Trade Talk

Business Day (Johannesburg)

Trade Talk

OPINION

3 November 2008

Johannesburg/ Last month, captains of industry from India, Brazil and SA (Ibsa) descended on the Indian capital for the third summit of the Ibsa Trilateral Business Council.

Notwithstanding the current global financial turmoil and the spectre of global recession, the mood in Delhi was decidedly upbeat. The larger Ibsa countries — as well as China and like markets - will weather any global downturn, given their particular growth dynamics.

In addition, the hemispheric trade winds in the south appear far fairer to exporters than the impending doldrums in the north.

For this reason, politicians from all three countries joined business groups and apex industry associations in billing greater south-south cooperation - trade, investment, technology transfer and so forth - as the best bet against the current turbulent times.

On the one hand, the potential punch of an incipient new "geography of international trade" leaves much for the imagination. The value of trade among the Ibsa countries more than tripled from 1994 to 2004. There is the hope of still greater trade convergence, with an ambitious target of $10bn set for last year.

On the other hand, sobriety is also called for, particularly to balance the complementarity-competitiveness continuum among the three economies.

Over the past few years, the United Nations Conference on Trade and Development (Unctad) - particularly the international trade division led by Lakshmi Puri - has produced some insightful work in this regard.

Although there are similarities and competitive elements in Ibsa countries’ commodity, manufacturing and services sectors, Unctad argues that there are also complementarities which are overwhelming.

To avoid superficial competitive scenarios for importers and exporters, it is best to examine Ibsa trade at a disaggregated level (including specific specialisations in sub-sectors). This reveals that intra-industry trade would be as rewarding as that based on Ibsa countries’ absolute comparative advantages.

Commodities are the most complex but also the most promising areas for Ibsa economic cooperation. There appears to be significant potential for increasing bilateral agricultural trade among the three, as well as trilateral intra-agricultural industry trade (notably in cotton).

Unctad’s analysis of the potential scope for greater south-south transactions suggests that India will be a major importer of sugar, soy beans and soybean oil whilst also incrementally absorbing coffee, poultry and beverages from Brazil. South African exporters could find opportunities in dairy, wheat flour, coarse grains and processed products to India and additionally fishery products to Brazil. India could potentially increase its exports of rice, tea, spices and processed products to both partner countries.

Complementarities and specialisation among the Ibsa countries are also emerging in the manufacturing sector. India has an advantage in both lowest cost labour intensive products, low to medium tech goods as well as high tech goods. Indian exporters could find promising opportunities in the Brazilian and South African markets, including pharmaceuticals; chemicals and petrochemicals; textiles and clothing, agricultural equipment; rail equipment; engineering goods; leather goods; steel and steel products; power transmission and distribution equipment; automation products; telecom equipment; medical electronics; and gems and jewellery.

Brazilian manufactured exports to the other Ibsa countries could range from chemicals and petrochemicals; minerals and metals ; steel and steel products; building materials; clothing and textiles; leather and leather products; agro-processing; rubber and rubber products; pulp, paper and wood products, motor vehicles, parts and electronics; and aircraft.

SA’s exports could be in areas ranging from agro-processing; wood and wood products; transport equipment; fertilizers; mining equipment; railway rolling stock; automotives; chemicals; information and communication technologies (ICT) and telecommunication hardware; metal products; and footwear, textile and clothing.

At the same time, it would also appear that the countries are competing with each other in key manufacturing sectors, such as textile, clothing and leather; automotive; and chemicals. These are sensitive in the case of SA and are prioritised by the trade and industry department’s new industrial policy.

Nonetheless, Unctad analyses specialisation at more disaggregated levels to reveal considerable scope for intra-industry as well as inter-industry trade and foreign direct investment (particularly in textiles and garments).

Services trade and collaboration also represents another frontier of complementarity. SA and Brazil could tap into India’s expertise in ICT; business and professional services; engineering; and the high-end of health and educational services.

Brazil has become a global player in consulting, engineering and construction services (as well as services incidental to the oil industry). In turn, there is potential scope for expanding the activities of SA financial, insurance and distribution services firms in India and Brazil.

Dr Brendan Vickers is senior researcher: multilateral trade at the Institute for Global Dialogue

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