Growing Economic Powers Reinvigorate South-South Co-Operation

The benefits of south-south co-operation (developing countries sharing resources) are appearing in a fresh light. Emerging economies, notably China and India, are grabbing headlines as growing financial powers that are substantially increasing their investments in Africa and Asia. Justifiably so, as together the two countries account for one-fifth of the global economy and are projected to represent a full third of the world’s income by 2025.

While the financial crisis still casts a shadow over many countries, India’s trade with Africa has jumped to $40bn in the past few years. In addition, the United Nations Conference on Trade and Development estimated that, between 1996 and 2006, developing economies provided more than $17bn of foreign investment in Africa and $27bn of investment in Asia.

Combine this with the rise in south-south trade and investment flows and the shift from the G8 to the G20 as the primary forum to tackle global economic issues, and clearly there is more to south-south co-operation than it simply being a driver for developing countries to share and learn from the practical experience of others.

Some have argued that the emerging economies can put the global economy on a higher growth trajectory, but this is over-optimistic. The former have their own domestic challenges and their economic cycles remain vulnerable to, and synchronised with, the north. For example, while China’s performance in tackling food insecurity and malnutrition is laudable and sets a good example for other developing countries to emulate, there are still 150 million people living below the poverty line in the country.

A key concern for development agencies and policymakers is how to extend and sustain rapid expansion of south-south trade and investment flows in pursuit of lasting development gains. Tapping the potential of south-south economic relations requires more than passive reliance on market forces and private initiative. Creating policy space for government action and regional policy co-ordination is crucial.

There is a great need for investments to move food from countries rich in arable lands to those with growing numbers of consumers and little food production capacity. For this to happen, agricultural markets and trade policies at the global, regional and sub-regional level need urgent improvement and reform.

Investment and trade among developing countries should set a good example of how to create win-win solutions. But we must take it to the next level by discussing how policies, institutional conditions and the right kinds of environments can further promote successful south-south co-operation. Specifically, as incomes and demand for food have grown, agriculture has begun attracting substantially larger investment flows, but the benefits to smallholders and others in some of the poorest recipient countries in the region (eg Laos and Cambodia) remain uncertain. It is imperative that these investments are geared to serve local needs better and to strengthen production capacity.

Above all, competitive rivalry for scarce resources must turn into co-operative ventures with larger payoffs to both emerging economic powers and those lagging behind. An overemphasis on short-term macro-economic balances must yield to a longer-term vision for shared growth and prosperity. A key lesson learned from China and India’s success in poverty reduction is that domestic factors play a crucial role while market integration creates new opportunities for growth. Fiscal decentralisation in China, for example, accelerated growth and poverty reduction.

In promoting south-south co-operation between China and other developing member countries of the International Fund for Agricultural Development (Ifad), China’s ministry of foreign affairs and Ifad have so far organised two south-south events, in September 2009 and November 2010 respectively. A third event, which took place last month, offered a platform for policy exchange among senior officials from China and 15 developing countries in Asia and Africa.

South-south co-operation must be grounded in the questions of why and how policymakers can come together and share their successes and failures with each other, and, most importantly, set guidelines that allow for investments to directly feed into development assistance so that those living on less than $1.25 day don’t get left behind.

Partnership has always been central to Ifad’s business model. Our interest in south-south co-operation goes to the heart of strengthening our collaboration with the most important partners of all – namely, poor rural people themselves.

– namely, poor rural people themselves.

– Thomas Elhaut is director for Asia and the Pacific at the International Fund for Agricultural Development.