Developing economies should invest in each other

When President Jacob Zuma travelled this month with the largest business delegation to visit India it marked a new model of engagement between the government and the private sector.

In recent years, we have seen a disconnect between government and the private sector's investment decisions. As South Africa responds to the global financial crisis, and the concomitant rise of the East, our leaders have to adopt a more pragmatic political and commercial engagement with Asia's rising powers.

China, through its coalition investment strategies, has demonstrated how politics creates a fertile environment for trade and investment. India, Brazil and other emerging economies have also latched on to the concept as evidenced by the recent flurry of political-cum-business delegations to leading African countries.

With 231 business leaders accompanying Zuma, the visit represents a shift in the traditional model of engagement. South African government and business interests seem to be converging.

India and SA have had a long-standing political and economic relationship. The countries share a common colonial past, similar developmental challenges, and a famous citizen - Mahatma Gandhi. South Africa also boasts a large population of people of Indian descent.

Despite this, the economic relationship between SA and India is still nascent. During his state visit, Zuma mentioned that "it is in the economic sphere that this relationship is going to be most keenly felt, and in which it is going to have the most lasting impact".

Zuma, and nine cabinet ministers, held a private breakfast with the South African Business Forum while in Mumbai. Zuma also presided over the relaunch of the SA-India CEOs Forum.

The forum, co-chaired by mining magnate Patrice Motsepe and Tata CEO Ratan Tata, will improve business interaction.

South African businesses also provided proposals to Zuma to address with his Indian counterpart, Prime Minister Manmohan Singh. These include the establishment of a South African trade agency in India, incentivised skills transfer programmes , establishing a joint fund for financing infrastructure development projects in SA and India, and establishing an India-Africa Business Centre.

A proposal was also put forward to the Reserve Bank of India to make the rand a convertible currency, to enhance trade and investment between the two countries.

South African companies that have ventured into India have made significant inroads into the Indian economy.

SABMiller is now the second-largest brewer in India, with a market share of 34%.

FirstRand, the first African bank to be granted a licence in India, has made good progress, and its banking platform is now fully operational in India.

South African insurance giants Old Mutual, Sanlam and Hollard have all entered the Indian market, and the relationship continues to deepen. With News Café opening a store on Nelson Mandela Road in New Delhi, and Prime Circle playing to sell-out audiences in Bangalore and Mumbai, the potential for deepening this relationship remains strong.

Total bilateral trade between SA and India reached $7.5-billion in 2008-09. Both governments have set a target of $10-billion by 2012.

Where to next?

A preferential trade agreement (PTA) between the Southern Africa Customs Union (SACU) and India has been mooted for many years, but has yet to materialise. The India-Brazil-South Africa (IBSA) Trilateral has also been talking about an India-SACU-Mercosur (the Southern Common Market including Brazil) preferential trade agreement.

If the commercial relationship is to be truly leveraged, the agreement must be fast-tracked. With a consumer base of more than 1.6billion people, a PTA will redefine the trade corridor between South Asia, southern Africa and Latin America.

South African companies have not fully leveraged opportunities in infrastructure, energy, power generation and agro-processing in India. A case in point, India plans to invest $1.7-trillion in the next 10 years in infrastructure developments in SA, yet no South African construction companies have been able to penetrate the Indian market.

BASIC countries (Brazil, South Africa, India, China), IBSA countries (India, Brazil, South Africa), and BRIC economies (Brazil, Russia, India and China) have rapidly clubbed together to advance the interests of the South. This, coupled with SA's strategic positioning in the expanded G20, has resulted in government accelerating our strategic alignment with the South. This is clearly reflected in the new industrial policy action plan. However, business has not always followed suit.

South African companies are comfortable with doing business in traditional economies in the US and Western Europe, but are less comfortable with doing business in emerging economies.

The global financial crisis has shown that growth in the next 15 to 20 years will not come from traditional economies, but from these high-growth developing and frontier economies.

As South Africa's strategic positioning continues to be swayed towards our allies in the South, "SA Inc." needs to also rapidly realign its business interests.

• Verachia is an adjunct faculty member at the Gordon Institute of Business Science, University of Pretoria, and director and business division head at Frontier Advisory