Here's the reason:
Take a closer look at the games with lots of races. They act pretty much all the same with just a few variables.
With 5 races, we can put a lot of effort into giving each of them their own unique feel and behavior. In GalCiv, there is anthropology. Each race has a long, in depth history that can affect its behavior.
In addition, each of the 5 races has to have personalities to handle when the person has set them to good, evil, neutral or somewhere in between. So the history of the Drengin Empire becomes different when they are set to evil as opposed to when you set them up as a "good" race.
While there will be other races in the game that can show up, it'll be determined by events. The game supports up to 12 races but those races won't come up unless events warrant it and they will be part of the background story.
For example, there is a backstory about the precursors which is a race known as the Arnor. The Arnor used to control much of the galaxy but they left for mysterious reasons. They could come back to try to reunite the galaxy under their benign rule (so you'd have to decide whether to ally with your opponents to try to stop them or to let htem conquer you). That would be an event that would be extremely rare but we still have to setup an AI for them.
Another example is if a race like the Yor had a civil war, it could break them up into rival Yorian and Iconian sets (the Iconians are the actual synthetic life forms, the Yorians were actually humanoid - organic - but were eventually enslaved by their synthetic servants thousands of years ago but that's another story entirely). So that's how other races will come up. We want the game to not be some cold spread sheet game, we want it to feel like you're dealing with real creatures with their own in depth personalities.
And the only way to od that is to keep the # of them down. I'd rather have 5 opponents that you'll still be learning about after a year than 20 opponents that are identical except for a couple of variables like "aggression".