US embassy cable - 05PRETORIA4479

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