How Egypt’s entry will change BRICS

“Egypt has applied to join the BRICS group because one of the initiatives that the BRICS are currently engaged in is the maximum transfer of trade to alternative currencies, whether it be national or some kind of joint currency. Egypt is very interested in this,” Borisenko said on the morning of June 14 (quoted by TASS). According to him, Cairo is showing a great desire to develop trade and other types of economic cooperation with Russia, and “the process of building new mechanisms for mutual settlements in these operations is now underway.” Later, on the afternoon of June 14, the Russian ambassador confirmed that Moscow had supported Egypt’s bid to join the BRICS.

Back in mid-July 2022, the President of the BRICS International Forum, Purnima Anand, reported on the discussion of the possible membership of Egypt. Last year, Iran and Argentina also applied to join the BRICS, while Algeria expressed its readiness to join the bloc. By the beginning of June, according to the South African authorities, 13 applications for BRICS membership were received, in total more than 20 countries expressed their interest at the formal and informal level. The procedure for expanding the group has not yet been approved, in South Africa they hope that the concept will be approved by the BRICS summit on August 22-24 in Johannesburg. It is also planned to announce the creation of a single currency of the association.

On March 30, 2023, Egypt submitted an official application to join the BRICS New Development Bank (NDB). As the Financial Times reported at the end of May, Saudi Arabia, Cairo’s main creditor, also wants to join the NBR, and the bank itself is conducting a “qualified dialogue” with Riyadh. Egyptian Foreign Minister Sameh Shukri attended a meeting of BRICS foreign ministers in Cape Town in early June.

The economy of Egypt, one of the most developed African and Arab countries (GDP – $ 1.347 trillion in 2022, 2nd place in Africa), is experiencing a long crisis due to the global consequences of the pandemic and the Russian-Ukrainian conflict. Until 2020, 30% of tourists were Russians or Ukrainians, the sector provided 10% of employment and 20% of GDP. Egypt, with a population that has grown to 105 million and limited opportunities to farm, by the end of 2022, has become a key buyer of Russian wheat. In the 2021/22 agricultural year, 5.04 million tons, or 45% of Egyptian wheat imports, were supplied from Russia, about 10.7% from Ukraine. As Eduard Zernin, chairman of the Union of Grain Exporters, told Vedomosti, 7.4 million tons of wheat were delivered to Egypt in the current agricultural year at the beginning of June, which is 1.5 times more than in the same period last season. This is already about 75% of Egypt’s wheat purchases on the world market, he says. In general, the trade turnover between Russia and Egypt in 2022, including both grain and engineering products, in particular railway, grew by 30% to $6 billion, Russian Minister of Industry and Trade Denis Manturov said in March 2023.

At the same time, from March 2022 to May 2023, the Egyptian pound lost half its value against the dollar (20% since the beginning of 2023), becoming one of the weakest currencies in the world. In May 2023, inflation hit a five-year high of 32.7% amid rising food prices, import delays and a currency shortage, the latter creating problems in 2022 with grain purchases. Since March 2022, Egypt’s regulator has devalued the pound three times. In May 2023, Citigroup predicted a fourth devaluation “in a couple of months.” On June 12, Egypt’s parliament approved a budget deficit of 824.44 billion Egyptian pounds ($26.6 billion), compared with 718 billion pounds ($23.2 billion) a year earlier, with an average inflation of 16%. Egypt expects to achieve GDP growth of 4.1%. In April, the World Bank revised its forecast for the country’s GDP growth from 4.5% to 4%.

Against this background, Saudi Arabia continues to support fiscal stability: in November 2022, it extended the term of its $5 billion deposit with the Egyptian Central Bank. In December 2022, the International Monetary Fund approved a $3 billion loan to Egypt. The agreement program should allow Cairo to attract another $14 billion from international and regional partners, including the Persian Gulf.

For Egypt, the application to the BRICS is associated with hopes for large investments, given the deficit of both the budget and foreign currency in general, says Andrey Kochetkov, a leading analyst at Otkritie Investments. According to him, the Egyptian economy would like to receive, first of all, Chinese through the institutions and instruments of the group, to increase traditional Saudi and, possibly, Russian investments, and the announced creation of a single BRICS currency could facilitate this process. In turn, the BRICS can get into the asset the key logistics route of world trade – the Suez Canal, the expert continues. “However, Egypt is experiencing structural economic problems dating back decades, including not only inflation and a budget deficit, but also a large trade deficit, as well as social problems and potential political instability,” Kochetkov notes.

BRICS will give Cairo a new opportunity to promote economic interests among the members of the association, Ivan Bocharov, RIAC program coordinator, believes. Through the BRICS, Cairo is also trying to strengthen its international weight as a major regional player, continues Bocharov. “The Doctrine of the President [Абделя Фаттаха] Al-Sisi assumes building a multi-vector non-confrontational line of Egypt. Membership in the BRICS fits into this logic,” the expert believes.

Egypt’s interest in the organization is an indicator of the weakening of the US position in the Middle East and North Africa, Andrey Chuprygin, senior lecturer at the HSE School of Oriental Studies, believes. The elites of the Arab states have ceased to perceive Washington as a key guarantor of regional security, and the Americans themselves are reluctant to play this role while reducing dependence on regional energy resources, the expert says. Therefore, Chuprygin continues, the political elites of the Arab East have to “reinvent” their positioning in the world. “For two decades, BRICS has gained serious weight in the world. It represents an alternative platform for broadcasting its interests to the outside world,” the expert believes. Entry into the BRICS of Egypt – a “trendsetter” in the Arab world – may push other Arab states, admits Bocharov.

The expansion of the BRICS will provide new opportunities for Moscow to promote its political and economic interests, including the export of food and engineering products, Chuprygin believes: “The more states join the organization, the more “windows of opportunity” Russia will have on the external contour.” At the same time, according to Chuprygin, Washington will not oppose Egypt’s entry into the BRICS, although the country is one of the largest recipients of US military assistance – $ 1.3 billion, the second after Israel ($ 3.3 billion), otherwise it will lose the opportunity influence the politics of Cairo.