Saudi Arabia and UAE officially join Brics: What will it mean for the bloc?

The expansion of the Brics bloc to include Saudi Arabia and the UAE is expected to offer new investment opportunities for the Arab world’s two largest economies while growing the group's influence globally, analysts said.

Saudi Arabia along with the UAE, Egypt, Iran and Ethiopia joined Brics on January 1, doubling its membership to 10, with Brazil, Russia, India, China and South Africa the original members.

The addition of the two major Gulf economies to the bloc will “increase the level of linkages between the region and the rest of the world and they will improve capacity to attract investment,” Jihad Azour, the International Monetary Fund's director for the Mena region, told The National.

“Expansion of the Brics multilateral bloc to include Saudi Arabia and UAE augurs extremely well amid ongoing geopolitical and economic challenges confronting the world economy,” Ullas Rao, assistant professor of finance at Edinburgh Business School of Heriot-Watt University in Dubai, said.

“Both Saudi and the UAE as [among] the richest countries on per capita and home to the biggest sovereign wealth funds, create enormous growth opportunities through investments, trade and commerce.”

Saudi Arabia and the UAE have continued to post economic growth despite uncertainties including high interest rates, inflation and geopolitical tensions as they focus on diversifying their economies.

Saudi Arabia’s economy, which grew by 8.7 per cent in 2022, the highest annual growth rate among the world's 20 biggest economies, is expected to expand by 0.8 per cent in 2023, according to the International Monetary Fund.

The kingdom is also focusing heavily on its non-oil economy as part of its Vision 2030 diversification agenda.

Meanwhile, the UAE's economy is expected to grow 3.4 per cent in 2023 with oil GDP growth projected at 0.7 per cent and non-oil GDP at 4.5 per cent, backed by a strong performance in tourism, real estate, construction, transport, manufacturing and a surge in capital expenditure, according to a recent report from the World Bank.

The Arab world’s second largest economy is signing trade deals to strengthen its ties with countries around. It is working towards signing 26 comprehensive economic partnership agreements as it seeks to attract more investment and diversify its economy.

“The image of Brics in the past was of a financially vulnerable group, beholden to the global political superpowers. The financial power of Saudi and the UAE as net exporters of capital to the rest of the world will substantially change that perception,” Gary Dugan, chief investment officer at Dalma Capital, said.

“Also as a collective, we expect Saudi Arabia and the UAE to be afforded easier access to the growth markets of the Brics countries on favourable terms.”

The addition of two major oil exporters to the group “will reinforce their bargaining power and influence in Opec+ while also offering the space for them to align their strategies with other Brics members”, Ehsan Khoman, head of ESG, commodities and emerging markets research at MUFG, said.

Opec+, which has been playing a crucial role in balancing oil markets, includes some of the world's biggest crude producers including Saudi Arabia, the UAE and Russia.

China and India, two key members of Brics, are the second and third biggest consumers of oil in the world with strong energy ties to the Gulf countries.

More bilateral trade in local currencies is also expected as the new countries join the group.

“The implication we are watching closely from the addition of Saudi Arabia, the UAE and Egypt to Brics is the potential for more bilateral trade in local currencies, particularly following the UAE and India's agreement reached in July, and Egypt being in similar discussions with India already,” said Carla Slim, an economist at Standard Chartered Bank.

Last year, the UAE and India signed agreements to establish a framework to promote the use of local currencies in cross-border transactions and boost co-operation in interlinking their payment and messaging systems.

After the deal, India began buying UAE oil in Indian rupees to boost trade between the two countries.

New world order?

Meanwhile, the calls for the overhaul of the international monetary system and the development of an alternative currency to the US dollar are expected to grow as Brics expands, according to Mr Rao.

“As the world navigates for an alternative to the US dollar, even if less relevant today, the emergence of Brics common currency can act as a major harbinger in diversifying risks away from the stronghold of the dollar,” he said.

Brics is poised to assume greater influence as a powerful voice to the Global South, he added.

Ayham Kamel, head of Mena at Eurasia Group, is also bullish about the bloc wielding more influence globally.

“The prospect of Saudi Arabia, the UAE, Iran and Egypt joining Brics creates new mechanisms that forces a degree of political co-operation by all the countries,” he said.

“The Arab countries are looking for improving their global geopolitical influence and appear committed to avoiding detachment from the West.”