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RECESSION AND RECOVERY: Diamonds Are for the Poor – Part 3

IPS Correspondents*

NEW DELHI, Jan 26 2010 (IPS) - Diamonds haven’t been among the first concerns at the World Social Forum these last 10 years. But through the recession and the still tottering recovery, a new sparkle in that business is pointing the way to a brighter world that is also better in a WSF sort of way.

Eight out of 10 diamonds sold around the world are cut and polished in India, mostly around Mumbai and Surat in western India. It used to be the smaller diamonds, but it is now also the bigger ones, a carat and above. The big three markets were the U.S., Japan and then Europe.

The recession hit the business hard. Reduced buying brought lost jobs – and a spate of suicides at the extreme end of widespread distress among workers. But the business has recovered substantially through selling increasingly to Asian markets and the Middle East. About 40 percent of the 1,250 units that had to shut shop are now back in business, bringing about 100,000 skilled workers back to work.

Japan has been overtaken as the second biggest market, by guess who.

The diamond sales are only the more glittering end of a recovery where south sells to south. The recovery is less and less about a world where South has been a synonym for Poor that needs to sell to a North equated with riches. It’s hard sometimes to take note of the speed with which such assumptions are becoming passé.

South-South has stepped out of seminar rooms and the world of ideas on to the street on scale. And far more than the right things getting spoken about the better world, it’s this business away from old dominance that is correcting the imbalance of old. Economic recovery is getting powered now in deals among the relatively disempowered. To NAFTA there is now a CAFTA.

The new China-ASEAN Free Trade Area (CAFTA), which got going at the start of the year, is the largest free trade area in the world. The North American Free Trade Area (NAFTA) and the European Union are bigger in economic value, but this is just a start for CAFTA (China plus Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand, with the remaining four members of ASEAN, Burma, Cambodia, Laos and Vietnam, due to join in 2015).

The region now covers 1.9 billion people with a combined gross domestic product of six trillion dollars. “CAFTA is an important vehicle for trade-led growth and recovery in ASEAN,” says Ganeshan Wignaraja, principal economist at the Office of Regional Economic Integration at the Asian Development Bank (AsDB). “We expect trade-led recovery to grow from 3.9 percent in 2009 to 6.4 percent in 2010.”

The differences in the pattern of recovery between the developed world and the emerging economies within the developing world is stark: the biggest dip came in the developed countries, where the gross domestic product (GDP) fell two to three percent in the U.S. and France last year, and five to six percent in Japan and Germany.

China clocked a GDP decline of six to seven percent year on year at the end of 2008; in the last quarter of last year the growth was 10.7 percent. India is looking at seven percent growth this year, though these remarkable figures have come accompanied by inflation fears in India and of overheating in China. In much of the West, a fear of overheating feels now like unimaginable luxury.

CAFTA is only the more visible sign now of increased business between China and other countries from the South, and among themselves. “The impact of development actors from the South continues to grow in spite of the global financial downturn, lending increased significance to the contributions of South-South cooperation to development,” U.N. Secretary-General Ban Ki-moon said last month as the U.N. marked the sixth anniversary of its day for South-South cooperation.

South-South merchandised trade has grown since 1995, on average by 13 percent each year, reaching 2.4 trillion dollars, or 20 percent of world trade, in 2007, while the annual rate of growth in world trade was only 9.0 percent. The recession and the decline in buying power in some of the developed countries is expected to push South-South trade up at a faster pace.

Talks over a major deal between Indian telecommunications company Bharti and South African MTN fell through last year. But trade between India, Brazil and South Africa has been rising steadily, pushed along by the IBSA initiative.

And now moves are on for an alliance among regional blocs. The move to establish a preferential trade agreement between India, the five countries of the Southern African Customs Union (SACU – Botswana, Lesotho, Namibia, South Africa and Swaziland) and the four full members of South America’s Mercosur trade bloc (Argentina, Brazil, Paraguay and Uruguay) was first discussed formally at technical meetings in 2007. Last month representatives agreed a preferential trade agreement in Geneva.

“This aim reflects the new reality we are experiencing,” Brazilian Foreign Minister Celso Amorim told IPS. World opinion has already realised that the fast-growing emerging economies of the BRICS countries (Brazil, Russia, India, China and South Africa) are probably more important to the recovery of global economic activity “than many, not all, but many of the industrialised economies,” he said.

“The same is true for India, Mercosur and SACU, which are potentially a great economic area, where we can reach agreements,” he added.

New agreements are also taking place with few headlines to announce them. The Organisation of the Islamic Conference (OIC) has established a Technology Exchange Forum which will facilitate the transfer of local and domestic technologies in engineering, pharmaceuticals, medicine, agriculture, bio-technology, agro-food and energy.

These technologies are to be shared among the OIC’s 57 member states, all countries of the global South, primarily in the Islamic world.

Meanwhile Qatar has taken a lead role in promoting South-South cooperation in the oil and gas sectors, bringing together some 42 countries in Africa, Asia, the Middle East and Latin America, as well as international organisations, to share and exchange experiences in effective hydrocarbon management.

A good deal of this new South-South affair is controversial, particularly in Western media, as with Chinese investments in African countries. As Chinese Ambassador Liu Zhenmin told a U.N. meeting on the implementation of the New Partnership for Africa’s Development (NEPAD) last month, said, “In the future, China will provide further assistance and support to African countries in areas such as agriculture, education, health, medical care and clean energy.”

More controversially, he said, “We will also continue to support African countries in their conflict prevention and settlement, and peace building endeavours.”

But few doubt the new energy in business among the South; the business that existed insulated these economies from the recession to an extent, and new business is looking to further rescue, and greater protection.

*In this set of three reports, IPS correspondents look at the impact of recession by way of unemployment, the push for more people-friendly government, and moves within developing countries to reduce reliance on the industrialised world.