South Africa finds itself in a complicated tug of war concerning relations with the European Union and a member of the BRICS+ economies. Pretoria plans to approach the EU to discuss its proposed tax on carbon-intensive imports. The argument that the South African government has given is that it will negatively impact the emerging economies of the BRICS nations. The EU has launched a system to impose CO2 emissions tariffs on imported goods. BRICS alliance expressed a unified stance on reconsidering the EU’s carbon border adjustment mechanism.
South Africa plans to approach the European Union to discuss its proposed tax on carbon-intensive imports, arguing that it will negatively impact the economies of BRICS nations. In October, the EU launched the first phase of the world’s first system to impose CO2 emissions tariffs on imported steel, cement and other goods as it tries to stop more polluting foreign products from undermining its green transition. The tax will be fully implemented by 2026. While the measure aims to encourage companies to adopt cleaner energy technologies and reduce the production of such goods outside the EU, South Africa and other countries contend that it unfairly shifts the burden of climate action onto poorer regions, Bloomberg reported. Last year, the president of the African Development Bank Group, Akinwumi Adesina, warned that the tax could result in an annual loss of $25 billion for Africa, impeding the continent’s trade and industrialization progress.
The Carbon Intensive imports tax is of course linked to Climate Change. Its goal is to reduce carbon gas emissions to limit the destructive effects of climate change. The tariffs will affect gas emissions of transport vehicles such as trucks, trains, ships planes etc. South African companies and companies that are a part of BRICS fear that these taxes raise costs on profits made from exports. The main purpose of these taxes is to persuade the companies in question to swich to none-carbon dioxide-based forms of energy. These can be electric vehicles, that do not release CO2 or they run other types of energy. The argument South Africa has made as should Brazil, Russia, India and China concerning the use of carbon-based fuels is that the transition to cleaner energies such as solar and wind power is slow. This is because the use of cleaner energy by the overall population makes it costly.
Meanwhile the BRICS nations including South Africa have been in discussion over plans to introduce a unified currency for trade.
While officials have repeatedly denied the idea that a ‘BRICS currency’ is imminent, discussions on how to better facilitate trade between BRICS nations and decrease reliance on the US dollar have been prominent within the bloc. The BRICS countries have made it no secret that they have a specific ‘de-dollarisation’ agenda, actively moving to conduct and complete trade agreements in local currencies. This has already been done between bigger economies in the bloc, like Russia and China. However, there are many logistic and credibility issues tied to trying to establish an entirely new currency. According to Professor of Finance & Economics at Cumberland University and Free Market Foundation consultant Richard J Grant, there could be a way to do it, however. Just not in the sense that most people understand.
To create a ‘BRICS currency’ that can rival other major currencies such as the Dollar, Euro and pound seems rather far-fetched. First of all, many of these member states including the new ones are sprawled across the globe. Currently there is an agreement that all members trade with each other in their local currency. However, India, China and possibly Brazil owe their economic output to their vast populations. Brazil and Russia depend on the abundance of vast resources to power their economies. Each economy varies in size and nature. Beijing is famous for having moved forward with its Belt and Road Trade Initiative. New Delhi is establishing contact to make a similar venture known as the India-Middle East Economic Corridor, while Moscow is engaged in a war with Ukraine trying to expand its geo-political influence and Brazil under its current President Luiz Inácio Lula Da Silva is trying to reverse the protectionist policies of the previous president.
Talk of a ‘BRICS currency’ has emerged because of major shifts in the global landscape. Since early 2021, the US has suffered a burst of inflation rising as high as 9% before declining to just over 3%. Although the dollar inflation rate is likely to fall further, the federal deficit has soared on the back of huge increases in unproductive spending, Grant said. This has made the US dollar slightly less appealing in trade. Add to this the US’ position on various geopolitical tensions—especially vis-a-vis Russia and China—and it becomes understandable why there is a rising call to de-dollarise. Notably, American-led sanctions against trade with Russia have blocked access to dollar-based banking and payment systems. “The freezing and likely confiscation of $300 billion of sovereign Russian assets is a lesson to all countries – especially China – that future policy disputes could put their assets and trade facilities at risk. It is prudent to take precautions against such risk,” Grant said.
The threat being given by Washington that they can cut of all trade with emerging economies such as the original founding members of BRICS, stems from the fact that the United States straddles both the Pacific and Atlantic Oceans. This enables it to dominate trade on both coasts. The dollar for its part has been in decline. However, the US still has a lot of resilience on its side due to the amount, of resources in its vicinity. The BRICS nations still need the US more than the US needs these countries. Sanctions against Russia over the war in Ukraine have had its effects in crippling the giant Bear, while the other BRICS powers have to be weary.
There is a need to be weary of the dollar’s increased inflation due to lack of profit being made of the unproductive spending. If the currency crashes due to miscalculation or poor mismanagement it would have a domino effect on both major and emerging economies worldwide. This is why there is such an interest in trading with local currencies and investing in gold. Gold is the last solid reserve to protect against inflation and bankruptcy. Only time will tell how South Africa will fare with this new gold-based currency while trading between Africa, Asia, North and South America.
Article written by:
Yacoob Cassim
Journalist at Radio Al Ansaar
