A new world order looms, and Africa’s role in shaping it is becoming increasingly important. Economic shifts and geopolitical events have led to a coalition between Brazil, Russia, India, China, and South Africa (BRICS) that was formed in 2010. These countries make up over 30% of global GDP and 40% of the world’s population.

On 1 January 2023, South Africa took over the rotating presidency of the BRICS group from China, and it became clear that Africa has a significant role to play in the scheme of things. Interestingly, the group’s 15th summit, held from 22nd to 24th August in Johannesburg, was themed “BRICS and Africa: Partnership for Growth, Development, and Inclusive Multilateralism.” This has got many people asking questions like: What is Africa’s role in the BRICS expansion?

An Arena of Intense Global Competition
One of the five major priorities of the 15th BRICS summit was utilizing the African Continental Free Trade Area to unlock new opportunities. Over 40 countries in total have applied to join BRICS, and South Africa is looking to use this newfound interest as a catalyst to build up Africa’s interest in the group.

After the 15th summit and deliberations on the applications, the founding members of BRICS invited six countries to join the closed circle. These six countries include two African countries (Ethiopia and Egypt), three Asian countries (Iran, Saudi Arabia, and the UAE), and one South American country (Argentina). Ethiopia and Egypt are among the most promising economies in Africa. If they accept the invitation alongside their Middle East and American counterparts, BRICS could become the largest economic alliance along the Arabian Gulf and Red Sea.

BRICS Currency and De-Dollarisation

Africa has over 1.4 billion people in 55 African states and an economy of over $3 trillion. Although there’s yet to be a consensus on the proposed BRICS common currency, the idea of these African countries, with such population and economic value ditching the dollar comes with some distressing realities. According to JP Morgan, this may affect the demand for the U.S. dollar from investors, corporations, and institutions over time and may lead to a drop in the value of the currency.

One notable ripple effect of this shift is the potential impact on stock indices, like the S&P 500. Historically, stock indexes like the S&P 500 have exhibited an inverse relationship with the U.S. dollar. Thus, the stock indexes tend to follow suit as the dollar’s value rises or falls. This situation introduces an element of vulnerability into the equation.

For instance, consider the ES1 futures chart, which serves as a real-time barometer of the broader stock market, tracking the performance and volatility of the S&P 500. Strategically, it allows stock market traders to predict the future value of the S&P 500 by trading financial derivatives like futures, and enables them to possibly make a profit if their predictions are correct. However, in the instance of a rising dollar, the stock prices fall, thereby affecting traders who invest in futures and causing them great losses. Since the dollar is the denominating asset for several international transactions, foreign buyers are often priced out of goods, services, and investments when the dollar price rises.

Consequently, if de-dollarization were to lead to a sustained weakening of the U.S. dollar, it could potentially influence the performance of the S&P 500 and, by extension, the broader stock market.
Nevertheless, Meera Chandan, Co-Head of Global FX Strategy J.P. Morgan, assures that the dollar maintains its transactional relevance despite the decline in U.S. trade shares and the FX dollar share drop to a record low of 58%.

Reshaping the Global Order
Some economic and sociopolitical commentators believe that BRICS may usher in a new world order characterized by profound shifts in global political ideologies and the balance of power in international affairs. Africa naturally assumes the role of a revisionist force, aiming to promote cooperation among emerging economies.

However, Africa has also become more valuable to global powers trying to sway the continent’s loyalty in their favor due to the recent economic instability and international tension in the West. Safe to say, the ball is in Africa’s court. Will BRICS apply the force needed to balance global power? Only time will tell.