Por: Miguel Carrillo Naranjo - Hamkke Consulting
When we talk about South –South links, we referred to Africa, Developing Asia, Latin America and the Middle East, these regions are more than three fifths of the planet´s land mass.
The gap between this region and the North still big. For example in 2009, according to the International Monetary Fund (IMF), in terms of Purchasing Power Parity (PPP) the south regions´ PPP was USD$5.573 average, and in the north was USD$31.660; that’s more than 400% difference. But in the last 3 decades the South has gained economic weight and growing an average annual rate of 4,8% and by 2010 the combined economic output of the South accounted for 45% of world GDP.
According to the United Nations (UN) in its State Report about South-South cooperation, affirms that developing countries in 2012 accounted for nearly half of world Gross Domestic Product (GDP), and by 2025, the South is likely to account for 600 million households with incomes surpassing USD$20,000 and an overall annual consumption of USD$30 trillion. This is just an outlook on the economic potential of the South; most of the economies in this region have been growing during the most critical recession in the north, improving their countries and attracting FDI to their main productive sectors.
The South offers a tremendous potential market for trade and capital investments. If trade in this region increase this will be translated into efficiency, gains in production, expanded markets, scale economies among others, and that is why this South-South region has become very attractive for Foreign Direct Investment (FDI) and trade. In 2013 investment flows to developing economies reached a new high of USD$759 billions, much of it originating from the south and boosting developing Asia as the most FDI recipient in the world.
The success of Asia attracting FDI and boosting the region´s economies has been its “Factory Asia model” focusing on increasing international production networks, with China as the hub for exporting final products to the north, and developing Asia countries making intermediate inputs, generating Global Value Chains (GVC), causing an opportunity for countries with narrow export basis, and with fewer resources that had created the East Asia industrial belt as shown in the map.
China is diversifying the export dependency through its internal demand. Developing Asia´s emerging middle class, are less sensitive to price differentials, and so is the diving demand for high quality products in the region absorbing part of those high quality products that are produced in the south and goes to the north. The middle class of China, India, and other countries on Asia-pacific is increasing every year, taking into account that Asia is the most populated region on earth surpassing two billion of inhabitants, are economic markets to seriously think about.
Latin America has raised new fast-growing economies different to Brazil and Mexico, such as Colombia, Chile, and Peru, and despite the existing economic blocs in the region there are not so much benefit to show on trade and investment relations that may strength their links to boost welfare benefits. The new blocs created “Pacific Alliance” integrated by Colombia, Chile, Mexico and Peru, which all border the Pacific Ocean, has merged as an urgent necessity to look at the Pacific Rim. Nevertheless the bilateral FTAs signed by Latin American countries with each other and countries in the north have created opportunities to boost their economies, but only Chile and Peru have been bold to look to Asia to create South-South economic links.
It is important for Latin America to look at developing Asia, because the proliferation of international production networks, and the progressive dismantling of trade barriers south-south trade that has been expanding rapidly with a faster growth in exports, will insert the region in a more competitive and efficient market environment, that will benefit consumers, and access to this attractive Asian Market soaring attractive rates of return on capital investments, encouraging FDI, technology transfers, infrastructure, employment, accumulate capital, upgrade technology, that will raise income levels, among others.
Also it will let Latin American countries learning from peers. There is no one size fits all model of development. In the 90´s the major industrial economies begun to pressure for open market economies, and of course many countries were not ready for it and many small and medium enterprises (SMEs) bankrupt. South-South cooperation in form of AID is another broad subject that needs special attention and well planning to reach its objectives.
Nowadays globalization is unstoppable in countries that had open their economies, SMEs have many opportunities to reach global competiveness through South-South economic links, with an innovative strategic plan well designed and tailor made for your company. Contact us to help you in this quest.