The divergence in growth performance across the global economy was notably affected by the Covid pandemic, as China weathered the crisis notably better thus far compared to most of the developed economies. The new growth forecasts released by the IMF in July 2021 suggest that developing economies are set to grow by more than 6% in 2021 and by 5.2% in 2022 after a contraction of around 2% in 2020. This compares with a more significant decline in GDP of 4.6% in 2020 for advanced economies, which is to be followed by growth of 5.6% and 4.4% in 2021 and 2022 respectively. China’s performance is particularly impressive compared to the global average, with growth of 2.3% in 2020 set to be followed by an economic expansion of 8.1% in 2021. Nonetheless, the key question concerning the growth path of the developing economies remains open: will the developing economies be able to create South-South platforms to open up markets and boost mutual trade and investment?
A common platform for economic cooperation across the Global South opens the possibility for the world economy to lower global imbalances via creating a “no core – no periphery” mode of cooperation. It could serve to close the gaps and “blind spots” in the scale of regional economic integration in the developing world, most notably among the least-developed land-locked economies. More generally, such a platform could serve as a laboratory of “open regionalism” and new pathways in economic integration that are consistent with the UN goals of sustainable development.
Another important benefit from the creation of a common South-South economic platform is greater momentum in South-South trade and investment which in turn should reduce the dependency of the developing countries with respect to official development assistance (ODA) and other channels of financial support from advanced economies. The scope for South-South trade liberalization as well as lower barriers to investment is substantial and indeed a broad South-South platform may serve as a basis for a non-discriminatory level playing field. There would also be greater scope for building regional and trans-regional production chains of suppliers from developing countries.
Across sectors the main pathways to modernization for the developing economies reside in greater economic integration, development of human capital and digitalization. For all leading developing economies there is a tremendous scope for higher growth via reducing cross-regional inequality (the BRICS economies exhibit some of the highest levels of cross-regional inequality in the world), boosting housing development as well as more broadly the services and the consumer sectors of the economy.
Another driver for elevating growth in developing economies could be a re-direction of their investment flows away from the advanced economies towards investing more of their reserves in the Global South. In effect this course of events would lead to a reversal of the decades long Lucas paradox whereby capital flowed from the developing economies towards capital-rich advanced economies. This could prove to be particularly significant given the rising reserves accumulated by developing economies on the back of high commodity prices.
Within the economic framework of the Global South the two key drivers of global growth, namely China and India, could deliver significantly stronger growth impulses for the developing world in case they were to espouse closer economic ties. In some ways the economic cooperation between the two main economic powers of the developing world could be assessed against the backdrop of the trans-Atlantic cooperation between the US and the EU among the advanced economies. This trans-Atlantic partnership has served as the backbone for growth and innovation among the advanced economies in the preceding decades. In this respect, a closer economic partnership between India and China would redound significantly to development areas such as Eurasian connectivity, the growth in the regional partners of the two countries, greater scope for joint innovation projects and the launching of South-South platforms in the financial sector.
For Russia the Global South is a rapidly expanding market that is devoid of the restrictions faced in Western economies. Russia’s companies are only waking up to the opportunities that the Global South is offering in terms of market access and demand growth. One of the more advanced companies in this area is Softline, a Russian IT-company that is targeting greater expansion in BRICS+ markets. Earlier this year the company acquired 95% of the Indian IT company Embee Software, while in 2016 it acquired a Brazilian IT-company Compusoftware. Softline has also participated in the business meetings accompanying the BRICS summits, with company representative offices being opened in Brazil and India. More Russian companies as well as corporates from other BRICS countries are likely to accord greater importance to emerging markets in the coming years, which will serve to strengthen the micro-foundations of the integration platforms in the Global South.
From our partner RIAC