Analysis - COGGS

Timeline: How Has BRICS Evolved Over the Years?

thegeoeconomics.com | October 21, 2024

Economist Jim O’Neill sparked a revolution in global economic thought by coining the term “BRIC” in 2001. He foresaw a future where Brazil, Russia, India, and China would rise to prominence and further reshape the global economy. Rich in resources and human capital, these four nations formed BRI to challenge traditional economic powerhouses. The bloc was established to unite the world’s key developing countries, creating an alternative to the political and economic dominance of wealthier nations in North America and Western Europe.

The journey began with the first BRIC ministerial meeting in 2006, held on the margins of a UN General Assembly session, establishing the groundwork for future cooperation. The leaders of the BRIC countries—Brazil, Russia, India, and China—held their inaugural meeting in St. Petersburg, Russia, during the G8 Outreach Summit in July 2006. In May 2008, the BRICS foreign ministers convened, signaling the coalition’s growing importance in international diplomacy. This gathering marked the formal beginning of BRIC as a cohesive unit and this emphasized the need for collaboration to address shared economic challenges and seize opportunities.

Momentum increased on 16 June 2009 with the inaugural BRICS summit in Yekaterinburg, Russia. Leaders convened to discuss their economic ambitions and declared their intent to institutionalize their alliance. Prior to this, the first BRICS Academic Forum was held in May 2009 to promote intellectual exchange and collaboration among scholars from member states.

In December 2010, South Africa joined the group, transforming BRIC into BRICS. This expansion symbolized a commitment to inclusivity and recognized the diverse voices within emerging markets, amplifying the perspectives of a wider range of developing nations.

In April 2010, the second BRICS summit was hosted in Brasilia, Brazil, leading to the establishment of the BRICS Inter-Bank Cooperation Mechanism and the first BRICS Business Forum to enhance economic ties among member nations. The inclusion of South Africa that same year further diversified the coalition’s representation.

The third summit took place in Sanya, China, on 14 April 2011, followed by the fourth summit in March 2012, both reinforcing the bloc’s commitment to collaboration. The fifth BRICS summit in Durban, South Africa, in March 2013 was notable for establishing the BRICS Think Tanks Council and the BRICS Business Council, as well as initiating the inaugural BRICS-Africa outreach dialogue to strengthen ties with African nations.

In July 2014, the sixth BRICS summit in Brasilia led to the establishment of the New Development Bank, aimed at financing infrastructure projects and promoting sustainable development. The seventh summit in Ufa, Russia, in July 2015 focused on innovation with the launch of the BRICS Science, Technology, and Innovation (STI) Framework Programme.

Subsequent summits continued to build on this agenda, with the eighth in Benaulim, India, in October 2016, and the ninth in Xiamen, China, in September 2017. The tenth summit in Johannesburg, South Africa, in July 2018, and the eleventh summit in Brasilia in November 2019 further advanced the group’s objectives.

In July 2020, the BRICS Women’s Business Alliance was launched, highlighting the importance of gender equality and women’s participation in economic activities. The twelfth summit, held virtually in November 2020, adapted to the challenges posed by the COVID-19 pandemic, followed by the thirteenth summit, also virtual, in September 2021.

In March 2022, the virtual BRICS Vaccine Research and Development Center was launched, showcasing the bloc’s commitment to global health issues. The fourteenth BRICS summit convened in June 2022, setting the stage for further collaboration.

The fifteenth BRICS summit took place in August 2023 in Johannesburg, South Africa, where significant developments occurred, including the addition of Egypt, Ethiopia, Iran, the UAE, and Saudi Arabia as new members. This reflected the growing influence and interest in BRICS as a platform for international cooperation. The upcoming sixteenth BRICS summit is scheduled for 22-24 October 2024 in Kazan, Russia, marking another important chapter in the coalition’s ongoing evolution and its role in the changing world order. The summit is set to come up with a declaration and some announcements on payment, currency and banking systems. This initiative could pave the way for enhanced economic collaboration and greater financial autonomy among member nations.

Timeline: How Has BRICS Evolved Over the Years? Read Post »

Kazan Convergence: BRICS+ and Quest for a Fairer World Order

thegeoeconomics.com | October 20, 2024

Ayanangsha Maitra, COGGS

The 16th BRICS summit in Kazan, Russia, on October 22-23 is expected to be a landmark summit, teeming with expectations for innovative announcements and remarkable changes in geopolitics and geo-economics. There will be talks beyond currency mechanism. As the group expands into BRICS+, the significance of the bloc continues to rise. The bloc has welcomed five new members: Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. This expansion not only enriches the group’s diversity but also creates a powerhouse with a combined population of approximately 3.5 billion—about 45% of the world’s total. The collective economies of these member states now exceed $28.5 trillion, accounting for roughly 28% of the global economy. Remarkably, with the inclusion of Iran, Saudi Arabia, and the UAE, BRICS nations now command an impressive 44% of global crude oil production, making BRICS a formidable force in both geopolitical and economic arenas.

Why is BRICS getting popular?

Several Global South nations feel marginalized by the current world order, which they believe disproportionately favors a handful of wealthy Western countries. Accusations of hypocrisy against the U.S. regarding its selective application of international law—especially in conflicts like those in Ukraine and Gaza—underscore the need for a more equitable global framework. Consequently, BRICS, which promises a fairer international system and proper representation of developing nations’ interests and aspirations, is emerging as a viable alternative to Western-led mechanisms.

However, Jim O’Neill, who coined the term BRIC and is a noted commentator on the bloc, argues that “BRICS has done nothing to effect meaningful organizational or structural change within international institutions.”

Despite Western efforts to isolate Russia following its military actions in Ukraine, Moscow continues to find solidarity among middle powers and Global South nations. This perception is immensely significant for BRICS+, which seeks to challenge the privileges enjoyed by Western nations, primarily through the creation of alternative and parallel institutions. The 16th BRICS summit could mark a pivotal moment for BRICS+, aiming to provide a platform for emerging and middle powers to advance their often overlapping interests while subtly reshaping the global multilateral system.

BRICS+ nations are increasingly driven to gain greater independence from the Western-dominated international monetary system. Presently, approximately 90% of global foreign exchange transactions are conducted in US dollars, and most of them processed through banks in the U.S. and Europe.

Will BRICS+ Appeal to Corporations?

BRICS+ is expected to deliver what the original BRICS could not. Some major corporations, not only from Russia and China but also from Southeast Asia and Africa, are likely to support BRICS+ for a variety of compelling reasons.

First, BRICS+ offers a platform for emerging markets to align on key global issues, creating opportunities for corporations to tap into burgeoning markets across continents. To establish an effective and smooth supply chain and trade network, BRICS nations—Brazil, Russia, India, China, and South Africa—must leverage their unique strengths, which will attract more multinational corporations for economic integration. This would involve setting up a comprehensive framework for trade facilitation, including streamlined customs procedures, reduced tariffs, and standardized regulations. There must also be a serious and continuous focus on enhancing infrastructure connectivity, such as transportation and logistics networks, which are crucial for reducing transit times and costs.

With India and China, two tech giants, on board, BRICS needs to deliver technology-driven solutions, such as digital platforms for trade and supply chain management. Collaboration in sectors like agriculture, renewable energy, and manufacturing among BRICS members is essential, especially given the vast FMCG market in the Global South that presents opportunities for MNCs from BRICS+ nations.

As BRICS+ continues to evolve—establishing political and financial institutions along with a payment mechanism for transactions—it could significantly influence several markets and marketers. The implications for energy trade, international finance, global supply chains, monetary policy, and technological research are substantial. Corporations from BRICS+ nations can position themselves at the forefront of these developments, enhancing their competitive edge in a well-networked market.

The expansion of BRICS or formation of BRICS+ represents a strategic initiative to unite a diverse array of developing countries. At the same time, it has the capability to address the concerns of Global South nations. If BRICS+ maintains its commitment and delivers tangible outcomes, it could dictate several rules of the game. To achieve this, BRICS+ must address economic growth, climate change, resource equity, and the pressing issues affecting its population.

Kazan Convergence: BRICS+ and Quest for a Fairer World Order Read Post »

Why Kazakhstan Said No to BRICS?

thegeoeconomics.com | October 18, 2024

Ayanangsha Maitra, COGGS

It’s shocking for BRICS and surprising for many others in the fraternity that Kazakhstan, Central Asia’s cornerstone economy, has refrained from joining BRICS just before the BRICS summit to be held on October 22-24 in Kazan, Russia. By not joining BRICS, Kazakhstan retains the flexibility to engage more with Western markets. Its geographical and strategic location at the crossroads of Asia and Europe provides a unique advantage in facilitating trade and collaboration between these two prime and prosperous economies. Initiatives such as China’s Belt and Road Initiative and the Trans-Caspian International Transport Route (TITR) enhanced the connectivity, allowing goods to flow seamlessly from Southeast Asia and China through Kazakhstan to the European economies.

Kazakh President Kassym-Jomart Tokayev’s spokesperson, Berik Uali, according to the media reports stated that Kazakhstan will not seek BRICS membership now or in the near future. Uali further emphasized Tokayev’s support for the UN as an essential international organization.

The main reason behind such move of Astana is because of its commitment to the United Nations as the foremost international body overseeing global affairs. Kazakhstan’s foreign policy, focused on multilateralism and peace, is evident in its role in the Astana Process for the Syrian civil war and recent negotiations between Azerbaijan and Armenia. This positions Kazakhstan as a neutral mediator in conflicts, but a close alignment with BRICS could weaken its ability to mediate effectively.

Kazakhstan is an active participant in several regional organizations that include China and Russia, such as the Shanghai Cooperation Organization (SCO) and the Conference on Interaction and Confidence-Building Measures in Asia (CICA). Additionally, as a founding member of the Eurasian Economic Union (EAEU), which encompasses Russia and other nations, Kazakhstan has ample opportunities for collaboration on regional security and economic projects.

Can Kazakhstan be a EU member?

Astana has expressed interest in discussing the possibility of eventual EU membership, despite not sharing a geographical connection with Europe. While the EU may not take this proposal seriously, it is clear that the bloc is committed to build a closer relationship with Kazakhstan. The EU will ensure that discussions about membership do not hinder future diplomatic relations, particularly as Kazakhstan’s influence grows in the Central Asian region.

Astana’s Ties with China and Russia

Kazakhstan’s decision not to pursue BRICS membership will not affect its warm ties with either China or Russia. The country maintains robust economic and trade relationships with both giants. Kazakhstan’s relationship with China is rooted in its Communist past and has evolved rapidly since the collapse of the Soviet Union. President Tokayev not only studied in China but also began his career at the Soviet embassy in Beijing, establishing personal and historical connections.

In 2023, trade between Kazakhstan and China reached a record $41 billion, reflecting a 32% increase from the previous year. This growth is fueled by numerous investment initiatives, with 45 joint ventures worth over $14.5 billion established in vital sectors such as energy and infrastructure.

Conversely, Russia remains a crucial trade partner for Kazakhstan, particularly for land-based trade due to their extensive shared border. In the Post-COVID era, Kazakhstan’s trade with Russia has surged. The years 2022 and 2023 marked record levels of economic cooperation, with trade figures hitting $26 billion and $27 billion, respectively. A $6 billion deal was also inked for Russia to construct three coal plants in Kazakhstan, and several Russian firms operate within the country.

Since Russia’s invasion of Ukraine on February 24, 2022, Kazakhstan’s foreign relations have shifted significantly. While Kazakhstan does not officially endorse international sanctions against Russia, citing their potential negative impact on its own businesses, the country has complied with these sanctions.

However Kazakh President Tokayev is expected to attend BRICS summit as a guest. Such move of scaling back from joining BRICS – just ahead of the BRICS summit appeared to be setback for Moscow, which aspires to promote BRICS as a coalition representing “the global majority” as part of its strategy to counter Western dominance and resist sanctions imposed due to the war in Ukraine. After Kazakhstan announced its withdrawal from BRICS, Russia’s agricultural safety watchdog temporarily halted imports of tomatoes, flax seeds, peppers, fresh melons, wheat, and lentils from the country.

Why Kazakhstan Said No to BRICS? Read Post »

How Would New International Reserve Currency Look Like?

thegeoeconomics.com | September 30, 2024

Paulo Nogueira Batista Jr.

– Paulo Nogueira Batista.

The challenges that the BRICS countries face are now much bigger than they were when the group was formed back in 2008. The international context has become much more hostile and dangerous. Three of the member countries – China, Iran and especially Russia – have very difficult relations with the West, to put it mildly. Although this may be controversial, I believe it can be said that these difficulties have been initiated primarily by the United States and other developed countries that increasingly impose trade barriers, restrictions and sanctions of different kinds, including in the monetary field.

From a geopolitical standpoint, the BRICS are a diverse group. Brazil and India, for example, have on the whole good relations with the US, Europe and Japan. India in particular has its own national reasons to maintain some proximity to the US. But Brazil and India realize, of course, the dangers of a situation in which the previously hegemonic countries, the US and its allies or satellites, resist fiercely their relative decline in economic, demographic and political terms – to the point of having a destabilizing impact on all countries.

China is the main source of concern, for obvious reasons. It has become the largest economy in the world, measured in PPP terms, and the truth is that the US views China’s rise with suspicion and jealousy. The situation is reminiscent of the one that existed in the decades before World War I. Germany was on the rise and this led to great preoccupations in Britain, the previously hegemonic power. La perfide Albion, to use Napoleon’s famous expression, articulated a wide-ranging coalition against the upcoming rival that ultimately led to Germany’s defeat in 1918. China is, I believe, aware of these precedents. And if I know the Chinese well, they have probably studied the German experience quite carefully. In this respect, they seem to follow Bismarck who once said: “I never learn from my own experience, only from that of other people.”

What role can the BRICS, now with 9 countries, play in a world fraught with unprecedented risks? Should the BRICS continue to expand the number of its members? If so, how? What have we learned from our experience with major economic initiatives such as the New Development Bank (NDB), headquartered in Shanghai, and the BRICS Contingent Reserve Arrangement (CRA), the group’s monetary fund? How should we proceed with discussions concerning matters such as alternative payment systems, the use of our national currencies in external transactions, and the especially the possible creation by us of a new international reserve currency? Can the BRICS act together to provide a viable alternative to the US dollar and the existing international monetary and financial arrangements?

These are the issues I intend to briefly address.

BRICS expansion: pros and cons

Although national perspectives differ and the BRICS are a heterogenous group, we have shown that we can act together. We have created the NDB and the CRA, two financing mechanisms that have significant potential to evolve and contribute to a change in the international financial architecture. These two initiatives have a long way to go and have achieved less than could be expect, but they are there and can be developed fruitfully. The CRA is a small and still unused virtual reserve pooling arrangement, but the NDB has actual physical and practical existence.

The BRICS formation is now expanding. Four new members have come in as of January 2024 – Egypt, Ethiopia, Iran and United Arab Emirates. Argentina rejected the invitation to join. Saudi Arabia, also invited, is sitting on the fence; it has neither accepted nor rejected the invitation and participates irregularly in the BRICS gatherings. The four new members would need to be incorporated into the NDB and the CRA. Two of the four have already joined the NDB (Egypt and United Arab Emirates); none have yet joined the CRA.

So now we are 9 countries. And it is reported that a large number of other countries would like to join BRICS. How should we view this? The issue is not simple. Expansion has positive and negative sides to it.

On this point, as in other BRICS-related matters, it is important to distinguish political and media hype from the actual on the ground realities of BRICS cooperation. A lot of noise has been made about the rapid growth of the group and the challenge it represents to the G7 and the West more generally. It is indeed true that the entry of new members can increase the clout of the group, especially if they are medium or large size countries.

The downside is that the BRICS may become too large and even more heterogeneous than it already is, undermining its capacity to generate practical results. Do we not run the risk of seeing the BRICS become a talk shop? Something like the G77 – a platform for grand speeches and fine words with little true impact on world affairs?

Having participated in the negotiations that led to the NDB and the CRA, as well as in the early years of the NDB as one of its founding members, I can tell you that it was extremely difficult to achieve anything with only five countries around the table, especially because of the tradition of taking decisions by consensus, carried over from the BRICS political formation to the actual working of the NDB – and mind you this was something we had not desired and not foreseen in the bank’s Article of Agreements. Consensus, especially if understood rigidly as unanimity, paralyses decision-making.

Well, now consider the existence of nine members – and possibly more. Practical results may elude us. We should thus proceed with caution. Any further expansion better be very gradual and orderly. One possibility would be to incorporate new countries as strategic partners, and not right away as full members of the BRICS.

Monetary initiatives

This brings me to the main topic I wish to address – the possibility of building alternative arrangements to the US dollar and the Western payment systems, an objective that has been on our minds for some time. Can we work out such arrangements with a larger group of participating countries? With nine members or even more, if further expansion of the BRICS occurs? Let us hope so. But it will undoubtedly be a challenge. And a challenge it would be in any case, even with a smaller number of countries.

The reasons for designing alternative arrangements are clear and there is no need to repeat at length what I and many others have written in recent years. Two points only. First, the dollar, the euro, and the Western payment system have been dramatically misused as political and economic weapons. Second, the fiscal and financial fragilities of the US economy raise legitimate doubts about the feasibility of continuing to rely on the dollar as the hegemonic international reserve currency.

So, we must act. Easier said than done, of course. As the Indian proverb goes: “When all is said and done, more is said than done”. Although the Chinese are an exception to this dictum, I add in parenthesis, since they normally do more than say.

The challenge for the BRICS is, first of all, political – the US deeply resents any attempt to unseat the dollar and to undermine what De Gaulle called the United States’ “exorbitant privilege” – understood, in short, as the capacity to pay its bills and debts by simply issuing currency. The US is ready to blacklist any person or country that truly works to create alternatives to the dollar in a practical and effective manner – not talking here about speeches and grand proclamations. And Americans do not hesitate to call into action the allies and clients they have within most countries in order to undermine any initiatives of such sort. China, Russia and Iran are probably immune to these maneuvers. The same cannot be said of other countries of the BRICS. This is essential to the full understanding of the political economy of BRICS monetary and financial initiatives.

But the challenge is also technical. Constructing an alternative monetary and payment system requires hard and specialized work, as well as prolonged and difficult negotiations. Are we capable of carrying this out? I believe we are. Have we, however, made sufficient progress since the matter hit the headlines? Some progress was made since this group of government officials, scholars and politicians last met, in Johannesburg, in August 2023. But less than could be expected.

Under the Russian presidency of the BRICS, in 2024, there have been partly successful attempts to move the discussion forward. For instance, a group of independent experts has been created, of which I am a member, and in which other economists take part, notably the American economist Jeffrey Sachs, to discuss the reform of the international monetary system and the possibility of a BRICS currency. These experts will meet in early October, here in Moscow, to continue the exchange of views and hopefully to come to concrete suggestions. The Executive Directors of the BRICS have also been discussing the matter, under the leadership of the Russian Executive Director in the IMF, Aleksei Mozhin, who also convenes the group of experts. So far, however, not much progress has been made on the issue of monetary reform and the possible creation of a new currency as an alternative to the dollar. Brazil will be the next president of the BRICS in 2025. Let’s hope Brazilians can pick up where the Russians left off.

Transactions in national currencies and alternative payment systems

More progress seems to have been made during the Russian presidency on related matters, such as transactions in national currencies intra-BRICS and also between BRICS and other countries, as well as in the construction of possible alternatives to the SWIFT payment system, most notably the so-called BRICS Pay or BRICS BRIDGE. I am not sure BRICS Pay is a ready to go initiative, but such work is undoubtedly a most welcome initiative that goes some way into ridding us of the excessive dependence on the Western currencies and payment systems.

Nevertheless, it should be recognized that settlements in national currencies by-passing the US dollar and alternatives to SWIFT have their limitations in terms of the main objective which is to de-dollarize and foster a multicurrency system for an increasingly multipolar world.

The crux of the matter is that the existence of an alternative reserve currency is ultimately indispensable to make de-dollarization work. The reason lies in the fact that only accidentally will there be an equilibrium in the balance of transactions in national currencies among countries. An alternative international reserve currency is needed to allow countries to register surpluses and deficits over time. In the absence of this, countries would either revert to some sort of barter – or fall back on the US dollar and other traditional currencies, something that would defeat the whole purpose of the exercise.

An example. Russia has a substantial surplus with India. Trade and other transactions are carried out mostly in their national currencies, if I am not mistaken. Therefore, Russia is accumulating large stocks of rupees. Now, it may not want to hold this currency permanently in its reserves, perhaps because the rupee is not fully convertible and the Russian central bank may harbor doubts about its stability. What are Russia’s options? It can try to dispose these excessive surpluses in rupees by seeking investment opportunities in India or by making an additional effort to buy Indian goods and services. It can also use these rupees in third countries that have an interest in obtaining Indian currency due to close economic proximity to India. These alternatives, however, are clearly second best and hark back to the antiquated barter system in which economic agents traded goods bilaterally and sought third parties to dispose of unwanted goods. It was precisely to avoid this inefficient barter system that money was created in the first place to serve as a means of payment, a common standard of value, and an instrument for holding reserves. For the very same reason, the BRICS need a new reserve currency as an alternative to the US dollar and other traditional reserve currencies.

A new reserve currency – the NRC

How could this new currency look like? There are several possible routes. Allow me to sketch out, in conclusion, the route that looks more promising.

Let’s call the new currency the NRC, the acronym for new reserve currency. A previous great name was the R5 proposed by Russian economists when the BRICS were five countries and all of their currencies began with the letter R. This name was ruined, however, by two circumstances. Some of the four new members have currencies that do not begin with the letter R. Not a big deal, of course. So, could we then call it simply the BRICS or BRICS + currency? Not possible, unfortunately. Some of the BRICS+ countries are reluctant or even opposed to the idea, India most notably. This is a major barrier, but we can work around it, as I will attempt to explain.

The NRC could have the following characteristics. It would not be a single currency, replacing the existing national currencies of the participating countries. It would therefore not be a euro-like currency issued by a common central bank. The NRC would be a parallel currency designed for international transactions. The national currencies and central banks would continue to exist in their current format, as normal currencies and normal monetary authorities.

The NRC would not have a physical existence in the form of paper money, coins, and demand deposits in commercial banks. It would be a digital currency, analogous to the CBDCs (central bank digital currencies) that have been or are being created in a number of countries.

Note in passing that digital format largely replaces the traditional role of banks as intermediaries and creators of means of payment. The CDBCs and the NRC would downplay the role of banks, provided their use is not tied to the possession of an account in a commercial bank.

An issuing bank – let’s call it the NRMA, the New Reserve Monetary Authority – could be established jointly by the participating members. The NRMA would be in charge of creating NRCs and also bonds – call them the NRBs, new reserve bonds – into which NRCs would be freely convertible. The NRBs would be fully guaranteed by the National Treasuries of the members. This scheme is similar in some respects to the celebrated hyperstabilization of Germany in 1923-1924, achieved by the creation of the Rentenmark as devised by the great but largely forgotten German economist Karl Helfferich.

A first step, that has been advocated for some time by Russian economists, could be the creation of a unit of account for the NRC, an SDR-like basket in which the weight of the national currencies of the participating countries would correspond roughly to their share in the GDP of the group. China’s renminbi would have the highest weight in the basket, say 40%; Brazil, Russia, and India, 10% each, for example; and the remaining 30% could be shared among South Africa, Egypt, Ethiopia, Iran, and the United Arab Emirates.

Well, this relatively simple step could have been taken already. Disappointingly, the Russian presidency of the BRICS in 2024 did not manage to take it until now. Let’s see if Brazil manages to do so during its presidency in 2025.

The reason for the slow progress in this area seems to be the lack of consensus. It is reported that India and South Africa, presumably for political reasons, are against the idea. India – and this is only a conjecture – may be hesitant to displease the US on such a crucial matter. Why? Perhaps because it feels it may need US support in case of a deterioration of the traditionally tense relations with China. Brazil, I note in passing, is also not invulnerable to similar difficulties. In Brazilian society and even within the Lula administration, there are many that look up to the US and have ties with American business and official circles.

I hope that these vulnerabilities and the tensions between China and India will be overcome. But, in the meantime, could we not move forward on the basis of a coalition of able and willing countries? The NRC could be created by a sub-set of the BRICS. The others would join later. This is advisable, in my opinion, but runs up against our entrenched tradition of consensus. If we stick to this tradition, however, we may not get anywhere.

The alternative to something like the NRC would be a gradual replacement of the US dollar by the Chinese renminbi, the currency of the rising superpower. This is already

happening to some extent. Can it continue in a major way? Seems doubtful. One thing to remember is that the rising superpower is also an emerging market and middle income country. It has vulnerabilities and concerns not necessarily shared by the US and other high income nations.

What I mean is that in China’s case, the “exorbitant privilege” could become an “exorbitant burden”. Would China be willing to make the renminbi fully convertible? Would it contemplate giving up the capital account restrictions and foreign exchange controls that protect the Chinese economy from the vagaries of international finance? Would it accept renminbi appreciation as a result of the increased demand for it as an international asset? Would this appreciation not harm the Chinese economy`s international competitiveness and dynamism? The trend towards appreciation could be countered by accumulating additional international reserves. But where would these additional reserves be parked? In dollar, euro or yen denominated assets? Back to square one.

Final remarks

Let us therefore brace ourselves and rise to the task of creating a new reserve currency, a potential game changer in global monetary and financial affairs. In parallel, we should continue with the expansion of transactions in national currencies and with the promising ongoing work on alternatives to Western payment arrangements.

One should keep in mind that the BRICS will be causing disappointment all over the Global South, if they remain in the realm of slogans, speeches and proclamations and show themselves uncapable of groundbreaking practical initiatives.

References:

Bao, Gai. “From De-Risking to De-Dollarisation: The BRICS Currency and the Future of the International Financial Order”, Wenhua Zongheng, Volume 2, Issue no. 1, May 2024, Tricontinental: Institute for Social Research.

Klomegah, Kester Kenn. “Prospects for BRICS New Currency and New Payment System”, Modern Diplomacy – All Views/All Voices, August 15, 2024

Lissovolik, Yaroslav. “Boosting the use of national currencies among BRICS”, Russia in Global Affairs, September 14, 2018.

Lissovik, Yaroslav. “A BRICS Reserve Currency: Exploring the Pathways”, BRICS+ Analytics, December 21, 2022.

Galbraith, James Kenneth. “The Dollar System in a Multipolar Word”, The Institute for New Economic Thinking, May 5, 2022.

Galbraith, John Kenneth. Money: When it Came, Where it Went, Princeton University, 2017, first published 1975.

Nogueira Batista Jr., Paulo. “A BRICS currency?”, Contemporary World Economy Journal, Vol 3, No 1, 2023, School of World Economy, Faculty of World Economy and International Affairs, HSE University.

Yifan, Ding. “What is Driving the BRICS’ Debate on De-Dollarization”, Wenhua Zongheng, Volume 2, Issue no. 1, May 2024, Tricontinental: Institute for Social Research.

Yonding, Yu. “China’s Foreign Exchange Reserves: Past and Present Security Challenges”, Wenhua Zongheng, Volume 2, Issue no. 1, May 2024, Tricontinental: Institute for Social Research.

[The paper was presented at the BRICS Seminar on Governance & Cultural Exchange Forum 2024, in Moscow, Russia, on September 23, 2024. The Seminar was organized by the Publicity Department of the Central Committee of the Communist Party of China (CPC), the Academy of Contemporary China and World Studies and the China International Communications Group with the support of Russian institutions.

Paulo Nogueira Batista Jr. is a Brazilian economist, former Vice President of the New Development Bank , and former Executive Director for Brazil and other countries in the International Monetary Fund .]

How Would New International Reserve Currency Look Like? Read Post »

The Double Engine: Why Thaw in India-China Relations Crucial for Global South?

thegeoeconomics.com | September 25, 2024

Mohammed Saqib, COGGS

Indian industry and foreign affairs observers have welcomed recent signals indicating a thaw and potential improvement in India-China relations, albeit cautiously. This potential rapprochement has significant implications not only for bilateral ties but also for the broader Global South, which urgently needs, in the words of PM Modi, a “double engine” to spur growth and address present-day issues. The current economic environment is marked by suffering and distress in developing countries. Most nations are still grappling with the aftereffects of the pandemic, debt crises, and other systemic challenges. It has become increasingly clear that traditional economic prescriptions are insufficient to address the scale and complexity of these issues. Therefore, a renewed focus, cooperation, and effective leadership from emerging economies in the Global South is essential.

In this regard, the emerging market economies of the Global South have immense role to exercise. Overcoming the challenges faced by the majority of Global South countries will require collective action, collaboration, and strategic guidance to unlock new opportunities for growth and development. These economies need to unify and leverage their unique strengths and experiences to help shape a more equitable and sustainable global economic order.

Given that collaborative efforts and strong leadership are essential for overcoming challenges and creating new opportunities for growth, India and China will be key players in this context. By working together and utilizing their strengths and experiences, these countries can generate momentum for economic growth and create unprecedented opportunities for manufacturing, trade, and technological advancement across the developing world. As the world’s major economic powers and most populous nations, India and China have the ability to find common ground and collaborate. Their combined influence can serve as a “double engine” of growth, with the potential to reshape global economic dynamics and offer new pathways for progress in the Global South and the world.

Double Engine: A Dual Force

The combined economic might of India and China is substantial, representing approximately one-third of the world’s population and accounting for more than 35% of global GDP. India’s GDP is estimated at $3.6 trillion, while China’s stands at $18 trillion. This economic prowess has the potential to be a game-changer for the Global South.

The concept of a ‘double engine’ in this context assumes that both countries have complementary contributions. For instance, India, with its booming IT and pharmaceutical sectors and a large pool of human capital, offers unique advantages. Conversely, China is a manufacturing powerhouse with expertise in infrastructure development and a strong presence in innovation and emerging technologies like artificial intelligence and renewable energy. The Chinese market is also emerging as a significant source of investment outflows through overseas investments and foreign direct investment into developing countries. Pooling these complementarities for development would be a boon for the Global South.

In infrastructure development, China’s Belt and Road Initiative (BRI), aside from its political implications, has made significant strides in building infrastructure across Asia, Africa, and beyond. India’s private sector, with its expertise in construction and engineering, boasts a large pool of engineers and a semi-skilled workforce. Collaboration on such projects could provide cost-effective, sustainable benefits for all stakeholders. A report by the Center for Global Development (2020) estimates that the BRI has the potential to add $2.6 trillion to global GDP by 2040.

Why India-China Collaboration Matters

Another important area for potential collaboration is digital technologies. India’s success in digital public infrastructure, exemplified by its Aadhaar program (a biometric digital identity system) and the Unified Payments Interface (UPI) for mobile payments, offers valuable lessons for developing nations. Combining this expertise with China’s advancements in 5G technology and digital infrastructure can create powerful synergies, bridging the digital divide and fostering inclusive growth.

The COVID-19 pandemic has highlighted the weaknesses of global healthcare systems. India, a leading producer of generic drugs, and China, with its expanding biotechnology sector, can collaborate on joint R&D, patenting, and production to ensure affordable access to vital medicines and vaccines for the Global South.

The benefits of India-China collaboration extend far beyond these specific sectors. A joint approach to tackling climate change, cooperation in science and technology, disaster management, and food security can yield substantial results for the entire developing world.

However, achieving this “double engine” vision presents several challenges. It requires a robust political will to resolve long-standing issues between the two neighbours amicably. For decades, the relationship between India and China has been characterized by a complex mix of cooperation and competition. Historical baggage, border disputes, and strategic rivalry have often overshadowed the potential for collaboration. The world, especially the developing nations, needs India and China to work together. The success of India-China collaboration in driving Global South development could serve as a model for South-South cooperation and contribute to a more balanced and multipolar world order.

[ Mohammed Saqib is the Convenor of Center for Geoeconomics for the Global South. ]

The Double Engine: Why Thaw in India-China Relations Crucial for Global South? Read Post »

Beyond the Basics and Coffee Beans: Guatemala’s Economic Ascendancy

thegeoeconomics.com | September 4, 2024

Mónica Dalila Pozuelos Arriaza

Guatemala is a country located in Central America with a population of around 17 million. The nation is known for its fertile land, with rivers, volcanoes, mountains, and generally favorable climate. When it comes to development, Guatemala faces significant challenges, with around 56% of the population living in poverty, particularly in rural areas, where one in every two children is malnourished and there are limited social and economic opportunities. Despite this, Guatemala has several industries, including mineral extraction, coffee, sugarcane, and cardamom, with cardamom being a major global supplier.

Minerals, including nickel, have been an important export product, though the focus has shifted to antimony, iron, silver, ore, lead, and gold. The development of open-pit mines for gold and silver has led to protests from indigenous communities and concerns from international human rights organizations. This paper for COGGS will focus on the coffee industry, examining its oligarchic control over decades and exploring potential alternatives for market diversification or changes in the power dynamics of coffee production.

Guatemala’s exports have visibly improved since its entry into the Free Trade Area of the Americas in 2004. The country primarily exports agricultural products, including coffee and sugar (over 37 percent of total exports), and textiles (over 14 percent). Other exports include iron, steel, plastics, and chemical products. The United States is Guatemala’s main export partner, receiving 33 percent of exports (Trading Economics, 2024).

How is the Coffee Industry in Guatemala?

Coffee production in Guatemala has undergone significant transformation over the past twenty years, driven by increasing demand for high-quality coffee and shifts in consumer preferences. To understand the system, it is essential to focus on the actors and how power is distributed. The international coffee industry is structured such that small coffee farmers often have no choice but to accept the prices set by intermediaries, who dictate what they are willing to pay. Typically, coffee farmers earn only a small portion of the money consumers spend on coffee, while wholesalers, roasters, and retailers earn much larger portions (Francis, 2006).

The lack of price control by small coffee growers creates income inequality, with intermediaries benefiting disproportionately from price fluctuations. Actors such as the Cafetaleros, who operate privately on plantations called fincas and rely on temporary migrant labor, exploit the needs of this population by paying the lowest possible wages.

Unfortunately, the coffee sector is dominated by an oligarchy (cafetaleros) that maintains its privileges and contributes minimally to the development of rural areas and the country overall.

Economic Aspirations in the Coffee Industry

What is the Role of the Cooperative Movement?

The cooperative sector offers a significant opportunity to develop the country, particularly within the coffee industry. This movement seeks to ensure equality among its members. However, “there are several intermediaries in the global coffee economy, including exporters, wholesalers, importers, roasters, and retailers, each of which gains increasing profit relative to the farmers. Sometimes, farmer cooperatives are able to eliminate some of these middle stages by taking on additional roles and pooling funds to purchase export licenses and equipment” (Bacon, 33, 2010).

Recent studies indicate that coffee cooperatives help level the playing field by providing high-value services such as credit and agronomic training at equal rates to both women and men. This has led to increased gender equality and greater opportunities for women.

In conclusion, cooperatives offer a viable solution for promoting equality and development in rural areas, which are most affected by poverty. They create opportunities for economic development even in the most impoverished regions. However, the success of cooperatives depends on collaboration with existing power structures (cafetaleros) to ensure broader economic benefits for the entire population. Investments in training and expanding opportunities in rural areas could also help reduce high migration rates in Guatemala.

[Mónica Dalila Pozuelos Arriaza is a Guatemalan academic, and specializing in Guatemalan Foreign Policy]

For submissions to COGGS, we invite experts and specialists from the Global South to send their contributions to ayan@thegeoeconomics.com.

Dr. Mónica Dalila Pozuelos, Author

Beyond the Basics and Coffee Beans: Guatemala’s Economic Ascendancy Read Post »

Beyond the Washington Consensus: Balancing Supply-Side Reforms with Inclusive Development

thegeoeconomics.com | September 1, 2024

[Synopsis: Supply-side economics has played a significant role in the Global South, contributing to economic growth and uneven benefits. To build on this foundation, a more comprehensive strategy is necessary, one that leverages market dynamics and incentives while prioritising broad-based development, poverty reduction, and long-term productivity growth. By implementing the right balance of policies, countries in the Global South can work towards achieving a more inclusive and sustainable development path.]

Center of Geoeconomics for the Global South (COGGS)

Supply-side economics has been embraced by many countries in the Global South, often as part of structural adjustment programs. Over the past few decades, supply-side economics has played an important role in driving economic policy in the Global South. It prioritises high economic growth rates and increased productivity through policies that encourage production, investment, and innovation. These measures generally involve lowering tax rates, deregulating industries, privatising state-owned concerns, liberalising trade and making economies attractive to foreign investors (Bauer, 2000). The premise is that improving the business environment and incentives on the supply side will enable economies to increase their productive capacity and efficiency, hence leading to sustained growth and development.

Many countries in the Global South have adopted supply-side economics under structural adjustment programs imposed by international finance institutions such as the International Monetary Fund (IMF) and the World Bank. Latin American nations like Chile, Mexico, and Brazil have undertaken extensive market reforms and liberalisation since the 1980s (Williamson, 1990). For example, Chile was famous for its aggressive, free-market policies guided by economists referred to as “Chicago Boys,” which earned it rapid economic growth, averaging seven per cent per annum between 1985 and 1997 (Kurtz, 2001).

In Asia, India underwent significant economic reforms in 1991 that opened up its economy to global trade and investment, deregulated sectors of industry and reduced government intervention. These changes have unleashed entrepreneurial potential, with an average GDP growth rate of around seven per cent since the mid-1990s(Ahluwalia, 2002). Supply-side policies used in China’s economic miracle include the creation of special economic zones (SEZs) and agricultural liberalisation, among other massive infrastructure projects. During this period, China registered an average annual GDP rate of ten per cent (Morrison, 2014).

Nonetheless, the supply-side economics effect has been mixed within Global Southern Countries. Some have experienced significant economic growth and poverty reduction but usually uneven gains. Nonetheless, the benefits of this growth tend to be enjoyed by urban elites and capitalists while large segments of the population remain impoverished. Income inequality has risen in many countries that are implementing supply-side policies. For instance, despite achieving impressive economic growth, China’s income inequality, measured by the Gini coefficient, increased from 0.30 in 1980 to 0.55 in 2012 (World Bank 2014). In 2022, China scored (0.467) points, representing a drop from the previous year’s score (Textor, 2024).

Many stakeholders argue that focusing on foreign investment and export-led growth makes countries more susceptible to global economic shocks. Most economies within Global South were badly affected by the financial crisis experienced between2006-2008; for example, Mexican GDP contracted by 6.5% in 2009 (Villarreal2011). This is because, so far, these strategies have not resulted in enough jobs needed with the increasing working population in the developing world. However, India is an example where sufficient employment opportunities have not been created since its economy took the liberalisation path, with the labour force participation rate declining from 58%in 2004 to53%by2013(Mehrotra et al.,2014). In urban areas, for instance, with respect to India, it was expected that by 2023, the labor force participation rate is expected to increase to 50.4 percent (Rathore M.,2024). Supply-side economics has been criticised for not recognising the significance of internal markets and human capital formation. Stiglitz (2002) noted that wage repression and insufficient investments in health and education could improve immediate competitiveness but hamper long-term productivity and innovation. Barro’s (2001) study showed that human capital, measured by years of schooling and health indicators, is an important determinant of economic growth over a long period.

To achieve more inclusive and sustainable development, countries in the Global South may need to adopt a more balanced approach that combines supply-side reforms with demand-side policies and investment in human capital. Inequalities can be reduced through progressive taxation and social safety nets, thereby expanding domestic markets. Industrial policy, coupled with government support for research and development, facilitates innovations that lead to the upgrading of technological know-how. An effective way would be to invest in a quality education system and good health facilities for a skilled base workforce that would move up the value chain required for the nation to develop further.

References:

Ahluwalia, M. S. (2002). Economic Reforms in India Since 1991: Has Gradualism Worked? Journal of Economic Perspectives, 16(3), 67-88.

Barro, R. J. (2001). Human Capital and Growth. American Economic Review, 91(2), 12–17.

Bauer, P. T. (2000). From Subsistence to Exchange and Other Essays. Princeton University Press.

Kurtz, M. J. (2001). State Developmentalism Without a Developmental State: The Public Foundations of the “Free Market Miracle” in Chile. Latin American Politics and Society, 43(2), 1–25.

Mehrotra, S., Gandhi, A., & Sahoo, B. K. (2014). Is India’s Long-Term Trend of Low-Quality Employment Growth Reversing? Economic & Political Weekly, 49(7), 83-91.

Morrison, W. M. (2014). China’s Economic Rise: History, Trends, Challenges, and Implications for the United States. Congressional Research Service.

Rathore, M. (2024). Rate of labor participation across India 2023

Stiglitz, J. E. (2002). Globalisation and Its Discontents. W. W. Norton & Company.

Textor, C. (2024). Gini index: inequality of income distribution in China 2012-2022

Villarreal, M. A. (2010). The Mexican Economy After the Global Financial Crisis. Congressional Research Service.

Williamson, J. (1990). What Washington Means by Policy Reform. In J. Williamson (Ed.), Latin American Adjustment: How Much Has Happened? (pp. 7–20). Institute for International Economics.

World Bank. (2014). World Development Indicators. Retrieved from http://data.worldbank.org/indicator

Beyond the Washington Consensus: Balancing Supply-Side Reforms with Inclusive Development Read Post »

Aligning Power Streams: Southeast Asia’s Ingenious Route to Global South

thegeoeconomics.com | August 31, 2024

Simran Walia

The term “Global South” gained prominence in the 1970s and 1980s as a more neutral alternative to “Third World,” distinguishing non-aligned developing countries from the democracies of the “First World” and the now-defunct communist bloc of the “Second World.” Proponents of the Global South advocate for a multipolar global system that challenges Western liberal norms and privileges. Recent shifts in global power—from the transatlantic to the Indo-Pacific, the rise of non-Western nations like China and India, and the relative decline of the West—have accentuated these differing viewpoints. However, the intrinsic diversity of the concept is underscored by the fact that China and India, the two self-declared leaders of the Global South, struggle to forge Asian unity due to their own territorial disputes and nationalist ambitions.

The Global South is often associated with certain characteristics. Its positioning in the Group of 77 (G77) versus the Organization for Economic Cooperation and Development (OECD), or G7, highlights the economic disparities between developing and industrialized nations. The Global South contends that the inequalities of the post-World War II international order, which favor Western nations, stem from colonial legacies and are perpetuated by global capitalism.

Historically, the normative solidarity of Global South nations has encompassed opposition to colonialism and neocolonialism, resistance to hegemony, and support for a multipolar world. They have persistently advocated for more equitable access to markets, technologies, and financing, underscored the importance of national sovereignty, and challenged Western-centric approaches to human rights and democracy. They have also called for reforms in global governance. The term “Global South” serves not merely as a metaphor for underdevelopment but as a reference to a lengthy history of colonialism, neo-imperialism, and uneven economic and social development, which has perpetuated stark disparities in resource access, life expectancy, and living standards.

The China Factor

China’s strategic objectives are served by its investments in the Global South despite growing isolation from the West and competition with the United States. China may challenge Western supremacy and increase its influence in forming the global order by aligning with the Global South. This makes a lot of economic sense as well, since developing nations are becoming important markets for Chinese investments, products, and financing. China is intensifying its economic shift towards the developing world in response to growing protectionism from the United States and its allies.

Growing geopolitical rivalry between the US and China has brought back bipolar dynamics akin to those of the Cold War, when a large portion of the world was used as pawns in a fight between superpowers. The pressure on developing countries to choose between the democratic West and authoritarian China and Russia has increased as a result of Moscow’s aggression against Ukraine, but many of them are resisting this option. A series of systemic shocks, however, have brought attention to the glaring disparities at the center of the global economy and the susceptibility of lower- and middle-income countries to political, economic, and ecological crises that are not of their own making. These shocks include the COVID pandemic, the economic fallout from Ukraine, and the growing climate emergency.

Simplistic narratives cannot capture the diversity found throughout the Global South. Southeast Asian countries, for example, defy the stereotype of the “developing world” because of their diverse range of development stages, security issues, and economic links. These nations make foreign policy decisions mostly based on their national interests rather than strictly adhering to the rhetoric of the Global South, despite the fact that they face some shared issues.

Is Singapore in Global South?

There are around 670 million people living in the ten ASEAN member nations combined. Singapore, with a per capita GDP of over $73,000, nearly twice that of Japan, and Myanmar, with a per capita GDP of $1,000, are at extreme opposite ends of the ASEAN spectrum. It is difficult to include Singapore in the Global South. Indeed, Singapore has incorporated itself into the economic restrictions imposed on Russia. Despite being largely included in the Global South, Southeast Asia shows a great deal of variation in terms of its degree of development. With gross domestic product per capita levels above the OECD average and human development indices on par with or even higher than those of OECD nations, Singapore and Brunei stand out as anomalies. The per capita GDP of the remaining Southeast Asian countries, on the other hand, ranges from US$1,000 to US$12,000, well below the OECD average.

The ASEAN and Global South

By their UN voting habits, Southeast Asian nations have shown that they share norms with the Global South, which includes China. In opposition to the “hegemony of liberal democracy,” they have argued for “Asian values” and have consistently backed resolutions that reflect the views of the Global South on democracy and human rights. Furthermore, the South China Sea dispute illustrates how countries in Southeast Asia, and the Global South in general, have prioritized their own interests over defending international law against more powerful nations like China.

Malaysia’s Prime Minister Anwar Ibrahim visited New Delhi, following which both Malaysia and India committed to enhancing their ties through a Comprehensive Strategic Partnership. This unprecedented level of collaboration will focus on shared goals such as public goods delivery, green development, sustainable economic growth, connectivity, and technological advancement. Prime Minister Anwar discussed at length the strategic significance of Malaysia-India relations within the framework of the Global South. He emphasized the importance of air connectivity between the two countries and the potential for further integration in the semiconductor industry.

China has demonstrated skill in using terminology from the “Global South” to critique the West and advance its own agenda, arguing that “true multilateralism” and “universally beneficial” globalization are essential. Indian Prime Minister Narendra Modi has urged ASEAN leaders to “elevate the Global South for the common interest of all.” Japan has also made efforts to serve as a bridge between the North and the Global South.

ASEAN as a whole is China’s largest commercial partner, followed by South Korea, Japan, and the EU, with the US and India in fourth place. Southeast Asia’s integration into global supply chains and its production of goods primarily for the Global North’s market have contributed significantly to its wealth. This success is partly due to Southeast Asia’s access to capital and technology from the Global North.

The economic reality of Southeast Asian nations shows that, rather than being mere victims or passive recipients, they have been active participants and beneficiaries of the contemporary economic system. In fact, they have strategically shaped regulations to serve their interests by establishing a network of regional free-trade agreements with key trading partners through ASEAN and other minilateral approaches. Although there are complaints, particularly regarding trade restrictions imposed by wealthy countries for political or environmental reasons, these do not, contrary to the rhetoric from the Global South, reflect a general dissatisfaction with the system.

[Simran Walia is an Associate Fellow at the Centre for Air Power Studies, New Delhi, pursuing a PhD in Japanese Studies from Jawaharlal Nehru University, Delhi. ]

The opinions expressed do not reflect the stance of COGGS.

Aligning Power Streams: Southeast Asia’s Ingenious Route to Global South Read Post »

Margaritas and Markets: Mexico’s Economic Moves in a Shifting Global Stage

thegeoeconomics.com | August 30, 2024

– Juan Roberto Reyes Solís

The calender year 2024 is marked by significant global political change due to elections in nearly 70 countries. Additionally, political uncertainty and ongoing international conflicts are compelling business leaders to carefully plan their strategies across various economic, commercial, and financial projects. In all these current facts of political continuity and change, Mexico’s productive performance is exposed to a set of challenges and opportunities. According to the International Monetary Fund, Mexico has emerged as the tenth largest recipient of foreign investments globally over the past two years.. Conversely, the World Bank highlights that Mexico has become the twelfth largest economy globally and is also one of the world’s top fifteen exporters.

This achievement is due to the relative strengthening of the U.S. economy, which has sustained demand for Mexican-manufactured products..This is particularly due to the U.S.-China rivalry and other factors that have led to the transfer of industries to Mexico, thereby triggering potential growth in nearshoring. Thus there is much more to report, including the visit of foreign tourists.

As a result of these dynamics, Mexico has recently positioned itself as the main trading partner of the United States after China. At the same time, in the Latin American area it maintains an excellent profile attracting foreign investment and performance in the regional trade. In terms of tourism, Mexico is today the ninth country that generates foreign currency for this activity in the world.

According to the Ministry of Economy, the best sectors for business are energy, general consumer products, technologies, medical services, drones, electrical vehicles, robots, electronic manufacturing and infrastructure.

The current challenge for Mexico must focus on strengthening external perception to improve the image towards international markets and create a scenario that more vigorously promotes the full potential of the nation. In short, the positive reputation must be intensified and the perception of those others that are palpable as unfavorable must be reduced, especially the situation of insecurity.

However, a trend that has favored the economic scenario is found in another very attractive factor. The rising of nearshoring has gained momentum to engage production centers to geographic areas that favor the greatest use of resources and facilitate the operation and efficiency of the distribution chains of goods and services to destination markets. For Mexico, with a strong interaction in market and economy of the United States economy, the need for intermediate goods, as well as the supply of these to different industries, led to considering the vision of rethinking the logistics of numerous companies. This is how the idea of nearshoring was gradually outlined, by reconstituting production networks with resources from the regions, and relocating industries and suppliers of goods and services in the national geography.

Some of the potential benefits could be seen in the possibility of increase in foreign investments, derived from the transfer of production plants to the country and their eventual location in the different industrial parks. This circumstance could strengthen the size of industrial clusters and their business environment, leading to create new infrastructure, connectivity, service offerings and other activities associated with regional economic growth and development. In this regard, various companies located in the national territory have the opportunity to announce their expansion plans, which will trigger new projects that are associated with the relocation of productive activities. In this case, it should be highlighted that the panorama of foreign investments in the state environment is favored by a strategy of attracting and engaging industries that are integrated into the productive chains within the different clusters of the region.

These circumstances stimulate the possibility of having more specialized personnel in different productive branches, that is, a growth in the workforce derived from the location of new industries that require employees for the areas in which they participate in.

There is also a great capacity in the use of regional resources and the territorial advantages as the connection among regions inside the country. By connecting the Pacific and Atlantic Oceans through maritime ports, Mexico facilitates the movement of goods from Eastern countries to various locations within the country. It is the same case for imports and exports that are moved by train and transportation services from Central America to the U.S. market.

Finally, potential growth of exports, especially to the United States market. For numerous industries, the export potential or, where applicable, opens a door that would lead to participation in that market, establishing, in the process, an opportunity for international experience, development and deepening of business for the companies involved in this expectation. While Mexico could leverage these opportunities on a large scale, the upcoming U.S. presidential election will be crucial in determining the future economic conditions and prospects for Mexico. [COGGS]

*Author is Professor and Researcher, Universidad Anáhuac Querétaro, Mexico.

[The views expressed herein are those of the author and do not necessarily reflect the official position or endorsement of COGGS. For submission queries, pls write us to ayan@thegeoeconomics.com ]

Margaritas and Markets: Mexico’s Economic Moves in a Shifting Global Stage Read Post »

Is Regional Collaboration the Global South’s Secret to Triumph?

thegeoeconomics.com | August 19, 2024

Mohammed Saqib, COGGS

[ Synopsis: The Global South shares common challenges related to economic development, social inequality, and geopolitical positioning. Regional cooperation among the Global South countries has been recognised as a crucial strategy for addressing these shared challenges and promoting sustainable development. However, cooperation among the countries of the Global South faces numerous obstacles.]

Over the years, successful regional initiatives have achieved remarkable gains in economic, political, and sustainable development. Consequently, regional cooperation has emerged as a crucial strategy for the Global South nations to tackle common challenges, harness their collective strengths, and accelerate socio-economic progress. This approach has gained momentum in recent years owing to the growing global realisation that global issues are interconnected and cooperative action can generate mutual benefits. The developing countries are increasingly looking towards regional partnerships to address complex challenges and exploit growth opportunities in the context of rapid globalisation, climate change, and economic interdependence.

It is a departure from traditional development models emphasising North-South cooperation and bilateral aid relationships. Instead, it focuses on South-South cooperation through collective action among nations facing similar developmental obstacles. These could range from formal economic integration/trade agreements to shared infrastructure projects, including joint resource management or harmonised policy responses to transnational issues within a region. These initiatives include agriculture, energy, education, health care, and environmental protection. By combining resources, expertise, and political willpower, countries in the Global South can achieve economies of scale, thus enhancing their bargaining power at the global level and devising more effective ways of dealing with common problems.

In addition to ensuring economic growth and social progress, it also enhances stability and security at regional levels due to increased interdependency or shared prosperity among states involved. It further serves as a platform for knowledge exchange whereby countries learn from each other’s experiences and best practices (Foster et al., 2018). In some cases, solutions that work in developed economies may not be suitable for developing ones directly.

Advantages of Regional Cooperation

The positive outcomes of this form of partnership include enhanced trade conditions between regions, leading to greater economic stability and political sovereignty, as well as improved prospects for achieving ecological sustainability (OAU/AU).

Economic Attractiveness

One key economic advantage of regional cooperation is the possibility of increasing intra-regional trade. According to the United Nations Conference on Trade and Development (UNCTAD), intra-regional exports among developing countries increased from 42% in 2006 to 52% in 2018 (UNCTAD, 2019). This shows that South-South trade is becoming more critical. When ASEAN implemented the ASEAN Free Trade Area (AFTA) in 1992, there has been a remarkable increase in intra-ASEAN trade. Between 1993 and 2020, the ASEAN Secretariat put its total trade at $2.8 trillion, increasing from $123.1 billion in intra-ASEAN trade.

Regional cooperation can also increase the appeal of member states for foreign direct investment (FDI). It is observed that the larger markets and harmonising regulations attract more FDI into regional blocs. In Latin America, for example, ECLAC notes that “regional integration efforts” have influenced FDI inflows, as the region received $160.7 billion in FDI inflows in 2019 (ECLAC, 2020).

Cooperation can also boost the economy to protect it from external shocks. Regional integration is another important factor in helping African economies cope with global financial crises (AfDB, 2019). For example, African countries with closer regional ties had less severe economic contractions during the 2008 global financial crisis (AfDB, 2019).

Political Stability and Security

Regional organisations often provide mechanisms for peaceful conflict resolution among member states. One of these frameworks is the African Peace and Security Architecture (APSA) developed by the African Union (AU), which includes conflict prevention, management, and resolution mechanisms. As a result of APSA’s contribution, there has been a reduction in interstate conflicts across Africa, from 16 armed conflicts in 2002 to only seven in 2019 (SIPRI, 2020).

Democratic norms and good governance are often enforced through regional bodies. For instance, the Organization of American States (OAS) has played a crucial role in supporting democratic processes all over Latin America. In developing countries, participation within such organisations increases the chances of democratic transition and consolidation, according to Pevehouse’s study cited by Brooks et al. (2005:727).

The collective security capabilities are enhanced by regional cooperation. Terrorism and drug trafficking have forced several Central Asian countries’ governments into joint military exercises as well as intelligence sharing through the Shanghai Cooperation Organisation (SIPRI). UNODC (2019) has reported that such collaboration led to a 17% increase in drug seizures between the years 2014-18.

Sustainable Development

Regional cooperation is required to tackle cross-border environmental issues. The Association of Southeast Asian Nations (ASEAN) has implemented the ASEAN Agreement on Transboundary Haze Pollution against forest fires and haze since its establishment in 2003, leading to a 36% decline in hotspots regionally, according to the ASEAN Secretariat (2020).

Climate change responses could be better managed at the regional level. A good example is the Caribbean Community Climate Change Centre (CCCCC), which has played a significant role in devising climate change strategies for the region. In the Caribbean, coordinated regional action can reduce costs of climate adaptation by up to 25% compared to country approaches, according to the World Bank (2018).

Cooperation makes it possible to manage shared natural resources efficiently. This river basin organisation has coordinated sustainable development and management of the Mekong River Basin, including several Southeast Asian countries, such as Lao PDR, Cambodia, Vietnam, and Thailand. As a result of these efforts, fish stocks increased by 12% and water quality improved by about 15% between 2010 and 20 (MRC, 2021).

Regional power pools and energy cooperation can ensure energy security and promote renewable energy uptake. For instance, the Southern African Power Pool (SAPP), which facilitated electricity trading among southern African countries, increased the region’s renewable energy capacity by 22% from 2015 to 2020 (International Renewable Energy Agency, 2021).

Obstacles to Regional Collaboration and Solutions

Economic Inequalities

One of the major hurdles in regional cooperation is economic inequalities among member countries that may stall cooperation. Rich countries might be hesitant to share their resources with others or open up their markets because they fear economic losses. For example, within the East African Community (EAC), Kenya’s GDP per capita is almost twice as much as Tanzania’s and four times higher than it is for Burundi’s (World Bank, 2022), which puts trade discussions into tension.

A possible way to subvert this inequality problem in regional cooperation is to implement asymmetric integration strategies that allow less developed countries more time to adapt to regional policies. The ASEAN-minus-X formula, which gives space for some members to temporarily opt out of certain economic initiatives, has been useful in managing disparities (Asian Development Bank, 2019).

Political Stability and Conflicts

Political instability or conflicts at the country level can derail regional efforts to promote cooperation. An ongoing conflict in South Sudan, for instance, has impeded the progress of the Intergovernmental Authority on Development (IGAD) in eastern Africa.

Strengthening regional capacities for resolving conflicts and their peacekeeping abilities will mean greater gains. Economic Community of West African States (ECOWAS) successfully intervened in several conflicts, such as The Gambia’s 2017 case, thus showcasing how regional bodies can ensure stability (International Crisis Group, 2019).

Weak Organisational Capacity

Numerous organisations in the global south regions lack sufficient institutional frameworks and means to enforce these. South Asian Association for Regional Cooperation (SAARC) has not succeeded due to poor institutions implementing most of its initiatives. Enhancing institutional capacity requires investment in capacity-building activities targeting regional institutions while creating clear rules that can be implemented and enforced at all times. The African Union’s reform process, which commenced in 2016, seeks to increase the organisation’s effectiveness and efficiency (African Union, 2020).

Sovereignty Concerns

Countries might feel challenged to surrender their decision-making powers to regional bodies because of fears about loss of sovereignty. For instance, Mercosur has faced a problem deepening its integration among South American countries due to the member states’ unwillingness to give up their economic policy autonomy.

A practical solution involves adopting a flexible approach to integration that respects national sovereignty while promoting cooperation. The Pacific Alliance has been successfully pragmatic and business-oriented, thus making strides in areas like trade and investment without compromising members’ autonomy (Inter-American Development Bank, 2018).

External Influence

Global South regional cooperation must take into account external influences. For example, individual agreements between China and some ASEAN countries sometimes complicate ASEAN’s collective bargaining position. It is important to formulate joint strategies for dealing with outside powers to solve this. The African Continental Free Trade Area (AfCFTA) is a good step towards strengthening Africa’s collective bargaining power in global trade negotiations (United Nations Economic Commission for Africa, 2021).

Infrastructure and Connectivity Gaps

Poor physical and digital infrastructure can significantly hinder the actualisation of regional cooperation initiatives. For instance, inadequate transport linkages in Central Asia have significantly limited the potential for intra-regional trade within the Central Asia Regional Economic Cooperation (CAREC) Program. Regional infrastructure projects must be prioritised while multilateral development banks’ funding capacities are tapped. To bridge the continent’s infrastructure gap, the African Development Bank supported the Programme for Infrastructure Development in Africa (PIDA) (African Development Bank, 2020).

Public Support Inadequacy

Limited public awareness and support for regional integration sometimes impede the political will to collaborate. For example, the low voter turnout in East African Legislative Assembly elections shows little public engagement with EAC. To address this, it is crucial to increase the level of education and public outreach about the benefits of regional cooperation. This program has helped create a regional identity through student exchanges that could be replicated in other regions (European Commission, 2019).

These challenges underscore how complicated regional cooperation can be in the Global South; however, potential solutions show that these hurdles can be crossed given political willingness, innovative approaches, and sustained efforts. Successful regional cooperation must be multidimensional since it covers economic, political, and social aspects while still being flexible enough to accommodate the specificities of different regions.

Conclusion

Regional cooperation in the Global South has proven to be a powerful catalyst for development, ensuring economic growth, political stability, and sustainable progress. The benefits of this collaborative approach are manifold, including increased intra-regional trade, improved foreign direct investment attractiveness, enhanced conflict resolution mechanisms, and more efficient management of shared natural resources. However, various obstacles persist, such as economic inequalities, political instability, weak institutional capacity, sovereignty concerns, external influence, infrastructure gaps, and insufficient public support.

Several recommendations can be made to overcome these challenges and fully harness the potential of regional cooperation. Firstly, implementing asymmetric integration strategies can help mitigate economic disparities among member countries. Secondly, strengthening regional conflict resolution and peacekeeping capacities is essential for maintaining political stability. Thirdly, investing in the institutional capacity of regional organisations can improve their effectiveness and efficiency. Fourthly, adopting a flexible approach to integration that respects national sovereignty can alleviate concerns about the loss of decision-making power.

Moreover, formulating joint strategies for dealing with external powers can help safeguard the interests of regional blocs. Prioritising regional infrastructure projects and tapping into multilateral development banks’ funding capacities can help bridge infrastructure gaps. Finally, enhancing public education and outreach regarding the benefits of regional cooperation can cultivate stronger public support and greater engagement with these initiatives.

Regional cooperation does not solve all the development challenges. However, in an increasingly interconnected world, regional cooperation is a vital strategy for countries in the Global South to address common challenges and leverage their collective strengths. To more effectively pursue their development objectives and establish their positions within the global economy, countries need to pool resources, harmonize policies, and present united fronts. Therefore, leaders in the Global South should build upon existing achievements, learn from past mistakes, and deepen their commitment to regional integration for the benefit of their people and the global community.

[Annexure]

Successful Regional Cooperation Initiatives

The examples below demonstrate successful regional cooperation in the Global South. They underscore the importance of political will, practical approaches, and institutional frameworks in realising the success of regional cooperation initiatives. Although challenges persist, these initiatives offer valuable insights to advance regional integration efforts worldwide.

1. ASEAN Economic Community (AEC) Launched in 2015, the AEC aims to create a single market and production base within Southeast Asia.

Key Achievements:

Intra-ASEAN trade increased from $498 billion in 2015 to $598 billion in 2019 (ASEAN Secretariat, 2020).
Tariffs on 98.6% of intra-ASEAN trade items have been eliminated (ASEAN Secretariat, 2021).

Success Factors:

a) Gradual, phased approach to integration

b) Flexible consensus-based decision-making (“ASEAN Way”)

c) Strong institutional framework with regular high-level meetings

d) Focus on practical, achievable goals

African Continental Free Trade Area (AfCFTA) Operational since January 2021, AfCFTA aims to create a single continental market for goods and services.

Key Achievements:

Potential to increase intra-African trade by 52.3% (UNECA, 2021).
Expected to lift 30 million people from extreme poverty (World Bank, 2020).

Success Factors:

a) Strong political will and leadership from the African Union

b) Inclusive negotiation process involving all African countries

c) Comprehensive scope covering goods, services, and digital trade

d) Built-in mechanisms for dispute resolution and monitoring

Mercosur (Southern Common Market) Established in 1991, Mercosur is an economic and political bloc in South America.

Key Achievements:

Intra-bloc trade increased from $4 billion in 1990 to $42 billion in 2019 (IADB, 2020).
Successfully negotiated trade agreements with the EU and EFTA.

Success Factors:

a) Shared historical and cultural ties among member states

b) Initial focus on trade liberalisation before expanding to other areas

c) Establishment of dispute resolution mechanisms

d) Creation of Mercosur Parliament to enhance political integration

Caribbean Community (CARICOM) Single Market and Economy: Launched in 2006, CARICOM aims to integrate the economies of its member states.

Key Achievements:

Intra-regional trade in goods increased by 13% between 2006 and 2016 (CARICOM Secretariat, 2018).
Successful implementation of free movement for certain categories of skilled workers.

Success Factors:

a) Strong focus on capacity building for member states

b) Development of regional institutions like the Caribbean Court of Justice

c) Emphasis on functional cooperation in areas like health and education

d) Regular engagement with the Caribbean diaspora

Greater Mekong Subregion (GMS) Economic Cooperation Program

Initiated in 1992 by the Asian Development Bank, the GMS program focuses on infrastructure development and economic corridors.

Key Achievements:

Completion of over 100 infrastructure projects worth $27 billion (ADB, 2021).
Cross-border power trade increased from 2,493 GWh in 2010 to 75,738 GWh in 2020 (ADB, 2021).

Success Factors:

a) Clear focus on infrastructure and connectivity

b) Strong support from multilateral institutions (especially ADB)

c) Pragmatic, project-based approach

d) Regular high-level meetings to maintain political momentum

Pacific Alliance: Formed in 2011, the Pacific Alliance aims to promote free trade and economic integration among its Latin American members.

Key Achievements:

Elimination of 92% of tariffs among member countries (Pacific Alliance, 2020).
Creation of the Integrated Latin American Market (MILA), merging the stock exchanges of member countries.

Success Factors:

a) Shared commitment to open markets and free trade

b) Focus on practical, business-oriented initiatives

c) Outward-looking approach, seeking engagement with Asia-Pacific

d) Streamlined decision-making process

[Mohammed Saqib is an Economist and Convenor, COGGS]

Is Regional Collaboration the Global South’s Secret to Triumph? Read Post »

ASEAN- Africa Pioneering Spirit of Global South

thegeoeconomics.com | August 9, 2024

The Association of Southeast Asian Nations (ASEAN) stands as an economic and political powerhouse within the Global South, comprising Brunei Darussalam, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Each of these ten member states contributes its unique economic flavor, making ASEAN a melting pot of economic prowess and developmental diversity. From high-flying achievers to rapidly developing nations, ASEAN is keenly interested in engaging with the emerging markets of Africa.

Africa, with a population of 1.5 billion and a GDP of approximately $3 trillion, is a vibrant market. ASEAN’s population is approximately 660 million, where rising income levels are creating a burgeoning consumer market. The continent’s rapid urbanization and economic development are the main reasons of emerging demand across various sectors. The partnership between ASEAN and Africa is marked by mutual benefits; ASEAN countries can tap into Africa’s burgeoning markets, characterized by a growing middle class and increasing purchasing power. Conversely, African nations can leverage ASEAN’s established trade networks and technological advancements to enhance their economic sectors and partnership.

In Africa, the African Continental Free Trade Area (AfCFTA) is initiated to create a single continental market for goods as well as services. The AfCFTA is expected to enhance intra-African trade, facilitate investment flows, and drive economic growth across the continent. As Africa’s consumer market expands, it presents a tremendous business opportunity for trade, including those from ASEAN, to tap into new markets and capitalize on emerging economic trends.

Both ASEAN and Africa are embracing digital transformation for economic progress and prosperity. ASEAN’s advanced technological infrastructure and innovation-driven economy provide a solid foundation for collaboration in areas such as e-commerce, energy, fintech, and digital services. There lies a great scope in collaboration for renewable energy, agritech, and smart cities. Collaborative efforts in research and development can lead to the creation of cutting-edge solutions tailored to both regions’ needs.

As the largest country in Southeast Asia by both area and population, Indonesia commands a prominent position in ASEAN’s economy. The nation is known for its innovation and constant appetite for scaling newer height. For Kenya, Nigeria, South Africa, and other developing African economies, aligning trade policies with ASEAN’s economic strategies can facilitate a more conducive environment for export promotion. By harmonizing trade regulations and reducing tariff barriers, the African can enhance their competitiveness in ASEAN markets.

For instance, Kenya’s impressive horticultural sector could benefit from improved access to ASEAN’s large consumer base, while Nigeria’s oil and gas industry could find new markets for its exports. Collaboration between ASEAN and African nations in transport infrastructure, such as roads, railways, and ports, can significantly reduce the time and cost of moving cargos. For example, the development of improved logistics networks in Kenya can enhance its connectivity with ASEAN markets, making it easier to export goods like coffee.

As global trade increasingly tilts towards Asia, ASEAN is flexing its economic muscles, positioning itself as a major trendsetter in the global marketplace. When coupled with Africa, the partnership empowers Africa’s and ASEAN’s influence, across the Global South. The synergy not only boosts trade between the two regions but also balances and strengthens the global economic stage. By blending their distinct strengths, tackling shared challenges, ASEAN and Africa are charting a bold new path to economic prosperity in the Global South. Their fast-growing partnership is exptected to spark a wave of growth and innovation.

ASEAN- Africa Pioneering Spirit of Global South Read Post »