2024 is forty-eight hours away, and the BRICS Alliance is about to admit three new members into the organization. These three new members are Ethiopia, Egypt, and the United Arab Emirates.
While Egypt and the UAE seem to be economic strongholds in their respective geographic locations, Ethiopia, on the other hand, seems to be the weak link among the three new members. This begs to question to know if the BRICS Alliance isn’t making a colossal mistake by admitting Ethiopia into the cartel.
What benefits would the BRICS Alliance derive from admitting Ethiopia into the alliance? Ethiopia has a large and growing population of over 115 million, offering access to a new consumer base for BRICS member countries. And as a resource-rich country, Ethiopia boasts significant resources like minerals, fertile land, and hydropower potential, which could complement the existing strengths of BRICS members.
Ethiopia lately defaulted on its obligations, which significantly impacted its creditworthiness in the international bond market. This is a major red flag for BRICS because Ethiopia presents a major risk from a lender's perspective. If Ethiopia is about to enter the alliance, it means that BRICS will now become one of its major lenders. If Ethiopia were to default on its loans after joining BRICS, it could have significant negative consequences for the alliance, both financial and reputational.
From the financial perspective, BRICS member countries that have granted loans to Ethiopia would face direct financial losses if it defaults. This could strain their economies and potentially jeopardize ongoing development projects. Ethiopia's default could create a domino effect, affecting other debt-burdened countries and impacting the overall financial stability of the BRICS alliance and the fear of future defaults could lead BRICS member countries to be more cautious about lending to other developing nations, hindering their financial support for global development initiatives.
From the reputational perspective, Ethiopia's default could damage the credibility of the BRICS alliance, especially its commitment to promoting sustainable development and responsible lending practices. Moreover, potential investors might be hesitant to invest in BRICS-related projects or initiatives due to uncertainty about the alliance's financial stability and risk management practices. And the financial losses resulting from Ethiopia's default could create internal friction within the BRICS alliance, leading to disagreements about future lending policies and membership criteria.
BRICS members are surely aware of the risk that Ethiopia represents. If they have maintained their decision to move forward with Ethiopia membership despite the default, it means that they surely have a plan to mitigate the risks. For example, BRICS member countries could work with Ethiopia to restructure its debt, providing more flexible repayment terms and potentially alleviating some of the financial pressure or the New Development Bank could play a role in providing financial assistance to Ethiopia and preventing its default from impacting the other BRICS members.
Ethiopia's default on its loans is a significant risk that BRICS would need to carefully manage if it accepts the country's membership. The potential impact of a default would depend on the specific circumstances of the situation, including the size and terms of the loans, the overall macroeconomic conditions in Ethiopia and the BRICS countries, and the effectiveness of any risk mitigation strategies employed.