Exploring the IBSA Initiative

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Nov 18, 2013 (3 years and 10 months ago)

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South
-
South Economic Cooperation:
Exploring the IBSA Initiative

Paranjoy Guha Thakurta,

Director, School of Convergence, on behalf of
Consumer Unity & Trust Society (CUTS)
-

International,
India


Pretoria, South Africa, June 28, 2006


Importance of South
-
South
Cooperation: IBSA Initiative


Despite growing share of world trade,
countries of the South depend on the
North


Tariffs coming down


Cooperation at the WTO


IBSA perceived as political not
economic initiative


Intra
-
IBSA trade negligible

IBSA Initiative: Challenges



BRICS: the future of the world economy


Not three countries, but three regions


South Africa as hub to Africa


Brazil as springboard to Latin America


India as gateway to SAARC/South Asia

IBSA Initiative: Challenges



Customs duties


Issuance of visas


Harmonization of standards, trade and
investment procedures


Lack of awareness


Information gaps


Logistical Hurdles


Air travel expensive


Freight costs prohibitively high


Imbalances in flow of trade


Imbalances in composition of trade


Need for bilateral customs cooperation
agreements before PTAs or FTAs


Similarities and Differences


Low levels of investment


Investment relations ad hoc


Use of tax
havens


Pharmaceuticals


Automobiles and ancillaries


Alcohol


Ethanol


Mining


Similarities and Differences



Bureaucratic procedures


Small and medium enterprises
disadvantaged


Cultural differences, language barriers


Competing economies: leather and
agricultural products


Non
-
tariff barriers


The Way Forward


Alleviation of poverty and hunger



Biotechnology


Environmental management


Information technology


Technological cooperation


the case of
aerospace

Global Aerospace Scenario…

The world over, the aerospace industry is:


A strategic asset


A generator of wealth


A driver of technological and economic
development


Important source of employment


Poised to expand by 25 % over the next
two decades


Global Aerospace Scenario...


20,000 airlines expected to be
operational by 2020


Matched only by the space industry in
terms of technological complexity


A

dynamic propeller of industrial
innovation


The US has the highest market share


Global Aerospace Scenario...


Has seen a process of rationalisation
and consolidation


This has triggered stiff global
competition among ‘first
-
tier’ players


Growing competition among ‘second
tier’ contractors has exerted pressures
on the supply chain


Global Aerospace Scenario...


Globalization of the supply chain has
allowed system integrators to develop
an extensive pool of sub
-
contractors
across the world

The Aerospace Industry...


Is divided between first tier and second
tier suppliers


First
-
tier contractors:


Are a few big companies that provide
wholly packaged systems to both
commercial and military markets


Are using cutting edge technology


Maintaining, upgrading and repairing
equipment throughout its lifespan



First tier contractors...


Are
fully
-
fledged business integrators,
marketing, selling and delivering aircraft on
a large scale


Are also system integrators, presiding over
manufacturing contracts and management
of supply chains

Second tier contractors...


Are firms in states that possess limited but
significant aerospace capabilities


Examples include:


Sweden


Canada


Australia


Brazil


India


South Africa

Second tier contractors...


Operations range from advanced system
integration to medium and low levels of
system integration


Companies operating in this segment are
required to meet strict certification
conditions

Prospects for IBSA Strategic
Cooperation


Currently very little aerospace
collaboration between IBSA countries


General agreement among
governments on the need for
cooperation

Potential for Cooperation


Three areas of cooperation can be
identified:


Expansion of aerospace supply chains,
premised on commercial opportunities
offered by the diverse aerospace
capabilities of the IBSA countries


Second, collaboration around aerospace
systems in support of strategic defence
needs

Potential for Cooperation


Third, collaboration around small and micro
satellites. Brazil and India have strong
competencies in in this sector while South
Africa has a small but reputed small and
micro satellite industry with full
-
fledged
ground support infrastructure

Developing Technological Capabilities


Sufficient scope for technical
cooperation among the IBSA countries
in aircraft and aircraft components
production


South African aerospace industry could
exploit its competitive niche areas to
integrate its manufacturers into Brazilian
and Indian aircraft production sectors

Developing Technological Capabilities


IBSA nations have the necessary
infrastructure to develop a vibrant
aerospace sector


Sufficient scope for cultivating
complementary niches

Role of Governments


G
overnments must play a central role in
developing the aerospace sector by
addressing concerns relating to:





Import

tariffs



Manufacturing

and

investment

incentives


Transaction

costs



Role of Governments


By providing subsidies for collaborative
investment and manufacturing
programmes, governments of IBSA
countries could enable local firms to
add
value to aircraft production and compete
effective with high
-
cost manufacturers
based in Europe and the US






Role of Governments


Governments can further:


Support the development of defence and
space projects by nationalization of
segments of the productive chain


Act as intermediaries between respective
national firms and foreign governments

Value Addition and Cooperation


The value
-
addition and cooperation
instruments that are likely to yield optimal
benefits inlcude:


Boosting
research & development


Encouraging shared research


Joint marketing arrangements


Facilitating technological exchanges

Challenges and Threats


Important challenges to cooperation in the
aerospace sector:


Corruption allegations against Denel made by the
Indian government; this has significant
implications for Indo
-
South African bilateral
relations


Extent of willingness and capability of the IBSA
countries to develop common collaborative areas
of interest in an already congested global aviation
market

Challenges and Threats


Both
South African and Brazilian defence
industries have been facing problems of over
-
capacity against a backdrop of declining defence
expenditure


Reductions in:


Transaction costs


Shipping costs


Delivery times


Challenges and Threats


Removing the perception in Brazil that it would
stand to gain little by cooperating with South Africa
and India in aeronautics as its own industry is
quite advanced and globally integrated


India has to change Brazil’s perception that its
aerospace markets are difficult to penetrate due to
bureaucratic hurdles


Removing doubts about the potential benefits of
transnationalization of productive chains (as
opposed to bringing world
-
class suppliers to
operate in the national markets) in creating
employment


Aerospace can provide the starting
point for a substantive economic
dialogue among the IBSA nations



Thank You