Innovating South-South Cooperation

Policies, Challenges and Prospects

Hany Gamil Besada, M. Evren Tok, Leah McMillan Polonenko

• Publisher: University of Ottawa Press
• Year: 2019
• ISBN:
  9780776623207
• Topic: Politics & International Relations
• Subtopic: Globalisation
• Index: Politics & International Relations

This book presents novel approaches to further South­SouthCooperation (SSC) on a global scale. The evolving aid architecture and mountingdevelopment challenges demand an urgent and critical review of existing aidmodalities, policy-making and forums for international cooperation. With therise of emerging powers, we face an important question: ls the changing globalorder transforming the nature of development cooperation? Promoting equitablebroad-based growth in order to alleviate poverty, calls for a new understandingof the principles of development assistance, good governance, transparency, ownership, and accountability.

This book is published in English.
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Les changements en matière d'aide internationale et les défis soulevés par les crises alimentaires, financières et énergétiques exigent un examen critique des conventions actuelles en matière d'assistance et d'élaboration de politiques et de forums décisionnels en coopération internationale.

À la lumière de la montée de pouvoirs émergents, une analyse de la manière dont un ordre mondial en mutation transforme la nature de la coopération pour le développement s'impose.

La promotion d'une croissance économique équitable et d'une réduction de la pauvreté exige une nouvelle compréhension de l'aide au développement et une gouvernance, transparence, propriété et imputabilité optimales.

L'avenir de la Coopération Sud-Sud repose sur de nombreux facteurs, comme l'amélioration des moyens de communication et le partage des connaissances entre pays partenaires, l'adoption d'une approche analytique pour définir les biens publics régionaux et mondiaux, l'identification et l'évaluation des bonnes et des mauvaises pratiques et la fusion des priorités économiques et sociales.

Au moyen d'études de cas, les auteurs proposent des approches novatrices pour promouvoir la Coopération Sud-Sud et établir des politiques de développement international efficaces.

Ce livre est publié en anglais.

PART 1

SOUTH-SOUTH COOPERATION: POLICIES AND PROGRAMS

CHAPTER 1

Fulfilling the Promise of South-South Cooperation¹

Manmohan Agarwal

Introduction

Developing countries experienced rapid economic growth in the years immediately before the 2008 financial crisis. While this was a continuation of a long and stable trend in East and South Asia, it was a welcome new trajectory for countries in Latin America and Sub-Saharan Africa, where economic activity had stagnated for nearly a quarter of a century. The rapid growth was accompanied by rising investment levels and increasing integration with the world economy, as well as increased interaction among developing countries. A likely challenge in further developing South-South Trade (SST) would be to ascertain how to negotiate a preferential trade agreement (PTA) among developing countries. A network of PTAs for countries in the Association of Southeast Asian Nations (ASEAN)+6 could be the foundation for the establishment of a system of preferences among developing countries.² Alternatively, BRICS, a trade association made up of Brazil, Russia, India, China, and South Africa—the world’s largest five emerging economies—could play a crucial role. Initial talks for collaboration by the BRICS countries began in September 2006, and the model with which it was developed, negotiated, and finalized could serve as the framework for other South-South Cooperation (SSC) trade agreements.³

A hallmark of SSC is that the developing countries initiate partnerships with the understanding that mutual benefit, equality, and non-conditionality inform technical cooperative agreements. For the purposes of this chapter, “technical cooperation” is defined as any action or policy by a developing country that privileges economic transactions with one or more developing countries. Privilege exists, for example, when imports from developing countries into another developing country face a lower import duty than similar goods from a developed country, or when rules of entry for banks are less stringent for banks in developing countries than those in developed countries. Although cooperation is more common and easier to introduce at the regional level, significant economic benefits accrue when SSC is inter-regional. To be effective, SSC requires that such policies encompass a significant portion of transactions, be they trade, investment, or financial.⁴ SSC can also serve as an impetus for developing countries to harmonize their negotiating positions to bring about changes in international economic governance, whether through coordinated action at the G20 or United Nations (UN) level, by organizations such as the World Bank or by standard-setting bodies such as the International Organization of Securities Commissions.

The push for South-South Trade gained momentum in the 1960s, arising from the high costs of production that resulted from the establishment of small-scale plants under the import substitution industrialization (ISI) strategy adopted by most developing countries in the 1950s and 1960s. Due to their higher price, goods could not compete in world markets. The resulting stagnant exports combined with rising imports of intermediate goods for the new industries and of capital goods for investment put a brake on growth. PTAs—for example, the Latin American Free Trade Association agreement, Central American Common Market, Andean Pact, and East African Community between Kenya, Uganda, and Tanzania—were recommended by experts such as Prebisch (1959) to allow for industry specialization and establishment of production plants that benefited from economies of scale.

However, stemming from previous experience, the less industrialized members feared that most of the benefits would accrue to the more developed members of the PTA.⁵ The failure to devise schemes that would result in a more appropriate and fair distribution of benefits between the more and the less developed countries in the PTA resulted in limited progress in implementing PTAs (Robson 1972; Agarwal 1989).

In order for more countries to benefit and therefore participate in trade agreements, from both a strategic and moral standpoint, SSC must encompass the entire production process. With the splintering of production processes, a product is no longer produced in its entirety in a single country. Raw materials are imported, different product parts are produced in different countries, and assembly takes place in yet another country. From the assembly line, the product is distributed internationally to customers.⁶ The level of coordination, oversight, and management is staggering, making it necessary for some entity to coordinate the entire process to ensure that decisions are made in a timely manner and that parts are compatible. This coordination function is usually performed by transnational corporations (TNCs), which often establish satellite companies to produce the parts—providing capital and/or technology.

When a TNC first starts operations, it often encourages its suppliers in its home market to establish operations in the host country. This means that a larger proportion of the final price of the product accrues to the persons or entities involved in the design, technology, and marketing of the product than to the people providing the labour. As companies in developing countries mature, they themselves become TNCs—they are no longer a step in the production process governed by others. When this occurs, a greater percentage of the product price accrues to the companies in developing countries.⁷ As a result, South-South transactions have spread from trade to outward flows of foreign direct investment (FDI), as well as to transference of technologies produced by developing countries—creating scope for cooperation in these areas.

With more and more developing countries able to break ground on innovative technologies, the scope for cooperation in science and technology has increased considerably. The huge pool of savings creates an opportunity for financial collaboration and optimizes financial allocation and investment among developing countries. Moreover, with many developing countries having large foreign exchange reserves,⁸ the issue is whether these reserves can be beneficially pooled so that more of the savings can be invested rather than left stagnant and underutilized.

In brief, SSC must cover trade, finance (such as loans from national development banks, financial market development, and common rules for listing on stock exchanges), investment (FDI), and technology. Such a wide coverage is essential, even if it is to only take advantage of trade opportunities where the current state of splintered (or competitive) production means either building a global value chain or becoming part of one.⁹

Attempts to form preferential trading areas in the 1960s and 1970s failed in part due to fear by less industrialized countries that most of the benefits would go to the more industrialized countries. Today, similar fears exist that countries such as China, India, Brazil, and South Africa may be the major beneficiaries of any preferential agreement in manufacturing trade. The more sectors that are covered by SSC, the greater the probability that a country will gain a comparative advantage in an area, particularly if the technology sector is included.

Appropriate policy actions that are aligned with a country’s domestic priorities and national agenda—for example, skills training exchanges, visiting scholar programs, and multilateral aid initiatives—can enhance and accelerate the development of SSC efforts. Such policy actions can help ensure that less developed countries benefit in terms of faster growth, faster technology development, or improved social outcomes (such as faster poverty reduction or falling mortality rates).

In previous years, opportunities for SSC were far from optimal, with the terms of engagement disadvantaging the developing country. While policies to foster SSC can correct this imbalance, cooperative and aid initiatives between developed and developing countries have their own benefits and merits. Reliance on the North-South mode of operation is projected to be unwise. With growth in the developed countries expected to remain low in the medium term,¹⁰ SSC can contribute to maintaining high rates of growth in developing countries. Moreover, given that SSC is not meant to be altruistic or propagate a donor–recipient power imbalance and sense of superiority, it is expected that all participants will benefit equally, and that national ownership will uphold domestic economic and development priorities. The lesser asymmetries of power among developing countries and accountability that could be encouraged as a result of meetings of developing countries, including members of the G77, could ensure a more even distribution of the benefits from SSC.¹¹ However, the members of G77, a coalition of developing nations designed to promote its members’ collective economic interests, have yet to play such a role. Moreover, it is uncertain whether they are in a position to do so, or even if they will be permitted to do so.

An argument can be made that SSC should be developed through a process similar to that of open regionalism—where countries would be free to join if they met certain conditions. The need for cumbersome negotiations when a new member wishes to join would be avoided, and countries would join only if they believed they would gain in both the short and long terms. They would also be free to propose adjustments that would improve their trade prospects—amendments that would be formally agreed to by the other member countries. While criticism that Chinese exports have led to deindustrialization in Sub-Saharan Africa highlights the fear of asymmetric benefits, it is difficult to substantiate that hypothesis (Table 1). There is also the fear that countries that face persistent disadvantages even among other developing countries could be stuck at the bottom of global value chains (GVCs) indefinitely. As it is, there is debate about whether China should continue to be classified as a developing country.

Recent Economic Performance

Growth and Investment

Growth of the world’s gross domestic product (GDP), which had declined following oil price increases in 1973–74, started to pick up in the years immediately before the recent financial crisis (Table 1.1).¹² This improved performance mirrored the performance in the pre-1973–74 period—often called the “golden age of capitalism”—when the world economy experienced rapid growth (Marglin and Schor 1990), and was due entirely to more rapid growth in developing countries, most notably in Latin America and the Caribbean (LAC) and Sub-Saharan Africa. Per capita incomes declined in Sub-Saharan Africa for almost two decades from 1982, whereas incomes declined in LAC only in the 1980s after the 1982 debt crisis (Agarwal 2008).

The improved performance in developing countries was widely shared, with all developing countries experiencing faster growth (Table 1.1). Furthermore, in the 2006–07 period, developing countries performed even better than in the pre-1973–74 period, in contrast to developed countries, which fared far worse. This outcome suggests that economic performance in developing countries is less closely linked or entwined with that in developed countries. Indeed, in 2006–07, per capita incomes in developed countries grew by 1.5 percent, compared with a respective growth of 3.7, 3.4, 6.0, and 8.6 percent in Latin America, Sub-Saharan Africa, South Asia, and East Asia.¹³

Table 1.1 Growth of GDP (average annual percent)¹⁴

Sources: World Bank Data Bank, World Development Ind...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures and Tables
• Acknowledgements
• Abbreviations and Acronyms
• Foreword
• Introduction: Conceptual Foundations of South-South Cooperation
• Part 1: South-South Cooperation: Policies and Programs
• Part 2: Case Studies From China, Africa, Brazil, Indonesia, and Turkey
• Contributors
• Index