All eyes on the South

LAST week at least two events, including a government one, have taken place in Dhaka where the importance of financing of development agenda and South-South cooperation (SSC) during the post-2015 period were highlighted. These initiatives by Bangladesh are timely as the subject also drew the global attention recently for some practical reasons. In the coming days of the current year three important events will shape the development outlook. At the conference on Financing for Development (FfD) in July to be held in Addis Ababa, countries will discuss ways to mobilise resources to implement the huge development agenda. The second one is the adoption of Sustainable Development Goals (SDGs) by the United Nations at the 70th anniversary of the organisation in September 2015. These SDGs are the new phase of goals and targets towards fighting poverty, establishing an equitable society and reducing the dangers of climate change. SDGs will be implemented during 2016-2030 when the period of Millennium Development Goals (MDGs) (2000-2015) comes to an end. The third global forum will be the 21st session of the Conference of Parties to the United Nations Framework Convention on Climate Change in December in Paris which will attempt to achieve a legally binding and universal agreement on climate so that global warming is kept below 2°C. 

The Addis meeting, to a large extent, will define the success of the other two global commitments since this will design a comprehensive financing framework for achieving the global economic, social and environmental goals. This is crucial also because of the fact that the global economic landscape has changed over the years. Developed countries were afflicted with a global economic meltdown in 2008 which led to lower economic growth, less employment generation and slow resource mobilisation in these countries. Seven years on, countries are still struggling to recover from the crisis that shook their economies badly. Understandably, their commitment for overseas development assistance (ODA) and other support is not going to be fulfilled in the near to medium term.

This is reflected through the ODA figures. During the MDG period developed countries could not fulfill the UN target of providing 0.7 percent of their gross national income as ODA to the poor countries. Statistics from the Organisation for Economic Cooperation and Development (OECD) show that only five countries - Denmark, Luxembourg, Norway, Sweden and the UK - could meet the UN target of ODA in 2014. OECD data also show that aid to the poorest countries continues to fall. In real terms, net ODA from OECD Development Assistance Committee declined by 0.5 percent in 2014 compared to 2013. Also, in 2014 bilateral aid to least developed countries (LDCs) fell by 16 percent in real terms than the previous year.

In this backdrop attention has been shifted towards the emerging economies in the global South which have shown promises through strong economic growth during the last two decades. Though the average per capita income of the Southern countries is lower than the world per capita income, economic performance of the Southern countries through higher trade and investment has been spectacular. As a result, economic activities among themselves have also increased manifold. For example, South-South trade has increased much faster than North-South trade since 1996. The share of South-South trade in total developing country exports rose from less than 30 percent during the second half of the 1990s to almost 45 percent in 2012. Since 2008 developing countries themselves have emerged as the most important export destinations of the Southern economies. Export from LDCs to the South has increased from about 35 percent in 1995 to 58 percent in 2012. Brazil, Russia, India, China and South Africa (BRICS) are promising destinations of export and important sources of import for developing countries. Foreign Direct Investment (FDI) within the South is also growing rapidly. In 2012 South-South FDI accounted for 23 percent of total global FDI flow which was an increase from only 3 percent in 2000.

The launch of the Asian Infrastructure Investment Bank brings further hope in narrowing the finance gap of the Southern countries. Though most Southern countries suffer from poor infrastructural facilities, investment in this area through SSC has been low so far. Except for Chinese investment in Africa in areas such as natural resource extraction, finance, infrastructure, power generation and textiles, other regions have not received much investment. With the initiation of the Infrastructure Bank, countries like Bangladesh see opportunities for investment in its infrastructure, power and energy.

Increased SSC should not, however, be seen as an alternative to the commitment of developed countries. It is apprehended that with the emergence of a stronger global South, advanced countries may try to transfer their responsibility to the Southern countries and put disproportionate pressure on them to support the poor countries. On the other hand, SSC has its limitations too. It is yet to have the institutional capacity to strengthen its effectiveness. Besides, southern economies have higher tariffs compared to developed countries that limit further potentials for higher trade amongst them. They also have high non-tariff barriers that increase the cost of trade. With maturity of SSC these issues have to be addressed for further deepening of their cooperation. 

The writer is Research Director at CPD, currently a Visiting Scholar at the Earth Institute, Columbia University, New York.