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Amid the fallout of the global economic recovery, emerging countries in the South are reviving South-South economic cooperation, trying to shift away from their previous focus on Northern markets.
This time, cooperation is likely to be more realistic as it is primarily being driven by a pragmatic search for new growth markets due to significantly dwindling demand from the Northern hemisphere.
During the opening of the World Export Development Forum (WEDF) on Monday in Jakarta, President Susilo Bambang Yudhoyono highlighted the importance of South-South economic alliances to weather the impact of slower growth in advanced economies that would crimp demand for goods and services.
“With the ongoing eurozone uncertainty and faltering economic growth in other developed economies, it has become clear that the drivers of global economic growth are to be increasingly found in the growth markets of the South,” he said in his address.
Yudhoyono, however, warned that the realignment should go beyond an attempt to seek new sources of growth, and instead be “part of a much broader, longer-term and structural change” in the global economy.
Analysts and global financial institutions have pointed to the much larger contribution by emerging economies in the South to the world’s future economic growth.
Six emerging economies — Brazil, China, India, Indonesia and Russia — are poised to become the engines of global growth, accounting for more than half of overall economic growth by 2025, according to the World Bank. Along with a surge in incomes among the populations in the South, marked particularly by the presence of new middle classes, South-South cooperation has gained greater importance, a sea change from how previously emerging economies focused on trading with partners in the North, which enjoyed higher levels of income, while struggling with their own domestic issues.
Trade Minister Gita Wirjawan said that of the current global gross domestic product (GDP) of US$70 trillion, global trade stood at around $31 trillion. Meanwhile, South-South trade, which engages around 120 countries, amounted to $8.5 trillion.
“As the current amount of South-South trade totals only $8.5 trillion, there is still a great deal to be explored purely within the South-South area,” he said. According to Gita, trade facilitation, particularly in the form of trade financing and simplified customs and procedures, would be needed to push up the level of trade between South-South countries to its actual potential.
Director general of the World Trade Organization (WTO), Pascal Lamy, said at the WEDF’s opening plenary discussion that deterioration in some advanced economies, such as European countries, Japan and the US, might continue with recovery being unlikely for another five years.
Slowing global growth output, resulting from shrinking international demand, led the world trade governing body to cut its estimate for this year’s world trade growth to 2.5 percent from 3.7 percent, and for next year to 4.5 percent from 5.6 percent.
“What emerging countries like Indonesia and others need is to ride the new dynamics of globalization, which as you like to say, will be in the years to come, more South-South. This means increased South-South investment flows, which by the way is happening, and attempting to translate the hot money circulating in the speculative market into the real economy,” Lamy said.
Lamy also pointed out that Asia would be the highest-performing region in the world as it comprised a number of emerging economies. Trade between Asian countries, which accounts for 60 percent of the region’s total trade figures, would also contribute to more resilient trade growth, he added.