Voices on Inclusive Trade

Reflections on South-South co-operation on trade and investment ahead of BAPA40  

Published on 18 March 2019

Amrita Saha

Research Fellow

Peter O’Flynn

Research Officer

This week marks the Second High-level United Nation Conference on South-South Cooperation, forty years since the initial UN conference on the topic in Buenos Aires. Since then, we have made progress in understanding South-South cooperation and the role of emerging countries in development aid recipient countries. South-South cooperation has been heralded for offering promise as key for trilateral cooperation, embedded within the wider system of multilateral cooperation. But, there are still gaps in information and lessons to be learnt as a more economically empowered global South seeks to drive the revitalisation of global partnerships towards sustainable development. One of the core areas of focus to plug these gaps is a deeper understanding of how South-South and triangular cooperation can be a pathway towards more inclusive and sustainable economic development, where all actors and beneficiaries can be meaningfully engaged.

Despite an enormous untapped potential for trade expansion between India and Africa, data reveals that a limited number of products are currently being traded. In fact, India’s trade with Africa is concentrated in certain sectors and countries. For East Africa, trade is dominated by exports of primary commodities such as coal, coke, gold, vegetables and fruits to India. On the other hand, India’s major exports to East Africa include petroleum, petroleum products, medicinal and pharmaceutical products. While the potential for export diversification exists, with India’s granting of duty-free tariff preference (DFTP) to Least Developed Countries in 2008, it may not be realized without targeted interventions of trade promotion and technology transfer.

Enter our current work on examining the rationale for South-South cooperation based on SITA (Supporting Indian Trade and Investment for Africa), a project implemented by the International Trade Centre (ITC) and funded by the UK Department for International Development (DfID). SITA specifically looks to facilitate partnerships for trade and investment, connecting Indian investors and buyers to East African markets and suppliers, as well as strengthening trade and investment support institutions, such as exporter associations. We have been examining the experience of SITA so far, to better understand the drivers/incentives, enabling conditions, challenges, and opportunities that help explain and derive a rationale for designing and promoting South-South cooperation. Below are a few of our early takeaways.

  1. While South-South trade is on the rise, opportunities for South-South trade are being undermined by a significant investor perception gap

At a OECD conference on private finance for sustainable development, in 2017, a senior USAID representative said ‘Get investors on planes to Africa, and the change of investor perception will follow.’ This holds true both in the North-South setting as much as it does for the South-South setting. Gaps in investors’ perception regarding markets, and perceptions on the relative risk of investing across Africa are often driven through a very limited worldview of what is happening on the ground. Indeed a challenge in SITA was to overcome these gaps in perception. Exposure missions have been able to change such perceptions when investors arrived on the ground, and there was a recognition of the opportunities of a relatively untapped – but growing- regional market and a role for market-seeking Development Finance Institutions and for returns to be made. As emerging markets develop further, and their middle-class demographic grows, there will be a greater role required for this type of facilitation that can bridge some of these perceptions gaps.

  1. Institution development is fundamental for ensuring South-South relations

No man is an island. The same can be said of companies that engage in exports. While there is some level of competition amongst exporters within country, they often also share the same informational requirements and therefore a recognition that partnerships (or a body to represent their interests) are required. These information requirements, often quite basic, include: steady flow of production level information, knowledge of how the industry overall is developing, policy changes and knowledge of end markets. In all value chains, such information is critical in determining ‘farm gate’ prices, and for companies to decide on their production and export strategy. In many of SITA’s countries however, institutions such as export associations, are still relatively young. These actors can benefit hugely from South-South cooperation, learning from how previous institutions developed, especially given the fact that India’s institutions recently underwent a similar path of development. There is a comparative advantage on learning from other southern partners in this arena over North-South cooperation, as it’s been empirically proven that institutional similarity is a major driver for South-South Financial Development Institutions and strengthened trade relations. Similarly, institutions can act as bearings of quality, reducing the relative risk of working with a new supplier, and are in a better place to engage in trade missions to other markets, through their ability to represent the whole sector.

  1. Knowledge transfers and spill-overs do not happen automatically, but can be encouraged

One standout anecdote from SITA came through the sunflower oil sector where a trade mission was conducted from Ethiopia, Tanzania and Uganda to India. One problem faced by Ugandan sunflower oil miller Ogwang Joe was how to improve the oil extraction capacity when producing small – rather than large – volumes of sunflower cake. The Indian business owners explained that they did not know, as they were now processing much higher volumes, and therefore applying different methods. The current owner of the India business then asked his father to come out of the back office, where he was doing the accounts, and asked whether he remembered the process for producing smaller volumes. He did(!) and as a result, a simple knowledge transfer was able to take place and the Ugandan business was able to improve their production.

What this demonstrates is that the types of knowledge transfers needed in South-South can be messy, ad-hoc, and hard to systematise. They are often ‘jugaad’ (a colloquial Hindi word that roughly translates as ‘an innovative fix; an improvised solution born from ingenuity and cleverness’, according to the book Jugaad Innovation by Navi Radjou, Jaideep Prabhu and Simone Ahuja). However, there are mechanisms to reduce this transaction cost. Some solutions to reduce transactions costs are very simple – one example provided by ITC was that they developed a handbook/translation tool for the pulses sector, following cases of confusion between Indian and East African small and medium-sized enterprises (SMEs) arguing over a deal of moong bean vs. green gram only to discover after both parties had given up, that they were talking about the same product. The handbook was a simple solution to overcome inter-cultural communication challenges when talking through South-South trade deals.

These three brief points highlight how a systematic dialogue between South-South partners, can help facilitate trade and investment across board and provide economic transformation. However, practical challenges exist, and that’s where we must discuss the rationale for design of South-South cooperation within the wider debate on trilateral and multilateral cooperation.

This blog is part of our blog series ‘Voice on Inclusive Trade’. Other blogs in this series: 

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