IndonesiaS President Susilo Bambang Yudhoyono speaks to the media as (L-R) Indias Prime Minister Manmohan Singh, Indias President Pratibha Patil, her husband Devisingh Shekhawat and Yudhoyonos wife Kristiani Yudhoyono watch during Yudhoyonos ceremonial reception at the presidential palace in New Delhi January 25, 2011. Yudhoyono is on a four-day state visit to India and will be the chief guest at Indias Republic Day celebrations on January 26. (News Today) - Indonesia and India vowed to double trade to $25 billion a year by 2015 and Indonesian President Susilo Bambang Yudhoyono signed $15 billion of investment pacts with Indian firms Tuesday, underscoring how fast-expanding ties between emerging nations are steadily reshaping the global economy.
Economists call it “South-South“ investment, and it is becoming an increasingly important growth strategy for dozens of developing economies around the world as they look beyond investment flows from the once all-powerful economies of Europe, Japan and North America.
At the same time, the biggest developing nations -- China and India -- are moving to secure energy and minerals supplies from other, resource-rich emerging countries such as Indonesia to ensure they keep their economies fully powered up.
The result: a boom in trade and investment that is already providing a buffer against the lingering impact of the 2008 financial crisis in the West -- and which could remold the way large chunks of the world do business.
Just as well, many analysts say. Globally, foreign direct investments -- investments excluding financial instruments from one country to another -- are still in a bit of a rut. The United Nations Conference on Trade and Development, or Unctad, estimates that total global FDI stood at $1.122 trillion in 2010, up only slightly from $1.114 billion the previous year. The figure is down 25% from average precrisis levels from 2005 to 2007.
The World Bank, meanwhile, estimates FDI outflows from developing nations topped $210 billion last year, up from the previous record of $207 billion in 2008. Nearly two-thirds of this investment came from Brazil, Russia, India and China-- and the majority of it went to other developing nations.
India stood out by bucking the trend: The Reserve Bank of India said Monday FDI into the country fell by 36% to $12.6 billion in the April-to-September period compared with a year earlier, due to hurdles in environmental clearances and land-acquisition and infrastructure problems. The central bank report is in line with Unctad's estimate saying India's FDI for all of 2010 fell 32% to about $24 billion.
The drop in India comes against dramatic rises in FDI in other individual Asian economies. According to U.N. estimates, Hong Kong received nearly 30% more foreign investment in 2010 from the previous year and Singapore got 122% more. China got 6% more, at $100 billion.
Among the deals and memoranda of understanding signed in New Delhi on Tuesday, Trimex Sands, part of the Trimex Group, plans to establish a titanium plant in Indonesia at an estimated cost of over $800 million, while GVK Power & Infrastructure Ltd. said it will spend $4 billion to $5 billion over the next three to four years to build airport terminals in Yogyakarta and on Bali.
Analysts said the slew of deals -- some of which were previously announced -- will also help India secure reliable access to Indonesia's ample reserves of high-grade coal to fuel its electricity-generation needs.
“The majority of the (1/8)agreements(3/8) that we signed include infrastructure development and strategic industries,“ said Gita Wirjawan, chairman of Indonesia's Investment Coordinating Board. “This will have a tremendous trickle-down effect on Indonesia's economy.“
Growing South-South business ties could ultimately benefit wealthier nations by boosting demand for their wares and services. But China's growing influence in Southeast Asia, partly through such trade, has forced the U.S. to counter by trying to strengthen diplomatic and security ties in the region.
Both Indian and Chinese firms are also increasingly engaged in Africa. FDI to Ghana doubled last year to $1.11 billion, with Chinese companies accounting for around a fifth of the projects under way. India's Bharti Airtel Ltd., meanwhile, is now a major player in cellphone markets in 16 African nations, drawn in large part by growth prospects there.
To be sure, not all of the developing world's money is being plowed back into other emerging markets. Many firms have used strong currencies to make beachheads elsewhere. Thailand's Sahaviriya Steel Industries PCL, for instance, is attempting to buy a steel plant in northeast England, while Indian conglomerate Aditya Birla Group is negotiating to acquire U.S.-based carbon black manufacturer Columbian Chemicals Co.
The biggest impact from developing-market investment flows is being felt in other developing markets, however, and these South-South investments could be a boon to Indonesia in particular, analysts say.
“Infrastructure is the main thing Indonesia lacks along with FDI investments, so this South-South spending helps kill two birds with one stone,“ says Wellian Wiranto, an economist with HSBC in Singapore.
India's investments in Indonesia began picking up in 2007, when Tata Power Co. paid $1.3 billion for 30% stakes in two large coal mines run by PT Bumi Resources in order to help guarantee coal supplies for the Indian firm's quickly expanding parent company, Tata Group. Since then there has been a flurry of investments.
Dane Chamorro, managing director for North Asia at London-based risk consultancy Control-Risks Group Ltd., predicts the trend of developing nations plowing billions of dollars into each others' economies will continue to be a significant driver of global growth even once the U.S. and Europe find their feet again.
“There now is a much greater openness to investing overseas in other developing economies than there was before,“ Mr. Chamorro says. “There's a familiarity curve at work.“
Source : kompas
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