Trade africa

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South-South Economic Co-operation:

The India-Brazil-South Africa Case

SOUTH AFRICAN INSTITUTE OF INTERNATIONAL AFFAIRS

Mills Soko

TRADE POLICY REPORT NO. 12


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ublihed in ay 2006 by

he outh rican ntitute o nternational air

Jan mut oue, at ampu

niverity o the itwaterrand

Johanneburg, outh rica

ox 31596, raamontein 2017

www.aiia.org.za

[email protected]

el +27 11 339-2021

ax +27 11 339-2154

SAIIA

ll right reerved. he material in thi publication may not be copied, toredor tranmitted without the permiion o the copyright holder. hort extract

may be quoted, provided the ource i ully acknowledged.

1-919969-57-8

dited and produced by cumen ublihing olution, Johanneburg

rinted by eedi itho rinter, retoria


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TABLE OF CONTENTS

ABOUT THIS rEpOrT 5

SOUTHSOUTH TrAdE 5

TrAdE AmONg IBSACOUNTrIES 7

SAandIndia 7

SAandBrazil 8

pUrpOSE OF THE prOjECT 8

mETHOd 9

SUrvEy rESULTS 10

Generalissues 11

Cross-cuttingissues 18

rECOmmENdATIONS FOr IBSACOUNTrIES 24

AppENdIx A: COmpANIES SUrvEyEd 26

AppENdIx B: gOvErNmENT ANd EmBASSyOFFICIALS INTErvIEwEd 27

AppENdIx C: pOrT ANd SHIppINg COmpANIES SUrvEyEd 27

AppENdIx d: SEA FrEIgHT CHArgES FrOm SA TO

INdIA ANd BrAzIL 27

AppENdIx E:qUESTIONNAIrE 28


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ABOUT THE AUTHOr

r oko i a reearch aociate o the outh rican ntitute o nternational

air, and a ounding director o thente (ormerly luma) Reearch and

onulting ervice.

he author wihe to expre hi gratitude to eter raper and arahar

ulkarni or their valuable comment on an earlier drat o thi report.

ABOUT THE FUNdErS

SAIIA evelopment through rade programme i unded by SIDA anduAID. n addition, reearch or thi project wa unded by the onumer

nity and rut ociety (CUTS).


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ABOUT THIS rEpOrT

hi report orm part o a collaborative reearch project entitled outhouth

trade and invetment co-operation: exploring the IBSA initiative involving

SAIIA, the entre or nternational rade, conomic and nvironment (CUTS-

CITEE), and the razilian ntitute o nternational rade egotiation (ICONE).

nitiated in ebruary 2005, it i aimed at identiying barrier to trade and invet-

ment ow among ndia, razil, and SA the IBSA countrie and fnding

way in which thee can be reduced or eliminated.

hi report comprie ix ection. ection 1 create a context or the dicu-

ion by briey highlighting the importance o expanding outhouth tradein the global economy. ection 2 review current trade and invetment rela-

tion among the IBSA countrie. ection 3 outline the purpoe o the project in

greater detail.

ection 4 et out the method ued to gather the data or thi tudy. ection

5 preent the fnding o a urvey o SA companie and policy-maker (the

quetionnaire ued during the interview appear in ppendix ). ection 6

make ome recommendation, aimed at the government and buine ectoro the three IBSA countrie, or removing remaining impediment to trade and

invetment among them.

SOUTHSOUTH TrAdE

outhouth trade ha grown teadily during the pat ew year. ccording

to the UN onerence on rade and evelopment, developing countrie now

account or 32% o global trade, and 41% o the export o developing countrie

go to other developing countrie.1

he expanion o trade among developing countrie i largely due to the

growth o the international commercial network aociated with intra-regional

preerential trade run by multinational corporation (MNCs), epecially in at

1 nited ation onerence on rade and evelopment (UNCTAD), orum on regional-im and outh-outh cooperation: he cae o ndia and ercour, 9 June 2004, Rio de

Janeiro, p 1.


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TrAdE pOLICy rEpOrT NO. 12

ia. n contrat with inter-regional trade which ha grown moderately via

mot-avoured-nation arrangement and the international regime o trade pre-

erence intra-regional liberaliation ha been a key acilitator o deeper inte-

gration among developing countrie.2

MNC have been major vehicle o economic globaliation: they make up

two-third o world trade, and a third o global trade take place among ub-

idiarie o the ame company (intra-frm). MNC have played an important

role in the globaliation o trade and fnance and the international diuion o

technology they account or 80% o world trade in technology.3

n particular, the emerging geography o international invetment in which

developing countrie uch a razil, hile, exico, SA and hina havebecome key ource o invetment outow ha brought into harp ocu the

increaing role played by MNC in driving trade between developing coun-

trie.4

t i etimated that two-third o outhouth trade take place in ia.

ignifcant intra-atin merican trade ha alo been recorded in recent year,

with intra-regional trade expanding ater than trade with countrie outide

the region in the 1990. owever, or everal reaon, rica remain the onlyregion that ha not benefted meaningully rom the growth o trade among

developing countrie, and intra-rican trade contitute le than 15% o the

region export.5

otwithtanding it gradual growth in recent year, outhouth trade

remain hampered by the dominance o orthouth trade, notably the

dependence o mot developing countrie on the indutrialied countrie. t i

alo hampered by the lack o or limited complementaritie in the production

tructure o developing countrie; many developing nation produce imilar

product, and thereore compete or acce to developed country market.

2 Ibid.

3 eld , crew, oldblatt & J erraton, Global Transormations. ambridge: olityre, 1999, p 236.

4 UNCTAD, World Investment Report 2004 The Shit Towards Services. eneva, 2004.5 ailey , xam background briefng on outh-outh trade and GSTP.


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SOUTH-SOUTH ECONOmIC CO-OpErATION: THE IBSA CASE

nhanced trade and invetment among developing countrie brought

about by reducing trade barrier ha the potential not only to generate employ-

ment and income gain, but alo to reinorce political relationhip among

countrie. t can alo enable developoing countrie to reduce their dependence

on indutrialied countrie, while advancing their indutrialiation policie.

TrAdE AmONg IBSACOUNTrIES

SA an Inia

urrent level o trade between SA and ndia are very low bilateral trade

grew by jut 1.334% over the previou decade to $700 million in 2002, jut over1% o the total trade o both countrie.6

ndia main export to SA are cotton product, pharmaceutical, rice, veg-

etable product, fnihed leather, and pice. SA export to ndia include gold,

ilver, coal, iron, teel and non-errou metal, textile, ugar, and mineral uel

and lubricant. nhanced economic relation with ndia could provide SA with

acce to aordable medicine, competitively priced motor vehicle, and heavy

indutrial equipment on the one hand, and new market or iron and teel,chemical, aluminium, and urniture on the other.7

SA and ndia have been engaged in exploratory dicuion meant to cul-

minate in the concluion o a bilateral preerential trade agreement (PTA). he

negotiation are geared toward reducing tari on 2 000 product, with prod-

uct regarded a enitive being excluded. olicy-maker and other takehold-

er hope that the propoed PTA will expand trade between the two countrie,

widen the variety o good and ervice being traded, promote invetment, and

encourage the ormation o joint venture and trategic partnerhip.

6 raper , ill and hite, uch ado about nothing eing the potential o thendia-razil-SA orum, SAIIAReport No. 46, 2004, p 6.

7 ing , SA look to eat in bid to reduce dependence on et, Financial Mail, 25 arch2005.


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SA an Bail

and it partner in the outhern rican utom nion (SACU) otwana,

eotho, amibia, and waziland igned a PTA agreement with ercour in

ecember 2004. ecribed a a ixed ari reerence (FTP) agreement, the

trade deal provide or a ector-by-ector liberaliation approach: it include

careully identifed ector, while excluding enitive product and indutrie

on the undertanding that they may be included in uture negotiation. ike

the ndiaercour agreement, the FTP ha deignated 2000 product or tari

liberaliation.

he FTP could catalye the urther growth o trade between SA and razil,which increaed by 268% ince 1994 to $660 million in 2002.8 urrently, three-

quarter oSA export to razil conit o mineral product, chemical and bae

metal. ajor mining group uch a nglo merican and BHP-Billiton have

led the invetment drive in atin merica, inveting heavily in a divere port-

olio o mining operation including copper, gold, nickel, indutrial mineral,

niobium and coal. SA import rom razil include machinery, vehicle, vehicle

component, and chemical.

THE pUrpOSE OF THE prOjECT

he project to which thi report contribure ha a threeold purpoe. irt, it

eek to contextualie current economic relationhip among the three IBSA

countrie. econd, it eek to identiy barrier that impede trade and invet-

ment ow between the IBSA countrie, and to recommend practical way in

which thee can be reduced or eliminated. t third objective i to encourage

policy-maker and the buine ector in all three countrie to work together

to tranlate the IBSA action plan into tangible reult.

8 raper et al, op. cit., p 6.


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mETHOd

hi tudy i baed on in-depth perception mapping interview conducted in

the period arch to June 2005 with repreentative o 30 SA companie (lited

in ppendix ) in the SA citie o Johanneburg, retoria, ape own, urban

and itbank. he participating companie included MNC a well a mall and

medium-ized export-oriented frm.

he ample wa choen to reect 10 ector in which the IBSA countrie

have trong export interet. hee are chemical; metal; agro-baed indu-

trie; automobile; leather and leather product; ood, pulp o wood, and

paper; mineral; capital good and electronic; oodtu; and textile.owever, interviewee oon quetioned the excluion o fnancial and inur-

ance ervice rom the lit o identifed ector. Regarded a the mot advanced

fnancial ytem in ub-aharan rica, comparable with thoe o indutrial-

ied countrie, SA fnancial ervice ector play a key role in the country

economy, and i arguably it mot competitive ector. t i well-capitalied, and

ha grown exponentially in recent year, encompaing uch ervice a com-

mercial, retail and merchant banking, mortgage lending, inurance, and invet-ment. ndeed, a thi report how later, fnancial and inurance ervice have

been among pioneering SA invetment in razil and epecially in ndia.

nd there i coniderable potential or urther invetment collaboration.

or example, according to the repreentative o anlam, one oSA inurance

giant, inurance penetration in ndia i very low compared with thoe in other

emerging country market, with 80% o the inurable population not covered.

hereore, SA had a trong interet in the incluion o fnancial ervice in the

urvey.9

or thee reaon, thi ector wa added to the lit o ector urveyed, rai-

ing their number to 11. hi wa important a, when frm expand abroad, they

invariably preer their dometic fnancial ervice provider to be directly rep-

reented in thoe market a well. hi i alo important rom a rik reduction

perpective, given the (till) negative perception in SA o the rik o doing

buine in razil and ndia.

9 nterview with a repreentative o anlam.


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10

aed on a emi-tructured, open-ended ormat, the interview were aimed

at recording the perception o indutry player o obtacle to co-operation on

trade and invetment among the IBSA countrie, and oliciting their view on

how thoe obtacle could be mitigated or removed.

fcial in the epartment o rade and ndutry (DTI) and the epart-

ment o oreign air (DFA) concerned with the IBSA initiative and SA trade

relation with razil and ndia were alo interviewed (ee ppendix ). hee

interview were aimed at clariying concern raied by the buine ector

about the difcultie they had experienced while trading with razil and ndia,

and to etablih the role the government wa had played in helping SA frm to

overcome thee problem.urthermore, general dicuion were held repreentative o one ran-

domly elected port authority and our hipping companie operating route

rom SA to razil and ndia and vice vera (ee ppendix ). hee exchange

were aimed at etablihing how thee companie were dealing with the logiti-

cal challenge preented by the growing trade among the IBSA countrie, and

to compare the reight charge levied by variou hipping companie.

ll the interview were analyed, and, in cae where clarifcation or addi-tional inormation wa needed, repondent were contacted by telephone or

e-mail. hee interview gave a qualitative depth to the tudy, and helped to

create a clearer undertanding o the challenge aced by SAbuinee in their

quet to maximie trade with and invetment in their IBSA partner.

SUrvEy rESULTS

hi ection outline the key fnding o the reearch, baed on an analyi o

the inormation provided by repondent.10

10 he term repondent(), interviewee(), and repreentative() are ued interchangeablyin thi text.


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11

geneal issues

Reasonsorexporting/importing

SA invetor and exporter have been attracted to razil by it huge and diver-

ifed market. iven it relatively liberal trade and invetment regime, razil i

een a a promiing market or SA export, and a growing ource o import.

atin merica larget regional market, razil i alo viewed a a pringboard

or erntering neighbouring market, uch a rgentina, araguay, ruguay,

hile and olombia.

SA frm have been attracted to ndia by it immene dometic market, huge

economie o cale in everal ector, low price, good management and labour,cheap manuacturing capacity, and large and rapidly growing middle cla.

Repondent mentioned labour cot, decribed a among the lowet in the

world, a a major attraction. lthough mot o thee companie want to do

buine in ndia itel, they alo ee the country a a gateway to other ian

market uch angladeh, epal, ri anka and aldive. nother key actor

in the evolution o bilateral economic tie i cultural afnity, and the hared

ue o nglih i een a an advantage. here are alo imilaritie between SAcompany law and the legilation regulating oreign companie in ndia; both

piece o legilation are baed on ritih law.

he repreentative oSABMiller tated that hi company aw ndia, together

with Ruia and hina, a a bet or the uture.11 hoe o kom, ntertoll,

and ld utual tated that their companie had partly been attracted to ndia

by it government deciion to automatically approve 100 percent o oreign

direct invetment (FDI) in ector uch a electricity generation and tranmi-

ion, contruction and maintenance o road, venture capital und and bui-

ne electronic commerce.

11 nterview with a repreentative oSABMiller.


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12

Thenatureotradeandinvestment12

SA and India

umerou SA frm have et up buinee in ndia. mong them are hoprite,

nglo merican, e eer, ere, ld utual, SA rewerie (which bought a

76% take in ndia yore rewerie, and i now the econd larget brewer in

ndia), nterpark, roup 5 (which ha a 75% take in ntertoll, the company that

built, among other thing, the oida bridge in ndia), LTA rinaker, and kom.

ld utual plc ha joined orce with the ndian frm otak ahindra

inance td (KMFL) to orm otak ahindra ie nurance. ld utual

own 26% o the company, and KMFL and it afliate 74%. he total capitali-ation o the company will be R1,500 million. ccording to the repreentative

o ld utual, thi venture bring together the complementary kill o ld

utual in developing and introducing innovative product, and the trong

ditribution capability oKMFL.13 he operation in ndia o enel, SA arm

manuacturer, have alo grown ignifcantliy over the pat ew year. ccord-

ing to the repreentative o enel, the ndian government i a very active buyer

o armament and other technologie rom enel.

14

y the end o 2004, a total o 35 ndian companie attracted by SA ophi-

ticated inratructure, fnancial ector, and conumer market had etablihed

a preence in SA, covering a divere a pectrum a computer otware, IT,

banking, automotive, and pharmaceutical. he leading invetor ha been the

ata roup, which ha already inveted R300 million in SA and plan to invet

R1,5 billion in new project over the next two year.15

12 ttempt by the author to obtain data on FDI tock and ow rom razil and ndia intoSA ince 1994 and vice vera have been unucceul. ccording to government ofcial oall three countrie, there i a paucity o reliable data in thi regard primarily becaue gov-ernment no longer monitor thee ow conitently. he central bank do collect data,

but thi i not diaggregated and can milead. ureh oel, an ofcial at the ndian ighommiion in Johanneburg, uggeted that the bet way to procure uch inormationwa to approach the multinational frm (and their ubidiarie) undertaking the invet-ment directly.

13 nterview with a repreentative o ld utual plc.

14 nterview with a repreentative o enel.15 erchant , ata take to , Financial Mail, 25 arch 2005.


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13

ther companie active in SA are ahindra, ahara omputer, r Reddy

ab, the tate ank o ndia, Ranbaxy, ipla, and etro. lthough mot o thee

companie want to do buine in SA itel, they alo ee thi country a a gate-

way to other rican market. ICICI, ndia larget retail bank, began operating

in SA in ay 2005 and will ocu on trade fnance or corporate and private

banking a well a wealth management or ndian expatriate.16

SAexports(R000s)

Count

mach

200 200 200 2003 2002

India(SAARC) 420,44 1,694,770 3,713,043 3,350,322 4,037,280

Source:DepartmentoTradeandIndustry

SAimports(R000s)

Countmach200 200 200 2003 2002

India(SAARC) 445,176 1,347,529 4,547,261 3,126,148 2,943,267

Source:DepartmentoTradeandIndustry.

SAandBrazil

MNC licening regime have ormed an integral part o trade and invetment

co-operation between SA and razil, particularly in the automotive, IT, and

chemical ector. n term o thee arrangement, MNC ell or licene their

technological or marketing advantage to oreign companie, thereby profting

indirectly rom them.

SA companie operating in razil include appi rading do rail, anco

tandard de nvetimento , ngloold, amarine nglo merican rail,

lexander orbe inancial ervice, ex rail, atacrat do rail, arham

inancial ervice, acteel nternational, NOSA, anco tandard de nveti-

mento SA, and Volcano grocience. here are opportunitie or exporting

16 ridge-avid , ndian bank get going, Business Report, 19 ay 2005.


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1

aluminium, ynthetic fbre and aorted chemical product, iron and teel, ur-

niture, and ruit and vegetable.

rucial gain could be derived rom the SACU-ercour trade relationhip17

by exploiting niche in which SA ha an advantage, rom integrating SA man-

uacturer into trong ercour ector uch a aircrat production, to intra-

indutry pecialiation in ector uch a automobile production. SACU and

ercour could alo collaborate on the development o technological capabili-

tie in machinery and equipment, and aircrat and component.18

SAexports(R000s)

Countmach200 200 200 2003 2002

Brazil-Mercosur 168,506 432,857 1,562,499 1,338,188 1,841,146


SAImports(R000s)

Count

mach

200 200 200 2003 2002

Brazil-Mercosur 718,428 1,677,467 6,413,381 5,343,984 4,918,614


Businessplans

SABMiller intend to invet about $125 million in capital project and marketing

in ndia over the next fve year. t ee thi invetment a part o it long-term

trategy or ia, and believe that, like hina over the pat decade, ndia could

become a highly deirable market over the next fve year. t plan to upgrade

and expand it brewerie, and urther develop it brand.

17 he two region concluded a PTA in ecember 2004 which provide or the liberaliationo 2000 product on a ector-by-ector bai.

18 Robert , Refections on approaching an FTAnegotiation with Mercosur: A review o key issues,SAIIATrade Policy Report No 6, ovember 2004/ot-cript 2005, p 10.


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1

anlam, another SA inurance giant, recently announced a joint venture

with the hriram roup to etablih a new lie inurance buine, hriram ie

nurance, in ndia. anlam will own 26% o the company, and hriram 74%.

ccording to the anlam repreentative, hould ndian legilation be changed

to permit oreign ownerhip, the company i keen to increae it take in the

buine.19

ight per cent o repondent tated that their companie were intereted

in expanding their operation in ndia and razil, and have conducted market

reearch in thi regard. ropective product and ervice including ruit juice,

ruit, alcoholic beverage and wine, capital equipment uch a mining machin-

ery, coal wahing technology, and economic inratructure development.ther area in which SAbuinee have identifed a potential or expand-

ing trade and invetment collaboration with razil and ndia are fnancial erv-

ice, tourim, inormation and telecommunication technology, education and

training, health, energy, mining, agro-proceing, biotechnology, flm-making

and entertainment, fherie, pace atellite, inratructure, and contruction.

hey have alo identifed a potential or providing good and ervice to newly

privatied enterprie.n the cae o ndia, there i alo an interet in adding value to the ndian

agricultural indutry by way o micro irrigation technology, and by providing

input uch a ertilier and quality eed to armer at a reaonable price. ome

frm are alo intereted in inveting in the conumer ood ector in the orm o

milk and milk product, deep ea fhing, and meat and poultry product.20

regard razil, it i believed that beneft could accrue rom integrating

SA manuacturer with trong razilian ector uch a aircrat manuacturing,

intra-indutry pecialiation in ector uch a automobile manuacturing, and

greater co-operation on technological capabilitie in machinery and equipment

a well a aircrat and component.

19 nterview with a repreentative o anlam.20 nterview with a repreentative o moya ihing.


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Investmentdecision

ow quickly an invetment deciion i made depend on the frm concerned,

and the nature o it buine ut mot repondent tated that their frm con-

idered the ollowing key actor when chooing an invetment location: the

ize o the dometic market; the dometic economic growth rate; commercial

compatibility; the nature o dometic competition; the price/exchange rate; the

independence o legal ytem; the extent o political/intitutional tability; and

the availability o economic inratructure.

ut buine actor alo play a important role in invetment deciion.

nvetor are intereted in how eay or difcult it i to tart a buine, employand dimi worker, and ecure property right; meaure governing the har-

ing o credit inormation; the legal right o borrower and lender; the extent

to which oreign invetor are protected by hte tate; the eae or difculty o

enorcing commercial contract; and the time and cot involved in dealing with

bankruptcie.

SA ha not igned bilateral invetment treatie (BIT) with razil and ndia.

(he author wa inormed that thee were currently being negotiated.) BITcan contribute ignifcantly to reauring oreign invetor and allaying rik

perception.

IBSAawareness

hen aked whether they knew what IBSA tood or and what the trilateral

orum wa all about, 20 o the 30 repondent anwered in the negative. n act,

they tated that they were more inormed and knowledgeable about other trade

entitie and trade arrangement uch a SADC and AGOA. hi undercore the

need to adequately inorm SAbuinee about IBSA viion and programme,

and to involve them in IBSA procee.

IBSAandSouth-Southtrade

eventy per cent o repondent expreed upport or the IBSA objective to

expand economic tie among razil, ndia, and SA a a mean o promoting

outhouth trade and invetment.


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1

SA companie are eager to ue multilateral a well a bilateral and regional

preerential trade agreement to explore commercial opportunitie. n the cae

o ndia and razil, repondent aid their companie wanted to ue preeren-

tial trade agreement with thee countrie not only to enter their market, but

alo to gain acce to the market o neighbouring countrie.

ThreatstoIBSA

he interview highlighted a trong perception within certain companie (epe-

cially thoe amiliar with the IBSA proce) that the IBSA initiative i primarily a

political rather than an economic project. heir executive believe that the pre-

erential trade agreement igned by SA and razil in ecember 2004 and thedicuion aimed at concluding a imilar deal between SA and ndia have

been driven by the imperative o outhouth political collaboration rather

than clear economic gain.

ome repondent were upiciou o and cynical about FTA, epecially

given the diappointment in ome buine circle with the FTA concluded

with the EU in 2000. hile acce to the EU ha improved, 38% oSA agricul-

tural export are till denied acce to the EU market.21

SA intention to conclude an FTA with hina alo loomed large during the

dicuion. a repreentative o the textile indutry tated: hina ha truck

real ear into the heart oSA buine.22 ut companie alo ear competition

rom razil and ndia in certain ector notably motor vehicle, textile, teel,

and agriculture and ood product in which thee countrie have a trong

competitive advantage. t i worth noting that SACU and ercour trade nego-

tiator have uccumbed to preure rom SA and razilian teel producer to

exclude teel product rom the FTA.

umerou repondent aked whether the IBSA government had the polit-

ical will to tranlate thi viion into reality. ut dierently, would IBSAbecome

a ucceul example o economic co-operation among developing countrie, or

wa it doomed to ail like previou outh-outh initiative?

21 ee ibb R, uropean rade olicy in rica, South Arican Journal o International Aairs,

11:2, inter/pring 2004, p 55.22 nterview with a repreentative o the ochini roup.


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1

hey alo doubted the capacity o government to implement trade agree-

ment, given the limited reource at their dipoal. hey treed that, rather

than trying to implement all the trade agreement themelve, they hould

involve the private ector.

ll thee concern are eeding a growing cepticim about trade liberali-

ation in the SA buine ector, and reinorcing the protectionit intinct o

dometic ector oppoed to trade agreement between SA on the one hand and

ndia and the ercour bloc on the other.

Coss-cuttin issues

Concerns

lthough repondent recognied the ubtantial progre made by razil and

ndia in liberaliing their trade and invetment regime during the pat decade,

they expreed rutration about the large array o barrier that till hamper

trade with thee countrie.

regard razil, tari peak and tari ecalation on fnihed SA good

were identifed a major contraint. eide impoing very high tari (orintance, on inormation technology good and motor vehicle), razil retrict

the importation o a variety o product, including machinery and clothing.

Repondent complained about the negative eect o razil non-tran-

parent and cotly cutom regime, compounded by the levying o dier-

ent charge and taxe on top o the duty-paid value. hey expreed concern

about the razilian government ue o ubidie in the orm o tax, tari,

and fnancing inducement to promote export production. hey noted that

oreign invetment wa prohibited in certain key dometic indutrie uch a

public utilitie and the media. here are alo legal retriction on the oreign

ownerhip o land.

igh level o red tape, anti-dumping regulation, high import cot, a lack

o inormation about import regulation, and a complex commercial environ-

ment emerged a additional concern. Repondent requently reerred to the

burdenome import licening ytem, which i ued to retrict the importation

o certain good uch a pharmaceutical and textile in to razil. ome inter-viewee aid they were conued by the battery o law, proviional meaure,


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1

and decree regulating razilian oreign trade, and ound it difcult to keep up

with change. hey alo reerred to problem created by the language barrier,

and what one interviewee decribed a a completely alien and dierent bui-

ne culture.

regard ndia, repondent pointed out that while that country ha

reduced tarig level, they remained among the highet in the world.23 nternal

trade had not been atiactorily liberalied. ndia continued to implement a

wide variety o trade retriction and import ban and import licencing were

widely ued. hey alo complained about ndia non-tranparent tari and

import tax tructure. ndia cutom procedure were alo criticied, with

time-conuming documentation requirement and coniderable and requentdelay being reported.

Repondent tated that ndia till ha a retrictive oreign invetment

regime, notwithtanding the act that that mot ector o the country econ-

omy are now open to oreign invetment.24 oreign frm planning to operate

in ndia ha three option: it can incorporate a company (under the ompanie

ct o 1956) through joint venture or wholly owned ubidiarie; it can orge

a trategic alliance with ndian partner; or it can et up a wholly owned ub-idiary in ector where 100% oreign invetment i permitted under the FDI

policy.25

igiving were conveyed about the tranparency o regulation and pro-

cedure regulating hareholding in dometic companie. n particular, there

were complaint about the continued maintenance o oreign equity ceiling

in ector uch a pharmaceutical and civil aviation. lo, inexible oreign

exchange control regulation were cited a one o the main problem or oreign

invetor in ndia. he repreentative o hoprite tated that it experience o

23 hi view ha been challenged by ome ndian policy-maker who have argued that ndiaha been given le credit than it deerve or implementing dratic tari reduction particularly applied tari. ee, or example, arayan , rade policy-making in ndia,paper preented at a workhop on trade policy-making in developing countrie, ondonchool o conomic, 25 ay 2005.

24 nterview with a repreentative o ekunjalo nvetment.

25 nterview with a repreentative o the outhern ndia hamber o ommerce and ndu-try.


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20

the retail upermarket in ndia hoprite ha been accued o practiing pred-

atory pricing had reinorced a perception that ndia wa generally unrecep-

tive to oreign invetment.26

Red tape and complex government regulation were identifed a problem

or oreign invetor, with one repondent blaming the problem on the rem-

nant o a tatit mentality. rbitrary behaviour by government intitution

wa rie, and numerou repondent tated that they companie elt they had

been dicriminated againt by procurement practice in the public and private

ector. ven o, ome aid they would remain in ndia depite thee problem.

the iller repreentative put it, we are there or the long haul.27

Non-taribarriers

third o repondent highlighted a range o non-tari barrier (NTB) to the

razilian and ndian market.

regard razil, NTB perit in the orm o a retrictive import licen-

ing ytem, onerou and cotly cutom procedure, high tranaction cot, the

protection o geographic indication, unuual and non-tranparent tandard,

retriction on import payment, impoition o minimum price, requent portdelay, corruption, inufcient protection o intellectual property right, and

language problem. urthermore, the razilian buine environment char-

acteried by complex et o interlocking relationhip among the government,

upplier, and competitor wa very difcult to navigate.

regard ndia, exporter expreed rutration with the cumberome

and time-conuming procedure or obtaining via. hey were alo unhappy

about the exceive ue o anti-dumping meaure; retriction impoed by

tate monopolie; arbitrary deciion on the part o government ofcial; cor-

ruption; non-tranparent tandard; the miclaifcation and inaccurate valua-

tion o good or the purpoe o duty aement; non-tranparent certifcation

requirement; port delay reulting rom inufcient and poorly treamlined

port and inland cutom pot; and the inadequate protection o intellectual

property right.

26 nterview with a repreentative o hoprite.27 nterview with a repreentative oSABMiller.


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21

ome repondent tated that tate-owned and private ndian companie

had too oten been allowed to engage in anti-competitive practice, with little

reproach or anction rom regulatory intitution. oreover, there are problem

aociated with the interprovincial movement o good, epecially the impoi-

tion o internal taxe acro tate.

Businesscosts

igh import cot including clearing and port cot, import duty, marine

tax, reight and inurance cot, excie tax, value-added tax, and commiion

emerged a a key concern or SA companie operating in razil. here were

alo cot aociated with providing ecurity, coping with inadequate bankingand inurance acilitie, and complying with the complex web o law, provi-

ional meaure, decree, and reolution that regulate razilian oreign trade.

Repondent blamed riing buine cot in ndia on high power cot,

high interet rate, defcient economic inratructure, delay in the granting

o work via or oreigner, inadequate banking and inurance acilitie, cor-

ruption, bribery o government agencie, and the dicriminatory awarding o

government contract.ogitical cot were raied a a key concern (ee ppendix or a compari-

on o ea reight cot rom SA to ndia/razil). he pokeperon or SA ort

peration (SAPO) tated that tranport cot currently contituted 14.6% oSA

gro dometic product (GDP). e believed thi fgure hould be reduced to 4%

6% in order to drive growth, promote trade, and remove wate in the upply

chain.28SAPO ha initiated a 1525 year trategy to minimie port delay; encour-

age better co-operation among hipping line, cargo owner, and marine opera-

tion; and enure that the upply chain ha adequate capacity ahead o demand.

n general, repondent treed the need or adequate inormation about

the cot o doing buine in razil and ndia. hi included inormation on

the cot o labour, inurance, market intelligence, buine travel, rental, and

tranport, a well a the requirement or tarting and cloing a buine, credit

availability, payment acilitie, productivity level, tax regime and government

tax incentive, exchange rate, and the enorcement o commercial contract.

28 nterview with a repreentative oSA ort peration (SAPO).


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22

Accesstoinormation

companie currently acquire inormation about razil and ndia rom divere

ource, including chamber o commerce, relevant government department

(notably the DTI and DFA), embaie and conulate, and the ational co-

nomic evelopment and abour ouncil (NEDLAC).

he interview underlined the need to ditinguih between the experience

o SA multinational and thoe o medium-ize companie. aining oreign

market intelligence i eaier or mot multinational companie a they have

the reource to undertake trategic and other orm o reearch. hi i not the

cae with mall and medium-ize exporter: although they ound it relativelyeay to procure baic political and economic data about razil and ndia, they

pointed out that the trategic data required or invetment or trade purpoe

wa not alway readily available.

Companyperception

wenty-three repondent viewed razilian and ndian companie in a poitive

light, and a imilar to uropean or orth merican companie. hi ae-ment wa baed on their experience o working with razilian and ndian

frm a well a on inormation obtained through word o mouth. any noted

that frm o a given country hould be aeed individually rather than a a

monolithic group.

Businessculture

orty per cent o pokeperon o SA companie active in razil noted that

they had been overwhelmed by the completely alien and dierent razilian

buine culture, compounded by the wide linguitic divide.

e daunting, but till complicated, buine cutom were reported in

ndia. here wa a general willingne, though, to mater the convention o

operating buine e in thee countrie. Repondent treed that iSA inve-

tor and exporter were to ucceed in razil, they had to immere themelve

in the buine and cultural milieu o thee countrie. n order to bridge the

cultural gap, ome companie had ent executive and ta on hort courecovering a gamut o ubject uch a buine etiquette and protocol; under-


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tanding body language; buine entertainment; git-giving; negotiating tac-

tic; and deciion-making procee.

otential invetor and exporter were advied to interact with and draw

on the experience SA frm with hitorie o running buinee in razil and

ndia. n indipenable part o conducting buine in ndia and razil wa

cultivating peronal contact with local partner/agent. t wa alo worth real-

iing that razil and ndia were ederal countrie made up tate and region,

each with it own rule and regulation.

Countryrisk

otwithtanding the generally poitive attitude o repondent toward doingbuine in razil and ndia, perception o rik abound. hree well-inormed

repondent raied quetion about the long-term tability o the razilian

economy, reerring among other thing, to it currency crii in 1999. hile

they recognied that the razilian government had made progre in reducing

it defcit, the hevel o public debt (a a percentage oGDP) wa till too high.

iven previou debt deault, repondent were intereted to ee how the ra-

zilian government would fnance public debt and whether thi would makerazil vulnerable to interet rate and exchange rate volatility. Repondent alo

reerred to the high level o crime in part o razil, and the high cot implica-

tion or buinee.

imilarly, ome elt that ndia high level o economic growth were

threatened by the country high fcal defcit, inufcient dometic capital

ormation, and defcient inratructure. ncome inequality and poverty had

implication or long-term ocial and political tability.29 he unpredictable

behaviour o ndian tate ofcial and bureaucrat alo introduced an element

o rik and ucnertainty.30

Tradeacilitationproblems

SA exporter reported an array o trade acilitation problem while trading with

razil and ndia, but mot complaint revolved around inratructure bottle-

29 nterview with a repreentative o ld utual plc.30 nterview with a repreentative o hoprite.


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neck uch a congeted road, poor railway, delay in port, documentation

problem, time-conuming cutom procedure, and inufcient co-operation

among hipping line, cargo owner, and marine operation.

rECOmmENdATIONS FOr IBSACOUNTrIES

number o recommendation or reducing or eliminating trade and invet-

ment barrier among the IBSA countrie emanate rom thi tudy. overnment

and other role player hould:

Reduce cutom dutie and abolih NTB, thu enuring a level playing feld

or oreign invetor and importer.ddre via and other problem hampering the cro-border movement o

buine people.

ncourage the ue o publicprivate partnerhip to deal with inratruc-

ture bottleneck, including the improvement o rail and ea link a well a

port capacity and operation.

ower the cot o doing buine, including cot aociated with telecom-

munication, inurance, market intelligence, buine travel, rental, andtranport, thu improving the utainability o oreign trade and participa-

tion.

rovide ufcient banking and inurance acilitie, economic inratructure,

credit and payment acilitie, and tax incentive.

nure the adequate enorcement o intellectual property right.

nvolve the buine ector in the ormulation and implementation o trade

agreement.

oter dometic competition, in order to reduce price.

acilitate trade and invetment miion o buine leader and govern-

ment ofcial among the IBSA countrie.

e diplomatic miion to promote economic co-operation among the IBSA

countrie, and organie trade air.

e the IBSA buine ouncil to acilitate interaction among buinee,

oter the creation o private-public partnerhip, expand mutual knowl-

edge, and promote the haring o experience.


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rovide potential invetor with adequate, up-to-date market intelligence

and other relevant data on which to bae invetment deciion.

ccentuate the economic value o trade agreement to the buine ector.

armonie tandard a well a trade and invetment procee among the

IBSA countrie.

acilitate interaction among potential exporter and invetor with relevant

government and private ector intitution.

norm buinee about IBSA viion and programme, and involve them

in haping IBSA procee.

eed out corruption in the public and private ector.

n concluion, the author gained the impreion that SA frm which took part

in the urvey were more poitively dipoed toward the commercial environ-

ment in ndia than in razil. actor uch a hitorical bond, cultural afnity,

and imilar legal ytem reonated trongly with ome repondent, epecially

company executive o ndian decent. hi doe not imply that SA companie

are not intereted in razil, or that relation between SA and razil are defcient;

on the contrary, their political and economic tie have trengthened conider-ably over the pat ew year. hat thi reveal i that the expoure o outh

rican to razil and it political economy and culture ha been very limited;

indeed, thi i true o atin merica in general. hi undercore the need or

the three IBSA countrie to deepen mutual undertanding and co-operation,

and improve mutual public awarene.


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2

AppENdIx A: COmpANIES SUrvEyEd

Coan Secto

SABMiller Beverages

PennyHowsonDesign Leather&leatherproducts

AngloGold Minerals

BellEquipment Capitalgoods

BHP-Billiton Minerals

Shoprite Retail

FoschiniGroup Textiles

Sappi Wood,pulp&paper

Umoya Seaood,fsh

NewClicksHoldings Retail

Sanlam FinancialServices

J&JGroup Pharmaceuticals

Umoya Seaood,fsh

MetairInvestments Metals

Altron Electronics

KairosIndustrialHoldings Capitalgoods

DeBeers Minerals

AngloPlatinum Metals

AgriLtd Agro-basedproducts

Ceres Beverages

MetairInvestments Motorvehiclecomponents&accessories

TheHouseoBusby Leather&leatherproducts

AdcockIngram Pharmaceuticals

BarryCline Textiles

Yorkcor Wood,pulp&paper

SekunjaloInvestments Pharmaceuticals

KuonaIndustries Motorvehiclecomponents&accessories

HighveldSteel Metals

OldMutual Financialservices

KWVInvestments Beverages


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2

AppENdIx B: gOvErNmENT ANd EmBASSy OFFICIALS INTEr-

vIEwEd

Nae desination deatent

NoncedoDyani director,Brazildesk TradeandIndustry

PumlaNcaphai director,India ForeignAairs

MarkRabbitts SAmarketingofcer Consulate,SaoPaolo

SCPradhan SAmarketingofcer HighCommission,Delhi

AppENdIx C: pOrT ANd SHIppINg COmpANIES SUrvEyEd

MediterraneanShippingCompany

MitsuiOSKLines

GreenArica

SAPortOperations

Samarine

AppENdIx d: SEA FrEIgHT CHArgES FrOm SATO INdIA ANd BrAzIL

Safaine: SABoba

Freshoodscargo

20-oot cargo = $3,400.00

40-oot cargo = $4,400.00

Frozenoodscargo

20-oot cargo = $3,750.00

40-oot cargo = $4,700.00

Bunkeradjustmentcosts(exchangerate,infation,ueletc)

20-oot cargo = $240.00

40-oot cargo = $480.00


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Internationalportsecuritycharge

er reight = $6.00

Safaine: SAmubai

Generalseareightcharges

20-oot cargo = $1,000.0040-oot cargo = $2,000.00unker adjutment cot = $250.00

nternational port ecurity charge = $6.00

MitsuiOSKLines:SASantos/SaoFranciscodoSul/RioGrenade/RiodeJaneiro/

Paranagua

argo

6-metre container = $1,050.00

unker adjutment cot = $115.00

12-metre container = $1,700.00unker adjutment cot = $230.00

nternational port ecurity charge

er reight = $6.00

AppENdIx E: qUESTIONNAIrE

Basic statistical infoation 2003- 200-

NumberoemployeesSales

Imports

Exports

Primaryexportdestinations

Primarysourcesoimports


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qualitatie infoation

1. hat are the countrie that you import rom/export to? (razil/ndia)

2. hy are you importing/exporting rom thee countrie? (ot, market

acce, product availability, product quality)

3. there are trade relation with razil/ndia, decribe the characteritic o

your trade? no, why?

4. hat are the countrie that your company ha inveted in or received

invetment rom? (razil/ndia)

5. there are invetment relation with razil/ndia, decribe the nature o

invetment? no, why? (or example imilar time zone, imilar buineculture, compatible fnancial ytem)

6. ow important are razil/ndia in your uture buine plan (trade/

invetment plan)? hy?

7. re you aware o invetment going to or coming rom razil and ndia?

8. re you able to take independent deciion on inveting/trading with

countrie? (nterviewer to eek inormation on operational independ-

ence)8.1 re primary deciion taken rom head ofce? re there unwritten rule

that govern your entry into countrie?

8.2 hat are the procedure/procee that ought to be ollowed beore

an invetment deciion can be made? o they frt have to ormulate a

detailed buine cae or conideration by the company board? o they

make deciion on the bai o the fnding o reearch commiioned by

the company? r are they guided by report fled by cout who had

been ent by the company to a oreign country to map out the environ-

ment; political, economic, legal, buine etc)

8.3 ow quickly can an invetment deciion be made?

9. hat are you bigget concern/problem while exporting/inveting in

razil/ndia?

9.1 ccording to you, what are the major non-tari barrier in razil/ndia?

9.2 it more expenive to conduct buine with razil/ndia (ranaction

ot, ranport ot, accounting cot due to dierence in method,normal ot)?


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9.3 o you have eay acce to inormation about thee countrie (through

hamber o ommerce, ountry nvetment/rade ek etc)?

9.4 ow doe an ndian/razilian company preent itel in comparion to a

uropean, merican company (trutworthy, time bound, proeional?

9.5 hat i your opinion on the buine culture in razil/ndia?

9.6 re bank/fnancial intitution willing to und invetment/trade with

razil/ndia compared to US/urope?

9.7 hat i your perception o country rik (legal, political, intitutional) while

conducting buine with razil/ndia?

10. you were given the reponibility o improving trade and invetment

within IBSA countrie, what meaure would you take? leae categoriea

i. ectoral

ii. eneral (acroeconomic)

11. hich do you conider bet to integrate your frm/ector/activity into the

world economy? y which negotiation will your ector/enterprie expect

to gain mot, or loe mot? (market acce/competition)

i. he WTOii. Regional greement (nitiative with neighboring, regional coun-

trie)

iii. ilateral greement with urope, US

iv. IBSA

12. re you aware o government initiative to boot economic, political and

development cooperation within IBSA countrie?

13. an the IBSA nitiative increae outh-outh trade? or example will it cre-

ate entry point to SACU and ercour? ill you beneft rom an FTA with

SACU/ercour?

(ote: he outhern rican utom nion, or SACU, i a cutom union

among SA, otwana, eotho, amibia, and waziland, while ercour

i a utom nion amon razil, rgentina, ruguay, and araguay)

14. hat are the threat to the IBSA nitiative that may reult in a lack o mean-

ingul outcome?

15. hat hould the main objective o the IBSA initiative be?

Documents

Trade africa