The transformation of international trade has significantly picked up pace as of late. Sanctions and protectionism (and its rather aggressive variant used by the United States) prompt states to create alternative institutions and integration alliances based on the principles of liberalism, equality and openness.
Acting together is the only way for states to withstand such a disturbance of the balance in the global trade system and satisfy their interests.
Integration initiatives emerged a long time ago and are now developing successfully: the global geopolitical space is permeated with a network of regional integration groups. The number of such groups is growing, and their trade ties are becoming deeper.
Compared to Europe, the Asia Pacific, Latin America and other regions, the post-Soviet space has far less experience of the type of integration known as “international economic integration.”
The situation is certainly changing. The founding of the Eurasian Economic Union (EAEU) and its work towards concluding free trade agreements have introduced adjustments to existing trade relations. However, since the EAEU was founded in 2015, only one full-fledged free trade agreement was signed with Vietnam.
The EAEU and MERCOSUR: Institutional Grounds for an Alliance
The agreements concluded with Vietnam, China and Iran suggest that the basis for a new stage in moving into Eastern markets has been formed.
The EAEU’s trade cooperation with MERCOSUR, the world’s third largest and third most influential trade bloc, could become a very profitable strategic alliance. The market potential of Latin American countries is tremendous, and it is unused today.
If mutually beneficial terms of cooperation are achieved, such an economic alliance could have every chance of becoming a mega-bloc and, most importantly, the embodiment of a new model that is based on best and more advanced practices.
The EAEU’s trade and economic dialogue with a Latin American partner could occupy a unique place in the structure of global economic cooperation as a whole. It would make it possible to overcome certain limitations in inter-country economic cooperation and use regional “economies of scale.”
Together with regional integration alliances, this structure could serve as the missing link in the “South–South” cooperation line and resolve the so-called “gaps” in the cooperation balance. The problem of the global economy we are now part of stems from the sharp transition from bilateral economic integration to mega projects. Countries do not have enough time to find their bearings and amend their national legislation, and this often slows down the dialogue on establishing global institutions.
The Advantages of Cooperation between the EAEU and MERCOSUR
An integration dialogue between MERCOSUR and the EAEU would allow the EAEU to solve the task posited to all its member countries, one that is similar to MERCOSUR’s own strategic goal of finding its rightful place in the so-called “sixth technological order” where leading positions will be held by countries that actively use the “ten emerging technologies”.
In this regard, the specific features of MERCOSUR, whose member countries have historically never received large-scale technology transfer (as happened, for instance, in the United States) and consequently formed a “secondary” model of innovative development that is mostly associative and fragmentary and has large areas of stagnation, are of particular interest in terms of building business ties with EAEU companies.
The advantages are mutual.
The Eurasian Economic Union started developing contacts with Latin American countries back in 2012. The first arrangements on cooperation were achieved with Chile, an associate member of MERCOSUR.
Later, the Commission signed a memorandum on cooperation with Peru, also an associate member of MERCOSUR.
In late 2018, the Eurasian Economic Commission (EEC) and MERCOSUR signed a memorandum on cooperation in trade and economy on the side-lines of the MERCOSUR summit in Montevideo (Uruguay).
Promising Areas of Cooperation
The FTZ+ trade agreement format would appear to be the most suitable institutional basis for deeper economic collaboration between the EAEU and MERCOSUR. Such an agreement would involve in-depth integration, emphasizing reduced non-tariff barriers, an improved regime for trade in services and investments, measures to increase trade, regulatory alignment and standardization, and, most importantly, identifying promising areas of cooperation and creating special conditions for individual projects
Without dwelling on such obvious contractual components as zero duties, customs cooperation, technical barriers in trade and sanitary and phytosanitary measures, etc., issues are proposed for consideration that may be debatable as far as the readiness of the parties to implement them is concerned, yet at the same time constitute particularly advantageous areas for mutual development.
Both the MERCOSUR and EAEU countries are interested in developing the following areas: marine research; bioeconomics research; renewable energy sources; etc.
Given the common interest in developing the above-stated areas, the strategic tasks of tapping the markets of MERCOSUR for EAEU businesses may be implemented by building similar institutional mechanisms.
The issue of technology transfer (TT) and innovations becomes ever more pressing, both on the bilateral level and on the level of global trade relations. With increasing frequency, this item is being put on the agenda of global forums such as the United Nations (UNCTAD), the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO).
MERCOSUR countries are also actively working in this area. Initially, the general policy on technology transfer was based on the South Korean model, with innovations introduced in major companies.
The trade aspects of e-commerce should clearly become a fundamental issue. The greatly increasing data flow in the cost and supply chain and the rapidly growing digitization of global trade that now involves millions of customers make this issue a priority.
Vectors of Collaboration between the Leading Countries in the EAEU and MERCOSUR
The research activities of individual MERCOSUR countries, for example Brazil (the organization’s economic leader), creates opportunities for implementing joint investment projects (for instance, in the mining industry).
“Joint manufacturing of machine tools in Russia is another promising cooperation project that in which Russia is greatly interested.”
However, some experts note that the positive dynamics in the export of technological solutions is very weak due to the outdated contractual framework for cooperation between countries. The present scale of the presence of EAEU companies and the pace at which joint projects in innovations are developing are linked to the low level of state support for exports, unstable partnerships that in many cases stem from the absence of a long-term legal basis, and inconsistencies between collaboration plans and programmes and real results.
Summing up, we can confidently state that the integration cooperation between the EAEU and MERCOSUR could become an example of a radically new cooperation format based on a FTZ+ trade agreement. The advantage of such cooperation will lie, among other things, in a “technological step forward compared to territorial and exclusive regionalism.”
It is apparent that the integration of integrations requires the creation of a contractual framework for the emerging trade and economic alliance. Such a framework could develop a network of promising joint projects buttressed by independent institutional platforms for each strategic area, which will create a micro-level foundation and thus boost the macro-level potential of the integration alliance.
Fitting such collaboration formats into the traditional order of the functioning of FTZs might shift the emphasis from trade liberalization to building a foundation for integration and cooperation.
A “pin-pointed” search for possible production collaborations and bilateral investment initiatives could become an effective way for pooling the parties’ efforts. The basis for deepening existing projects and launching new ones is already in place: major Russian companies are working actively in joint projects being carried out in individual Latin American countries and the Caribbean: Rostec, Rosneft, INTER RAO UES, Power Machines, KAMAZ, Russian Helicopters and VEB.
Ultimately, the performance results of such an intercontinental trade and economic project will depend on how effectively the strategic bilateral projects that are intended to ensure cooperation synergy and liberalize mutual trade are coordinated.
First published in our partner RIAC
Afreximbank Meets Ahead of Russia-Africa Summit
The African Export-Import Bank (Afreximbank) plans to hold its 26th annual meeting in Moscow on 18-22 June. A series of closed sessions will be held as part of the event including the meeting of Board of Directors of Afreximbank and a meeting of Shareholders of Afreximbank, as well as the open Russia-Africa Economic Conference.
The African Export-Import Bank, the Roscongress Foundation, the Ministry of Finance of the Russian Federation, and the Russian Export Centre are the key organizers of this event. The Afreximbank Annual Meetings is a high-level event, bringing together political and business leaders from across Africa to discuss the issues of trade, industrialization, export, and financial stability and efficacy.
Key themes planned for the economic conference are: State of Russia-Africa Relations: An Overview; Mining Industry: An Integrated Approach to the Fields Development; Prospects for Multilateralism in an Era of Protectionism; Railways Infrastructure as the Key Element for Development in Africa; South-South Trade: Path for Africa Integration into the Global Economy.
The other topics are Emerging Trends in Sovereign Reserves Management; Reflections on the Transformative Power of South-South Trade; Launch Afreximbank ETC Strategy; Cyber Solutions and Cyber Security for Solving Governmental and Municipals Tasks; Financing South-South Trade in Difficult Global Financing Conditions; The Future of South-South Trade and Infrastructure Financing.
Over 1,500 delegates are expected to attend the economic conference, including shareholders and bank partners, government representatives, members of the business community and media representatives. The conference will be a crucial stage in preparation for the full-scale Russia-Africa political summit and the accompanying economic forum, scheduled for October 2019 in Sochi.
“Russian and African countries are basically on the track of bilateral strategic partnership and alliance based on openness and trust. The fact that the Afreximbank Annual Meeting is to be held in our country gives a positive momentum for the mutually beneficial cooperation of the parties ahead of the full-scale Russia-Africa Political Summit that will take place in Sochi in October, and will add to the inclusive nature of the events,” emphasized Anton Kobyakov, Advisor to the President of Russian Federation.
Following the setup of the Organizing Committee for the Russia – Africa summit and other Russia–Africa events in Russia in 2019, Russian officials have described that this year truly as a year of Africa for Russia.
“We witness the clear growing interests from the both sides to establish the new level of relationships, which means a perfect timing to boost the economic agenda. All economic events planned for this year will become a platform to vocalize these ideas and draw a strong roadmap for the future,” Russian Export Center’s CEO, Andrei Slepnev, argued in an emailed interview with Buziness Africa.
In December 2017, Russian Export Center became a shareholder of Afreximbank. Russian Export Center is a specialized state development institution, created to provide any assistance, both financial and non-financial, for Russian exporters looking for widening their business abroad.
On March 19, the Organizing Committee on Russia-Africa held its first meeting in Moscow. President Vladimir Putin put forward the Russia-Africa initiative at the BRICS summit (Russia, Brazil, India, China, and South Africa) in Johannesburg in July 2018.
The silent revolution
Jamaica is well known for its beautiful beaches, Bob Marley, and reggae music. But what is less known is that the Caribbean island started a silent revolution after being one of the most indebted developing countries in the world. Jamaica has shown a macroeconomic turnaround that is quite extraordinary.
As Bob Marley said, “It takes a revolution to make a solution”. After decades of high debt and low growth Jamaica has changed its growth trajectory, with positive economic growth for 16 consecutive quarters and growth getting closer to two per cent.
During that period, the Jamaica Stock Exchange went up more than 380 per cent.The credit agency Fitch upgraded the island’s debt to B+ rating with a stable fiscal outlook, and unemployment hit eight per cent in January, the lowest in decades.
The Government had a wake-up call when its debt overhang peaked at almost 150 per cent of GDP in 2013. With the support of the International Monetary Fund, the World Bank and the Inter-American Development Bank, the country embarked on an ambitious reform programme. These efforts have paid off. Jamaica is now one of the few countries that has successfully cut public debt by the equivalent of half its gross domestic product in a short time frame.
The fiscal turnaround and economic transformation were possible because of the strong commitment across political parties over two competing administrations and electoral cycles. The country also critically benefited from a sustained social consensus for change and the strong backing of the private sector.
The country has generated primary fiscal surpluses of at least seven per cent of GDP for the last six years, and remains steadfast in its commitment to fiscal discipline. These fiscal results make Jamaica a top performer internationally.
For this silent revolution to continue and bring greater prosperity to all its people, Jamaica will need to further boost the investment climate, strengthen economic and climate resilience and invest more in its people to build human capital. These are necessary complements to the maintenance of a strong macroeconomic framework and would help boost economic growth and job creation. There are encouraging signs that Jamaica is taking action in these areas.
With regard to the business climate, the National Competitiveness Council has adopted a road map to fast-track reforms to improve the business environment. Jamaica features in the top 20 countries in the world for its comprehensive credit reporting systems and ranks among the best globally in the area of starting a business, according to the World Bank’s 2019 Doing Business report. It only takes two procedures and three days for an entrepreneur to start and formally operate a business.
There have been advancements on public-private partnership investments. For instance, the Norman Manley International Airport public-private partnership was recently completed with advisory support from the International Finance Corporation — the private sector arm of the World Bank Group.
Jamaica is also a front-runner among Caribbean countries in promoting climate and financial resilience in the face of natural disasters. The economic cost of these disasters for the Caribbean is substantial, exceeding US$22 billion between 1950 and 2016, compared with US$58 billion for similar disasters globally. One serious storm or natural disaster could set back the country’s growth prospects and development achievements of recent years. To tackle this, the Government has adopted a Public Financial Management Policy Framework for Natural Disaster Risk Financing to facilitate the availability of dedicated resources for recovery in the face of disaster risks.
In order to further support Jamaica in its efforts to strengthen the economy, build resilience, and support human capital development, the World Bank will expand its financing by US$140 million. This financing package will be for a series of two operations to help Jamaica be better prepared to mitigate the financial impact of natural disasters and build stronger infrastructure, and an additional project to strengthen social protection.
Despite unemployment at a new low, still too many young people are struggling to find a job. For Jamaica to continue to grow and prosper, it also needs to develop the skills for the workforce of tomorrow, especially in the areas of technology and digitalisation. This requires a sharp focus on creating the conditions for youths to strive and succeed in the modern business world and close cooperation with the private sector in this respect.
Today, more than ever before, young Jamaicans can dream of a brighter future where “every little thing is gonna be alright”. This is the generation that must aim higher and can write a new chapter for its country.
As we celebrate the 55th anniversary of the World Bank-Jamaica partnership, we look forward to working together to build on the success of the past few years and promote growth, jobs and resilience for Jamaica.
With or without sanctions, Iran needs to say goodbye to oil money
Except Norway, almost all oil producing countries have made themselves more or less reliant on oil money.
Only oil producing countries with a small population, such as Kuwait and Qatar which is also a great gas exporter, have so been safe from fluctuations in the oil market. But, countries with large population, such as Iran, are prone to volatility in the oil market, let alone the mad sanctions introduced against the country.
There is no doubt that oil money has affected politics, economy, management system, culture, spending and consumption habits and many other issues in oil rich countries.
For example, Iran now has one of the cheapest energy prices in the world. This has led to an extravagant use of energy, especially an excessive use of private car, in the country.
Let’s make an example to clarify that oil money is not the road to progress and a vibrant economy. In the 1970s, Iran was more developed than South Korea, but now South Korea is much more successful than Iran in terms of economy and technology. South Korea does not have oil, but it has provided an opportunity for a competitive economy and capitalized on its talents.
It is true that the war imposed on Iran in the 1980s hindered Iran’s progress and inflicted about 1 trillion dollar in damages on the country, yet officials failed to take serious steps toward creating a competitive economic atmosphere with a focus on research and technology. The oil money has been the main blame for such an economic approach.
According to the successive five-year development plans which end on 2021, Iran had to reduce dependence on oil to a great extent, however, successive administrations, with varying degrees, did not fully act based on the development plan.
Iran is now subject to the toughest ever illegal sanctions by the Trump administration. Just on April 22, the United States ended sanctions waivers on Iran’s exports and announced it wants to zero out Iran’s oil exports by May 1.
Whether the Trump administration succeeds or not to implement its oil threats is an issue that we should wait and see, but it is necessary that Iran take a departure from oil export how much painful it will be.
Sorena Sattari, a graduate of Sharif University of Technology who serves as vice president for scientific affairs, told a meeting in Hamedan on Tuesday that sanctions have provided an opportunity that knowledge-based companies to intensify their efforts. Sattari also said plans have been drawn up to manufacture equipment and machinery that are subject to sanctions.
Also, whether we like it or not, fossil fuels, especially crude oil, are losing their importance as renewable energy resources are gradually taking the center stage.
Saying goodbye to easily-gained oil revenues is a bitter pill that Iran should swallow. To do so, though very difficult under tough sanctions, officials need to find other sources of income.
They can invest on tourism as Iran is among the top countries in hosting touristic sites, establish an environment for a transparent competitive economy, close loopholes of corruption, involve competent persons in managerial posts, introduce a sound and workable tax system, end unnecessary subsidies, and more importantly prioritize research and development (R&D).
First published in our partner Tehran Times
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