How Does South Africa's BRICS Membership Affect the Rand?

1. What BRICS membership means for South Africa economically

South Africa joined BRICS in 2010 as the only African member, gaining access to a platform of large emerging market economies, the New Development Bank (headquartered in Shanghai), and the Contingent Reserve Arrangement (CRA), which provides emergency liquidity support to members facing balance of payments stress (see also SARB foreign exchange reserve adequacy). See also: What Is the Twin Peaks Regulatory Model?. See also: What Is the Sunk Cost Fallacy in Trading?.

The New Development Bank has approved and disbursed several infrastructure loans to South Africa, including for infrastructure projects related to water, transport, and energy. NDB financing provides an additional source of development capital at competitive rates alongside World Bank and African Development Bank lending.

Trade relationships with BRICS countries are significant for South Africa. China is already South Africa's largest trading partner. India is a growing destination for South African exports. Brazil and Russia have trade relationships with South Africa in specific commodities. BRICS membership formalises and potentially deepens these trade linkages.

The geopolitical positioning created by BRICS membership is double-edged for South Africa. On one hand, it provides diplomatic leverage and access to a large market bloc. On the other hand, South Africa's inclusion in a bloc that includes Russia (under Western sanctions) and China creates complications in its relationships with the US and EU, which are also major South African investment and trade partners.

See also: How Does SA's Water Crisis Affect the Economy and Rand?

2. The BRICS+ expansion and its implications for the rand

The January 2024 BRICS+ expansion to include Saudi Arabia, UAE, Ethiopia, Egypt, and Iran significantly increased the bloc's economic weight, particularly its share of global oil production and reserves. The expanded bloc's combined GDP, measured at purchasing power parity, exceeds that of the G7.

For the rand specifically, the BRICS+ expansion has limited direct implications. South Africa's economic linkages with the new BRICS+ members are less developed than with the original members. The expansion does not create immediate new trade or investment flows for South Africa.

The de-dollarisation narrative that BRICS promotes, the idea of reducing reliance on the US dollar in international trade and potentially creating a BRICS currency, has attracted significant media attention but has limited near-term practical implications for the rand. International trade invoicing and financial market denominations change slowly, and a BRICS currency remains aspirational rather than imminent.

The geopolitical signal of the BRICS+ expansion is potentially more significant for South Africa's investment climate than the economic substance. Western investors who perceive South Africa's BRICS+ participation as alignment with a China-Russia axis may factor this into their South Africa risk assessments. This is a nuanced perception management challenge for South Africa's foreign policy that has no definitive market answer.

3. De-dollarisation and what it could mean for ZAR traders

The BRICS de-dollarisation discussion aims to reduce the use of the US dollar in international trade settlements among BRICS members. In practice, this means exploring whether trade between South Africa and China, India, or Brazil could be invoiced and settled in local currencies rather than USD.

Limited bilateral arrangements already exist: South Africa and China have expanded their currency swap arrangements, and some commodity trade has been invoiced in renminbi. However, the practical scale remains small relative to total South African trade volumes.

For USD/ZAR specifically, successful de-dollarisation of a meaningful portion of South African trade would reduce the structural demand for USD in South Africa's current account flows. Less need to purchase USD for trade settlement would mean less downward pressure on the rand from this source. However, this effect would unfold over years and decades, not months.

The de-dollarisation narrative is more relevant for monitoring market sentiment around the BRICS summits and related announcements than for forming any short-term trading view. When BRICS announces progress on de-dollarisation mechanisms, this is noted in market commentary but rarely produces a significant market move because the practical near-term impact on actual currency flows is minimal.

4. The New Development Bank and its role in South Africa

The New Development Bank (NDB), headquartered in Shanghai, has approved several billion dollars of loans to South Africa since its establishment in 2016. These loans have funded infrastructure projects including water treatment plants, energy projects, and transport infrastructure.

NDB financing provides South Africa with an additional multilateral development bank lender alongside the World Bank, International Monetary Fund, and African Development Bank. This diversity of lenders reduces South Africa's dependence on any single institution and potentially provides competitive terms on development financing.

The NDB has faced some operational challenges following Western countries' response to Russia's invasion of Ukraine. As a BRICS institution that includes Russia as a founding member, the NDB has navigated sanctions compliance complexities that have temporarily affected some of its lending operations.

For traders, the NDB is relevant primarily as context for understanding South Africa's multilateral financing relationships. NDB loan approvals for South Africa signal ongoing institutional confidence in South African infrastructure investment, which is modestly positive for the broader investment climate narrative.

5. Practical BRICS monitoring for ZAR traders

BRICS summits, typically held annually, generate media coverage and occasional market commentary on South Africa's geopolitical positioning. Monitor BRICS summit announcements for any specific commitments that directly affect South African trade, investment, or monetary arrangements.

The most market-relevant BRICS-related development for the rand would be a concrete, credible agreement on an alternative trade settlement mechanism that meaningfully reduced USD usage in South African trade. This has not occurred to date and appears unlikely in the near term, but monitoring summit communiques for language in this direction is appropriate.

South Africa's relationship with the US and EU in the context of BRICS membership is an ongoing diplomatic consideration. Significant deterioration in US-South Africa relations, potentially related to BRICS positioning, could affect US investment in South Africa and produce rand weakness through the foreign investment channel.

For most trading sessions, BRICS is not an active monitoring priority. In the weeks around BRICS summits (typically July-August), scan media for any announcements with direct South African economic implications. Outside summit periods, BRICS is a background geopolitical context factor.