South South: China’s experience as a development model

By Thomas Elhaut

The benefits of South-South cooperation have started to see new light as emerging economies - notably China and India – are grabbing headlines as growing economic powers investing substantially larger amounts in Africa and Asia. Justifiably so, as together, the two countries account for one-fifth of the global economy and are projected to represent a full third of the world’s income by 2025.

While the financial crisis still casts a shadow over many countries, India's trade with Africa has jumped to US$40 billion in the past few years. In addition, the United Nations Conference on Trade and Development estimated that, between 1996 and 2006, developing economies provided more than US$17 billion of foreign investment in Africa and $27 billion of investment in Asia.

Combine this with the rise in South-South trade and investment flows and the shift from the G8 to the G20 as the primary forum to tackle global economic issues, and it is clear that there is more to South-South cooperation than just as a driver for developing countries to share and learn from the practical experience of others.

Some have argued that the emerging economies can put the global economy on a higher growth trajectory. But this is overoptimistic, as the former have their own domestic challenges and their economic cycles remain vulnerable to and synchronised with the North. For example, while China’s performance in tackling food insecurity and malnutrition is laudable and sets a good example for other developing countries to emulate, there remain 150 million people living below the poverty line in the country.

A key concern for development agencies and policy makers is how to extend and sustain rapid expansion of South-South trade and investment flows in pursuit of lasting development gains. Tapping the potential of South-South economic relations requires more than passive reliance on market forces and private initiative. Creating policy space for government action and regional policy coordination is crucial.

There is a great need for investments to move food from countries rich in arable lands to those with growing numbers of consumers and little food production capacity. For this to happen agricultural markets and trade policies at the global, regional and sub-regional levels need urgent improvement and reform.

Investment and trade among developing countries should set a good example of how to create win-win solutions. But we must take it to the next level by discussing how policies, institutional conditions and the right kinds of environments can further promote successful South-South cooperation. Specifically, as incomes and demand for food have grown, agriculture has begun attracting substantially larger investment flows but the benefits to smallholders and others in some of the poorest recipient countries in the region (e.g. Laos and Cambodia) remain uncertain. It is imperative that these investments are geared better to serve local needs and strengthen production capacity.

Above all, competitive rivalry for scarce resources must turn into cooperative ventures with larger pay-offs to both emerging economic powers and those lagging behind. An over emphasis on short-term macro-economic balances must yield to a longer-term vision for shared growth and prosperity. A key lesson learnt from China and India’s success in poverty reduction is that domestic factors played a crucial role while market integration created new opportunities for growth. Fiscal decentralisation in China, for example, accelerated growth and poverty reduction.

In promoting South-South cooperation between China and other developing member countries of the International Fund for Agricultural Development (IFAD), China's Ministry of Foreign Affairs and IFAD have so far organized two South-South events in September 2009 and November 2010 respectively. The forthcoming third event this month will offer a platform for policy exchange among senior officials from China and 15 developing countries in Asia and Africa.

South-South cooperation must be grounded in the questions of why and how policymakers can come together and share their successes and failures with each other and most importantly set guidelines that allow for investments to directly feed into development assistance so that those living on less than US$1.25 day don’t get left behind.

Partnership has always been central to IFAD’s business model. Our interest in South-South cooperation goes to the heart of strengthening our collaboration with the most important partners of all – namely poor rural people themselves.

Published on Poverty Matters Blog