Conference on South-South Cooperation
10 March 2016
Honorable Secretary Mehta, UN Under-Secretary-General Wu, Ambassador Devare, Professor Chaturvedi,
Distinguished panelists,
Ladies and gentlemen,
Allow me first to convey my thanks to our hosts for the invitation to deliver a keynote address on this critically important topic. It is indeed special honor to be with you because UNCTAD itself has been - from its genesis - focused on fostering South-South cooperation.
In 1964, in his report to the first UN Conference on Trade and Development, our founding Secretary-General Raúl Prebisch advocated for the expansion of South-South trade as part of a "new trade policy for development."
Prebisch is regrettably no longer with us, but I believe he would be surprised to see how far the South has come in just half a century.
The figures speak for themselves.
Between the early 1970s and 2012, the South's share of global GDP jumped from 20% to 40%, with China alone accounting for 12%.
Between 2000 and 2012, the Southern share of global trade shot up from 35% to 51%.
FDI inflows to developing economies reached their highest level last year, at $681 billion - $200 billion more than to developed economies. And developing economies now account for more than one third of global FDI outflows - up from merely 13% in 2007.
Moreover, despite years of accommodative monetary policy in developed economies, growth in the North has been sluggish. Most global GDP growth is now de facto growth among developing and transition economies, notwithstanding worrying signs of deceleration coming from China and elsewhere.
In short, we have seen the remarkable rise of the global South, representing a tectonic shift in the global economy. In the early days of the 2008 financial crisis, many observers were even optimistic that the South would "decouple" from the North. This has not been the case - growth in the South slowed as exports dropped and financial contagion set in. Economic cycles in the North and South are still rather synchronized. The old expression "When the North sneezes, the South gets pneumonia" is, unfortunately, still too true today.
The situation reinforces the need for greater South-South cooperation, trade, and integration. And the trends point in the right direction.
Since 2008, developing countries as a whole have been exporting more to the South than to the North. Whereas South-South trade in 1990 comprised 7.8% of total trade, South-South trade in 2014 comprised about 25%.
But more can be done to accelerate these trends.
According to some research, the potential gains in the manufacturing sector from South-South trade liberalization are double the estimated gains from remaining North-South liberalization. And we are only looking at tariff reductions.
The benefits of greater South-South cooperation are evident. Allow me to offer three examples in the areas of trade, investment, and development financing:
First, with respect to trade, South-South trade fosters structural transformation. The capital intensity of South-South exports is actually higher than that of South-North exports. This allows developing countries to substitute primary product exports with more capital-intensive goods. In addition, firms in Southern markets can capitalize on larger-than-national economies of scale before breaking into northern markets for higher-tech products.
This enables them to access and climb value chains, expediting structural transformation, which is the heart of economic development and critical to the prosperity pillar of Agenda 2030.
Second, with respect to investment, South-South cooperation encourages greater FDI flows. Southern MNCs tend to be more willing to invest in developing and transition economies. They are less risk-averse than their Northern counterparts and have greater knowledge of local markets and business practices. They also tend to use more labor-intensive technologies, generating more employment opportunities.
In fact, South-South FDI is growing faster than North-South or North-North FDI. Around 70 % of emerging economies' outward FDI goes to other developing countries.
Another important feature of South-South FDI is that it normally takes place in the form of greenfield investment. Beyond the transfer of knowledge, this contributes directly to capital formation and employment in the host country.
Third, South-South development financing is concentrated in the infrastructure sector and supports productive activities. This can be contrasted with the higher emphasis on social spending that characterizes traditional donor priorities in the North.
Of course, we have come a long way, but there is still work to do.
For one thing, South-South trade remains largely a story about Asian integration.
To this day, about 80% of all South-South exports involve Asian economies. The shares of Africa and the Americas in South-South exports in 2010, by contrast, were 6% and 10%, respectively. Trade between Africa and the Americas remained just over 1% of total South-South exports.
What explains Asia's relative success?
Among the factors that could be cited, I want to focus on a very crucial one: regional integration. Asian trade and investment is characterized by regional value chains and production networks. This is basically the story behind the rise of "Factory Asia." Today, intra-Asian trade as a share of its total trade is about 50%. Whereas intra-Latin American trade as a share of its total trade is about 20-25%. For Africa, the figure is 14%.
The challenge ahead is to reap the benefits of South-South economic integration across all developing regions. This is all the more important as traditional export-led strategies that rely on consumer demand in the North have lost their potency.
The immense potential of South-South cooperation is there. But, clearly, the full benefits of South-South cooperation remain untapped. We need to do more and we need to do better. This is where policy matters. And to make sound policies, we need sound data. The simple truth is that it is difficult improve what we cannot measure.
The lack of internationally comparable data is the Achilles heel of South-South cooperation, be it in the areas of trade, investment, technology of development cooperation.
This is why UNCTAD is already working hard to ensure comprehensive data in these, and other, areas. And this is why we are proposing to design and build - in close cooperation with Southern partners and the Network of Southern Think-Tanks - an open and comprehensive statistical database.
Such a database would be based on concepts and methodologies agreed upon with Southern stakeholders. In addition, UNCTAD is also proposing - in cooperation with UNDP - to design and build a country-level data collection system - again based on requirements agreed upon with Southern stakeholders.
There are a few compelling reasons why UNCTAD is convinced that now is the right time for us to launch this project.
First of all, this project would be part - and indeed a natural extension - of the wider support we already provide for South-South Cooperation. Let me mention two examples: the Global System of Trade Preferences, or GSTP, and the Global Network of Ex-Im Banks and Development Finance Institutions, or G-NEXID. We are the Secretariat to both. So in this way, we have been supporting, since 1989, the framework for preferential tariff reductions and other measures of cooperation between developing countries. And we support a platform for developing countries to boost South-South trade and investment relations.
UNCTAD also already has a mandate to upgrade "data and analytical tools on South-South flows and cooperation."
UNCTAD has the political support - the G77 and China in Geneva have asked us to develop further statistical capacity in the area of South-South cooperation.
And UNCTAD has the expertise - statistical, IT, governance, and capacity-building expertise - to turn data into insights. We are confident we can successfully cooperate in this project, as we have done in so many others.
Ladies and Gentlemen,
UNCTAD has been, for more than 50 years, a constant partner of the South. Since its creation, UNCTAD has been at the service of Southern partners - amplifying their voice, addressing their needs, and facilitating their collaboration. Now is the time to deepen that partnership.
This summer, at UNCTAD's ministerial conference in Nairobi from July 17-22, we will have a unique opportunity to enter into a new era of South-South cooperation. UNCTAD XIV seeks to chart the course for how we, collectively, should turn "Decisions into Actions," thereby translating the ambitions of Agenda 2030 into concrete steps to - once and for all - end poverty and ensure prosperity for all nations and peoples. And we look forward to your close collaboration in this effort. Working together, we can promote a new global development agenda properly rooted in the principles of justice, fairness, and equity.
Thank you very much for your attention.
