Magazine article African Business

The Shifting Balance of Economic Power

Magazine article African Business

The Shifting Balance of Economic Power

Article excerpt

Over the past 30 years, we have seen tremendous changes in the South that have fundamentally altered the world economy. Average real growth rates of Southern economies reached 6.4% in 2005 and are estimated at 7% for 2006--in both years over twice the growth rates of high-income countries.

The balance of economic power is shifting. In the recent global credit crunch, we have seen capital infusions provided to Western banks by investors and sovereign wealth funds from the Middle East and Asia. Capital infusions into US and European banks over the next year from the emerging world are expected to easily top the $29.6bn that the IMF lent to the emerging world during the Asian financial crisis.

With such financial power, the emerging markets can play a vital role in the global economy as well as enhance South-South cooperation and investment.

For example, total South-South investment flows shot up from $2bn in 1985 to $69.5bn in 2007, or 25% of all FDI inflows to developing countries. According to Unctad's World Investment Report, the bulk of South-South FDI is intra-regional.

In fact, for a number of least developed countries, FDI from developing countries makes up a large share of their total inward flows. More than 50% of all FDI inflows in Botswana, the DR Congo, Lesotho, Malawi and Swaziland come from South African investors.

Recent trends seem to be pointing to further expansion: in 2004, for example, about half of China's FDI went to Latin America. India, China, Malaysia and Brazil are becoming big investors in Africa. Malaysian companies are investing in South Africa, and Brazilian companies are investing in Angola and Nigeria.

China has already overtaken Britain as Africa's third-largest business partner and is fast catching up with France. This is an excellent example of what South-South partnership can achieve.

Regional trade bodies will play a very important role. Since the 1990s, South-South trade cooperation has gained momentum primarily by means of the creation of regional Free Trade Areas. However, we have a long way to go. Developing countries should strengthen regional cooperation with other developing countries as this will help accelerate industrialisation and structural change and ease integration into the global economy.


CBC has been working to enhance intra-regional trade development in Africa and recently published a report--Four Steps towards enhancing Intra-Africa Trade Development--which if implemented will save governments over $2bn in trade related costs.

We believe that trade liberalisation is not enough to achieve greater South-South cooperation. There is also a need for active regional cooperation across areas of policy that strengthen the potential for growth and structural change. …

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