TRADE: India, Brazil, S. Africa Ties to Soar on Aerospace

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Paranjoy Guha Thakurta

NEW DELHI, Aug 16 2006 (IPS) - An ambitious attempt to revive South-South economic cooperation around India, Brazil and South Africa (IBSA) is expected to receive a major fillip when the heads of state of these developing country majors meet in Brazil during the second week of September.

While the IBSA countries compete with one another in world markets and logistical constraints hamper expansion of trade, analysts believe there exists considerable opportunity for these three developing countries to technically collaborate with one another in specific high-vallue areas such as aerospace and atomic energy.

On Sep.13, when India&#39s Prime Minister Manmohan Singh meets his counterparts from Brazil and South Africa, an attempt would be made to thrash out a trilateral free trade area (FTA) agreement. The proposed agreement would not just be among the three countries but involve regional groupings, that is, SACU or the South African Customs Union (comprising South Africa, Botswana, Lesotho, Swaziland and Namibia) and MERCOSUR or Mercado Común del Sur (comprising Brazil, Argentina, Uruguay, Paraguay and Venezuela – with Bolivia expected to join in).

It was in June 2003 that the foreign ministers of India, Brazil and South Africa first met in Brasilia to set up the IBSA dialogue forum. This forum became a formal initiative with meetings in New Delhi (March 2004), Cape Town (March 2005) and Rio de Janeiro (March 2006). There is widespread agreement that trade among India, SACU and MERCOSUR can go up considerably in the years ahead.

Intra-IBSA trade currently accounts for only two percent of the total volume of trade carried out by the IBSA countries. No single IBSA country is among the top ten trading partners of the other two countries. Yet, trade among the three countries and regional groupings has gone up considerably in recent years.

Two-way trade between India and MERCOSUR more than doubled between 2001 and 2005 from less than one billion US dollars to 2.3 billion dollars. Similarly, bilateral trade between India and South Africa has gone up by 133 percent in these four years from 1.3 billion dollars to 3.1 billion dollars. Trade among the IBSA nations could rise to 10 billion dollars by 2007.

After a series of discussions among representatives of four academic institutions and non-government organizations – the South African Institute of International Affairs (SAIIA), Business Unity South Africa (BUSA), the Consumer Unity & Trust Society (CUTS) from India and the Institute for International Trade Negotiations (ICONE) from Brazil – the conclusion that emerged is that the IBSA countries would benefit considerably if they cooperated with one another in developing their respective aerospace industries.

"The concept of IBSA originated in the desire of all the three countries to reform the United Nations Security Council but it then went way beyond this political idea to become an initiative for economic cooperation," Peter Draper, head of the "development-through-trade" programme at the Johannesburg-based SAIIA told IPS recently in Pretoria.

"All three IBSA countries have vibrant democracies, are at comparable levels of development and have similar problems in dealing with poverty," said Mbulelo Rakwena, diplomat and chief director for Latin America and the Carribean in South Africa&#39s foreign affairs department. Given the "chequered history of South-South cooperation", he hoped the IBSA initiative would not ‘&#39degenerate into a talk shop reiterating platitudes" or become an exercise in "empty political dialogue".

Jerry Vilakazi, chief executive officer, BUSA, says that despite the fact that many pronouncements are made about South-South economic cooperation, "developing countries have a higher comfort level in trading with countries in the North, including their erstwhile colonial masters".

One constraint hampering trade among the IBSA countries is the high cost of transportation. Consignments from India and Brazil to South Africa first travel to Europe before reaching their destination because of low trade volumes, thereby increasing freight costs. Because of similar considerations, that is, low traffic, it is less expensive to fly from India to the U.S. than to Brazil, although Brazil is closer.

Despite the fact that the three countries have been acting closely with one another during negotiations at the World Trade Organization, the IBSA nations compete in international markets to export leather, garments and agricultural commodities like cotton and sugar to developed countries. At the same time, there is considerable potential for the three countries to cooperate in industries and sectors such as biotechnology, pharmaceuticals, ethanol and mining operations, besides aerospace.

Investment relations among the three countries have been ad hoc and erratic: Indian pharmaceuticals producer Ranbaxy has a presence in both South Africa and Brazil and vehicle manufacturers Tata Motors and the Mahindra group have invested in South Africa. India, in turn, has received investments from South Africa&#39s diamonds major De Beers and SAB Miller in alcoholic beverages. However, there have not been any major investments by Brazilian firms in either India or South Africa. While Brazil is the second largest recipient of foreign direct investment after China, India and South Africa are both conspicuous by their absence in that country.

Although language barriers have hampered economic relations among the IBSA countries – in India, it is difficult to find Portuguese translators though not Spanish ones – what has acted as a real dampener is lack of awareness about one another&#39s countries. A survey conducted by SAIIA, CUTS and ICONE found that most businesspersons interviewed in the three countries were not even aware of the IBSA initiative.

Nevertheless, there is consensus that just as South Africa can act as a hub for trade with the entire continent of Africa, and Brazil for Latin America, India too could act as a gateway for trade and economic relations with the entire SAARC region – the seven countries of the South Asian Association for Regional Cooperation (SAARC) comprise India, Pakistan, Sri Lanka, Bangladesh, Nepal, Bhutan and Maldives.

Pranav Kumar, policy analyst with CUTS, told IPS that the one important industry in which the three IBSA countries could come together despite logistical constraints is aerospace. "India is strong in military aircraft and space technology, Brazil has a lot of expertise in building passenger aircraft, while South Africa is ahead of the two others in the area of aviation electronics," said Kumar, adding that there was "mutual complementarity" in this sector that could be built upon.

Mario Marconini of ICONE says that since Brazil&#39s aircraft manufacturers were among the country&#39s most important exporters accounting for exports worth two billion dollars a year, "there is a need for aviation experts in the three countries to sit together to work out how best technical cooperation arrangements can be worked out". He adds that all three countries would stand to gain a lot from such cooperation as the international aerospace industry was growing at an impressive, sustainable pace of 25 percent a year.

Another area of technical cooperation could be civilian nuclear energy that is expected to get a boost once the recent agreement between the governments of India and the U.S. is finalized. Brazil and South Africa are both members of the Nuclear Suppliers Group and both have backed India&#39s position on relaxation of rules for supplying nuclear fuel.