Transcript South-South Economic Cooperation: Exploring IBSA Relationship

South-South Economic Cooperation:
Exploring the IBSA Initiative
Paranjoy Guha Thakurta,
Director, School of Convergence, on behalf of
Consumer Unity & Trust Society (CUTS) - International,
India
Pretoria, South Africa, June 28, 2006
Importance of South-South
Cooperation: IBSA Initiative
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Despite growing share of world trade,
countries of the South depend on the
North
Tariffs coming down
Cooperation at the WTO
IBSA perceived as political not
economic initiative
Intra-IBSA trade negligible
IBSA Initiative: Challenges
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BRICS: the future of the world economy
Not three countries, but three regions
South Africa as hub to Africa
Brazil as springboard to Latin America
India as gateway to SAARC/South Asia
IBSA Initiative: Challenges
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Customs duties
Issuance of visas
Harmonization of standards, trade and
investment procedures
Lack of awareness
Information gaps
Logistical Hurdles
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Air travel expensive
Freight costs prohibitively high
Imbalances in flow of trade
Imbalances in composition of trade
Need for bilateral customs cooperation
agreements before PTAs or FTAs
Similarities and Differences
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Low levels of investment
Investment relations ad hoc – Use of tax
havens
Pharmaceuticals
Automobiles and ancillaries
Alcohol
Ethanol
Mining
Similarities and Differences
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Bureaucratic procedures
Small and medium enterprises
disadvantaged
Cultural differences, language barriers
Competing economies: leather and
agricultural products
Non-tariff barriers
The Way Forward
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Alleviation of poverty and hunger
Biotechnology
Environmental management
Information technology
Technological cooperation – the case of
aerospace
Global Aerospace Scenario…
The world over, the aerospace industry is:
 A strategic asset
 A generator of wealth
 A driver of technological and economic
development
 Important source of employment
 Poised to expand by 25 % over the next
two decades
Global Aerospace Scenario...
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20,000 airlines expected to be
operational by 2020
Matched only by the space industry in
terms of technological complexity
A dynamic propeller of industrial
innovation
The US has the highest market share
Global Aerospace Scenario...
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Has seen a process of rationalisation
and consolidation
This has triggered stiff global
competition among ‘first-tier’ players
Growing competition among ‘second
tier’ contractors has exerted pressures
on the supply chain
Global Aerospace Scenario...
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Globalization of the supply chain has
allowed system integrators to develop
an extensive pool of sub-contractors
across the world
The Aerospace Industry...
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Is divided between first tier and second
tier suppliers
First-tier contractors:
– Are a few big companies that provide
wholly packaged systems to both
commercial and military markets
– Are using cutting edge technology
– Maintaining, upgrading and repairing
equipment throughout its lifespan
First tier contractors...
– Are fully-fledged business integrators,
marketing, selling and delivering aircraft on
a large scale
– Are also system integrators, presiding over
manufacturing contracts and management
of supply chains
Second tier contractors...
– Are firms in states that possess limited but
significant aerospace capabilities
– Examples include:
• Sweden
• Canada
• Australia
• Brazil
• India
• South Africa
Second tier contractors...
– Operations range from advanced system
integration to medium and low levels of
system integration
– Companies operating in this segment are
required to meet strict certification
conditions
Prospects for IBSA Strategic
Cooperation
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Currently very little aerospace
collaboration between IBSA countries
General agreement among
governments on the need for
cooperation
Potential for Cooperation
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Three areas of cooperation can be
identified:
– Expansion of aerospace supply chains,
premised on commercial opportunities
offered by the diverse aerospace
capabilities of the IBSA countries
– Second, collaboration around aerospace
systems in support of strategic defence
needs
Potential for Cooperation
– Third, collaboration around small and micro
satellites. Brazil and India have strong
competencies in in this sector while South
Africa has a small but reputed small and
micro satellite industry with full-fledged
ground support infrastructure
Developing Technological Capabilities
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Sufficient scope for technical
cooperation among the IBSA countries
in aircraft and aircraft components
production
South African aerospace industry could
exploit its competitive niche areas to
integrate its manufacturers into Brazilian
and Indian aircraft production sectors
Developing Technological Capabilities
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IBSA nations have the necessary
infrastructure to develop a vibrant
aerospace sector
Sufficient scope for cultivating
complementary niches
Role of Governments
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Governments must play a central role in
developing the aerospace sector by
addressing concerns relating to:
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• Import tariffs
• Manufacturing and investment incentives
• Transaction costs
Role of Governments
– By providing subsidies for collaborative
investment and manufacturing
programmes, governments of IBSA
countries could enable local firms to add
value to aircraft production and compete
effective with high-cost manufacturers
based in Europe and the US
Role of Governments
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Governments can further:
– Support the development of defence and
space projects by nationalization of
segments of the productive chain
– Act as intermediaries between respective
national firms and foreign governments
Value Addition and Cooperation
– The value-addition and cooperation
instruments that are likely to yield optimal
benefits inlcude:
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Boosting research & development
Encouraging shared research
Joint marketing arrangements
Facilitating technological exchanges
Challenges and Threats
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Important challenges to cooperation in the
aerospace sector:
– Corruption allegations against Denel made by the
Indian government; this has significant
implications for Indo-South African bilateral
relations
– Extent of willingness and capability of the IBSA
countries to develop common collaborative areas
of interest in an already congested global aviation
market
Challenges and Threats
– Both South African and Brazilian defence
industries have been facing problems of overcapacity against a backdrop of declining defence
expenditure
– Reductions in:
• Transaction costs
• Shipping costs
• Delivery times
Challenges and Threats
– Removing the perception in Brazil that it would
stand to gain little by cooperating with South Africa
and India in aeronautics as its own industry is
quite advanced and globally integrated
– India has to change Brazil’s perception that its
aerospace markets are difficult to penetrate due to
bureaucratic hurdles
– Removing doubts about the potential benefits of
transnationalization of productive chains (as
opposed to bringing world-class suppliers to
operate in the national markets) in creating
employment
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Aerospace can provide the starting
point for a substantive economic
dialogue among the IBSA nations
Thank You