Russia will chair the BRICS’ seventh summit in July this year. As these growing economies become more influential and look to work together, establishing rule of law across all five members is more important than ever. .
When it was first coined in 2001, the term ‘BRIC’ seemed little more than a quirky acronym. Since then, the term has quickly become universal shorthand for the emerging markets’ ascent in the global economy.
Brazil, Russia, India and China – and South Africa since it joined the fold in 2010 – have all come a long way since former Goldman Sachs Chief Economist Jim O’Neill first spotted their potential 14 years ago. Despite riding out the global financial crisis remarkably well, the mighty BRICS have not been left completely unscathed. The average growth rate of each country has slipped by more than two percentage points over the past decade.
At a recent IBA conference, From BRICS to MINT… and Beyond!, O’Neill said that China was the only one of the original BRICS that hadn’t disappointed him, clocking an average growth rate so far this decade of eight per cent. Although he acknowledged weaker commodity prices were partly to blame for poorer performances in Brazil and Russia, he maintained his view that rule of law is vital for economic success. If all these countries can ‘succeed in doing all the things that are necessary for rule of law, then they’re going to get somewhere’, he says.
David W Rivkin, IBA President and
Co-Chair of Debevoise & Plimpton’s international dispute resolution group, agrees. ‘Developing a credible devotion to the rule of law, for businesses as well as individuals, is critically important to the continued economic development of the BRICS countries.’ Lawyers themselves have a vital role to play in promoting the rule of law. ‘The expertise of lawyers is needed to modernise the laws in BRICS countries, and elsewhere of course,’ he adds.
In the chair
Russia currently chairs the BRICS group and is set to host the seventh summit in July. However, its economy has been struggling recently, as the fallout from the conflict in Ukraine takes its toll.
“ Developing a credible devotion to the rule of law, for businesses as well as individuals, is critically important to the continued economic development of the BRICS countries
David W Rivkin
Russia still has considerable work to do when it comes to establishing the rule of law. Dominic Sanders is a partner at Linklaters in Moscow and spoke at the IBA conference. ‘Building confidence in the rule of law is a long-term process,’ he says. ‘The commercial legal infrastructure supports and underwrites business practice, and in Russia markets have developed greatly since the fall of communism. However, building institutions has been a challenge in Russia and there is still some way to go in the creation of a genuinely independent and technocratic judiciary, backed by credible processes for the enforcement of judgments.’
Recent changes to the Russian civil code and procedural rules are critical to the country’s development. ‘In my view there comes a point beyond which the development of an economy is constrained if local businesspeople do not have a basic level of trust in their own courts’ ability to resolve commercial disputes in a consistent, fair and timely manner,’ says Sanders.
Although a large volume of dispute resolution has historically been ‘outsourced’ to international arbitration centres, the move by Russia to push investors towards local courts poses its own challenges. ‘While this can be achieved in part by amending procedural rules to force investors to submit disputes to the local courts, it is also necessary to improve confidence in the legal system,’ says Sanders. ‘This depends on judges’ qualifications, consistency of enforcement of judgments and the absence of bias or corrupt practices.
I expect that this is as relevant to a greater or lesser extent in the other BRICS and MINT countries as it is in Russia.’
Although China is still the clear frontrunner in terms of economic growth, recently there have been several moves to bring together the BRICS’ combined financial strength. Last year, the grouping announced plans to establish a $100bn New Development Bank (NDB) as an alternative to the World Bank and the International Monetary Fund (IMF).
Edmund Sim is Chair of the IBA International Trade and Customs Law Committee and a partner at Appleton Luff. ‘The question with the BRICS bank will be with the funding,’ he says. ‘Of the five BRICS members, only China and perhaps India are strong enough financially to devote meaningful funding at the moment.
This might be a case of the ambition of political and diplomatic objectives outpacing the funding and support.’
The five BRICS countries also recently pledged to establish a $100bn reserve fund to provide financial support when required. China is currently expected to contribute the most to the fund, at $4bn, followed by Brazil, India and Russia all shelling out $18bn and South Africa contributing just $5bn.
As well as forging stronger financial ties, China, India and Russia have announced plans to re-establish the economic corridor across Eurasia via their ‘One Belt, One Road’ project. Russia could be set to benefit considerably from the project.
“ In my view there comes a point beyond which the development of an economy is constrained if local business people do not have a basic level of trust in their own courts
‘Russia has traditionally looked more to the West than the East, but there are many obvious advantages for [it] in developing its trading and investment flows with Asian countries,’ says Sanders.
‘In the abstract Europe will benefit if these commercial relationships are functional, not overly politicised and do not exclude Russia’s relationship with Europe,’ he continues. ‘For example, it makes sense that Gazprom should develop its Asian customer base. Perhaps a lower level of dependence on European customers by Gazprom would ultimately be healthier for everyone.’
Russia has also shown it is prepared to go further afield and has been working to boost trade relations with Latin America. In late April, state-owned Vnesheconombank inked a deal with Banco de la Nación Argentina, which will see Russia invest $2bn in Argentina’s nuclear power sector and Gazprom will invest a further $1bn in exploring oil and gas fields in the country.
Although Argentina is not one of the coveted BRICS grouping, the move could be a prudent one. While Russia is looking to offset the ongoing economic impact of US and EU sanctions, Argentina’s beleaguered economy is also keen to attract foreign investment as its government is locked in an ongoing battle with US hedge funds. The unlikely allies may well prove to be a judicious match.
Ruth Greenis a freelance journalist and can be contacted on email@example.com