South-to-South Some Macro Trends

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					South-to-South Economic Linkages:
           Some Trends

              Andrea Goldstein
         OECD Development Centre
        CRGP Brown Bag Lunch Series
          Stanford, 23 October 2006
1   Trade

2   Investment

3   Other flows

4   IBSA
S-S share in world merchandise flows




   WTO (2003), World Trade Report, Chart 1B.2
  Average annualised growth rates of trade,
breakdown by aggregate income group, 1985-
            2002 (percentage)
               North-North       North-South      South-South



1985-1990       14.30            9.32              5.99
1990-1995       5.74             15.24             22.71
1995-2000       5.20             8.41              13.18
2000-2002       -2.17            1.17              3.45
1985-2002       7.04             9.75              12.49

 OECD (2006), South-South Trade in Goods, TD/TC (2008)6, Table 4.
Intra-regional S-S trade in 2001:
           Asia towers




 WTO (2003), World Trade Report, Chart 1B.4
Contribution of RTAs to S-S trade




   WTO (2003), World Trade Report, Table 1B.2
Trade expansion in the leading S-S
             traders




  WTO (2003), World Trade Report, Table 1B.3
Leading S-S traders: high concentration




    WTO (2003), World Trade Report, Chart 1B.5
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OECD (2006), South-South Trade in Goods, TD/TC (2008)6, Table 11.
                                                                                                                                                             Breakdown of South-South trade, by commodity group
1   Trade

2   Investment

3   Other flows

4   IBSA
                             Capital flows
• South has become net capital exporter
  since 2000
                                           100   %             South-South
  – Total capital outflows reached to
                                            90                 North-South
     $224 billion in 2004                   80
• South-South                               70
                                            60
  – FDI increased to 36 % in 2003 from
                                            50
     16 % in 1995
                                            40
  – Trade increased to 30 % in 2004         30
     from 20 % in 1995                      20
                                            10
  – Remittances is around 30-40 %
                                             0
                                                     Export         Remit.               FDI
                                                   revenues
• South-South official flows are on rise         Note: data refers to 2005, except FDI


             Source: World Bank (2006), Global Development Finance.
  Number of developing countries
    with current account deficit




UNCTAD (2006), Trade and Development Report, Fig 1.1.
South-South FDI increased
Harris, Kevan (2006), “Continuity and Change in Global Capital Flows Since 1914”, The Johns Hopkins University
Where do EMNCs invest?
      Same       EU 15 &        Japan &        Canada &    Rest of the
      region      EFTA          Oceania          USA         World
BRA      10.42      10.09           0.13            4.49        74.87
CHI      20.69             ..       8.00           20.78        50.53
HUN
IND      25.43      32.72           1.41           23.26        17.18
KOR      40.30      20.70           1.90           32.00         5.00
MAL
MEX
RUS      37.02      24.74                 ..       23.11        15.12
SIN
SAF       7.02      75.11           5.64           11.32         0.91
THA      58.75       6.74           1.78           15.17        17.56
TUR
           FDI inflows in some EMs
      AR    AZ   BW   CR   EC   KZ   LK   MO   MT   NP   PE   UZ
ARG                        2
BRA   3
CHL   1                    1                             5
CHI   6                         4         38        11   2
HKG   3                              10   2
IND                                            7    36
KOR   1                         12   12   8         4         3
MAL   1                                   3    6              26
MUR                                       1
MEX   2               8    3
RUS         5                             3
SIN   2                              17   1    9
SAF              49                            14
THA   1
TUR         13                  4
                  Industry composition
• Investment by developing country firms span all sectors
• Availability and quality of data constrain industry analysis.
• Services dominate
• OFDI stock of developing countries
   – within manufacturing a number of industries are of relatively equal
   importance
   – Electrical and electronic equipment is No 1 in the manufactruing sector
• UNCTAD list of the 50 largest (non-financial) TNCs from
developing countries
   – 8 are in electrical and electronic equipement
   – 5 in petroleum exploration, refining and distribution
   – 4 in food
   – 3 each in telecommunications, transport and computer and related
   activities
Developing economies - Estimated world outward FDI stock, 1990 & 2003
                                       (Millions of dollars and percentage)

                                                             1990         %              2003        %

                                                           Developing                  Developing
   Sector/industry                                         economies                   economies

   Primary                                                          867        4. 7          3 178         . 5

     Mining, quarrying and petroleum                                582        3. 2          2 481

   Manufacturing                                                6 109         33. 3       103 414        15. 5
     Food, beverages and tobacco                                  420          2. 3         2 060          . 3
     Textiles, clothing and leather                               187           1.          2 712          . 4
     Chemicals and chemical products                              762          4. 2         4 351          . 7
     Metal and metal products                                      85           . 5         2 618          . 4
     Electrical and electronic equipment                        1 018          5. 6        15 854         2. 4
     Motor vehicles and other transport equipment                  10           . 1         1 512          . 2
     Unspecified secondary                                      3 231         17. 6        69 742        10. 4
   Services                                                    11 350         61. 9       562 409        84. 1
     Trade                                                      1 836          10.         65 342         9. 8
     Transport, storage and communications                        501          2. 7        41 093         6. 1
     Finance                                                    7 027         38. 3       153 304        22. 9
     Business activities                                        1 283           7.        271 469        40. 6
     Other services                                               526          2. 9        13 258          2.
     Unspecified tertiary                                           -              ?        2 421          . 4
   Unspecified                                                    240          1. 3        51 870         7. 8
   TOTAL                                                       18 326         100.        669 001        100.




  Source: UNCTAD.
  South-South FDI is concentrated in
        the services sector…
• Liberalization and privatizationof services sector in many
  developing countries played an important role in the rise
  of South-South FDI flows
• Compared to other sectors, services sector in general
  requires proximity between producers and consumers
• favors cultural and ethnic familiarity, which may
  generate synergies for developing county firms
• Southern multinationals invest in services sectors as they
  take advantage of brand-name recognition, physical
  proximity, regional distribution networks, taste
  similarities and advantages over bilateral agreements
       South-South infrastructure FDI was
       significant in telecoms and in Africa
                                   (share of inflows over 1998–2003)


                         By Sector                                   By Region
   % of Total Foreign Investment                     % of Total Foreign Investment
                                                    60
     30
                                                    50
     25

     20                                             40
     15                                             30
     10                                             20
      5
                                                    10
      0
          Telecom Transport    Energy    Water       0
                                                         SSA   SA     LAC   MENA     ECA   EAP


Source : World Bank (2005).
 The Rise of South-South and
Regional Investors in Telecoms I
• South-South FDI
   – From 2001 to 2003, over 36% of total inflows and close to 20% of
     the total number of telecommunications projects
   – in 1990–9, 23% of total inflows and 11% of the total number of
     telecommunications projects
• Players in the 2002 top-30 list of telecoms MNCs
   –   Datatec (South Africa)
   –   América Móvil (Mexico)
   –   MTN Group (South Africa)
   –   Telekom Malaysia
• OECD MNCs investing through regional affiliates
   – Vodacom of South Africa
   – Sonatel of Senegal
  Intraregional South-South Telecommunications FDI, 1990–2003

                                                                                     Destination region


Region of investor                 East Africa &        Europe &             Latin America &   Middle East &    South Asia        Sub-Saharan
                                   Pacific              Central Asia         Caribbean         North Africa                       Africa
North-to-South                                     72                   93               90                52                75                 51
South-to-South                                     28                    7               10                48                25                 49
East Africa & Pacific                          100


Europe & Central Asia                                                  100


Latin America & Caribbean                                                               100


Middle East & North Africa                                                                                100                36                  5


South Asia                                                                                                                   40


Sub-Saharan Africa                                                                                                                              45



Note: Based on the largest 75 investors, accounting for 95% of total telecom-related FDI in developing countries.
Source: Guislain, Pierre and Christine Zhen-Wei Qiang (2006), “Foreign Direct Investment in Telecommunications in Developing Countries”, in
                    Information and Communications for Development 2006: Global Trends and Policies, The World Bank.
   The Rise of South-South and
 Regional Investors in Telecoms II
• Characteristics
   – operators from large developing countries investing within their
     own regions.
   – from countries that reformed early: privatization and competition
     forced them to become more efficient.
   – their exposure to competition was limited as they were generally
     protected from full market liberalization
• Movers:
   – withdrawal of some developed-country investors (but also
     Telekom Malaysia from SSA)
   – increasing wealth and capital account liberalization in some
     emerging market economies
         New, smaller players
• SingTel (in Bangladesh, Indonesia, the Philippines, and
  Thailand)
• Shinawatra from Thailand (in Cambodia and the Lao
  People‟s Democratic Republic)
• MTC/Celtel (in Burkina Faso, Chad, DRC, Congo, Gabon,
  Kenya, Malawi, Niger, Sierra Leone, Sudan, Tanzania,
  Uganda, and Zambia.
• Orascom (in Algeria, Bangladesh, Iraq, Pakistan, and
  Tunisia)
• Isbank (Turkey) and Banco Opportunity, Banco Safra, and
  Techold (all from Brazil) are financial investors.
Source of foreign bank assets, by region




 Neeltje Van Horen (2006), “Foreign Banking in Developing Countries”
           World Bank 2006 studies
•   Neeltje van Horen, “Foreign Banking in Developing Countries”:
     –   43 developing country banks hold around US$40 billion in foreign bank assets in other
         developing countries.
     –   South-South FDI is significantly high in low-income countries: 27% of the assets and 47% of
         the number of banks
     –   27% of foreign banks in developing countries are owned by banks from other developing
         countries.
     –   Most banking links of this type happen within regions, with South Africa, Malaysia and
         Hungary leading the way among their neighbors.
     –   banks from developing countries is growing remain tiddlers next to those from rich countries 
         hold just 5% of the foreign banking assets in all developing countries and 27% of those in
         economies where annual incomes are below $825 per head.
•   Global Development Finance
     –   Syndicated lending by groups of banks in developing countries has risen from only around
         $700m in 1985 to $6.2 billion by 2005.
     –   Increased competition has the potential to improve the domestic banking systems  for
         example, South Africa‟s Stanbic raised the efficiency of the United Commercial Bank of
         Uganda; Ecobank, a West African group, strengthened banks it took over in West and Central
         Africa.
     –   banks from places with weak regulations do pose a risk when buying in developing countries
          banks from developing countries can bring credit volatility and face more risk of a financial
         crisis in their home countries + they may direct scarce credit away from good uses at home.
         Other services sectors
•   Supermarkets chains
•   Airlines
•   Hotels
•   Construction (non-equity investment)
    –   Brazilian empreteiras
    –   Indian
    –   Chinese
    –   others
                       Extractive sector
• High-growth economies with limited resource supply, such as China and
  India, have been notably successful in acquiring oil & gas assets or
  licenses
• Even countries that are large oil & gas producers such as Saudi Arabia and
  Venezuela invest in other developing countries as they integrate into
  downstream operations such as refining, distribution and retailing.
• Developing country companies are also investing in several exploration
  projects.
   – Petrobras (Brazil) in deep-water exploration projects
• South-South FDI in non-oil mining sector is also increasing.
   – South Africa in Africa
   – China in Africa and Latin America.
• Increased cooperation among developing countries
1   Trade

2   Investment

3   Other flows

4   IBSA
            Net ODA by major donor group, 1969-97
                                      (constant US$, five-year averages)




Manning, Richard (2006), “Will „Emerging Donors‟ Change the Face of International Co-operation?”, Development Policy Review, 24 (4).
         A tale of two countries
(disbursements of ODA to China and India, US$m)
     International migrants:
20 top receiving countries/areas
   Talent circulation: the case of students




UNESCO Institute for Statistics (2006), Tertiary Students Abroad: Learning Without Borders.
                                 U




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                                                                          200,000
                                                                                    300,000
                                                                                              400,000
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Source: UNESCO/UIS database
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                                                                                                                            Internationally mobile university students,




                                              Af
                                                 ri   ca
               The case of China

• PRC has received students from more than 170 countries
  since 1949
• number of foreign students has risen more than 20 percent
  annually over the past five years
• there were 110,000 foreign students studying in China in
  2004
• more than 500 Chinese universities have qualified to admit
  foreign students
• Ministry of Education will adopt new measures to expand
  enrollment of foreign students  in 2006, about 10,000
  foreign students will come to study in China on
  scholarships provided by the Chinese Government
           The case of South Africa
• On the one hand …
   – number of international students has increased significantly since end of
     apartheid (from 14,124 in 1995 to 46,687 in 2002 and 52,579 in 2004)
   – international students from the rest of the African continent comprised
     70% of total of foreign students, of which 25,000 students from SADC
     countries
   – Foreign students were enrolled predominantly at historically white
     universities (40% in 2002), followed by UNISA, the largest distance
     education in the country (31%), followed by historically advantaged
     institutions in the Western Cape and Gauteng provinces
• On the other hand …
   – University of Pretoria at June 2005, out of 72 institutional agreements,
     Africa & SADC Region (18) and Asia and the Far East (6).
   – University of the Witwatersrand  staff members collaborate with
     colleagues in EU (52%), SA (44%), NA (42%) and SADC countries
     (29%).
Average Patent Citation Shares for 7
      East Asian Economies




 World Bank (2006), An East Asian Renaissance, Fig. 3.15
Internet traffic capacity/flows between regions
1   Trade

2   Investment

3   Other flows

4   IBSA
   India, Brazil and South Africa
• SA and Brazil had shared similar histories of racial
  tension, inherent inequality, and abnormally high Gini
  indexes (in 2004 Brazil = 59.7 and SA = 59.3).
• SA-Indian relations date back at least to Mahatma
  Ghandi‟s work for the rights of indentured Indian laborers,
  India‟s support of SA struggle, and the development of the
  Indian National Congress, with its important solidarity
  links to the African National Congress
• fostering of transatlantic links between South Africa and
  Latin America began in the post apartheid period with the
  creation of the Zone of Peace and Cooperation in the South
  Atlantic (ZPCSA) in 1986
       Objectives of the initiative
• India‟s Vajpayee, Brazil‟s Lula, and South Africa‟s Mbeki
  spearheaded a new approach to South-South cooperation at the 2003
  UN General Assembly Forum, resulting in a trilateral India-Brazil-
  South Africa agreement.
• create a loose alliance that could present a cohesive voice at the
  bargaining sessions anticipated for the Doha Rounds, and which would
  exert pressure on the rich nations in order to achieve common positions
  in UN Security Council deliberations.
• common challenges of poverty alleviation, economic development and
  social equity” hold the coalition together. In fact, soon after its
  inception, IBSA partnered with the UNDP to develop a trust fund to
  financially back the goal of worldwide poverty alleviation
Perceived roles played by each country
• Brazil needs to do a lot more to enforce
  trade priorities over its current geopolitical
  approach, dominated by power alliances
  and political aspirations.
• IBSA would compliment South Africa‟s
  African initiatives
• For India IBSA is an alternative to China
  and Russia, with like-minded partners
 IBSA and South-South cooperation
• goals similar to G20/G77 but decisions will be
  debated among three countries, rather than 20/70
   may have a greater capability to impact the
  UNSC by playing a balancing role against G5
• closer relationship between Mercosur, SACU and
  India (all of the Mercosur countries have signed a
  trade agreement with India, although Argentina
  may fear South Africa‟s competition)
        Views from civil society
• Businesses
   – Will the IBSA initiative reduce costs?
   – Will it reduce the hassles in trade within the three countries?
   – Will it provide newer markets for growing our business?
• Labor
   – businesses are completely unconcerned of social aspirations of the
     government in such initiatives
   – corporate social responsibility practices should be used to ensure
     that businesses are more proactive in IBSA-like initiatives
                    Results
• in automobiles and leather complementarities
  within IBSA countries, such as sourcing of auto
  components and footwear machinery
• regional airlines are looking into tri-destination
  travel packages, and SAA is already expanding its
  flights among the three nations
• cooperation in the agricultural sectors and
  technology
             IBSA Dialogue Forum
New Delhi (4-5 March 2004)
•   social development, disarmament, infrastructure, health care, sustainable
    economic development, and poverty alleviation.
•   integration of bilateral preferential trade agreements among the three members
    into one trilateral agreement
Cape Town (10-11 March 2005)
•   focused on IBSA‟s potential influence on the global political and economic
    scene
•   need for UN reform, equitable WTO treatment of developing nations, south-
    south political cooperation, development, and economic integration,
    environmental issues, non-proliferation of weapons of mass destruction and
    terrorism.
•   IBSA development fund to support projects aimed at improving living
    standards (financial heft inconsequential but symbolic meaning substantial)
Rio de Janeiro (30 March 2006)
                         1st Summit Meeting
                    (Brasília, 13 September 2006)
•   deep appreciation with the consolidation of the IBSA Dialogue Forum
•   commitment to
     – the promotion of peace, security and sustainable economic and social development in the
       world and in their respective regions.
     – multilateralism and the UN pre-eminent role  support for the creation of the
       Peacebuilding Commission and the Human Rights Council + need for a decision regarding
       Security Council expansion in both its permanent and non-permanent categories, so as to
       reflect contemporary realities and make it more democratic, legitimate, representative and
       responsive  jointly pursue a decision on Security Council expansion on an urgent basis
     – Action Against Hunger and Poverty Initiative and, in particular, the Millennium
       Declaration and the 2005 World Summit Outcome
     – further enhancing trilateral cooperation in the field of HIV/AIDS, Malaria and Tuberculosis
       (in particular for diagnostic tools, drugs and vaccines)
     – inalienable right of all States to the peaceful application of nuclear energy, consistent with
       their international legal obligations
     – the São Paulo Round of the Global System of Trade Preferences among Developing
       Countries + expeditious establishment of the Working Group to focus on the modalities for
       the envisaged India-Mercosur-SACU Trilateral Free Trade Area
           IBSA Facility Fund
• administered by the United Nations Development
  Fund's (UNDP) South-South Unit in New York
• IBSA-funded projects include:
  – Africa: Guinea-Bissau (development of agriculture and
    cattle farming)
  – Latin-America: Haiti (collection of solid waste: a tool
    to reduce violence and conflicts in Carrefour Feuilles)
  – Asia: Laos (The proposed project has not reached
    implementation stage)
  – A project of possible support to the Palestine National
    Authority is also under consideration.
  How to further IBSA cooperation
• focus on trade and investment;
• not conflict with economic cooperation with
  bigger partners;
• enhance cooperation in the WTO;
• be consistent with integration into the world
  economy;
• avoid red tape; and
• add to productivity and competitiveness of all the
  three countries.

				
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