In exploring the barriers to growth in the world economy one striking feature is the difference between developed and developing economies in terms of the scale and depth of economic integration. This is not necessarily limited to the number of trade agreements concluded by advanced economies vs developing nations (see Valdai club, «On the paradox of global economic integration», 30 October 2017, valdaiclub.com), but relates to the broader qualitative challenges in the patterns of South-South cooperation. These include the lack of regional/intra-continental connectivity, low optionality in building alliances across continents as well as coordination difficulties across the numerous existing regional arrangements. While greater economic integration is the answer for developing countries seeking to boost growth, improving its qualitative features appears to be particularly promising.
Regionalism in the South-South dimension may take on multiple forms, but perhaps the most straightforward, parsimonious and simple is a coordination framework between the pan-continental agreements/organizations for each of the continents representing the developing world, namely South America, Africa and Eurasia. Such a simplified framework has the advantage of attenuating the potentially high coordination problems associated with efforts to bring together the multitude of existing RTAs formed by developing countries. Importantly, these pan-continental agreements already exist and may serve as a foundation for a trilateral alliance between the continental unions of developing economies – in the case Africa it is the African Union, in South America it is CELAC (La Comunidad de Estados Latinoamericanos y Caribeños) or UNASUR (Unión de Naciones Suramericanas), while in Eurasia the most comprehensive platform for South-South cooperation is the Shanghai Cooperation Organization (SCO).
While the SCO does not cover all of developing Eurasia, it accounts for around 60% of its territory and nearly half of world population. In terms of its stature on the global scene the SCO is perhaps the front-runner to representing what has been termed as “Greater Eurasia”. This in turn does not necessarily call for a significant expansion in SCO membership – the SCO has several forms of association, including observer and dialogue partner status. A further extension could be an “SCO+” framework that would seek to extend the remit of the organization’s coverage to the “Greater Eurasia” of the developing world. Such a SCO+ framework would need to bring together SCO countries and their partners with regional blocks in the Arab world in the West (such as the Gulf Cooperation Council (GCC) as well as with ASEAN in the East. In other words the “possibility set” for the “SCO+” framework could cover all of the developing countries of the Eurasian continent.
An cooperation mechanism represented by the developing economies of AU, SCO+ and CELAC (tentatively referred to here as the Trilateral Intercontinental Alliance (TRIA)) could form the most extensive cross-regional platform for South-South cooperation in addition to other possible platforms such as the BRICS+ platform represented by the respective regional integration arrangements of each BRICS economy (MERCOSUR for Brazil, Eurasian Economic Union for Russia, South African Customs Union (SACU) for South Africa and SCO for China and India). In fact the TRIA framework could be viewed as an extension of the BRICS+ model that is to encompass a broader range of potential partners of BRICS economies.
In effect the TRIA circle may be viewed as a logical extension of the BRICS+ platform through the principle of regional partnership and cooperation: the RTA-based composition of the BRICS+ alliance is extended to other regional partners on the basis of continental commonality and proximity. The resulting platform of cooperation encompasses the vast majority of developing economies, which opens the possibility to extend mutual cooperation to global issues such as security or North-South relations.
In the past several years important steps have already been undertaken by the developing countries in the direction of strengthening the cross-continental cooperation between the AU, CELAC/UNASUR and SCO. In particular, CELAC in its 2015 declaration called for the promotion of bilateral ties with other regional groups and particularly with the BRICS, the African Union and the League of Arab States. CELAC has also actively developed ties with China, which led to the creation of the China-CELAC Forum. As part of its regional outreach activities during the 2014 BRICS summit Brazil invited leaders of UNASUR countries, while South Africa invited the African Union to attend the 2013 BRICS summit. In 2015 Russia held a BRICS/Shanghai Cooperation Organization (SCO) Heads of State meeting in Ufa.
An intercontinental platform for cooperation between developing nations may turn out to be expedient in addressing some of the coordination difficulties in South-South cooperation. In particular it could prove to be useful in expanding the set of potential trade and investment alliances across continents – particularly as inter-continental economic treaties are becoming more prevalent. An alliance that brings together pan-continental unions of developing nations could also facilitate the formation of integration platforms among the various national and regional development banks in promoting connectivity and infrastructure development as well as between regional financing arrangements (RFAs) and sovereign wealth funds (SWFs) of the developing world.
As an aside, it is worth noting the rising importance and the share of developing countries in the total resources of RFAs and in SWFs. According to the IMF, within the Global Financial Safety Net (GFSN) “the Fund, the second largest component (after own reserves) before the crisis, has increased its share marginally and fallen behind the RFAs” (see IMF Working paper “Collaboration between the Regional Financing Arrangements and the IMF”, July 2017, p. 9). The vast majority of RFAs come from the developing world. With respect to the SWFs the role of developing nations is even more significant – according to the SWF Institute in mid-2017 the share of Gulf countries in total assets of world’s SWFs accounted for 38.8%, the share of oil and gas related SWFs in mid-2017 stood at 56.2%, while the share of Asia, Africa and the Middle East stood at more than 80% in 2015.
In the end, whatever the combination of regional blocks that are used to rebuild the global economic architecture, the edifice of the global economy is likely to become more stable via a more structured approach to regionalism. The latter is particularly important for the developing world where the lack of coordination among the largest regional blocks and alliances stands in contrast to the high degree of cooperation between the respective regional arrangements of the advanced economies. The case of the developed economies serves to show the dividends of cumulative economic integration – from intra-country to regional/RTA – level alliances leading to higher levels of economic integration within and across continents. Developing economies will need innovative approaches as well as due regard to the track-record of the advanced economies in finding their own path to a successful sequence of building regional integration platforms.