A NEW SPIRIT OF SOLIDARITY RISES IN THE SOUTH / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( RECOMMENDING READING )

A new spirit of solidarity rises in the South

By Asha-Rose Migiro

Published: December 8 2009 23:01

A significant global financial landmark is passing virtually unnoticed – obscured, perhaps, by the ongoing fallout from the economic and financial crisis in industrialised countries.

According to the United Nations Conference on Trade and Development (Unctad), foreign direct investment to emerging markets and developing countries in 2008 amounted to $730bn or about 43 per cent of global FDI receipts. If trends from the first half of 2009 continue, FDI to emerging markets and developing countries, which are sometimes referred to as “the South”, is on track to exceed direct investment in the mature markets of “the North”, according to Columbia University’s Vale Institute.

Granted, part of this reversal is due to the collapse in flows to developed markets, which were down by more than 50 per cent, year on year, in the first half of 2009.

But this trend also reflects strong fundamentals and good policies in many emerging markets and low-income countries – policies that have helped these economies weather the crisis and rebound quickly.

Moreover, emerging and developing economies are not only attracting more investment, they are also becoming big investors in their own right. According to Unctad, about a fifth or roughly $351bn of global outward investment flows during 2008 came from emerging and developing countries. This is a 50-fold nominal increase over such flows in 1990.

Emerging and developing economies invest differently. According to a recent UN estimate, 40 per cent of FDI from countries of the South goes to the highly vulnerable least-developed countries, many of which are just emerging from conflict. In countries such as the Democratic Republic of the Congo, Malawi and Lesotho, for example, about half of inward FDI comes from South Africa.

FDI creates jobs and generates incomes. It also plays a key role in stimulating trade. According to estimates from the International Monetary Fund, about 40 per cent of world exports in 2008 came from emerging and developing economies. Half of these exports went to other countries in the South.

Together, investment and trade, combined with sound governance, development aid and effective policies, have transformed several countries from aid recipients into aid donors. In less than 50 years, South Korea has evolved from a low-income country into an innovative provider of development assistance. Many Gulf states have also become substantial donors. China’s recent announcement that it will provide $10bn in new financing to Africa, while at the same time cancelling $1bn in outstanding debt, underscores its emerging leadership as a development partner.

Such “South-South co-operation” will help shape the world’s response to climate change. Many developing countries already have extensive experience in designing and using green technologies. They are sharing their insights with other countries at similar income levels.

A high-level United Nations conference held this month in Nairobi demonstrated that South-South co-operation – through aid, trade, technical assistance and investment – can play a prominent role as we work to achieve the Millennium Development Goals (MDGs). Success here rests on a recognition that eradicating poverty serves everyone’s interests. Our efforts to control this year’s H1N1 pandemic, for instance, demonstrate that we need well-functioning public health systems in every country, not just those of the North.

South-South trade and investment does not diminish the need for industrialised countries to honour their aid commitments. There are some things – such as building primary education systems and creating infrastructure – that can only be done by the public sector with public money.

Delivery on the pledges made by the Group of Eight at Gleneagles in 2005 is woefully off-track. In order to meet them, annual aid flows from industrialised countries need to rise by at least $25bn (€17bn, £15.3bn) by next year, with most of this increase devoted to Africa.

Future historians may well see the rise of South-South co-operation as one of the key developments of the early 21st century. Given its vast potential to support the rise of billions of people from poverty and achieve the MDGs, it is a change that offers us great hope.

The writer is deputy secretary-general of the United Nations

Copyright The Financial Times Limited 2009.