Imagine Malaysia’s economy getting a much needed boost, opening up to a market worth trillions, or seeing new job opportunities. It sounds a little far-fetched, right? Well, that may not be the case any longer. Prime Minister, Anwar Ibrahim has recently announced that Malaysia will soon be joining BRICS, an intergovernmental organisation to boost the economy in Malaysia. Malaysia's intention to join BRICS was first announced in June.
Anwar emphasised that Malaysia's decision to join BRICS is centred on economic trade and cooperation, not on interfering with the domestic politics of member countries like China and Russia. Anwar also highlighted that BRICS' GDP is US$26.6 trillion, accounting for 26.2% of the world's GDP. Joining BRICS is expected to benefit Malaysia’s economy. In this article, we’ll get into the purpose of Malaysia joining BRICS, and how it could benefit the Rakyat.
What is BRICS?
Economic Opportunities and Trade Diversification
Countries join BRICS to access new economic opportunities, diversify their trade partnerships, and gain greater influence in a multipolar world. By joining BRICS, countries benefit from enhanced economic cooperation, increased foreign investment, and collective bargaining power on the global stage.
Less Dollar Dependence
BRICS nations aim to reduce their reliance on the US dollar, which currently dominates international finance and gives the US significant power and influence. By trading in their own currencies, BRICS countries increase their economic independence and reduce dependence on the US financial system.
The New Development Bank
BRICS established the New Development Bank (NDB) to provide an alternative financial system that does not rely on the US dollar. The NDB helps stabilise member economies and reduce the impact of dollar fluctuations, offering funding for infrastructure and development projects within BRICS nations.
Contingent Reserve Arrangement
The Contingent Reserve Arrangement (CRA) is a financial support mechanism within BRICS designed to assist member countries during balance of payments crises or short-term liquidity problems. It acts as a safety net, allowing countries to request funds in times of financial distress until stability is restored. This arrangement complements institutions like the International Monetary Fund (IMF), providing an additional layer of financial security for BRICS nations.
De-dollarisation
If more countries join BRICS and start using other currencies, the global demand for dollars could decrease, potentially reducing the dollar's value over time. However, the extent of this impact depends on how many countries make the switch and the stability of the alternative currencies. While BRICS is a significant economic group, the US dollar still holds a dominant position, and predicting the exact impact involves many variables, including the pace of adoption and the relative stability of other currencies.
BRICS vs. G7: Key Economic Differences
Let’s get into the key economic differences between the BRICS and the G7. Historically, the G7 has wielded substantial influence in global economic governance. However, the rapid economic growth and development in BRICS nations have introduced a notable counterbalance to the established G7.
1. Population
BRICS dominates a large amount of the world's population, with China alone boasting over 1.4 billion people. This massive population translates into several advantages for economic growth. A large domestic market allows businesses within BRICS countries to sell their goods and services to a vast pool of potential customers, facilitating economic expansion. Additionally, this large population translates into a significant labour force, providing companies with a readily available pool of workers to scale up production.
The G7, on the other hand, comprises about 10% of the global population. But, people in these countries generally earn more money and have more spending power. This is exemplified by countries like Japan, which has a smaller population but high purchasing power.
2. Trading Power
BRICS countries hold a significant share of global trade, controlling roughly 18% of the total. China, a major player within BRICS, is a leading exporter, particularly for electronics and machinery. However, BRICS is still developing its trade infrastructure and influence compared to the G7.
The G7 countries hold a dominant share of global trade, accounting for around 45%. While their individual export volumes might be higher, the G7's true strength lies in setting the "rules of the game" for international trade. They establish tariffs, investment guidelines, and dispute settlement mechanisms to create a stable and predictable trading environment for all participants.
3. Economic Growth
BRICS economies are experiencing dynamic growth, with rates hovering around 6-7%. This is particularly evident in countries like China and India. These fast-growing economies combined hold a significant share of global GDP (around 26%, projected to reach nearly $30 trillion with new members).
In contrast, the G7 represents well-established economies with a dominant share of global GDP (around 45%). While their growth rates are slower, averaging around 2-3% annually, these economies boast highly developed infrastructure and technology, contributing to their overall economic strength.
How Can BRICS Benefit Malaysians?
Economic Growth and Job Creation
BRICS membership could attract more foreign direct investment (FDI) from member countries looking to expand their economic footprint. This influx of capital could lead to investments in areas like manufacturing plants, creating new jobs for Malaysians. Additionally, working with BRICS countries can bring new technologies and innovations, boosting Malaysia's economic growth.
Access to a Larger Market and Business Growth
Joining BRICS would open up Malaysian businesses to the vast and growing markets of member countries. This can increase exports, allowing Malaysian companies to find new customers, especially for products like palm oil, which may be in high demand in countries like Brazil and Russia. This expanded market access can help local businesses grow and create more jobs.
Financial Security and Stability
BRICS nations are reducing their reliance on the US dollar in global trade. For Malaysia, this means lower transaction costs, as trading in BRICS currencies can cut down on currency conversion fees. Less dependence on the US dollar gives Malaysia more control over its financial system, making it less vulnerable to dollar value changes. If BRICS succeeds in using their currencies more, the Ringgit could strengthen against the USD.
Access to NDB and CRA
As a BRICS member, Malaysia would have access to the New Development Bank (NDB), which offers funding for infrastructure and business projects, often at better rates than traditional banks. Malaysia would also benefit from the Contingent Reserve Arrangement (CRA), which provides emergency financial assistance during economic downturns. This means that if Malaysia faces a financial crisis, the CRA can offer a financial safety net to help stabilise the economy.
Conclusion
The bottom line is, BRICS is not merely an economic alliance; it is also a significant global power in terms of the geopolitical climate. BRICS aims to challenge the dollar dominance held by the G7. If Malaysia officially becomes a partner country to BRICS, we may expect significant economic benefits, including increased trade, foreign investment, and technological advancements. These changes can positively impact Malaysian citizens by creating jobs, improving infrastructure, and enhancing educational opportunities. Local investors can benefit from diversified investment opportunities and improved financial services.
However, the geopolitical implications of partnering with BRICS cannot be overlooked. Will Malaysia's partnership affect our existing relations in the West? Watch my video to find out more!
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