, 2016; “China supports,” 2016). In the meantime, Iran and the SCO are already increasing their cooperation in anti-terror operations in Afghanistan (“SCO to,” 2016).

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