The future of the BRICS

by in Business.

Participants sit at a table during a BRICS leaders' meeting at the G20 Summit in Strelna

The cohesion of the BRICS (Brazil, Russia, India, China and South Africa) will face its biggest test in 2014. Three of the five nations hold general elections. How they turn out could determine whether the alliance of leading emerging economies will grow evermore unstable or bind into the cohesive global geo-political player it aspires to be.

Elections in Brazil, India and South Africa will force those countries’ leaders to focus their time and attention domestically. President Dilma Rousseff, Prime Minister Manmohan Singh, and President Jacob Zuma, respectively, know voters are more interested in their own country’s wellbeing rather than in the health of the alliance. The BRICS association, with its poorly defined agenda, is not seen by most voters as something that will benefit their day-to-day lives.

Brazilians, Indians and South Africans do have some commonalities: the unsteady condition of their respective economies, the volatility of their country’s currencies, and the fading of the global credit and commodity booms that had driven their recent economic growth. Another shared trait is a high-level of social disapproval of their elected representatives, which has manifested itself in large-scale street protests.

Back in June, Brazil experienced the biggest popular demonstrations in two decades. (Read more: Brazil’s economic problems, according to the protesters). Thousands of people took to the streets to protest against high taxes, inflation, corruption and poor public services. Meanwhile, economic growth has slowed sharply and inflation is above the center of the target range for the past three years (4.5% with a tolerance band of two percentage points either way).

The tension has since eased, but the discontent remains. Brazil will host the World Cup next year, only a few months before October’s elections. Rousseff will be praying for a successful tournament topped off with a home-team victory to dispel the memories of those who say the money her government spent on the event would have been better directed towards education, health and infrastructure.

In India, national elections will be held in the spring; they are already controversial. (Read more: Indian oppo doubles-down on polarizing Modi). The country’s economy is dominated by the slowdown in mining and manufacturing. Inflation is too high, and the budget deficit, public debt and deep current-account deficit are too large. The prime minster’s drive for structural reform of the economy by opening it up has stalled. Corruption, security, and poverty remain the country’s biggest social issues, while recent prominent rape cases have highlighted both economic and social gender inequality and the terrible violence faced by many Indian women.

South Africans will hit the polls in the summer of 2014. Labor unrest has taken the spotlight this year — even more so than during other “strike seasons.” It has cut the economy’s output and raised the chance of stagflation. (Read more: South Africa’s strikes and the risk of stagflation). The country’s unemployment rate, at 25.6%, is a ticking time bomb. Africa’s biggest economy is highly dependent on foreign capital inflows for investment and on exports of its natural resources. It has been hit hard by recessions or slow growth in its developed-world markets and by the cooling of the commodities boom.

International investors have turned skeptical of these countries. The volatility of Brazil’s real, India’s rupee and South Africa’s rand is evidence of that. First the easy money from the U.S. Federal Reserve’s stimulus flooded into the three countries’ economies and then retreated when yield-chasing investors thought that that stimulus would start to be withdrawn. A reprieve came earlier this month when the Fed said it wouldn’t taper yet, but that has bought these economy no more than some breathing space. (Read more: U.S. Fed’s reprieve for the Fragile Five only temporary).

The countries have launched different measures to prop up their currencies but they are yet to yield results. The BRICS have combined foreign-currency reserves of $4.4 trillion and have committed to make $100 billion available to support each others’ currencies. Yet those sums won’t to do much in the face of the gigantic foreign-exchange markets. (Read more: Brittle BRICS). The new firefighting fund won’t be ready until next year, at the earliest. And there are lingering suspicions that China wants to dominate the fund in the cause of internationalizing its own currency.

Fixing their structural deficits would be the best defense, but that is also hardest to do politically. Next year’s elections will shape whether the majority of the BRICS leaders have a mandate to do that, and thus what sort of cohesiveness the BRICS can forge for themselves as a group, or whether they will continue to be separated by their rivalries.