Cablegate: The Ibsa Initiative: South-South Trade And

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PRETORIA 004479

SIPDIS

DEPT FOR AF/S; AF/EPS; EB/IFD; EB/TPP
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR BCUSHMAN
DEPT PASS USTR FOR PCOLEMAN

E.O. 12958: N/A
TAGS: ETRD EINV EFIN PREL SF IN BR
SUBJECT: THE IBSA INITIATIVE: SOUTH-SOUTH TRADE AND
INVESTMENT COOPERATION

REF: Pretoria 4070

1. (U) Summary. Discussing their joint research on
IBSA (India, Brazil, and South Africa) trade and
investment cooperation, three panelists from each of
the countries involved highlighted the lack of
experience, trade barriers, the cost of doing
business, and cultural differences as reasons for the
relative lack of trade and investment among the
three. Trade among IBSA countries still only
amounted to about 1% of combined trade.
Nevertheless, each of the three countries was
beginning to attract investment from the others. The
predisposition to do business in one country rather
than another appeared to be based upon comfort levels
that came from a shared colonial heritage or shared
levels of modernity. All three panelists agreed that
initial cultural and business attitudes would likely
change with experience and with time. The IBSA
initiative is a conscious effort by the three
governments to promote South-South cooperation. End
Summary.

BACKGROUND
----------

2. (U) On October 27, Business Unity South Africa
(BUSA) and the South African Institute of
International Affairs (SAIIA) hosted a panel
discussion to present the findings of a research
project entitled "South-South Trade and Investment
Cooperation: Exploring the IBSA Initiative." The
South African Institute of International Affairs
(SAIIA), the Brazilian Institute for International
Trade Negotiations (ICONE), and the Indian CUTS-
Centre for International Trade, Economics, and
Environment (CUTS-CITEE) jointly undertook the
project to explore and analyze trade and investment
between IBSA countries. Panelists included Mr.
Parashar Kulkarni (CUTS-CITEEE), Dr. Mills Soko
(SAIIA) and Mr. Mario Marconini (ICONE).

THE PERCEPTION
--------------

3. (U) According to the panelists, more than 70% of
the companies interviewed by the research project
were unaware of the existence of the IBSA
initiative. For the most part, they had not been
informed nor had they been involved in IBSA
processes. Many companies thought that politics
was the driving force behind IBSA rather than the
prospect for economic gain. Kulkarni commented
that most companies supported the idea of expanding
economic ties among the IBSA countries. However,
some feared the prospect of increased competition,
especially those in the motor vehicle, textile,
steel, and food industries. All three panelists
expressed doubts about the capacity of IBSA
governments to negotiate significant trade
agreements among themselves.

THE REALITY
-----------

4. (U) Despite differences in land mass, population,
and cultural profile, Kulkarni argued that IBSA
countries shared many of the same challenges in
overcoming poverty, pursuing economic development,
and achieving social equity. In addition, all three
were respected examples of progressive democracies in
the developing world, forming the core of the G-20 at
WTO talks in Cancun -- where they agreed to forge the
IBSA alliance. Notwithstanding, trade among the
three -- though growing for ten years -- still only
amounted to about 1% of combined trade. An array of
tariff and non-tariff barriers in India and Brazil
seemed to explain this. Other reasons, according to
Soko, were red tape, government regulations, high
transaction costs, lack of transportation links,
strict import regulations, cumbersome customs
procedures, corruption, and insufficient protection
of intellectual property rights. All three panelists
agreed that the high cost of doing business --
particularly shipping - as well as language and
cultural differences were primary factors limiting
the growth of IBSA trade.

BRAZIL
------

5. (U) Soko commented that South African investors
were attracted to Brazil because of its large,
diversified, and relatively open market. In
addition, Brazil was a potential springboard into the
rest of South America. South African companies with
a presence in Brazil included SAPPI (paper producer),
AngloAmerican (mining), Safmarine (maritime
services), Alexander Forbes Financial Services, Dex
Brasil (technology), Datacraft (information
services), Barham Financial Services, Macsteel
International (steel), NOSA (safety and health), and
Volcano Agroscience. Soko believed that possible
export opportunities for South Africa existed in
aluminium, synthetic fibers, chemicals, iron and
steel, furniture, as well as fruit and vegetables.

INDIA
-----

6. (U) Soko commented that South African investors
were attracted to India for its immense domestic
market, huge economies of scale and manufacturing
capacity, and the availability of low-cost labor as
well as high quality managers. In addition, India
was a potential gateway to other Asian markets.
South African companies with a presence in India
included Shoprite (retail grocery), AngloAmerican
(mining), De Beers (diamond marketing), Ceres (citrus
products), Old Mutual (financial), South African
Breweries, Interpark (toll road development and
operations), LTA Grinaker (engineering and
construction) and Eskom (the world's seventh largest
electric utility).

SOUTH AFRICA
------------

7. (U) Marconini commented that Brazilian investors
saw South Africa as a business hub for the rest of
sub-Saharan Africa. Brazilian manufacturers might be
attracted to South Africa to invest in machinery and
equipment, aircraft and aircraft parts, as well as
automobile plants. Indian companies saw South Africa
as a gateway to other African markets, as well as a
country with sophisticated infrastructure, a strong
financial sector, and a developed consumer market.
Thirty-five Indian companies had already established
a presence in South Africa in such diverse industries
as computer software, information technology,
banking, automotive, and pharmaceuticals.

PREDISPOSITIONS
---------------

8. (U) The panelists agreed that each country seemed
to have a predisposition to do business with a
country that did not always reciprocate. South
African firms seemed to be predisposed to doing
business in and with India because of a shared
history of British colonialism. This gave them both
legal systems based on British law and fostered a
cultural affinity between the two. Brazilian firms
seemed to be predisposed to doing business in and
with South Africa because they found the business
culture of India problematic. No assessment was made
about India's predisposition. The three panelists
agreed that these initial cultural and business
attitudes would likely change with experience and
with time.

HARTLEY

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