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AFRICA: Cautionary Notes Sounded as South-South Trade Booms

GENEVA, Jun 22 2010 (IPS) - An Indian textile engineer and entrepreneur called Raj Rajendran visited Rwanda in 1999. He was tasked to close down an unviable textile factory following the civil war. But he discovered propitious agro-climatic conditions, particularly volcanic soil — ideal for the rearing of silk worms to produce raw silk.

Charles Gore holding a sample of Raj Rajendran's work. Credit: El Hadj Gorgui Ndoye/IPS

Charles Gore holding a sample of Raj Rajendran's work. Credit: El Hadj Gorgui Ndoye/IPS

“Rajendran converted an old refrigerator into an incubator to hatch silk worm eggs, imported second-hand machinery from India, and started reeling Rwanda’s first silk yarn,” Charles Gore, a senior official of the Africa division in the United Nations Conference on Trade and Development (UNCTAD), told IPS.

Sustained efforts by Rajendran over the last 10 years resulted in him creating a new brand called “Silk Hills” which bears the label “Made in Rwanda”. Rajendran’s company now exports silk and cotton products to the U.S., Canada and elsewhere and is the largest private employer in the tiny east African country.

“In short, the Indian entrepreneur demonstrated that it is possible to bring about ‘transformational’ changes in an African country through economic interactions and knowledge-sharing skills with big developing countries like China, India and Brazil,” Gore argued.

He is the lead author of UNCTAD’s annual report on Africa, titled “South-South Cooperation: Africa and the New Forms of Development Partnership”, published on Jun 18.

The report confirms China and India’s status as the main drivers of trade and investment with African countries.

It is true that “increasing trade and investment between developing countries by reducing trade barriers could bring real benefits in terms of employment and incomes,” said Isabel M. Mazzei, senior policy advisor for Oxfam in Geneva, in an interview with IPS.

“It could also promote improved political relationships between countries and enable countries to reduce their dependence on markets in the industrialised countries.”

But Mazzei warned that, “due to large differences in the size and level of development of Third World economies, full liberalisation of South-South trade is not desirable.”

“Getting the balance right between further liberalisation and the appropriate protection of vulnerable farm sectors and infant industries will be a major challenge for economic policy makers,” she added.

At the launch of the report Dr Supachai Panitchpakdi, UNCTAD’s secretary general, pointed out that there exists a growing recognition that South-South cooperation — which is accelerating investment and trade between large developing countries, such as China, India and Brazil, and African countries — could pave the way for transfer of technology and knowledge skills.

Panitchpakdi urged the rising economic giants of the South to go well beyond trade and investment to create a new economic and social climate to reverse the historical trend which has seen Africa supplying agricultural goods and raw materials while importing manufactured goods.

“I am confident that with the rising trend of developmental aid flowing from the leading countries of the South to Africa, estimated at around 2.8 billion dollars in 2006, there will be a paradigmatic shift in the coming years,” he told IPS, adding that China also increased its assistance to Africa last year.

The 116-page report on Africa captures undercurrents that are gradually changing the landscape of South-South trade. For example, the total merchandise trade between African countries and non-African developing countries such as China, India, and Brazil, among others, jumped to 283 billion dollars in 2008 — from 34 billion dollars in 1995.

In contrast, Africa’s trade with developed countries increased from 138 billion dollars to 588 billion dollars over the same period. “The growing share of developing countries in Africa’s trade has led to a reduction in the proportion of the region’s trade going to its traditional partners in Europe and North America,” according to the report.

But the reports’ authors noted that, “although there has been an increase in Africa’s trade with developing countries, the composition is skewed more towards imports rather than exports”.

Non-African developing countries are now the major “greenfield” investors on the African continent. This kind of investment refers to creating new economic assets that could include manufacturing facilities, along with other infrastructural facilities.

Foreign direct investment in greenfield projects has shot to 184 in 2008, up from 52 in 2004. Chinese infrastructure and financial commitments increased to 4.5 billion dollars in 2007, compared to 470 million dollars in 2001.

But the report’s authors cautioned that China’s growing economic interaction with Africa should not be seen as a “China-Africa story” but part of a broader trend towards intensifying Africa-South economic relationships, particularly with large and dynamic emerging countries.

The report urged African countries to adopt a “pro-active” approach by planning long-term economic projects and asserting their domestic concerns when negotiating cooperation with other developing countries.

In effect, African nations should strive towards building their “productive capacities” to produce a greater variety of goods that are more sophisticated products, the report emphasised.

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