The evolution of South-South Cooperation has been impressive. In the year before the global pandemic, more than half of the world’s economic growth was contributed by intra-South trade. This progress signals the potential for a more competitive Global South, leading to more jobs and less poverty. What’s more, South-South Trade and Investment (SSTI) contributes to a virtuous circle, catalysing investment flows towards outcomes that are inclusive and sustainable: SSTI leads to a more skilled workforce and more innovation tailored to South contexts; this leads to even more productive industries and paves the way for greater value addition before export, which makes companies more resilient to price fluctuations and shocks.
As a result, South-South Trade and Investment (SSTI) is increasingly recognized as a pathway to Sustainable Economic Development (SDGs), by governments, donors and development institutions alike. In a similar vein, SSTI can also be an important tool in revitalizing the global economy post Covid-19.
However, development actors have lacked guidance on how to design and implement effective programmes. With this in mind, the International Trade Centre (ITC) and the Institute for Development Studies (IDS) came together to create a ‘how to’ guide to promote South- South trade and investment. The methodology was distilled from ITC’s decades of experience promoting South-South trade and investment – and in particular on SITA’s successes in the spices, leather and textile sectors. The practical guide, Designing for Impact, was launched on 27 October 2020.
The pandemic has put SSTI under threat, reducing and reversing some of the impressive trends. Widespread lockdowns, disrupted transportation and supply chains, depressed demand and continued low commodity prices affected the South worse than the North. And a 14% drop (compared to the same period in 2019) took South-South trade to its lowest figures in over a decade. Without concerted effort and well-designed interventions, export-dependent countries in the South will “find it more challenging to bounce back from this global disruption”.Behind the trade statistics lies a stark reality: “poverty will rise for the first time in over a decade, with up to 100 million people being pushed back into extreme poverty,” according to Ms Pamela Coke Hamilton, Executive Director, International Trade Centre (ITC).
Clearly, South-South Cooperation is a tool for post-pandemic recovery, but it won’t happen all by itself. If SSTI is to fulfil its role revitalizing the economy post Covid-19, it needs to be promoted and supported effectively. This is where ITC’s new publication and recent webinar come in.
The online launch and webinar
At the launch of the new Designing for Impact guide, ITC co-hosted a webinar to gather ministers, diplomats, senior policy makers, trade and investment professionals, and representatives from the civil society and the business sector. There was a high-level panel of experts, who drew on the conclusions made in the guide to advise on the role of South-South cooperation in the post-Covid world.
The overwhelming message was that South-South cooperation initiatives must go beyond pilots and proofs of concept to focus on scale and replicability. And critically: there are elements of this that that need to be built in at the design stage. Like the report, the panel gave insights on questions of practical design and implementation, which, if answered, can capture the full potential of what South-South Cooperation has to offer. Overall, these insights translate into key ingredients for successfully supporting SSTI, across four clusters:
1. Brokering South-South business links
SSTI isn’t possible without the investors and businesses who carry it out. Outreach by senior government officials go a long way to build investor confidence and attract trading partners, but the reality is that one investor visit is rarely enough, and Southern investors tend to first test the market by establishing trade relations before making an investment. Esteemed panellist, Hon. Betty C. Maina, Cabinet Secretary, Ministry of Industrialization, Trade and Enterprise Development, Kenya, pointed to the role of dedicated facilitators like SITA to broker and nurture investor relationships as one of the most important ingredients for success. To be effective, these “brokers” or development programmes should be neutral and have a depth of knowledge of all the parties involved.
The panel also highlighted the value of having personnel who have their own experience of “real world” business and commerce. Both the panel and the report emphasized that one size does not fit all, so development programmes should be targeted to specific geographies. At the same time, by covering a community of countries it is possible to market businesses as a regional bloc, which enhances visibility and attracts trade and investment, and which is especially beneficial for emerging sectors.
Trust and understanding between southern business partners are key for building the strong foundations needed for South-South cooperation. South-South Trade and Investment initiatives need to be bridges in addressing information and perception asymmetries through on-the-ground engagement. The Designing for Impact guide recognizes two particularly effective trust-building tactics. Development programmes can (1) work with government entities to develop bespoke information products and services for investors and (2) facilitate communication that overcomes language barriers and promotes cultural understanding.
There is a case for triangular arrangements when contexts call for it too. A number of the panellists expressed that, as it stands, some investors will not make a new investment decision without the support of a Northern buyer. As well as business links, partnerships between governments and institutions are core element to enhance South-South Trade and Investment. Strong institutional partnerships are crucial for the sustainability of project results, as one South-South success helps lead to others.
2. Boosting the competitiveness of the South
Across the South, firms struggle to adopt efficient production processes or move up the value chain to produce higher value goods that sell for more. The main barriers are: limited productive and operational capacity; lack of qualified human capital; weak institutional support; and low access to finance. The panel reflected on the report’s conclusions on how South-South knowledge transfer and technology upgradation can be streamlined to successfully address these problems. To overcome the lacking access to finance, panellist Mr McGillavray, Minister Counsellor – Development Director, British High Commission New Delhi, highlighted the role of different Development Finance Institutions.
SITA has assisted East African agri-businesses and light manufacturers to procure well-suited technology and learn good practices from Indian companies to increase the value of goods, decrease the cost of production and reduce waste. The first rule of thumb is to identify gaps systematically so that training opportunities can be tailored accordingly, and cost-effective technological solutions can be matched-up to the local context. A second underlying principle is that countries across the South face similar problems to one another, which means trainings and technological solutions from ‘Southern’ counterparts are often better suited to local challenges and realities. This points to the value of South-South knowledge and technology exchanges.
ITC’s work has shown that learning retention is particularly high when it includes field visits to Southern businesses, to learn from peers and see in action affordable technologies that are relevant to their business. In other contexts, exchanges are simultaneously an opportunity to strengthen partnerships between institutions. Exchanges of good practice can also be especially successful when coupled with concrete buyer or investor interest, so that everyone participating in the knowledge and/or technology exchange is invested in its effectiveness.
On the technology side, the panel noted that entrepreneurs and scientists are coming up with new innovations and novel technologies all the time, but that most Southern firms do not have the capacity to learn about them, nor the financial cushioning to take on the perceived risk. As a result, technologies don’t travel easily across borders without targeted exposure: apart from having a South-South programme like SITA, further technical assistance and finance are needed to get new innovative practices get to where they’re needed. The panel pointed to the role of Development Finance Institutions to provide adequate financial backing so that technology upgradation can happen at scale in the South. Specifically, Mr Srini Nagarajan, Head of Asia, CDC Group, asserted that loans should be denominated in affordable currencies, preferably local currencies.
Additionally, there is a case for triangular exchanges where appropriate. While Southern problems tend to be best addressed by Southern solutions, global challenges are increasingly transcending the North-South divide – take Covid-19, climate change, and outdated regulations. Mr Gavin McGillivray flagged this during the panel discussion: “we need to share all lessons on business practices that are proving effective in rising to the challenges, so these shared problems make the case for trilateral exchanges.”
Last but certainly not least, infrastructure is crucial for facilitating and reducing the cost of doing business -and to attract investment. Speaking from the perspective of solar energy, Mr Srini Nagarajan explained that countries in the South need to establish the ecosystem for foreign investors to come and invest, rather than investors coming to a “barren” scene devoid of the infrastructure they’re going to need. Giving further insight form the solar energy perspective, he explained how scale is key, which means finding areas where international investors can invest in scale. For example, the revenue stream of solar parks are well-suited to investments in annuities, so targeting global pension funds would be advisable. Mr Srini Nagarajan also spotlighted the potential of electronic bidding, which is transparent and cheaper and has worked well in India.
3. Gender inclusivity and sensitivity
According to Ms. Anthea Mulakala, Senior Director, The Asia Foundation, a recent Covid-19 impact survey by the Asia Foundation found that women-led SMEs have been disproportionately hard-hit by the pandemic. For SSTI to be a tool for recovery, supporting women’s needs to be even more of a priority than it was pre-pandemic.
First of all, it is vital that women benefit from the expansion of SSTI. As Ms Dorothy Tembo, Deputy Executive Director, ITC, put it: “we must ensure women are not just part of discussions, but part of the outcomes too.” To do this, women-led businesses need access to finance. They need targeted procurement opportunities (employment and business opportunities made available to women only). And this needs to be accompanied by technical upskilling and resources to help them navigate markets. In particular, as economies transition to automation, women need technology training. Gender sensitivity in infrastructure development was also highlighted as key for levelling the playing field so that SSTI initiatives can benefit from women’s participation. Improvements to data will give developers the information and accountability needed to consider women in infrastructure design.
Equally, it is vital that SSTI benefits from all that women have to offer. Taking the example of the Textile and Apparel sector, panellist Ms Anthea Mulakala explained that female-friendly policies are good for productivity and sustainability: 70% of the global workforce in the Textile and Apparel sector are women; the productivity and sustainability of 70% of the workforce, therefore, can be boosted if their risks are mitigated through women’s health, workplace legislation, cross-gender communication and other family-friendly policies.
4. Ensuring effective programmes with outcomes that are sustainable
Not all industries share the same issues and navigating entry into sectors can be time-consuming; programmes have a better shot of addressing specific challenges and having significant impact if they are targeted to specific sectors, functions or processes. SITA identified spices, leather and textiles as priority for its support toward East Africa’s economic growth and development, based on their potential to grow, mature, become more competitive and create employment. This is the first step in designing a high-impact programme.
Step two: pilots. Pilotsare a silver bullet highlighted in Designing for Impact, because they help understand what’s feasible in specific contexts. Pilots can also produce unexpected results, which can dovetail into fruitful ideas: (1) flexibility can be built in, (2) risks can be minimized, and (3) time and resources can be well-spent.
As well as considering what will be effective today, development programmes should consider how impact can be sustained. Sustainability principles should be fundamentally embedded into SSTI development programmes. Establishing institutional capacity, partnerships that endure and knowledge and skills that are sustained could all have outcomes that ‘live on’ post project closure. The guide also recognizes some further specific actions that make programmes more sustainable still. More specifically, the panel advocated for targeting small and medium sized cities for South-South investment activities, particularly if they are hubs in specific sectors. Building trust and predictability from the very beginning also leads to sustainability payoffs. Therefore, Southern investors should be part of pilots, carrying some of the risks and using their muscle to build local capacity – which will later benefit their investment returns. If programmes also consider where support starts and ends and transfer ownership accordingly, these strong partnerships can transition to being self-sufficient.
All in all, Covid-19 represents an opportunity to strategically benefit from SSTI: smart and informed SSTI promotion can contribute to economic recovery programmes in the Global South to revitalize the global economy at large. With a growing trove of success stories, the Designing for Impact report, its online launch, and the present article all show that the blackbox of what makes SSTI work is ready to become the toolbox on how to make SSTI development initiatives work. Development actors are in a better position than ever to translate lessons learnt into scalable initiatives.
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