JERKER CARLSSON SOUTH-SOUTH RELATIONS in a CHANGING WORLD ORDER Edited by JERKER CARLSSON

Edited by JERKER CARLSSON SOUTH-SOUTH RELATIONS IN A CHANGING WORLD ORDER Edited by JERKER CARLSSON

SCANDINAVIAN INSTITUTE OF AFRICAN STUDIES UPPSALA 1982 SEMINAR PROCEEDINGS FROM THE SCANDINAVIAN INSTITUTE OF AFRICAN STUDIES

1. Soviet Bloc, China and Africa. Eds. Sven Hamrell and C.G. Widstrand. 173 pp. Uppsala 1964. (Out-of-print) 2. Development and Adult Education in Africa. Ed. C.G. Widstrand. 97 pp. Uppsala 1975. (Out-of-print) 3. Refugee Problems in Africa. Ed. Sven Hamrell. 123 pp. Uppsala 1967. Skr. 10:-. 4. The Writer in Modern Africa. Ed. Per WZstberg. 123 pp. Uppsala 1968. Skr. IS:-. 5. African Boundary Problems. Ed. Carl Gosta Widstrand. 202 pp. Uppsala 1969. Skr. IS:-. 6. Cooperatives and Rural Development in East Africa. Ed. C.G. Widstrand. 271 pp. Uppsala 1970. (Out-of-print) 7. Reporting Africa. Ed. Olav Stokke. 223 pp. Uppsala 1971. Skr. 30:-. 8. African.Ed. Carl Gosta Widstrand. 239 pp. Uppsala 1972. Skr. 30:-. 9. Land-locked Countries of Africa. Ed. Zdenek Cervenka. 368 pp. Uppsala 1973. Skr. 40:-. 10.Multinational Firms in Africa. Ed. C.G. Widstrand. With an introduction by Samir Amin. 425 pp. Uppsala 1975. (Out-of-print) 11.African Refugees and the Law. Eds. Goran Melander and Peter

Nobel. 98 pp.-- Uppsala-- 1978. Skr. 40:-. 12.Problems of Socialist Orientation in Africa. Ed. Mai Palmberg. 243 pp. Uppsala 1978. (Out-of-print) 13.Canada, Scandinavia and Southern Africa. Eds. D. Anglin, T.Shaw and C. Widstrand. 190 pp. Uppsala 1978. Skr. 70:-. 14.South-South Relations in a Changing World Order. Ed. Jerker Carlsson. 166 pp. Uppsala 1982. Skr. 90:-.

O 1982 Nordiska afrikainstitutet ISBN 91-7106-206-8 Printed in Sweden by Bohuslaningens AB, Uddevalla 1982 CONTENT PAGE

Editorial Foreword 7

Jerker Carlsson THE EMERGENCE OF SOUTH-SOUTH RELATIONS IN A CHANGING WORLD ECONOMY

Helga Hoffmann TOWARDS AFRICA? BRAZIL AND THE SOUTH- SOUTH TRADE

Tom Forrest GEOPOLITICS IN THE SOUTH ATLANTIC: BRAZIL, NIGERIA AND AFRICA

U Joy Ogwu NIGERIA AND BRAZIL: A MODEL FOR THE EMERGING SOUTH-SOUTH RELATIONS?

Sanyaya La11 THIRD WORLD MULTINATIONALS: THE INDIAN CASE

Editorial Foreword

Since the 1970's the world economy has been characterized by a number of important changes. A new international division of labour has emerged which has created new relations between the major actors in the system. The expansion of international corporations has increased the degree of integration within the international division of labour leading to, among many things, the establishment of new relations between the nation states in the world economy. The hierarchization of the so called Third World has been one of the most significant features of this development. The emergence of the newly industrializing countries (NIC) has begun to challenge the traditional North-South contact pattern, by increasing the political and economical connections between the developing countries themselves. The observed differentiation within the Third World, itself a consequence of the ongoing restructuring of the international division of labour, have resulted in the creation of new economic and political linkages. In important areas the NIC-countries have taken over, or more correctly, are beginning to take over the traditional role of the developed countries as suppliers of industrial products and also industrial technology. Brazil and India are good examples of countries that has started to redirect their trade and capital flows according to this new pattern. The implications of this changing contact pattern, particulary its developmental effects, have not yet been subject to extensive research. In order to provide an opportunity to discuss the perspectives of this new development, the Scandinavian Institute of African Studies organized a seminar on "The Emergence of South-South Relations in a Changing World Order", which was held 17-20 May, 1981, in Kungalv, Sweden. The seminar was devoted to a discussion and identification of some of the more important problem areas involved in this area of research. On the basis of papers presented at the seminar and the ensuing discussions, the articles collected here pays particular attention to the driving forces behind the emergence of South-South relations and the developmental effects they might create. While analysing the emergence of South-South relations within the framework of a new international division of labour, Carlsson argues that as long as South-South relations take place between parties on different levels of development, it is very likely that the developmental effects arising from such a relation will be no different from the ones charac- terizing the traditional North-South contacts. Hoffman provides an empirical investigation of a particulary dynamic case of South-South trade. The development of trade between Brazil and Nigeria has been very rapid in a relatively short time. The trading pattern follows the lines suggested by the Heckscher-Ohlin theorem. It is a complementary trade where Nigerian raw materials (petroleum) is exchanged for Brazilian manufactured goods. In the article by Tom Forrest this particular South- South relation is further analysed. The political motives and implications of Brazil's increasing contacts with not only Nigeria, but also Africa in general are highlighted. Forrest identifies the major driving forces behind Brazil's increasing penetration of Nigeria. The analysis stresses the primary importance of this penetration for the Brazilian accumulation process. Nigeria's position in this expanding South-South relation is discussed by Joy Oqwu. Her analysis brings out the political considerations involved and particulary Nigeria's hesita- tion to develop the relation further. Nigeria's cautious attitude is largely influenced by certain aspects of Brazil's foreign and domestic policies, while at the same time questioning the economic benefits to be gained by Nigeria. Among the South countries actively promoting contacts with other developing countries, India occupies a prominent position. La11 discusses this external expansion by taking as his point of departure the rise of Third World multinationals. India's expansion into the South is largely dictated by specific interests of the very large Indian corporations. Internal developments in India and the economic policies designed by Indian Governments have played an important part in promoting this expansion. The external drive of Indian multinationals encompasses not only trade, but also an extensive list of consulting activities, direct investments and technology exports. La11 provides an in-depth analysis of the forms of this external penetration by analysing the structural characteristics of the Indian multinationals. Specific research on South-South relations is yet in its infancy. The articles presented in this book have tried to highlight and explore some of the central issues involved. Hopefully, they will serve the purpose of stimulating further research of a phenomena which is of great importance for the future development of the South. * Jerker Carlsson

THE EMERGENCE OF SOUTH-SOUTH RELATIONS IN A CHANGING WORLD ECONOMY

During the 1970's the world economy has experienced changes that can be expected to continue in the future and in a fundamental way change the basic structure of the international economic system. One of the most interesting aspects of this process of change is the gradual substitution of the traditional, bipolar division of the world - with its two parts, a centre and a periphery - for a new division, where the addition of a third, middle category - sometimes called semi- periphery - has been a most distinguishing feature. The emerging international system has taken a shape that best can be described as tripolar. The appearance of a semi-periphery expresses a growing hierarchization of the South. This process has accelerated during the last 10-15 years and constitutes one of the most noteworthy features of the emerging new world economy." In a parallell process to this tripartite division of the world, we can notice an increase in the political and particulary the commercial contacts between the economies in the South. Commercial contacts, established by trade and capital flows, were very modest during the traditional division of labour. The then persisting international economy was based on North-South contacts and largely excluded extensive relations within the South. However, it is yet a bit premature to state that these types of South-South relations have assumed great proportions. As yet they have generally not, but there is a clearly visible trend towards increased contacts between particular countries in the South.

* Researcher at the Department of Economic History, University of Goteborg, Sweden. The research for this article was carried out within the project "The Brazilian Penetration of the Nigerian Economy, 1970-1981". These features of the ongoing transformation of the world economy - increasing South-South relations and the hierarchization of the periphery - can not, as it will turn out, be analytically separated. An analysis of the causes behind the establishment of South-South relations must be carried out within the framework of a general analysis of the elements of the process of restructuration of the international economy. Within this perspective the purpose of this essay can be outlined as follows:

- To investigate into the causes behind the formation of a semi-periphery in the world economy.

- To investigate into the motives of the parties to engage themselves in a South-South relation. - To investigate into the dominant features of the present South-South contacts, by examining the nature of the trade and capital flows that have taken place.

As we continue with the first task - the causes behind the formation of a semi-periphery - we shall also be in the position to elaborate a little on something that can be called a theoretical perspective.

The Formation of a Semi-Periphery

The logics of a semi-periphery in the international economy contains primarily two aspects. Wallerstein has emphasized that from a political point of view it is clear that a system, which is basically unequal in nature, needs a safety valve through which pressures from below can be eased off. A middle category, like a semi-periphery, serves this purpose of a safety valve by opening up possibilities for advancement for countries in the periphery. 2) The existence of a semi-periphery must also be understood within the context of the ongoing restructuring of the international capitalist system and the resulting new international division of labour. The structural crisis of the international econom , quite evident in the 1970-S, came to exert a substantial pressure on the industrialized countries, de- manding new conditions for continued expansion of these economies. The need to safeguard a continued expansion in the core highlighted the necessity of a restructuration of the existing international economy. The need for such a reorganization became obvious for most countries in Europe and the U.S. during the 1960's, when the developed economies in qeneral entered a long period of more or less permanent crisis. The rapid economic growth experienced by most developed countries during the post-war period gradually began to lose its momentum from the mid-1960's and onwards. Although the crisis features of the 1970's are well-known to everybody, it is nevertheless necessary to present the main characteristics of this period of mounting crisis. As we examine the empirical developments of this period we shall also attempt to provide a suitable theoretical approach, which can serve as our analytical point of departure. When we study the performance and expansion of the industrialized countries in the North, it is apparent that such a study should focus on "the rate of profit, the stimulating principle of capitalist production, the fundamental premise and driving force of acc~mulation"~)Profitability, or the rate of return on capital, must be regarded as one of the most crucial determinants of capitalist production as it is the major tool by which future business trends can be depic- ted. Furthermore, the ability to accumulate capital for future investment is dependent on profitability and profit levels. This is of special relevance for companies based in the small, export dependent industrialized countries of the North. Their competitive positions are very much tied to the level of investment and the expansion of production. There are clear indications that since the mid-1960's there has been a tendency of deterioration in the rate of profit in the North. To be able to pinpoint the causes behind this tendential fall we will take as our starting point the relationship established between profit rate, capital productivity and profit share, as expressed in the identity below: 4) Y = actual production value P = total profit Z = production capacity W = wages (Y-P=W) K = total capital in fixed assets

P/K = the rate of return on capital - profit rate P/Y = share of profit in total incole - profit share Y/Z = capacity utilization Y/K = capital productivity Z/K = capacity-capital ratio

In the following we shall examine each of the components affecting the profit rate and then try to evaluate the strength of their respective impact. The pgofi&mshage changes if income distribution in a society changes. This change is immediately transmitted to the profit rate, assuming that capital productivity will remain constant. If the labour movement manages to strengthen its position at the expense of the capitalists, then it is likely that wages will take a larger share of total income available. The labour offensive affecting P/Y, can of course be combated by price increases on part of industrial capital. However, given a country closely tied to the international market, such price adjustments will immediately affect the competitiveness on the market and industries will run the risk of losing market shares. In a study by T P Hill the effects on the profit ratio of the distribution of factor incomes and the efficiency with which capital is utilized in production is analysed. Using our earlier identity P/K = P/Y X Y/K he tries to distinguish one impact from the other. Unfortunately the study does not break down capital productivity Y/K in its two sub-components - capacity utilization Y/Z and capacity-capital ratio Z/K. In Table 1 below the long-term tendency of the profit ratio is expressed by relating the 1976 level to the 1955 level. TABLE 1 Net Profits and Rates of Return in Manufacturing and Industr and Transport, 1955-1976, in 9 OECD countries. 37

Manufacturing Industry & Transport P/K P/Y Y/K P/K P/Y Y/K Canada 0.55 0.77 0.73 0.59 0.85 0.70 USA 0.90 0.98 0.91 0.68 0.85 0.80 Japan 1) 0.67 0.81 0.83 0.86 0.81 1.06 Germany 0.37 0.45 0.82 0.55 0.80 0.68 =taly2) 0.68 0.65 1.04 0.67 0.68 1.00 Sweden 0.59 0.68 0.87 0.29 0.38 0.77 U K 0.14 0.25 0.58 0.41 0.61 0.67 Australia 1) 0.72 0.85 Netherlands 0.83 0.75

Comments:

1) 1955-1975 2) 1955-1972 3) P = Net operating surplus, Y = Net value added, K = Net capital stock. P/K = Profit ratio, P/Y = Profit share, Y/K = Capital productivity. The three ratios are interrelated as follows: P/K = P/Y X Y/K Which shows that the rate of return on capital is identical with the share of the operating surplus in value added multiplied by the ratio of value added to the capital stock. To show the development of the respective ratios during this period 1955-1976, the 1976 level has been expressed as a percentage of the 1955 level.

Source: Hill, T.P.Profits and Rates of Return. OECD, Paris, 1979: 122-125, tables 6.1 - 6.4.

The high profit ratios of USA and Japan are the result of different impacts. In Japan the profit ratio reflects a high profit share, while in the USA it is caused by a very high capital productivity. Rates of return are generally lower in Europe and they have mostly followed a steady downward trend. This is particulary marked for Germany and the U.K. Declining profit ratios in Europe have been fairly well associated with falling profit shares, as wages have tended to take a larger part of value added. With regard to the category "Industry and Transport" the general picture is similar to "Manufac- turing", but the contrasts are not so pronounced between the countries. Rates of return have been tending to fall slightly in all countries, except perhaps Japan. The Hill study con- cludes that "data clearly support the view that profit shares and rates of return have fallen significantly in some countries and certain industries. Moreover, there is next to no evidence anywhere pointing in the opposite direction of increasing profitability". 5) Capital productivity consists of two components - SaEp- city utilization and t~e-ca~acity-ca~&~aratio.With regard to capacity utilization, it is sensitive to developments in the market sphere and related realization problems. There is thus a connection between effective demand and capacity utilization. The former is built up by private consumer demand and the level of investment. The level of capacity utilization exercises an influence on both parts of effective demand. In monopolistic and oligopolistic market configurations one immediate effect is the appearance of excess capacity, since that would be consistent with the higher degree of monopoly for a stationary demand function. As these companies tries to protect their market positions, excess capacity acts as a deterrent to entry as long as it allows existing companies to raise their level of output faster than pros- pective entrants could. The existence of excess capacity reduces the level of. actual investment, as production, if necessary, easily can be raised by taken into operation unused capacity. A reduction in the level of investment will tend to depress the level of profit, or its growth. This in turn means that the planned rate of investment will tend to fall back, since in the long-run it will be determined by the rate of profit rather than the cost of capital. This then means that orders to the capital goods sector will be reduced, and thus a secondary wave of cut-backs in output and investment will be initiated.6) Attempts to increase profitability in such a situation can then only be done by increasing exploitation. Such measures will lead to a fall in private consumption and this will have its repercussions on aggregate demand. Both through its effects on consumer goods producing industries and its indirect effect on industries producing means of production. 7 In Table 2 the development of capacity utilization in the manufacturing industry of some industrialized countries is shown.

TABLE 2 Capacity Utilization in the Manufacturing Industry, 1964-1973 and 1974-1979

USA Canada Federal Republic of Germany France Italy U K Japan Average

Comments : 1) Averages for each period 2) First quarter of 1979

Source: OECD. Economic Outlook, July, 1979:25 OECD. Main Economic Indicators, April, 1978:129-146 A G Frank, Crisis: In the World Economy. London, 1981a:69 K Cowling. Monopoly Capitalism. London, 1982:168, table 7.4

Although the pattern varies from country to country there is a clear trend towards lower degrees of capacity utilization. To this should be added that during the period 1966- 1974, some evidence from the USA suggest that there was a long-term deterioration in the capacity utilization in each boom. 8) Thus, sofar we can state that a fall in capacity utilization affects the level of investment as well as its growth. This, in its turn will have a negative impact on the profit rate. To this end it becomes necessary for the capitalists to increase the degree of exploitation by raising productivity of labour. The increase in the productivity of labour implies that the use value of the commodity labour power rises more rapidly than its exchange value. Expressed in terms of labour time, this means that a growing part of total labor time must serve the ends of accumulation, while a decreasing part appears as the exchange value of labour power. This process is in essence a gradual substitution of labour for capital, i.e. a continous rise in the organic composition of capital. 9 This bring us to the last component affecting the profit ratio, the ggqanic _c_ompositionof capital. This influence is transmitted, as we shall try to show, through the capacity- capital ratio. Their interaction can be established in the identity (here in its inverted form):

K/Z = Z/Y X Y/X where K/W = the organic composition of K/W capital.

If we assume that there are no changes in capacity utilization and income distribution, then it follows that an increase in the organic composition of capital will result in a decline in the capacity-capital ratio. This fall is then transfered to the profit ratio, which will decrease. If we take into consideration that it is quite likely that capacity utilization will not remain constant, but probably fall, then the decline in the capacity-capital ratio will be amplified. Another important consequence of the rising organic composition of capital is that it will imply a constant rise in the mass of profit. To obtain a surplus value from its increasing capital, it is necessary for the capitalist to employ more labour. The amount of surplus labour will increase, at a given degree of exploitation, and thereby the absolute level of profit.10) Thus, the consequences of an increase in the organic composition of capital are two: a) the profit ratio will tend to fall and b) the mass of profit will tend to rise. The capitalist then faces the difficult situation where, on the one hand, his return on total capital employed de- creases, and on the other hand, overaccumulation problems are presenting themselves. However, the effect an increasing organic composition of capital might have on the profit ratio is not altogether straight forward. There are a number of factors counteracting this impact to varying degrees. By improving labour productivity it becomes possible to increase the degree of exploitation (P/W), which can compensate for the pressure a rising organic composition of capital exercises on the rate of profit. This can be shown in the formula: 11)

Under capitalism the drive to stimulate growth in labour productivity is an indispensable feature. If the level of exploitation cannot be increased more than the rate of profit falls, then the dynamic of capitalist development is threatened. The attempts to raise labour productivity is of course closely related to, and should be examined together with the investment activity. One of the most significant features of the 70's has been the deteriorating level of investment. A particulary interesting aspect of this development is the changing investment pattern. The McCracken report notes that: "There does seems to have been a fall in the share of investment going to extensions of capacity and a corresponding increase in replacement investment". 12) Comparing the share of machinery and equipment with that of building in total private business investment in the US, Japan, West Germany, France and the U.K., we find that the average share for machinery and equipment increased from an average of 45 % in 1968 to 51 % in 1978. 13) In a study of Swedish economic growth, Bentzel shows that investments to replace worn out means of production has increased their share of gross capital formation from 40 % in 1950 to 65 % in the early 1970's.~~' Replacement of existing means of production usually means attempts towards rationalization to produce the same amount of goods at lower costs. Looking at productivity developments in some of the major industrialized countries, the table below shows clearly that growth in productivity declined during the period 1960-1975. This is borne out by qrowth rates for the last five years of the period, where the most substantial declines were experienced by France and Japan.

TABLE 3 Average Annual Growth Rate of Labour Productivity in Manufacturing Industry, 1960-1975

USA Japan FRG France Italy U. K.. 1960-1975 2.7 9.7 5.7 5.6 6.2 3.8 1970-1 975 1.8 5.4 5.4 3.4 6.0 3.1

Comments : Productivity measured as output per hour

Source: U S Department of Labour. Bureau of Labour Statistics, Bulletin No. 1958. Washington D.C., 1977. Quoted in Mandel, E, 1980:106, table 34.

According to Denison the growth of productivity began to decline in the industrialized countries particulary after 1973. The exception is the U.K, basically because growth had been non-existent there for quite sometime. However, productivity growth varied considerably between the major industrialized nations. The differential changes placed the U.S, and of course the U.K, at a competitive disadvantage with continental Europe and Japan. 15) Thus, there are indications that in spite of the definite need to increase labour productivity, the pace at which this have taken place has slackened. A most likely consequence is then that the prevailing organic composition of capital will permit a profit rate that is probably unfavourable to further accumulation. Apart from increasing labour productivity another means at the disposal of the capitalists is a fall in the price of capital goods relative to wages. If such a fall occurred it could counteract the effect an increasing capital intensity might have on the organic composition of capital. In fact, the so called "Third Technological Revolution" have contributed in a considerable way to reduce the value of fixed capital. To the extent that this kind of revolution can be continued, the negative impact of an increasing technical composition of capital on the organic composition can be softened. Finally, by transfering parts of the production process to areas of the world with lower organic compositions of capital, the tendential fall in the rate of profit can be halted. Attempts to speed up the internationalization of capital is certainly not a phenomena limited to the"'1960's and 70's. Already from the end of the 19th century the large international corporations had started to make direct investments abroad to counteract a falling profit rate at home. The magnitude of these investments contributed in a most significant way to the expansion of the capitalist system in the early 20th century. After the Second World War the internationalization process deepened. The internationalization of markets started rather immediately after the war through the creation of organizations like GATT, the Common Market and EFTA. However, it was first during the latter half of the 1960's that the internationalization of the production process started to take serious proportions. 16) A major reason for these post-war tendencies was of course the difficulties to maintain the profit rate by traditional means in the core. Measures to increase productivity through large-scale production and increasing specialization were not sufficient. By shifting production processes to countries with lower real wages, while using modern production technologies, the rate of surplus value could be maintained and even raised, thereby relieving some of the pressure on the rate of profit. Thus, through the internationalization of the production process it became possible to intensify the development of the productive forces even further. The picture of the 1970's that appears from our short empirical survey shows that this period of mounting crisis has been characterized by three main developments in the core countries.

- A change in income distribution favouring wages, i.e. a falling profit share. - Falling aggregate demand, which negatively affected capital productivity, and particulary capacity utilization.

- An increase in the organic composition of capital.

Each of these three developments have exercised an impact on the development of the rate of profit during this period. But, can any one of them be said to have had a major influence? This is a question well worth asking, since in classical marxist crisis theory a primary role has usually been assigned to the impact of a rising organic composition of capital. In Erixon's analysis of the crisis in Swedish industry he comes to the conclusion that the influence of the organic composition of capital on the profit rate cannot be regarded as superior, when compared with the profit share and capacity utilization. Instead, it works in close conjunction with the latter two to produce a fall in the rate of profit over time. 17) Paul Sweezy states in his classical "Theory of Capitalist Development" that it is not possible to show a falling tendency in the rate of profit by focusing the analysis on the organic composition of capital. The impact exercised by this single factor is only a link in a longer causational chain of influence, with its point of departure in the specific nature of the accumulation process in the capitalist economy. 18) We have sofar outlined the main features of the industrialized countries post-war economic development, and the conditions for the emergence of a semi-periphery they have created on the international scene. In our attempts to establish a theoretical framework within which the emergence of a new international division of labour should be studied, the rate of profit and its tendential fall becomes a key variable. However, it is also necessary to point out that even if the analysis focus on the rate of profit as the prime determinant to force core capital to relocate abroad, the analytical framework must be extended to incorporate developments in the periphery as well. Therefore, our approach should be extended, as Frobel et a1 points out, by regarding the international crisis as the manifestation of a secular trend towards relocation of industrial production. Thus, it is the changed pre-conditions for the expansion and accumulation of capital on the world scene that provide new possibilities for the repro- duction of capital. Consequently, it is not changed preconditions for the expansion and accumulation in the industrialized countries alone that compel companies in this area to relocate their production processes. 19) Thus, to obtain a full understanding of the causational factors involved in the development of a new international division of labour and the accompanying peripheral transformation process, we must move down accordingly from the international scene and analyse the internal situation of the periphery. The semi-periphery of today is composed of a limited number of countries. An extensive list would reveal that a change of status mainly concerned the periphery. As yet there are few signs of a core country becoming a semi-peripheral country. It is also clear that only a minority of the peripheral nations fit into the specific demands of the world economy and thereby achieve semi-peripheral status. Among the countries that so far have climbed up to the semi-periphery the most notable ones are Brazil, Argentine, Mexico and India. 20) A closer look at the semi-peripheral economies reveal that they have certain particular characteristics in common. One of the more striking features is of course the degree of industrial expansion. Compared with the traditional peripheral economic structure, there is a much more diversified industrial production, usually also marked by a high degree of technological sophistication. Not surprisingly therefore, most of the so called NIC-countries are included in the semi-periphery. This rise to the status of an industrializinq economy is ultimately linked to the objective interests of industrial capital in the core. By integrating the periphery closer into the capitalist system, the developing countries can in a more appropriate way assist in solving the economic crisis of the core. The most important function to be performed by the periphery, or more correctly, certain countries in the periphery, is to help solving one of the more pressing problems in the core: the wage-productivity squeeze facing important branches. This squeeze arise from the fact that productivity increases have not been able to compensate for the relative rigidity of the wage level in the core. 21) The semi-peripheral countries can assist in this case as their wage levels are, first of all, much lower, and secondly, much more flexible, due to a lack of institutional pressures. A possibility is then opened up for core capital. They can combine their striving to increase productivity, by large- scale production and specialization, with a chance to use less costly labour. The technological development of the productive forces enable industrial capital in the core to break down their production processes into simple, labour-intensive moments, to take advantage of cheap, less-skilled labour. In most cases this industrial expansion was built on the foundations of an earlier adopted import-substitution policy. For some of the countries, the industrial expansion was linked to an export-oriented strategy, where the reliance on foreign capital was pronounced. A second qualification criteria is the social structure of the semi-periphery. As this structure has retained most of the social characteristics of the periphery, it stands in sharp contrast with the social structure found in most core countries. There is usually a much larger, what Waller- stein has called, external property owning bourgeoisie (international capital), and a rather weak internal property owning bourgeoisie. In addition to this there is also a large group of professionals and bureaucrats, which in many cases dominates the national bourgeoisie. It is the political and economic interests of this group that largely determines the activities of the state. Cardoso suggest that this group can be said to constitute a class, because it politically controls the nationalized production apparatus, usually of significant magnitude in the semi- periphery, although it does not own the means of production in any formal sense. 22' Finally, within the proletariat it is possible to distinguish two groups; a semi-proletarianized strata and a low-paid proletarianized group. 23) Our last criteria concerns the role of the state. There is a direct and immediate interest of the state to regulate the market in order to guarantee profit margins and safeguard favourable conditions for the accumulation process. However, this should not be understood as a potential threat to the external bourgeoisie, as long as the policy of the state is not aiming towards serious limitations of the produced surplus, or perhaps more correctly, limit its availability to international capital. Given the role of the state and its importance for the accumulation process, international as well as local capital usually finds it desirable and necessary to form an alliance with the state. This triple alliance, based on a multitude of common interests, is one of the more specific features of the semi-periphery. 24) Irrespective of strategy followed by the particular country to obtain its semi-peripheral status, the strength of its position, once the new status has been achieved, rests very much on its ability to provide a solution to the accumulation needs of core capital. A most crucial aspect of the semi-peripheral economy is its international expansionism. This is largely a result of economic considerations, and as the semi-periphery must be regarded as the initiator of South-South relations, we shall examine two attempts to explain the driving forces behind this expansionism. For Marini the central problem of a semi-peripheral country is how it can defend and extend its market without destroying its advantageous wage-cost differential visavi the core. To maintain this advantage the state must hold back demands for substantial real wage increases. In this situation the state will be faced with the classical dilemma of the capitalist; on the one hand he needs low wages to mini- mize his costs, on the other hand he needs high wages to create a high level of efficient demand. This dilemma is avoided in the semi-periphery by regarding wages primarily as a cost. The demand generating function of wage payments is not primarily satisfied on the internal market, but on the external, export market. The internal market is built up by the demand from middle- and high income groups.25) A demand which is basically similar to the pattern found on the export market. This gives industrial production in the semi-periphery a special character and it also provides an important part of the explanation why the production processes usually are signified by high-technology levels. The industrial production pattern that develops is characterized by a division between the expansive production of durable consumer goods, and the not-very-expansive production of non-durable consumer goods. This division runs parallell to a division between the large corporations, usually allied with, or dominated by, foreign capital, and, on the other hand, the medium- and small-sized companies. Closely related to the industrial structure thus developed is another critical element in the semi-peripheral transformation process: the marginalization of the majority of the population. According to Marini the marginalization of the majority of the population follows from the fact that the semi-peripheral accumulation process is based on an exploitation of the labour force, to such an extent that the working class has a very limited role as consumer. This means that the expansion of the economy requires dependence on the external market for the realization of the produced surplus. To facilitate this realization, the semi-peripheral country has to assume a subimperialist role visavi the periphery to safeguard existing markets and exploring new ones. 26) Thus, the accumulation process under semi-peripheral conditions sharpens the concentration/centralization of capital and, furthermore, supports the kind of industrial production that is separated from mass consumer demand. This development leads to an increasing disproportionality between production and consumption. The semi-peripheral state can, in Marini's opinion, solve the emerging realization crisis by three measures: 1. Through different kinds of state interventionism leading to market creation. 2. Through a regressive income distribution amplifying the purchasing power of middle- and high income groups. 3. Through export of industrial goods where circulation once again is separated from distribution and the old "colonial" type of export economy emerges again in a new shape. 27)

Marini's explanation of the expansionist forces in the semi-periphery is based on the over-exploitation of labour, and the resulting underconsumption of the masses, which creates realization problems for semi-peripheral capital. An alternative explanation, using Brazil as the empirical point of departure, is provided by F. H. cardoso. 28) The internationalization of the domestic market of Brazil started already during the 1950's. In this process multinational corporations (MNC) began to be involved in industrial production for the local market. The aim of this involvement was to develop production of durable consumer goods. The industrialization model that developed is characterized by Cardoso as "restrictive industrialization". Cardoso agrees with Marini that the model will lead to a higher degree of income concentration. However, in contrast to Marini, Cardoso thinks that the internal market still is capable of absorbing the increasing production of both mass consumer goods and durable products. The accumulation process thus creates its own market. Cardoso's thesis seems to be supported by empirical evidence from Brazil. According to Tyler the real minimum salary fell substantially from 1959 to 1973. However, real average manufacturing wages seem to have increased after 1968. This increase is correlated with the general expansion experienced by the economy from the end of the 1960's. 29) Coupled with the continuing income concentration it is probably correct to assume that certain parts of the working class participates in the consumption of durable consumer goods. Cardoso also presents data that indicates the importance of the internal market for consumer durables. Between 1968- 1971 products like car radios, RV sets, vacuum cleaners and refrigerators found their demand on the internal market, only insignificant amounts of total production were in fact exported. This is further evidenced by the composition of external trade, where exports of primary products dominates, although manufactured products increase their share. 30) Considering these facts it is difficult to pose the problem of Brazil's export expansion in terms of a realization crisis facing Brazil's industry. It is unlikely that exports is the pre-condition for continued accumulation. Instead, when an export expansion nevertheless emerges it is not so much because of a limited market, but because of the need to earn foreign exchange for covering the import needs of the "restrictive industrialization", i.e. imports of raw materials, semi-processed goods, machinery and equipment. We have so far discussed the causational factors involved in the formation of the semi-periphery in the world economy. This has been justified by its important role in the establishment of South-South contacts. Even if their explanations differ, both Cardoso and Marini stresses the expansionism of the semi-peripheral countries. This expansionism leads the semi-periphery to develop, not only its traditional contacts with the core, but also its commercial contacts with the periphery. In this section we have discussed some driving forces behind the formation of a semi-periphery. New conditions for the accumulationprocess in the core and specific socio- economic developments in some parts of the periphery were the main factors involved. The structural characteristics of the semi-peripheral economy, particulary its industrialization pattern, contributed to an expansionist semi-peripheral policy, usually strongly promoted by the state. The objective need of the semi-periphery to increase its external contacts provides us with one of the most important explanations as to why South-South relations are being established. After outlining the framework within which South-South relations should be studied and understood, we shall proceed with a more detailed examination of the nature of South-South contacts as they have developed during the last 10-15 years. The Nature of South-South Contacts

Up til now we have concentrated our discussion on the role of the semi-periphery in the international economy and its motives for establishing contacts with other countries in the South. The position of the periphery and its particular interests have been largely neglected. However, as we go on to analyse in more detail the nature of a South-South relation, basically to see if it differs in any qualitative sense from the traditional north-south contacts, we will have an opportunity to examine more closely the role and interests of the periphery in the changing world order. It has become very common to regard the development of South-South relations as one of the most important means by which the periphery can speed up its development process. It is then assumed that these relations differ in quality from the North-South contacts. This position has been established very clearly in the framework of the New International Eco- nomic Order (NIEO), largely as a result of pressures from the South itself. At the 7th Special Session of the General Assembly in 1975 a resolution concerning "Development and International Economic Cooperation" was adopted. Section V1 dealt specifically with co-operation among developing countries, where it was urged that they should receive assistance in their efforts to enlarge their mutual co-operation at subregional, regional and interregional levels. 31) This resolution was the result of a call for a New Inter- national Economic Order (NIEO) that began to be formulated already in 1964 when the Group of 77 was formed within the framework of the first UN Conference on Trade and Development (UNCTAD). It was in the "Charter of Algiers" in 1967 that the Third World's formal demand for a transformation of the international structure that maintained an unequal distribution of benefits was first formulated. In 1973 this demand for a NIEO was officially endorsed by the Fourth Conference of Heads of State or Government of Non-Aligned Countries. These, and other demands of the Non- Aligned Countries, led to the formulation of the UN "Declara- tion on the Establishment of a New International Economic Order" and the "Programme of Action on the Establishment of a New International Economic Order" adopted at the Sixth Special Session in 1974. 32) At the time of the passing of these resolutions North- South relations had deteriorated to a rather low level. The 7th Special Session was viewed as a possible chance to improve the relations. The ensuing talks was characterized by strong efforts on both sides to present a manifesto that had an air of unity. What is the NIEO? The following quotation summarizes its content and meaning in a good way:

"The essence of this official demand for a new order is a call for the redistribution of the world's wealth and economic opportunities, reparations to foreign-dominated states, and restructuring of the international economic system and its institutions to guarantee that the interests of developing states are directly taken into account. The new order is to be based on the principles of equity, sovereign equality, interdependence common interests and co-operation among all states'. "l3)

An integral aspect of the NIEO is the development of collective self-reliance. The "Programme of Action on the Establishment of a New International Economic Order" envisaged measures to be taken by developing countries "to promote collective self-reliance among them and to strengthen mutually beneficial international economic co-operation with a view to bringing about accelerated development of developing countries". 34) One of the basic underlying assumptions of the concept of collective self-reliance, and the general faith in the positive results of economic cooperation among developing countries (ECDC), is that the South has a common interest based on the fact that their economies share some basic structural features. We will return to the validity of this assumption later on. South-South relations assumes two different forms: capital flows primarily in the shape of direct investments and trade contacts. It is apparent that the two forms are connected. However, for analytical reasons they should be separated. We shall examine them in turn and it is appropriate to start with the capital flows. Capital flows

Capital flows between developing countries are still in their infancy. In comparison with trade flows they are certainly smaller. But as they have started to develop in some regions, and between regions for that matter, it is nevertheless necessary to highlight their nature as much as the sofar scanty empirical evidence permits. The immediate motives for the semi-peripheral economy to involve itself in direct foreign investments have been discussed by Wells. He identifies 5 such motives for an outflow of capital from the richer economies of the South to take the shape of direct foreign investment (DFI). How- ever, it must be noted that the motives listed below are sub- ordinated to the more basic, fundamental motives emanating from the position the semi-periphery occupies in the international division of labour.

1. Exchange restrictions. Companies are forced to regard DFI as a way of accumulating foreign exchange. Certain governments, a good case is India, demand from firms wishing to import to India that they supply their own foreign exchange.

2. Anti-trust legislation in the home country necessitates external expansion as growth prospects would otherwise be dim.

3. A limited domestic market, placing definite restrictions on growth.

4. Substantial profits to be gained from applying wellknown technologies abroad, rather than diversifying at home.

5. A general risk spreading strategy. 35)

The most frequent of these more immediate motives is probably connected with the export needs of companies located in the semi-periphery. This is so as import controls are verv common among the recipient countries. By establishing subsidiary companies it becomes possible to enter a market that otherwise would be protected. Eventually this entry might later on have an important effect upon trade. Few semi-peripheral companies establish subsidiaries to take advantage of low wages, for export back to the home country. In general they have low wage costs at home and they are probably also sufficiently protected behind tariff walls. Many companies motivate their external expansion by the need for raw materials. Wells mentions DFI's by the Philip- pices and Korea in forest projects in Indonesia. Similar activities are undertaken by the Indian's as they lack strategic resources as petroleum, kadmium, antimon, nickel, tin and lithium. Brazil's interest in Nigeria is largely dictated by its need for petroleum. 36) To what has been said so far it should be added that some firms sometimes have a special asset, usually a "firm specific adaptation of foreign technology to relatively small- scale of operation". 37) However, the adaptation of technology developed in the core is not always important. Some companies have been quite succesful in developing products and production technologies adapted to their own specific markets. 38) Even if the motives for expansion are strong, there are nevertheless some important barriers to increasing DFI between countries in the South. A prohibitive factor, related to the frequent problem of foreign exchange shortages, has been the various attempts to regulate the financial flows from foreign corporations. The emergence of such financial regulations were of course derived from, for example, the experience of most peripheral countries of DFI by core companies. These regulations successfully creates barriers for South-South DFI, and the problem will not be solved unless discriminating regulations are introduced to deal with the fact that some countries, in for example Latin America, has become both home and host countries for DFI. 39) Apart from this kind of legal barriers we also have economic barriers of some magnitude. O'Brien suggests that barriers to entry may be stronger in industries where WC's located in the core have moved in first and where the nature of the specific project requires a large initial investment. Furthermore, semi-peripheral companies will probably find themselves restricted to a limited number of sectors, unless these corporations operates on technological levels close to those of core TNC's, and develop an organizational structure similar to core TNC's. 40) One cannot exclude other types of barriers, like for example, geo-political considerations and the prohibiting effects of internal political strategies. A special effect is also created by the "structural grip" of the Western world in the South, which creates a specific type of barrier to the establishment and growth of semi-peripheral DFI. An important factor that need to be taken into account when discussing barriers to South-South DFI is the relationship between core country firms (CCF), usually TNC's and semi- peripheral country firms (SPCF). According to some authors this relationship is not characterized by antagonism, but rather peaceful coexistence. A coexistence based on their different areas of interest, as the logics of their operations derive from different sets of preconditions. Without going into any deeper discussion about the nature of this relatioship, it can be of some interest to relate some of the main arguments of the thesis of peaceful coexistence. The internationalization of SPCF can, according to L T Wells, be understood as one stage in the product-life cycle. CCF are prone to make their DFI in branches characterized by an oligopolistic situation. If competition is based on technological know-how and marketing skills, price competition can be avoided. This is generally desirable as price consciousness is not a critical factor for the success of CCF.~') This leaves a niche for SPCF. According to the product- life cycle theory, the technological advantage of CCF dis- appears after awhile on certain markets. Local firms can now supply the same products cheaper. As technological knowledge becomes public property the competitive advantage of CCF comes to rest with its marketing skills, for example the use of brand names. The competitive edge can of course also be maintained by economies of scale. If none of the competitive advantages available to CCF works, it creates new products and moves on to new markets. Consequently, SPCF accomodates itself very well in industries where cost competition is crucial, where economies of scale are of less importance and where mature technologies can be found. Certain consumer goods, like soap and washing powder, are characterized by a market situation where price competition is common, as the production technology is to be regarded as public property. It is Wells opinion that the competitive advantage of SPCF rest with their ability to adapt large-scale technologies to production at home. This ability to produce for small markets is the exportable product. This advantage can only be exploited if price competition is possible. The small- scale technology employed usually results in labour-intensive production, and the competitive advantage can be maintained if the general wage level is low. How come then that CCF deserts these markets? Obviously they consider profitability on the oliqopolistic market to be higher. Technological as well as market innovations therefore aims to a preservation of this oligopoly. Wells mentions another reason why SPCF has a competitive advantage. If the market is small, or if the possible market share is small, the CCF will be less interested. The operations of the SPCF on the other hand is adapted to small markets. We stated before that when a peripheral country begins to exhibit the structural characteristics of a semi-peripheral economy, it also starts to develop its trade as well as financial relations with other countries in the South. To quantify these relations, and we will now confine ourselves to flows of direct investments, there are certain statistical problems involved. For the countries concerned, national and international statistics have usually recorded inflows rather than outflows of capital. Furthermore, data on DFI gives no information on who finally controls an investment. Even if we made use of the existing data we would probably find that in most cases the flow was rather small and could not tell us very much about the strength in the outward directed expansion. According to Diaz-Alejandro this is so because of two reasons, companies are particulary cautious the first time they make a DFI and the exchange control authorities encourages such cautiousness. 42 The consequences of these remarks is that the lack of comprehensive empirical material forces us to continue with a more qualitative analysis of intra-South DFI flows. When we examine different cases of South-South DFI it becomes clear that investment flows usually goes from the bigger and richer countries of the South to the small and poorer. It is therefore not surprising to see that the main source countries are India, Mexico, Argentin?, Brazil, Taiwan, Singapore and Hong Kong. In our case we shall take a closer look at the Latin American and Indian examples. In Latin America between 1930 and 1960 exchange controls and inner-directed economic policies, for example the import- substitution-based industrialization strategy, largely pre- vented an outflow of capital in the shape of DFI. As these policies gradually lost their riqour in the early 1960'~~ particulary in the larger Latin American countries, DFI's began to appear. The formulation of export promotion policies marked a change in the prevailing policy tradition and such shifts in policy orientation usually preceded an outflow of DFI. These flows were primarily intra-regional and the geographical pattern this created had two main characteristics.43) First, the major part of the investment flows went from advanced Latin American countries to less-advanced ones Secondly, the flows were confined to certain "spheres of influence". Brazilian DFI flowed preferably to, for example, Paraguay instead of Honduras, while Mexican DFI went to Honduras rather than Paraguay. 44) In the end of 1978 intra-regional flows from 9 Latin American countries amounted to $274 million. The main recipients were Argentine, Brazil, Columbia and Ecuador. Main source contries were Brazil, Argentine and Columbia. However, the flow of intra-regional investments are still only a minor fraction of total DFI. O'Brien estimates them to be around 1 % in the end of the 1970's. Investors are public sector corporations, large domestic enterprises with a strong market position at home, TNC affiliates and medium- sized local companies. 45) The most preferred organizational form for semi-peripheral DFI is the joint venture. The joint venture is quite convenient if the home country has strict exchange controls. If the direct investing company is forbidden to export capital other than in the form of machinery, the local partner can provide buildings and other types of equipment needed on the spot. 46) Another justification for joint ventures is the political conditions for DFI. Conditions that the investing company probably is well aware of. Finally, a semi-peripheral company does not feel the necessity to integrate its subsidiaries into the general strategy of the mother company as is usually the case with TNC's. Once the subsidiary company has been created it is left very much on its own. This is of course a good argument for the joint venture organization. A tendency towards joint ventures has been visible in Latin America. Apart from the general arguments mentioned above, a more specific motive for this kind of arrangement has been the drive for commercial and industrial integration in the region. The Latin American Free Trade Association (LAFTA) had the ambition to stimulate intraregional trade. The apparent failure of this policy motivated a renewed interest for Latin American joint ventures. Commercial integration is now being linked with intra-regional DFI. Measures to stimulate intra-regional investments had been designed already in the Andean Pact in 1971 when Andean companies were given the same benefits as most-favoured companies. Such companies must, however, be tightly linked to regional development plans in different sectors. 47) In 1975 a new organization was created to facilitate the establishment of joint Latin American corporations - the Latin American Economic System (SELA). There are certain indications that horizontal Latin American DFI involves joint ventures rather than wholly-owned subsidiaries ta a much higher degree than DFI from the industrialized countries. It is usually middle-sized companies that are responsible for the majority of horizontal investments. Diaz-Alejandro suggests as an explanation that these companies are quite active in accepting and adapting technology to peripheral conditions. Most of the private Latin American DFI in the region has been in high engineering sectors - automobile parts, tools and durables - areas where the middle-sized companies have been active for a long time. 48) There is a growing capability in Latin America to provide a full range of technical skills and equipment. Between 1973-1977 about 10 % of Argentinian manufactured exports were turn-key projects. This was usually contracts concluded with other Latin American countries. Turn-key seldom means that the seller operates alone. He is usually complemented by consulting firms, trading companies, finance and insurance groups. In large corporations these functions tends to be internalized. In Latin America most of the large, often public, companies have connected consulting firms to their production units, for example PEMEX, Petrobras and Companhia Vale do Rio Doce. 49) The public sector usually accounts for a large part of total capital formation in Latin America. Usually over 50 % in the bigger countries. A typical feature of these countries is their motive for going abroad. A DFI is often motivated by the need to safeguard the supply of goods for which the home country is a net importer. If vertical DFI were unusual for private Latin American companies, they are the more common for the public corporations. A public TNC-model like Petrobras or Braspetro would mean that they first try to establish control over raw material supplies. In a second step they will integrate forward to protect the market and to obtain the technological knowledge needed for the processing to finished goods. This kind of fully integrated projects in basic industries like steel and aluminium can probably be expected to grow fast as more and more countries in the South starts to develop their industry by emphasizing heavy industry in the initial steps of the industrialization process. 50 It is a rather established fact that uncertainty with regard to the supply or price of an "upstream" product and the ensuing need for information from "downstream" companies are important incentives for vertical integration. The use of public companies as national agents for purchase and sales of "upstream" products is more common in semi-peripheral than in industrialized countries. 51 India has a long tradition of contacts with other Asian countries. Technical advisory services, project initiation and loan financing have been going on since 1959. 52' The motives for these activities have been political and economical. During the 1970's and 80's India has developed a significant export of capital, labour and services through for example joint ventures and turn-key projects. 53) In the Indian case the pattern of DFI is joint ventures where local firms go into majority participation with Indians. This is usually in accordance with both home and host government demands. The pattern is similar to the one found in Latin America. O'Brien mentions Korea as an example of a different pattern, more resembling core country firms investment models. Nearly 90 % of all DFI was either through wholly- owned subsidiaries or in enterprises where there were Korean majority participation. 54) In the Indian case we can separate two distinct forms of joint ventures: 1. Contractual joint ventures, for example turn-key projects, sub-contracting arrangements, consulting agreements etc. 2. Traditional joint ventures in the form of, for example, equity investments. So far it is the second type that have dominated and companies have either made pure capital investments in equity or, contributed their part in the form of machinery supplied. Although there are serious difficulties involved when we try to estimate the size of these joint ventures attempts have nevertheless been made. Dutt estimates that in the end of the 1970's Indian capital had penetrated at least 23 countries and created 89 industrial joint ventures, with a total equity investment of Rs. 232.5 million. Apart from the immediate return on investment, Dutt estimates that the associated export of machinery and equipment amounted to Rs. 420 million. 55) Contractual joint ventures have sofar been of less importance, although they are expanding as they are quite popular with Indian companies and receives support from the Government. In most cases they are limited to an increase in the export of Indian capital goods and thus serves an important role as foreign exchange earner. It has been estimated that in 1976-77 around 1/4 of the Indian capital goods industry were able to export complete machinery and equipment and in some cases also complete production processes. 56) A special feature of India's export of services is its ability to supply a large number of consulting services to peripheral countries. This area is dominated by public sector firms. Consulting services are regarded as very important as they can have a direct impact on India's export, and eventually lead to the creation of new joint ventures. fiat are the costs and benefits involved for the parti- cipating parties in a South-South DFI relation? In the case of the home country the typical reaction would probably be characterized by a more or less pronounced antagonism. In the case of the host country one could expect to find an attitude of mild encouragement, or in the worst case in- difference. For the home country however, it is probably likely that a DFI have a more beneficial effect than is usually assumed. Very often there are strong reactions against going abroad while the home country suffers from underinvestment in important areas and there are consequently strong arguments for investing at home in the first place. But, it is quite possible that there is less foreign exchange involved when going abroad than expected. The DFI is probably also combined with exports of investment goods and such exports can alleviate utilization problems in the equipment industries. Finally, the net return on capital can be high when dividends, license fees and other related payments begin to flow back. 57) For most semi-peripheral countries DFI's are justified because of the lack of dynamism in domestic demand and particularly in relation to any reasonable scale of production. Furthermore, serious growth plans can not be based on a limited, not-very-expansive domestic market, and for that matter, also a rather vulnerable market. DFI's are therefore necessary to protect the total market available, which in essence means the export market. To this should be added that the particular naure of the industrialization process in the semi- peripheral makes it imperative to guarantee a steady inflow of foreigh exchange. If export markets are subject to pressures for industrialization, different protec:tionist barriers are likely to emerge which prevents trade and makes DFI the only viable strategy. "There is little doubt that to obtain and increase a share in foreign markets for industrial items, developing country enterprises who wish to keep any control over their growth prospects, must project themselves internationally through DFI, and other forms of technology exports. ,158) Earlier we discussed the general causes behind the interest of the semi-periphery to develop external contacts. It is our opinion that this expansion makes the semi-periphery the active promoter of South-South contacts. Obviously there are definite advantages to be gained for the semi- peripheral country in such a relation. The motives of the periphery to participate are perhaps not that clear and we shall end this section by listing the likely advantages and disadvantages for the periphery, when contacts take the form of DFI. First of all, benefits arise from the technological nature of the production process employed by the investing firm. It is believed that these firms usually introduce production processes based on small-scale considerations and labour-intensive technologies. This would result in more appropriate products and a definite employment effect, together with efficient capacity utilization. In conclusion, it is argued that South-South DFI are more adapted to the specific market configuration and factor composition of the periphery, than core country firms investments. Secondly, if the investment leads to increased host country exports, a net foreign exchange surplus might occur after some time. A third benefit that is often mentioned in the littera- ture is the willingness of South investors to establish cooperation with local partners. This increases local control and makes the investment politically attractive. Finally, as a result of the points mentioned above, South companies can more easily create backward and forward linkages Thus greatly facilitating a change in the traditionally disintegrated economic structure of the periphery. 59) The disadvantages to the host country can be summarized in 4 points.

1. It might well be that South firms lack the possibilities to develop a steady flow of technological know-how due to lack of R&D resources.

2. The firms can not be expected to have a natural access to significant export markets. In fact, it can be doubted if they intend to export at all.

3. The firms tend to pay rather low wages.

4. Many South-South investments takes place on the basis of ethnical ties and contacts. In many cases it will lead to alliances with minority groups in the host country, whose presence means social tensions. A good example is the Indians in East Africa.

We have sofar discussed one form of South-South contacts - capital flows in the form of DFI - and it is time to start examining the second type of economic relation between the countries in the South

South-South trade

The classical theory of international trade, as developed by for instance Ricardo, was based on different geographical conditions for production of different commodities. Under the assumption of immobile factors of production between countries, but mobile within countries, and free movement of goods within as well as between countries, the argument for free trade was developed. 60) The neo-classical theory of international trade followed Ricardo, but also assumed that production technology was the same for a certain commodity irrespective of where it was produced. In the neo-classical tradition Heckscher and Ohlin argued that the gains from tradewere greatest between parties on dissimilar levels of economic development. Consequently, North-South trade had its obvious rationale. Burenstam-Linder modified the Heckscher-Ohlin theory by arguing that trade flows for manufactured goods differed from the classical theorem. The greatest gains occurred between similar countries, i.e. countries with similar income levels, market structures and technological levels, and to a lesser extent between countries on different levels of economic development. 61) During the 1960's and 1970's international trade developed some new patterns, even if the traditional trading links remained very strong. There has been no large shift toward trade among developing countries, particulary if we exclude fuels and the oil-exporting countries. In 1970 the major part of world trade still took place between countries in the North (80 %) and only a smaller part (20 %) involved the South. 62) The table below shows clearly that North trade also was the most expansive during this period.

TABLE 2 Export Growth Rates, by Direction and Value, 1960 and 1970 (%l

!?L~ec_ti~n-~f-ez~o_Ets T~_&GL Ma~"fGt~ss World 2.5 3.0 North/North 2.9 3.4 South/North 2.0 3.2 North/South 1.9 2.1 South/South 1.8 1.3

Source: UN. Monthly Bulletin of Statistics, Dec 1971, in Stewart, F. 1978:95, table 3

Not only were trade flows between countries situated in the North larger, they also increased faster than flows between North and South. There is hardly any tendency towards larger trade between countries with different factor compositions, than trade between countries, with similar factor set-ups. Over the period trade within the North increased the fastest. Trade flows according to the classical theory achieved lower growth rates, with the exception of manufactures from South to North. In the 1960-s and early 1970's there was a rapid growth in exports of labour intensive manufactures to industrial countries. 63 South-South trade showed the lowest growth rates, particulary so with regard to manufactures. Even if South- South exports did not record any sensational growth rates, it nevertheless went through important changes during the period. As can be seen in Table 31during this period from the mid-60's to the mid-70's, the export of manufactured goods from the South increased it's share of total exports from 18 % to 19 %, while the export share of raw materials fell from 82 % to 81 %. The most expansive regions were Latin America and South-East Asia, together accounting for over half of total exports from the South.

TABLE 3 South Commodity Export According to Sector and Destination, 1963/65 and 1973/75

3) 2 3) Region Food & ~aw~)Manuf. Food 8 Raw ) Manuf. materials to exports to materials to exports to 4 4 North ) South North ) South ~orth~)South Iiorth4) South

Latin merica5) 71.3 15.5 10.2 3.0 65.2 16.7 11.9 6.2 Africa 73.0 8.6 15.1 3.3 78.6 8.9 10.3 2.2 Asia 74.9 18.9 4.3 1.9 76.4 20.3 1.5 1.8 Other Asia 46.8 19.9 20.1 13.2 36.1 15.6 35.2 13.1 SouthTotal 66.6 15.7 12.3 5.4 64.8 16.1 13.5 5.6

Comments: 1) 3-year averages 2) SITC 0-4 3) SITC 5-8 4) Excluding socialist countries 5) 1963/65 excluding the Carribean

Source: UN. Monthly Bulletin of Statistics, various issues, in Langhammer, R J, "Der SUd-SUd Handel - Substitut oder Komplement zum Nord-SUd Warenaustausch", in Timmerman, V (ed), Beitrage zur Industrialisierungs- und Handelspolitik der Entwicklungslander. Berlin, 1980:143. In contrast to developments in these regions, Africa and the Middle East strengthened their positions as raw material exporters. Raw materials exported to other countries in the South increased very little. Neither did intra-South exports of manufactured goods increase its share of total South exports. It remained around 5 %, it was in fact only Latin America that did increase its manufactured exports to other South countries. Manufactures share of total exports from this region increased from 3 % to 6.2 %. Further evidence of trends in trade between developing countries was provided by a World Bank study covering 33 developing countries and the destination of their exports over the period 1963 to 1977. 64) When focusing on non-fuel trade, and excluding capital- surplus and oil-exporting countries, the study confirms the trend that South-South trade has increased rather slowly during this period. However, exports to oil-exporting and capital-surplus countries increased rapidly. In the 1970's the rapid growth in purchasing power of the oil exporters and the NIC's, coupled with slower growth in the North, have increased their importance as markets for South exports. Manufactured exports were the most dynamic export sector in the 60's and 70's and the industrial countries were the most important markets for South manufactured exports. With- in the category manufactures, capital goods have been quite dependent on South markets, but their importance had diminished, particulary after 1971. As the market in the South for South manufactures declined, this was partly compensated for by increasing primary commodity exports to developing country markets. However, even if South-South trade on a general level has not shown any particular advances there is nevertheless evidence of substantial growth in trade between singular countries, or groups of countries. In the latter case usually within the framework of regional organizations. In a study of the expansion of trade between member states in 6 integration groups in different parts of the world, it was shown that during the period 1960/1970 trade within the groups increased faster than trade outside the group. In the cases of the Central African Customs and Economic Union (CACEUS) and the Central American Common Market (CACM) the internal growth rate was much higher than growth in export outside the respective areas. This was also the case with trade inside the Andean Group. 65) The experience of the Latin American Free Trade Associa- tion (LAFTA) and the East African Community (EAC) was somewhat difference as there was a relatively modest growth in intra-trade. This was largely a result of the fact that these groups contained states on different levels of development. The weaker participants tended to develop protectionist measures to be able to catch up with the stronger ones. A common feature of all these groups was that trade in manufactures was the main factor responsible for the growth in intra-trade. In the case of CACM 74 % of all intra-trade was in manufacturing. In the case of other Asia, manufactured exports went primarily to the North. Only in the cases of Latin America and South-East Asia has South-South trade taken on any proportions and shows a somewhat different pattern from the traditional North-South trading pattern. In the case of Africa, this region has continued to perform it's role as a raw material supplier also to other regions of the South. To summarize the character of South-South trade; it primarily concerns foodstuffs and raw materials, the share of manufacturing exports is and has remained constant during Our period. This however, does not exclude regional disparities to the general pattern. If we return to international trade theories it is obvious that the Heckscher-Ohlin theory fails to explain why North- North trade has become so dynamic. The Linder thesis provides an explanation for this rapid growth in intra-North trade. However, it cannot explain why South-South trade has failed to develop. Stewart argues that this is so because Linder fails to recognize some important barriers to South-South trade. Firstly, the colonial trade pattern placed severe restrictions on South-South trade. The nature of this pattern is wellknown and need not to be discussed here. Secondly, account has to be taken of the role of TNC's and their role in technology transfer and international investment. Production technologies developed for the North are transfered to the South and production units are established. Production is destined not only for the internal market, but also for export back to the North. The product-life cycle theory sharpens this argument. Trade flows will become North-South for technologically new products, and South-North for mature products. The export of labour intensive parts from the South usually take place under the eyes of TNC's. 67) According to this theory South-South trade is hardly likely as long as South contries are not innovators of technology. Furthermore, they also have similar factor cost structures and a general desire to protect their employment opportunities. Consequently, there is no rationale for peripheral countries to sell low-cost manufactured products to each other. However, a logical conclusion would then be that if the South is composed of countries with different economic structures, it would be quite likely that Souty-South trade developed. Thirdly, innovative activities are concentrated to the North. Together with technological linkage effects it helps to explain the dominance of North products. According to Stewart this is one of the major reasons why Linder's thesis is wrong when he claims that trade is greatest between countries with similar economic structures - if they are poor countries. Traditional North-South trade, basically founded on the colonial exploitation pattern, has generally been regarded to work singularly to the advantage of the North. Conse- quently, there would be a good case for increasing trade within the periphery, if this trade could assist the peripheral countries in: - Extend markets and give the countries a possibility to exploit economies of scale and specialization through trade.

- Isolate the South from fluctuations in the economies of the core.

- Reducing dependence and thereby increase the bargaining power of the periphery versus the core. But the development of a South-South trading pattern is most likely to be confronted with problems. First of all, integration with the North is so strong that breaking up these ties are extremely difficult. 69) The long history of North-South trade has developed communication- and transportation networks that effectively limits intra-South trade, particulary so inter-regional trade. However, the most serious problem is not connected with the actual establishment of intra-South trade, but it's general effects on the development prospects of its participants. If trade starts from a relation characterized by un- evenness, or unequality, then, according to Myrdal, the process of cumulative causation will increase the inherent tendencies to polarization in the international economy. The theory of cumulative causation explains why, through international free trade, factor price equalization will not occur. But instead increased factor price differences. Myrdal does not question the direction of trade according to the Heck- scher-Ohlin theorem, but rather the developmental effects of this trade.70' In the case of South-South trade it is likely that a replication of the exploitative North-South trade relationship will occur and the weaker economies of the South will continue to lag behind. It can be appropriate to quote a common handbook in development economics: "If there are severe imbalances among member countries at the outset ... the tendency for unequal gains from trade to emerge and for the widening of the income gap between rich and poor members as a result of free trade will be reinf~rced."~"

Conclusion

We noted before that as the hierarchization of the South increases, which will result in the emergence of semi-peripheral countries, the potential for South-South relations will also increase. In other words, for South-South relations to appear, either in the form of trade or investment flows, there must be economies on different levels of development in the South. As the impediments to a positive development effort from South-South relations primarily are of a structural character, it is highly unlikely that the remedies, suggested by for example UNCTAD, will lead to a more equal distribution of the benefits from increasing South-South trade. UNCTAD focus on a strenghening of intergovernmental and community institutions, revisions of instruments like trade duties, tariff barriers, the creation of joint ventures in the area of production and infrastructure. 72 The belief in these kind of remedies, common to the whole UN system and not only UNCTAD, is based on the fundamental assumption that the economies in the South are situated on more or less similar levels of development. From this follows the second assumption that contacts between parties on similar development levels are more symmetrical than contacts between countries with different economic structures. The traditional contacts between the industrialized countries in the North and the peripheral countries in the South are examples of such assymetrical relations. The symmetrical South-South contacts are therefore less likely to involve any exploitative characteristics and the chances are also greater that the flows of capital, products and technological know-how, will be more in line with the specific needs of the parties. If we don't accept the assumption of symmetri, but rather proposing an assymetrical relationship, this proposition must rest on the specific position of the semi-periphery in the international economy. As suggested by Wallerstein the semi- peripheral countries act as core countries towards the periphery and as a peripheral country towards the core. 73) These dual relationships can change somewhat depending on whether or not the world economy is in a phase of expansion or contraction. Semi-peripheral expansion becomes much easier when the world economy contracts. The semi-peripheral countries can then usually expand their control of their own, internal markets and at the same time strengthen their positions on the peripheral markets. The relationship between the semi-periphery and the periphery,and its basic nature, does not change very much as the business cycle of the world economy changes. Waller- stein describes this relationship as a replication of the traditional metropole-satellite relation. It is in essence a relation between parties on different levels of economic development, where the periphery comes to serve the role of q supplier of raw materials and a market for industrial products. The exploitative nature of such a kind of relationship is well documented in the case of the relation core - periphery. NOTES

1) The South includes the group of countries that is also called underdeveloped, developing, satellites, periphery and the Third World. Consequently, the industrialized countries are usually the countries of Western Europe, the USA and Japan. These countries together make up the North, core, centre and are generally referred to as the developed countries.

2) Wallerstein, I. The Capitalist World Econony. Cambridge, 1980:69.

3) Marx, K. Capital, vol. 3. Moscow, 1962:254.

4) This identity is the starting point of an interesting study of Swedish industrial development. Erixon, L, "Lonsamhetskrisen i svensk industri", -iften for Kritiska Studier, no 6, 1980.

5) Hill, T P. Profits and Rates of Return. OECD, Paris, 1979:121. It should be pointed out that the data needs to be cautiously interpreted. Hill brings out 3 critical factors: a) Data from the US and Japan are the least convincing and no firm conclusion can be established about the existence of downward trends. b) The number of countries studied is small. C) It is difficult to separate cyclical from trend factors, especially when the run of data ends in a recession.

6) Cowlinq, K. Monopoly Capitalism. London, 1982:47.

7) Sweezy, P, "Marxian Value Theory and Crisis", in, Stead- man, I. et.al. The Value Controversy. London, 1980:26.

8) Mandel, E. The Second Slump. London, 1980:26.

9) Marx, K. Capital, vol. 1. Harmondsworth, 1976:762. According to Marx the organic composition of capital is "the value composition of capital, in so far as it is determined by its technical composition and mirrors the changes in the latter".

10) Dencik, P, Herlitz, L and B-8 Lundevall. Marxismens politiska ekonomi. Kristianstad, 1969:151. Mattick, P. Economic Crisis and Crisis Theory. London, 1981:171. Mandel, E. Marxist Economic Theory. London, 1971:167.

McCracken, P, et.al. Towards Full Employment and Price Stability. Summary report to the OECD by a group of independent experts. Paris, 1977:159, table 24.

Mandel, E, 1980:214.

Bentzel, R. "A Vintage Model of Swedish Economic Growth from 1870 to 1975". Proceedings of a Symposium at Industrins Utredningsinstitut. Stockholm, July 18-19, 1977:46-47.

Denison, E F, "Explanations of Declining Productivity Growth", Survey of Current Business, vol. 59, no. 8, part 111, 1976.

Destanne de Bernis, G. Varldsekonomi och industriutveck- ling. Lectures at a Nordic seminar in Gdteborg, April 6-7, 1979.

Erixon, L, 1980:19-20

Sweezy, P. Teorin fdr den kapitalistiska utvecklingen. Lund, 1975:109.

Frdbel, F, Heinrichs, 3, Kreye, 0, "World Market for Labour and World Market for Industrial Sites", in, Work, K (ed.). Industrialization, Development and the Demands for a New International Economic Order. Copen- hagen, 1978:28-29.

Among former peripheral countries that have managed to achieve semi-peripheral status we find; Brazil, Mexico, Argentina, Venezuela, Chile, Cuba, Algeria, Egypt, Saudiarabia, Nigeria, Zaire, Iran, India, Indonesia, China, South Korea.

Wallerstein, I, 1980:70.

Cardoso, F H, "Capitalist Development and the State: Basis and Alternatives", Ibero-Americana, no. 1/2, 1978:15. Cardoso, F H, "Brasilien; Die Wiederspriiche der Asso- zierten Entwicklung", in, Sonntag, H R (ed.). Latein- amerika: Faschismus oder Revolution. Berlin, 1974:46.

Wallerstein, I, 1980:103.

For an excellent discussion of the alliance between multinational capital, local capital and the state in Brazil, see: Evans, P. Dependent Development. Princeton, 1979: chapters 3-5. Amin, S, "Le modele theorique d'accumulation et de developpement dans le monde contemporain", Revue Tiers- Monde, 13-52, 1972:711.

Marini, R M, "Brazilian Sub-imperialism", Monthly Review, February, 1972.

Marini, R M, "Die Dialektik der Abhangigkeit", in, Senghaas, D (ed.). Peripherer Kapitalismus. Frankfurt a M, 1974:98-137.

A summary of Cardoso's position is provided in: Andersen, K, et.al. Afhaenqighedsteori, 1979:172-175.

Tyler, E G. Manufactured Export Expansion and Industria- lization in Brazil. Tiibingen, 1976:29.

Sonntag, H R, 1974:57. Tyler, W G, 1976:330-331.

UN General Assembly resolution 3362 (S-VII), 16 September, 1975.

UN General Assembly resolutions 3201 (S-VI) and 3202 (S-VI).

Gwin, C B, "The 7th Special Session: Toward a New Phase of Relations Between Developed and the Developing States", in, Sauvant, K and Hasenpflug, H (eds.). The New Inter- national Economic Order. Frankfurt, 1977:lOO.

UN General Assembly resolution 3202 (S-VI), section 1, lb.

Wells, Jr, L T, "The Internationalization of Firms from Developing Countries", in, Agmon, T, and Kindleberqer, C P (eds.). Multinationals from Small Countries. Cambridge, 1977:135-136.

Wells, Jr, L T, 1977:148-149. Dutt, S, "South-South Patterns of Exploitation: India's New Relationship with Developing Countries", Journal of Contemporary Asia, vol. 10, no. 4, 1980:438.

Diaz-Alejandro, C F, "Foreign Direct Investment by Latin Americans", in, Agmon, T and Kindleberger, C P, 1977: 171-173.

Wells, Jr, L T, 1977:148-149.

39) Diaz-Alejandro, C F, 1977:183. 40) O'Brien, P, "Third World Industrial Enterprises as Exporters of Technology - Recent Trade and Underlying Causes", Vierteljahres berichte, nr. 83, Marz 1981:116.

41) Wells, Jr, L T, 1977:136-143.

42) Diaz-Alejandro, C F, 1977:157. Kobrin, S J, "Comment", in, Agmon, T and Kindleberger, C P, 1977:157.

43) Historically LA entrepreneurs have always invested outside the region. But usually only in the form of port- folio investments. DFI outside LA have been rare, although there is increasing evidence on a growing flow of DFI to Africa, the US and Europe.

44) Diaz-Alejandro, C F, 1977:171.

45) O'Brien, P, 1981:102.

46) Wells, Jr, L T, 1977:143. An example from Indonesia shows that around 20 % of DFI made by the industrialized countries were wholly owned by the foreign company. The corresponding share for semi- peripheral companies was 13 %.

47) Diaz-Alejandro, C F, 1977:185-186. Although companies within the Pact were given special favours, for example substantial tax reductions, countries outside the Pact, like Brazil and the US, were given equal treatment.

48) Diaz-Alejandro, C F, 1977:173.

49) O'Brien, P, 1981 :103.

50) Diaz-Alejandro, C F, 1977:177.

51) Diaz-Alejandro, C F, 1977:178.

52) O'Brien, P, 1981:103. Even if India is quite active in its South-South contacts, it is not the major investing country. Hong Kong dominates the scene in Asia with its DFI worth around US$ 750 million in 1976. The major recipient is Indonesia where DFI for the exploitation of the country's natural resources dominate.

53) Dutt, S, 1980:436. In 1978 the Indian Government created a technology transfer centre for facilitating technology transfer to other developing countries. 54) O'Brien, P, 1981:103.

55) Dutt, S, 1980:438.

56) O'Brien, P, 1981:103.

57) Wells, Jr, LT, 1977:152-153.

58) O'Brien, P, 1981:114.

59) Korbin, S, 1977:163. In the opinion of Korbin the economic benefits of South- South DFI is overstated. More important are the political benefits that arise from this kind of cooperation.

60) Sraffa, P (ed.) David Ricardo, Principles of Political Economy and Taxation. Cambridge, 1953.

61) Burenstam-Linder, S. An Essay on Trade and Transforma- tion. Stockholm, 1961.

62) Stewart, F, "The Direction of International Trade: Gains and Losses for the Third World", in, Helleiner, G K (ed.) A World Divided. Cambridge, 1978:94.

63) Harylyshyn, 0 and Wolf, M, "Promoting Trade among Deve- loping Countries: an assessment", Finance and Develop- ment, March, 1982:19.

64) Havrylsyhyn, 0 and Wolf, M. Trade among Developing Countries: Theory, Policy Issues and Principal Trends. World Bank Staff Working Paper no. 479.

65) Pazos, F, "Regional Integration of Trade among Less Deve- loped Countries", World Development, July, 1973:1, table 1.

66) Pazos, F, 1973:4.

67) Vernon, R, "International Investment and International Trade in the Product Cycle", Quarterly Journal of Eco- nomics, vol. 80, 1966:190-207.

68) Stewart, F, 1978:96-100. 69) The mechanisms involved in this integration process are: - Market- and production concessions given to core companies in the South - Conditional sales of technology - Export credits given for imports from the North - Tied aid - The existence of vested interests between international capital and local power groups in the periphery - The neo-colonial development pattern created an oligopolistic market structure and an unequal income distribution in the periphery. This means increased demand for North's products and technology

70) Myrdal, G. Economic Theory and Underdeveloped Regions. London, 1957.

71) Todaro, M P. Economics for a Developing World. London, 1977:336.

72) UNCTAD. Economic Cooperation among Developing Countries Report by the UNCTAD Secretariat. TD/192.22. December, 1975.

73) Wallerstein, I, 1980:97. Helga offmann " TOWARDS AFRICA? BRAZIL AND THE SOUTH - SOUTH TRADE

Soaring indebtedness and the related financial burdens are at the present the main factors in Brazil's renewed balance of payments difficulties. The international banking community has been willing to finance the deficit, but recently (August 1980) there are growing signs that it is no longer so easy for Brazilian borrowers to raise loans. ) Therefore, even more stress will be laid on trade policy and performance as means of redressing the balance. The country's import structure, with its high shares of machines and equipment as well as petrol, does not leave much room for cuts in imports without compromising growth. Imports of machines and equipment could be reduced somewhat after 1975 (from US$ 3.9 billions in this year to US $3.1 billion in 1977), at the price of cuts in private and public investment. The value of these imports increased again in 1978 and 1979, but their share in total imports was down to 20 % (after having reached a peak of 41 % of total imports in 1972). Parallel to it, the oil bill is absorbing an increasing share of the country's foreign exchange revenues. Both volume and value of the item "crude oil and derivatives" have been growing, the first steadily, the second with the big jump of 1974. During the boom 1968-74, the share of petrol and derivatives in total imports still remained around 11 %. In 1974 this participation jumped up to 22,5 %, and has been rising since, up to 35 % of the nations imports in 1979. In this frame, the expansion of exports has become even more essential to the country's economy, via balance of payments. Brazilian exports showed an impressive performance during 1968-74 (average rates of growth of 27 % at current

* Institute for International Economics and Management, Copen- hagen School for Economics and Business Administration. Research support from the Institute is gratefully aknow- ledged. prices), as a result of deliberate policy measures as well as benefitting from the teneral expansion in world trade during the same period. However, it is interesting to note that the rate of growth in Brazilian exports remained comparatively high even after the expansive conditions favouring world trade came to an end in 1974. In the period 1975-79, Brazilian exports went up at 14 % on average (at current prices), growing faster than world exports, and reaching a total ofUS$15.2 billion in 1979. Manufactures remained the fastest growing item followed by semi-manufactures, and inside manufactures a deepening process of diversification is observed. 2, (See Table 1 ) . Since the mid-1960's there is a marked tendency for developing countries to grow in importance for Brazilian exports. 3) This goes beyond traditional intra-regional trade amongst developing countries, since the fastest growing markets in Brazil's South-South trade have been countries outside the Latin American Free Trade Association (LAFTA). Thus, in the period 1964-69, on average, exports to LAFTA were US$189 million (about 11 % of total exports), whilst exports to all other de- 4 veloping countries taken together ) were less than half this amount, and corresponded to only 4,4 % of total Brazilian exports. A decade later, in 1974, the picture had changed, and exports to developing countries outside LAFTA were in fact slightly higher than those to LAFTA countries: US$939 million compared toUS$918 million (respectively llr8 % and 11,5 % of total Brazilian exports). Altogether, the weight of developing countries had risen from about 14 % at the end of the sixties to 23 % in 1974. After 1974, the ascending importance of Third World markets for Brazilian exports persists as the general tendency. But we can no longer identify a trend to higher growth rates in the inter-regional than in the intra-regional component of Brazil's South-South trade. In 1977, the share of LAFTA, at one side, and other developing countries, at the other side, was respectively 12,2 % and 11,7 % of total exports. Last year (1979), the share of LAFTA was up to 16,2 % (and almost USs2.5 billion), whilst the remaining developing countries represented 12,3 % of total Brazilian exports. Third World markets were thus up to a share of 28,5 %. TABLE 1 Brazil Structure of Exports - Fob

1974 1976 1977 1978 1979

Group of Production US$ % US$ US$ US$ % US$ % % million million % million million million

1. Primary Products 4860,O 61,l 6183,7 61,O Coffeebeans 864,3 10,9 2172,8 21,4 Sugar 1261,6 15,9 204,9 2,O Soya (beans, cake and bran) 889,3 11,2 1581,9 15,6 Iron ore 571,2 7,2 995,6 9,8 Meat, chilled or frozen (beef and horse) 69,l 0,9 56,7 0,6 Other primary goods 1204,5 15,l 1171,8 11,6

2. Industrial products (sugar excluded) 2896,4 36,4 3365,6 35,2 2.1 Semi-processed goods 633,6 8.0 789,5 7,9 Sawn wood 85,7 1,l 51,3 0,5 Cocoa butter, peanut oil, castor oil 258,9 3,3 206,3 2,O Other semi-processed 289,O 3,6 531,9 5,2 2.2 Manufactured (included instant coffee) 2262,8 28,5 2776,l 27,4 Footwear 120,3 1,5 175,l 1,7 Boilers, machines and mechanical instruments 150,6 1.9 266,2 2,6 Beef, processed 81,O 1,0 113,6 It1 Electrical machinery 183,l 2,3 189,4 1 .g Off ice machines 90,4 1,l 76,9 0,8 Rolling stock and vehicles 186,5 2,3 373,l 3,7 Vegetable and fruit juices 62,3 0,8 104,4 1,0 Cotton fabrics 59,4 0,7 42,l Or4 Instant coffee 116.1 1,5 225,5 2.5 Other manufactured goods 1263,l 15,9 1209,8 11,9 3. special transactions 194,6 2,4 381.1 3,8 Total exports 7951,O 100,O 10130.4 100,O a) Includes frozen chicken

Source: Calculated from Boletim do Banco Central do Brasil, several issues. In the following, we shall single out trade with Africa for closer examination, as part of Brazil's efforts to expand its export coefficient. Not only it represents a significant share of Brazil's South-South trade, but it constitutes the fastest growing outlet for Brazilian industrialized products.

Africa as New Trade Partner Trade between Brazil and Africa showed an impressive growth in the last two decades. Being inferior toUS$20 million in 1960 (Brazilian exports of 12.1 million plus imports of 7.6 million), it reached US $154.4 million in 1970 and was up toUS $1,157 million in 1979. Despite the enormous advance, the proportion of Africa in total Brazilian trade remained modest. It is significant, though, that the new partner steadily increased its share from less than 1 per cent of Brazilian commerce in 1960 to approximately 2 per cent at the end of the sixties, during a period in which total Brazilian trade had only very slight increases. Trade with Africa gains a new impulse especially after 1970, as Nigeria becomes relevant as petrol supplier to Brazil, and as Algeria steeply increases its petrol supplies. In general, the participation of Africa in Brazilian commerce increased with particular speed in the first years of the seventies. Trade with Africa jumped up at rates of 34 per cent both in 1971 and 1972, 44 per cent in 1973, followed by a spectacular 210 per cent in 1974, only partly due to the quadruplicating of petrol prices. On average, the expansion of trade with Af- rica was even more rapid than the rise in total Brazilian trade, bringing the proportion of Africa up to 5.5 per cent in 1974. These changes were part of the trend showing a stagnation of Brazilian intra-regional trade in the seventies, parallel to an expansion in trade with other developing areas non- traditional in its commerce. Thus, whilst Brazilian exports to the Latin American Free Trade Association (LAFTA) were oscillating not far from 10 per cent of total Brazilian exports during the whole decade 1967-1976 (the lowest participation being 9 per cent in 1973 and the highest 12,2 per cent BRAZILIAN TRADE WITH AFRICA (US $ MILLION FOB)

1968-70 1972-73 (average) (average 1974 1975 1976 1977 1978 1979 Exp Imp FOB CIF Exp Imp Exp Imp Exp Imp Exp Imp Exp Imp Exp Imp Exp Imp

Angola 0,4 0,l 3,2 1,6 5,9 1,2 6,O 7,l 22,l - 26,2 1,2 x Algeria ) 214,5 110.5 169,5 73,l 142,O 59,O 180,8 0,9 Egypt 18,7 15,O 7,9 12,2 47,2 12,2 34,8 2,5 C.abonx) - 0,6 - 97,8 0.2 99,4 1,2 145,2 ~vorycoast 6.3 - 9,6 - 1.4 - 14,3 - I,ibyax) 8,2 317,7 29,9 199.5 17,7 141,O 19,O 146,6 Marocco 28,9 37,9 35,8 18,5 21,5 30,3 30,5 32,3 Mozambique 5,7 2,6 1,3 9.8 4,O 0,2 10,2 - Iiigeriax) 12,o 0.1 57,2 - 86,7 77,8 115,l 90,4 South Africa 45.4 28,8 36,3 26,6 33,4 34,2 27,5 109,6 Sudan 4,O - 5,9 - 1,9 - 11,5 - Tunisia 41,7 50,l 21,2 8,3 15,6 5,4 23,l 5,2 Other 44,O 115,5 26,7 58,3 36,5 9,5 76,7 22,3

Africa (total) 435,3 680,O

% of Brazilian total 5,5 5.4

(a) Figures included in Other Sources: Ministerio da Fazenda, Foreign Trade of Brazil, several issues X) OPEC members - Amount is not significant Boletim do Banco Central do Brasil D' Adesky, 1979 Debatisse, 1974 in 19711, the African share in total Brazilian exports more than doubled. It is true that this share practically stagnated at levels inferior to 5 per cent from the mid-seventies. The 5.5 per cent peak of 1974 was only approximated in 1978 (see Table 2). On the other hand, 1979 saw a revival of intra-regional trade, the proportion of LAFTA in Brazilian exports rising to 16,2 per cent. There are, no doubt, some reasons to be pessimistic about the prospects of inter-regional South-South trade, particularly if one excludes the influence of petrol (see LANGHAMMER, 1979 and 1980). But it is too early to in- terpret the change of 1979 as a reversal of the longer termed trend which, in the case of Brazil, favoured inter-regional trade with developing countries, as examined above. Big oscillations have all the time characterized the commercial relations with individual African countries.

The Share of African OPEC Members If we should summarize the commodity composition of this trade, it would be no exaggeration to say that it constitutes Afri- can petrol against Brazilian industrialized products. This is even more true after 1974. Brazilian imports from Africa are heavily concentrated on the African members of OPEC: Algeria, Gabon, Libya and Nigeria. Already in 1970 the content of theus $30 million of imports coming from Nigeria was almost exclusively crude petrol. In the same year, more than half of the imports coming from North Africa was crude petrol, bought in Algeria, Egypt and Libya. Thus about 58 per cent of the imports from Africa in 1970 was made up of crude petrol. This proportion became much higher from 1974, reaching the level of at least two thirds of total Brazilian imports from Africa, and going through a peak of 81 per cent in 1976; in this year 100 per cent of the Brazilian imports from Algeria, Libya and Nigeria was crude petrol, this percentage being 78 per cent for Egypt and 97,2 per cent for Gabon (the remaining 2,8 per cent in the last case representing "resi- dual fuel oils", thus bringing the share of petrol and derivatives for Gabon equally up to 100 per cent). Since the bulk of imports, as already said, originates in the African OPEC countries (see Table 2), it is not difficult to estimate the relative importance of petrol. The picture is similar in other recent years. In 1975, almost 100 per cent of the imports provenient from Algeria, Gabon and Libia was crude petrol, thus bringing the share of the product to 72 per cent of Bra- zilian imports from Africa, despite the absence of Nigerian supplies in this year. A similar examination of the Brazilian imports of petrol will give us the comparable share for petrol and derivatives in imports from Africa during 1977 and 1978, 68 and 69,5 per cent respectively. (In the percentage of 1978, apart from the supplies of the African OPEC members listed in Table 2, we have included US 48,6 million crude petrol sold by Congo.) Last year (19791, however, the share of crude petrol was down to 50 per cent, mainly due to smaller supplies from Algeria, Libya and Nigeria; the considerable decline could not be compensated by a new petrol supply of US 41 million from Congo.

TABLE 3 Brazilian Imports from Africa: petrol and derivatives

( % of tetal imports)

Source: Calculated from Comercio Exterior do Brasil, MinistGrio da Fazenda, several issues

The increased share of petrol in total imports from Africa after 1974 is only partly due to the effect of price increases. These changes should be seen in the light of escalating dependency of the Brazilian economy on petrol imports: in the list of the eleven main world importers of petrol, between 1973 and 1978, Brazil was individually the country which showed the highest rate of increase in petrol imports, whether we consider value or volume (MUNHOZ, 1979). A deliberate effort to diversify the suppliers has characterized the last years. Besides political aspects, this might also explain the relative drop of the Republic of South Africa, which was the main trade partner during the sixties (absorbing more than 40 per cent of Brazilian exports to Africa) and which was still the leading market for Brazilian products in Africa up to 1972, with the only exception of 1970, when it was supplanted by Algeria. After 1977, though, South Africa is recovering importance as a market for Brazilian manufactures. Volume of African petrol flowing to Brazil actually increased, mainly after the state-run Nigerian National Petroleum Corporation reinvigorated supplies to the Brazilian state company Petro- bras from 1976, subsequent to the joint declaration signed by the Foreign Ministers of the two countries at the beginning of 1974. From 1976, Nigeria gradually appears as Brazil's main Third World partner outside Latin America. We shall see that the intensification of these relations includes other items besides commodity trade. From 1978 Nigeria supersedes Algeria as the main African buyer of Brazilian products. Moreover, it is worthy of mention that in 1978 the only Third World country that supplanted the high figures for Brazilian exports to Nigeria (US $233,5 million) was Argentina (US$ 349 million bought), traditionally Brazil's main trade partner in Latin America. The lower figures for 1979 (see Table 2) are not enough to indicate a change of sign in the longer trend, particularly if we take into account that Nigeria is reentering a period of growth and more liberal trade policy after two years under depressed economic conditions (CARLSEN, 1978). Moreover, a package of cooperation agreements was signed between the two countries in January 1979, amounting to more than US $ 3 billion. Bilateral cooperation was agreed on in the fields of agriculture, petrol, education and engineering services (more specifically in water projects, road transport, rail- road transport, harbour installations and steel production). This would rather indicate more emphasis on the export of services from the side of Brazil. On the other hand, Nigerians manifested the intention to meet their mounting deficit in trade with Brazil by means of increasing their petrol supplies. Despite its enormous significance in the total trade between Brazil and Africa, the proportion of African petrol in global Brazilian oil imports is only about 10 per cent, which is not a big improvement with reference to the share of 9 per cent it represented in 1973. We can, though, expect increases in this proportion, since it is actually one of the bases for possible trade expansion between the two areas.

Petrol against Machinery or against Food? The commodity flow in the opposite direction, originating in Brazil, is quite diversified, with a predominance of industrialized products, and a significant participation of machinery and appliances of a wide range, comprising electrical machinery and apparatus, but showing a concentration on transport equipment, road building equipment and, apart from vehicles and their components, including other durables especially refrigerators. Nevertheless, the high proportion of food items sold to Africa, particularly sugar and edible oils, equally strikes the attention. We have summarized below the structure of Brazilian exports to the main African trade partners in 1977. There are evidently difference from one year to another, but the picture in 1977 can be taken as representative of the structure during the last years. With destination to Angola, Brazil has sold mainly vehicles and their components (53 per cent of Brazilian sales to Angola), food (19,5 per cent), followed in order of importance by textiles, inclusive of yarn, and footwear (together 15 per cent). The remaining share is of refrigerators, motors and different kinds of machines and instruments. To Algeria, the biggest market for Brazil in Africa during 1977, food items prevailed; coffee constituted 54 per cent of total Brazilian exports to the country, sugar 22,7 per cent. The next important items is vehicles and components (15,5 per cent) and the remaining is mainly a big variety of products of the metallurgical industry, motors and pumps, which is difficult to summarize, since the list contains about 90 different titles. The second most important African market in 1977 was Nigeria. The degree of diversification in exports to Nigeria is much higher. The main item was vehicles and components', including tractors (38,8 per cent), followed by food, predominantly frozen meat (21,7 per cent), yarn (10,6 per cent), glass (6,3 per cent), gasolin (5,7 per cent), wood products, mainly building materials (3,3 per cent), paper and paper products (3,3 per cent). The remaining 10 per cent, apart from some durables like refrigerators, air conditioners, ventila- tors, includes a long list of different machines, mainly equipment for road building, simple metal instruments and electrical instruments. The import of gasolin by a country in which oil revenue in the same year accounted for 91,5 per cent of export earnings strikes a evidence of Nigeria's interest in expandinq its refining capacity (CARLSEN, 1978). The cooperation of the Brazilian state company Petrobras with reference to the planned construction of refineries in Nige- ria was one of the items in the package of agreements of January 1979 mentioned before. In Brazilian exports to Egypt, food has the lion's share: sugar accounted for 68 per cent and edible oil for 14,7 per cent. The rest comprises metal products, motors, machines and instruments. The trade with Libya, one more of the petrol suppliers, has been giving a deficit to Brazil, and on this ground one could expect that there is a basis for the expansion of Brazilian sales. In 1977, these amounted to only 19 million, the bulk (81 per cent) of which represented vehicles and components. Machinery and instruments accounted for the rest. Sales to Morocco represented mainly food items (74 per cent): in the first place edible oil (44 per cent of Bra- zilian exports to Morocco), in the second place pepper, with an impressive proportion of 14 per cent, followed by sugar (13 per cent). Different industrialized products make up the rest, from yarn to scissors, sewing machines, refrigerators and components. Exports to South Africa cover an immense list of industrialized products: in the first place machinery (about 17 per cent), in which attention is drawn to the high proportion of refrigeration units, also for industrial purpose; transport equipment, mainly tractors, is the second item (16,4 per cent). A very diversified range follows, in which we could group leather and products (11,3 per cent) and sawn wood (11,3 per cent). In this general picture, it is worthwhile to note the increased weight of transport equipment (from passenger cars to lorries, trucks and tractors), items which practically did not appear at the end of the sixties. Another significa- tive trend is the great diversification of the industrial exports. (Only in the industrial exports to Nigeria, for instance, we will find, in 1977, more than 400 items of the Brazilian Commodity Nomenclature - NBM at 10 digits). 5, As to the relative importance of food, there are oscillations, but there are no signs of a declining tendency. We can expect that the proportions probably will be kept. During the negotiations held in January 1979 between Brazil and Nigeria, for instance, this country expressed interest in obtaining heavier supplies of soya, sugar and meat in exchange for its petrol.

The Export of "Tropical Technology" The emergence of some Third World countries as exporters of industrial technology is presently receiving more attention in the academic discussion, in the wake of the debate on the "new international division of labour" and on the role of the so called "newly industrialising countries". Very recently, LALL (1980) made a preliminary assessment of technology exports from developing countries, using mainly evidence from India. Earlier, KATZ and ABLIN (1978) presented empirical evidence and an evaluation of the Argentine case. The export of technology is very clearly becoming an important item in Brazil's trade with other developing countries, and equally with Africa. It goes beyond the rise in exports of machinery (shown in Table 1). It is not possible to provide an empirical survey to document this statement; the various forms of technology transfer actually taking place are not being registered. Nevertheless, the scattered information that can be gathered leaves no doubt as to the occurrence of the process. Tenders of Brazilian consulting firms increasingly making their way to the African market in the fields of road construction, hydro-electric plants, telecommunications, mining projects. Moreover, on the Brazilian side, very much emphasis is being laid on the export of services, both in the private and the public sector. Partly related to the economic boom 1968/74, Brazil experienced a considerable expansion of the consulting services sector, which comprises in 1979 a total of 444 consulting firms: 410 of them in the field of civil construction, and the remaining 34 in engineering. With the change to a less stronger internal demand in the last years, government is not only recommending but supporting the move to external markets, through coordination and promotion activities of Interbras, a state trading company. Examples of this insistence in the sale of technology can be found in Afrochamber, the informative of the Afro- Brazilian Chamber of Commerce published for circulation in Africa. More than 150 firms of the private and public sector are presently associated in the Afro-Brazilian Chamber of Commerce (founded in 1968 with headquarters in Sao Paulo and nationwide jurisdiction), inclusive several firms of the planning and consulting sector in civil construction and engineering. The Chamber considers the ideal contract in Africa (and in the Middle East) the turn-key and suggest for Brazil in other Third World countries "a joint venture policy capable of starting the development of cattle raising, industry or services, as well as transfer of technology". 6, One of the arguments presented is that Brazil recreated imported technology conquering its own tropical technology; moreover, this technology had to be adapted to the great variety of regional conditions in the country, and therefore is able to match needs in various stages, from underdevelopment to a high level of development. The thesis of Brazilian comparative advantage in tropical technology is not new. In November 1974, inaugurating the Brazilian stand at the First International Fair of Dakar, in Senegal, the Brazilian Foreign Minister observed that the products and the technology being presented there "were developed in a tropical environment, the same as exists in senegaltl.7, It can be seen as the official position, since it has been repeated on different occasions during the visits of African heads of government, commercial missions and entrepreneurs to Brazil. It appears very explicitly in the Joint Communique Brazil-Gabon signed during the official trip of President Albert-Bernard Bongo to Brazil in October 1975. Amongst several other items, the two countries inten- ded "to improve their scientifical and technical staff through the interchange of experiences adapted to the conditions of tropical countries" On the same occasion, the Brazilian Foreign Minister accentuated "modern tropical agriculture" as a common objective in both countries. 9 We have no elements to make a global assessment of the extent in which Brazil adapted or developed domestically a new tropical technology. The thesis certainly is not absurd and has more to it then a mere common sense view that, for instance, road building under tropical rain and heath must have some specific characteristics more likely to be found in Brazil. It has been mentioned also by African analysts that in several cases Brazilian products were more adequate than analogous products of European or Japanese origin, not only with reference to climate, but with reference to local socio-economic conditions. l O) In certain branches, like the machine-tool industry, technological adaptation and domestic development of technology in Brazil has been documented (VERSIANI and BASTOS, 1976), at least for certain periods, and therefore we could expect that it equally occurred in other branches. At any rate, Brazilian consultings are not only making tenders for projects in Africa. Sometimes they are also winning the contracts. Despitethe inexistence of a thorough register, some examples of engineering and building projects in charge of Brazilian firms can be given: ' l ' in Mauritania, the construction of the Transmauritanian road Nouakchot-Kiffa (Constru- tora Mendes Jr); in Algeria, a project for popular housing (~nterbras/~cel),a new railway (Transcon), a hydro-electrical dam (Rabello); in Libya, urban sewerage infrastructure (Coest); in the Ivory Coast, a project for the cultivation of soya beans (Cooperativa Agropecuaria de Campinas) . 2, In Senegal, Construtora Mendes Jr was qualified at the first round in an international competition to build three dams and a hydro- electrical plant on the River Senegal. The project is estimated US $ 600 million and, besides Senegal, involves Mali and Mauritania, equally traversed by River Senegal; the dams shall regulate the water flow and allow irrigation, to contain the expansion of the desert area in the Sahel. The final judgement of the bids were not known at the beginning of 1980. 3, In Egypt, the state enterprise Cia. Vale do Rio Doce is setting up a steel plant.14) Congo was to buy agricultural technology. 15) The enumeration above exemplifies only one of the forms of technology export, being classified in Brazil as export of services (even though almost always bringing with it the additional export of goods), and resulting from the activity of consulting firms in the international market. In the same line, we should add another form of technology transfer, embodied in direct investment. The Brazilian balance of payment shows net Brazilian investment abroad ofUS$146,4 million in 1977, 125,4 million in 1978 and US$42,6 million from January to September 1979. Very small figures indeed, but earlier, in the sixties, they practically did not exist. Some Brazilian firms have been investing in Africa, but evidence on this matter is still difficult to obtain. In Angola, a Brazilian enterprise Pao de Aqucar, owner of a big supermarket in Luanda, constructed a net of them in the "muceques", the slum areas in the town. 16) Truly, it can be disputed whether there is much technology embodied in investments in a supermarket chain. Most important were probably their food imports.17) But technology proper is also coming into the picture, as the Angolan Oil Minister was negotiating in March last year the participation of Petrobras in risk contracts to be dealtthrough the petrol enterprise created by the government in Luanda.18) As a result of the negotiations, a mixed enterprise is being constituted, by Brazilian state enterprise Braspetro and Angolan state enterprise Sonan- go1 (Sociedade Nacional Angolana de Petroleo), to explore oil reserves in Angola's sea platform. 19) Brazilian investment exists in Nigeria. The bilateral balance of payment Brazil/Nigeria published in Boletim do Banco Central do Brasil registers under the item Capital Movement a net capital outflow from Brazil during 1974, 1975 and 1977 (respectively US lr5million, 5,4 million and 0,2 million) and a net inflow of US$ 578.000 during 1978 (388.000 flowing to Nigeria, 966.000 coming from Nigeria). No further specification is given, and therefore we cannot answer whether these amounts represent investment or credit and whether the US 966.000 capital flow from Nigeria to Brazil in 1978 represents repayment of credits, profit remittance of Brazilian firms in Nigeria, or Nigerian capital coming into Brazil. We know, for instance, that the trading company Cotia, Brazilian national private capital, has four subsidiaries operating in Africa, of which three in Nigeria and one in the Ivory Coast. In Nigeria the activities are a) in cattle raising and aviculture; b) vehicle components and all kinds of skrews for vehicles, in a joint venture with the Nigerian Industrial Development Bank, with a factory in Kaduna employ- ing 300 workers; c) commercialization, mainly of food and building materials. In the Ivory Coast, the Cotia organized a consortium of Brazilian firms in the sector of telecommunications,in order to bid in international competitions in Africa and in the Arab world, in the fields of telephone services, electricity, microwaves, radio etc. 20) A third form of technology export has its way through official technical aid. It is only in the beginning in the case of African-Brazilian relations, partly because the lift- ing of Africa to priority in Brazilian foreign policy is recent in practice (mainly from 1974). In Senegal, for instance, Brazilian technicians collaborated in 1975 in the construction of an industrial district in the city of Kaolack, as well as in the project for the organization of an Agronomic School and in the perforation of artesian wells.21) In Angola, Mozambique, Madagascar, Guinea-Bissau and Sao Tome, assistance of the Brazilian Post Office was given in the reorganization of the postal services. 22) In Senegal, technical cooperation in the fields of agriculture and fishing, and in the construction of two football stadiums have been negotiated in the Joint Comission Brazil-Senegal. 23) Training, education and exchange of scientific information would be another channel for technology transfer. Some of it, at a very modest level, can be found in the relations between Brazil and Africa. Again, only scattered evidence can be given. Technicians from Senegal had Brazilian grants for studies at the Institute for Food Technology of Campinas (State of Sao Paulo), and Brazilian alphabetization campaign MOBRAL collaborated in its field with the Department of Human Promotion in Senegal. 24) Information visits for African students are organized (for instance, agronomy students of the Ivory Coast in 1975). Given the common language, training programmes tend to be an important element particularly in the cooperation agreements with the former Portu- guese colonies. 25) Thise somewhat monotonous enumeration might impress only because of the unexpected in it. As noted by ABLIN (1979), "semi-industrialized countries have not been regarded as potential exporters of technology according to the prevailing theory".

Problems and Prospects Despite the fact that most of the Brazilian harbours are nearer to the African than the European coast, transport is still a barrier, even though conditions have been improving. In some cases, like with Algeria, a navigation treaty was signed, establishing that all transport of interchanged commodities should be done necessarily under Algerian or Brazi- lian flag. The lack of financial resources to compete with subsidi- zed supplier credit from developed countries is in general a more important an obstacle for South-South trade. Brazil has been facing this problem in its trade with Africa; credit lines were opened to most of the African partners, but the amounts are modest and still insufficient.26) Ethnic affinity, sometimes stressed with the allegation that "Brazil is the biggest African country after Nigeria", have been mentioned as a favourable basis to expand the economic relations. The common racial roots and historical background, with the related cultural influences, can certainly be an important bond,27) and is an argument in favour of closer cultural relations (PORTELLA, 1961). Per se they cannot create trade. 28) Brazil have to change its foreign policy before a common inheritance going so far as a common language could favour the Brazilian presence in Angola and other Portuguese speaking countries in Africa, as is happening now. 29) It has been argued that protectionism prevailing in developing countries is a major barrier to the expansion of South-South trade (LANGHAMMER, 1980). In fact, the idea of trade liberalization which was on the basis of many of the regionalization schemes amongst developing countries turned out to be non-feasible, mainly given the economic inequality of the trade partner^.^') In the economic relations between Brazil and Africa, this problem has been dealtwith by means of bilateral agreements. Up to now, it is precisely the com- plementarity of the flows that permitted trade expansion and therefore it could proceed with protected industries on both sides of the Atlantic. Deepening protectionism in developed countries might lead to increasing South-South trade, and also Brazil-Africa trade. On the other hand, EEC regulations favouring their trade with Africa (as in the LomG convention) have the opposite effect. It is difficult to predict the net effects. There is statistical evidence that the rate of growth in industry up to now positively affected the rate of growth in South-South export of mineral raw materials. 31 ) On this ground, one can expect further expansion of African- Brazilian trade in the future. It is trade of raw materials against manufactures (and food). But this is not to say that it will necessarily repeat old patterns of trade between developed and underdeveloped countries. Perhaps anticipating possible African complaints about being markets for "made in Brazil" and exporters of raw materials, the country is shifting the emphasis to the export of technology. And the diversification of suppliers represents higher bargaining power for Third World countries. For the time being, the flow of trade and services between Brazil and Africa, as well as capital movement, is a drop in the ocean compared to the flows to Africa originating in the most advanced countries of the world. In this context, it is premature to speculate on whether the emerging forms of inter-regional South-South economic relations might repeat a pattern of inequality that prevailed between industrialized countries and developing countries. NOTES

1) Financial Times, 18.8.80 and 21.8.80; Euromoney October 1980.

2) We leave aside the question of the significance of exports in the country's growth and global demand, which we have discussed elsewhere. Hoffmann, H, 19'78.

3) Moreover, the country could increase its part in the total amount of exports generated in Third World countries, on the basis of its greater competitiveness. Langhammer, R J, 1978, p.12.

4) "Other developing countries" comprises Latin American countries outside LAFTA, Continental China, Africa, Middle East and Asia (excluding Japan and Continental China). Calculations were made using basic data from CACEX and, for 1979, Banco Central do Brasil.

5) At the level of 8 digits, the NBM considers all items of the SITC.

6) Afrochamber, 1979, p.3.

7) Brasil Minist6rio das Rela~oesExteriores, 1974, p-35,

8) Brasil Minist6rio das Rela~oesExteriores, 1975, p.44.

9) Brasil MinistErio das Relaqoes Exteriores, 1975, p.41.

10) DIAdesky,J E, 1979; chapter 4.

11) Apart from the paper of D'ADESKY, the information comes basically from periodicals and from a visit to the Afro- Brazilian Chamber of Commerce in Sao Paulo, during January 1980.

13) Construtora Mendes Junior, one of the five largest Bra- zilian civil construction firms, is also operating in the Middle East. It obtained the biggest service contract signed by a Brazilian company abroad, that of the construction of a 550 km railway connecting Bagdad to Hsaibah in western Iraq, near the Syrian border. The contract in the amount of US 1,2 billion is the fourth signed outside Brazil by this big construction firm. The railway was projected in the Iraqi Five Year development plan, and negotiations with the Iraqi government started 3 years ago. The enterprise will hire 8000 people and shall be concluded in 1983. Afrochamber, 1979. Lall, S, 1980, p. 29.

Folha de Sao Paulo, 28/65 1978.

Folha de Sao Paulo, 11/3 1979.

According to Folha de Sao Paulo (11.3.79), quoting Ita- maraty, it was heard in the streets of Luanda that "the Angolan have three friends: the Russian, who supported the armed movement from the beginning, the Cuban, who gave their lives in the battlefields, and the Brazilian, who supply food" .

Reflecting old contradictions in the Brazilian policy towards Africa, Petrobras has the geological maps of the region offered for prospection, handed over by the former colonial regime of Lissabon at the time it tried to involve Brazil in activities in its colonies. Folha de Sao Paulo, 11/3 1979.

Jornal do Brasil, 22/1 1980.

Interview with the commercial director of Cotia. Folha de Sao Paulo, 23/7 1978.

Brasil Ministgrio das Relaqoes Exteriores, 1974, p.37.

Veja, 17/8 1977, p. 58.

Gazeta Mercantil, 25/1 1980.

Brasil Ministerio das Relaqoes Exteriores, 1976, p.65.

For Guinea-Bissau, see; Brasil Minist6rio das Relaqoes Exteriores, 1976, p.69.

For example, in the final decision about the bids for the dams and the hydro-electrical plant on the River Senegal, mentioned above, the financial arrangement could be crucial, and Banco do Brasil was not able to back the Brazilian competitor.

Eventually they can also become a source of conflict or at least uneasiness. A Nigerian journalist who visited Brazil recently together with a group fromthe Nigerian Institute of International Affairs relates his attempts to come into contact with black people in Bra- zil and maintains strongly that the country is racist. West Africa, 1/9 1980. 28) They could not avoid either African desillusions with past hesitations of Brazilian foreign policy towards colonialism and racism in Africa. The oscillations of Brazilian diplomacy towards Africa are thoroughly described and discussed by BOADI-SAW, 1975.

29) As is well known, Brazil was the first country outside Africa to recognize the new government in Luanda, in the day of the independence proclamation.

30) Thus, in the case of the Latin American Free Trade Association (LAFTA), the original idea of general tariff cuts scheduled in time was abandoned. At the beginning of 1981, LAFTA will be superseded by ALADI, the Associa- tion for Latin American Integration, providing a more modest framework for limited trade arrangements according to the economic strength of the members.

31) Langhammer, R J, 1979, p.12. REFERENCES

ABLIN, E. Technology exports from developing countries: after- thoughts in the light of the Argentine case. Paper sub- mitted to the Nordic Symposium on Development Strategies for Latin America and the New International Order, Univer- sity of Lund, September 1979.

BODI-SIAW, S Y. Development of Relations between Brazil and African States 1950-1973. Unpublished Ph D. Dissertation. University of California, Los Angeles, 1975.

Brasil. Ministerio das Rela~oesExteriores, Resenha de Poli- tics Exterior do Brasil. Ano I n. 3, dez 1974. Ano 11, n. 7, dez 1975. Ano 111, n. 8, mar.1976.

CARLSEN, J. Industrial Cooperation in the LomG Convention - The Case of Nigeria. CDR Project Paper. Copenhagen, July 1978.

D'ADESKY, J E. Analyse des echanges commerciaux Bresil-Afrique 1958-1977: problemes et perspectives. Centro de Estudos Afro-Asizticos. Conjunto Universitario Candido Mendes. Rio de Janeiro, 1979.

DEBATISSE. H. "Les echanues commerciaux entre 1'Ameriaue ~atineet 1 ' Arrique" Industries et Travaux D' 0ut;e-~er , juin 1974.

HOFFMANN, H. "The Export Oriented Development Strategy in Brazil", Intereconomics, no 3/4. HWWA-Institut fiir Wirtschaftsforschung, Hamburg, March/~pril1978.

KATZ, J, and ABLIN, E. From Infant Industry to Technology Exports: The Argentine Experience in International Sale of Industrial Plants and Engineering Works. IDB/ECLA Programme in Science and Technology, Buenos Aires, 1978.

LALL, S. "Developing countries as exporters of industrial technology". Research Policy 9, 1980.

LANGHAMMER, R J. Der Siid-Siid-Handel: Substitut oder Komple- ment zum Nord-Siid-Warenaustausch? Kiel Working Papers Nr 80. Institut fiir Weltwirtschaft, Kiel 1978 (forthcoming in: TIMMERMAN, V. (ed$ Beitrage zur Industriali- sierungs- und Handelspolitik der Entwicklungslander. Schriftender Vereins fiir Socialpolitik, Berlin, 1980.

LANGHAMMER, R J. Der Siid-SGd-Handel: Anspruch und Realitat. Kiel Discussion Paper 65. Institut fiir Weltwirtschaft, Kiel, Dez. 1979. LANGHAMMER, R J: "Multilateral Trade Liberalization in Deve- loping Countries", Journal of World Trade Law, v01 XIV, Nov. 1980 (forthcoming).

MUNHOZ, D G. A crise do petrBleo e o impasse da economia brasileira. Nov. 1979 (ms).

PORTELLA, E. Africa: Colonos e Chplices. Rio de Janeiro, Ed. Prado Ltda, 1961.

VERSIANI, F R, and BASTOS, V L. The Brazilian Machine-Tool Industry: Patterns of Technological Transfer and the Role of the Government. Textos para Discussao Nr 35. Universidade de Brasilia. 1976. * Tom Forrest GEOPOLITICS IN THE SOUTH ATLANTIC: BRAZIL, NIGERIA AND AFRICA

Over the last decade, there has been a resurgence in relations between Brazil and Africa. Though economic and political ties are still limited in size and scope, there has been sufficient expansion to warrant an examination of the trends. The Bra- zilian intervention in Africa has, for obvious reasons, received far less attention than the Cuban presence in Africa. The essay that follows sketches the evolution of Brazilian foreign policy and documents the build up of a Brazilian presence in Africa. Particular attention is given to Brazil's relations with Nigeria. Brazil's relations with Africa are not treated simply as the product of a sub-imperialism that reflects Brazil's intermediate position in a hierarchy of economic and power relations that extends from the United States at the centre to an African periphery. Sub-imperialism does not give Brazilian accumulation and state policy sufficient autonomy from multinational capital or US policy. Likewise, a simple dependency perspective fails to comprehend the dyna- mics of the Brazilian political economy. Brazil's policies and potential role in Africa need to be related to Brazilian national development, to relations with other potential continental powers like Nigeria and South Africa, as well as to imperialist rivalry and global capitalist development. Some of these issues will be taken up in conclusion. The validity of the idea of "South-South" relations will also be questioned.

* Tom Forrest is a Research Associate at Queen Elizabeth House, Oxford. Special thanks are due to Vagn Mikkelsen for assistance in the preparation of this paper. I am also grateful to Bjom Beckman, Gervase Clarence-Smith, Richard Jeffries, Lynn Muller, John Wells, Gavin Williams and participants at a workshop on the Emergency of South-South Relations in a Changing World Order at Kungalv, Sweden, for comments on earlier drafts. I am responsible for any errors of fact and the views expressed. Under the Quadros-Goulart administrations (1961-1964), nationalist demands for a more active and independent foreign policy brought a semblance of change to Brazil's African policy. ) Brazilian diplomacy began a largely symbolic shift from a subservience to Portuguese colonial interests, which had been formalised in the 1953 Luso-Brazilian Treaty of Friendship and Consultation, to support for African nationalist aspirations. A number of factors could support Brazil's claim to leadership of a tropical, Atlantic world. These included its geographic position, a large black population,the absence of overt racial strife, and strong cultural and linguistic ties with Africa. Another strand in Brazilian thought was provided by the writings of Gilberto Freyre, who expounded the idea of luso-tropicality. He held that Portugal had created, through adaptation and miscegenation, a multi- racial cultural community in the tropics. This common cultural identity could provide the basis for a political community. This mythology helped to sustain a deference to Portuguese policy in Africa. When the military took over in 1964, Brazi- lian foreign policy again became clearly identified with the Western powers. Brazil was committed to Portugal's position in Africa and by extension to South Africa. The use of sanc- tions against South Africa was opposed, as was the exclusion of South Africa from the United Nations. In the early seventies, Brazil's African policy began to shift. There was a slackening of ties with Portugal and South Africa, and diplomatic drive aimed at securing a political and economic presence in other parts of Africa, especially West Africa. The shift was a gradual one, and there was dis- agreement between the Finance Ministry under Delfim Neto which favoured a trade strategy based on the Luso-Brazilian Commu- nity, and the Foreign Ministry led by Gibson Barbosa which wanted broader links with Africa. In 1972, Barbosa made a tour of moderate African states in order to open up a dialogue (Cameroons, Dahomey, Ghana, Ivory Coast, Nigeria, Togo and Zaire). This tour had a mixed reception; a number of African commentators pointed out the unacceptable nature of Brazil's ties with Portuguese colonialism, the authoritarian character of the military regime, and the oppression of blacks in ~razil.~'Nigeria was singled out as the most important target for a diplomatic and trade offensive because of its large market, oil, and influence within Africa. In 1974, Okoi Arikpo, the Nigerian foreign minister, visited Brazil. He expressed satisfaction with the new attitudes of the Brazilian government towards the Portuguese colonies in Africa, to which he attributed the start of Nigerian-Brazilian c~operation.~)The collapse of Portuguese colonialism in Guinea Bissau, Angola and Mozambique provided further opportunities for Brazilian diplomacy. Under President Geisel (1974-78), the new African policy was firmly established. It led to the rapid recognition of the MPLA regime in Angola. In 1980, the diplomatic drive was extended to Tanzania and the front line states with a visit by the Brazilian foreign minister to Angola, Mozam- bique, Tanzania, Zambia and Zimbabwe. The timing of the shift in Brazil's African policy can be related to the need to secure markets for manufactured goods in Africa after the failure of dialogue and the isolation of South Africa. Access to African oil was a secondary consideration. Since the mid-sixties, Brazil has pursued a strategy of export expansion, as well as engaging in further import substitution, in an attempt to overcome the balance of payments constraint on gr~wth.~'A central element in the strategy has been the growth of manufactured exports to help cover the external imbalance and service the external debt. Special incentives for industrial exports were introduced (subsidies, tax rebates, devaluation). Pressures to find new markets were intensified in the late sixties by the growth of protection in North American and European markets. With the rise in oil prices, the need for external markets was given a further twist. In the period since 1974, the domestic demand for manufacturing industry has grown more slowly due to the foreign exchange constraint and manufactured exports have become more important as a source of demand growth for industry. Manufac- tured exports as a proportion of total exports have risen from a mere 5 % in 1964 to reach 43 % by 1979. Despite depressed world trade condition, rapid growth of manufactured exports has been maintained. These exports include a range of capital goods that are internationally competitive. One consequence of the growth of exports has been reduced dependence on the United States market. The United States share of Brazilian exports declined from 30 % in 1967-69 to 20 % over 1977-79. The share of United States direct investment in total foreign investment in Brazil has also declined from 38 % in 1971 to 5) 27 % in 1979 as Japan and West Germany increased their shares. These trends have some significance for Brazil's capacity to pursue a nationalist foreign policy. In the sixties Brazil's exports to Africa were very limited. They were worth $ 16m a year over 1960-65, rising to $ 27m a year in the period 1966-69 (see Table 1). The main African markets in the sixties were South Africa, Algeria and Morocco. By the end of the seventies Brazil's exports to Africa had climbed to $ 640m (1978-79 average), or 4,6 % of total exports. Market penetration appears to have been more successful in Africa than in the Middle East or Asia. Brazil has established a presence, however small, in practically all African markets. The main markets are Nigeria, Algeria, Angola, Zaire and South Africa. For manufactured goods, Africa accounted for 9 % of Brazilian exports (1978-79 average). Transport vehicles made up over 40 % of manufactured goods exported to Africa in 1979 ($ 230m). Arms are a recent addition to Brazil's manufactured exports to Africa. Over 1970-79 Brazil was ranked second among Third World arms exporters after 6) Israel, with Libya and Chile taking over 45 % of the purchases. Armoured vehicles and aircraft from the Engesa and Embraer companies have been sold to Gabon, Libya, Sudan, Togo and Upper Volta. The export of agricultural produce to North African countries is also significant. Brazil's imports of raw materials, especially crude oil complete the trade picture (see Table 2). In 1979 South Africa was the most important supplier with exports worth $ 170m (phosphoric acid, copper, iron and steel, paper, polyesters, asbestos, glass, nickel). The oil exporting countries followed (Algeria, Congo, Gabon, Libya, Nigeria). Oil accounted for about 70 % of Brazil's imports from Africa over 1975-78. 7, Phosphates from Morocco and copper from Zaire have also been imported in significant quantities. There are plans to import phosphate from Senegal, alumina from Guinea, and to renew the TABLE 1 Brazilian Exports to Africa (US $m FOB)

1960-65 1966-69 Average Average Total Exports

World 1386 1897 Africa 16 2 7 % 1,1 1,4

Manufactured Exports World n.a. n.a. Africa n.a. n.a. %

Total Exports Algeria 2 4 Angola - - Cameroons - - Congo - - Egypt - - Gabon - - Ghana - - Ivory Coast - - Kenya - - Liberia - Libya - - Mauretania - - Mozambique - - Morocco 2 4 Nigeria - - Senegal - 3 South Africa 8 12 Sudan - - Tanzania - - Togo - Tunisia 1 3 Zaire - - Other 3 1

Notes: a) Countries with less than $ lm of imports in 1979 are excluded; b) Figures for 1980 are provisional TABLE 2 Brazilian Imports from Africa (US $m CIF)

Total Imports World Africa %

Algeria Angola Congo Egypt Gabon Ghana Libya Morocco Nigeria South Africa Tunisia Zaire Zambia Other

Note : a) Figures for 1980 are provisional

Sources: IMF Direction of Trade Cacex, Import, Banco do Brasil, 1979 purchase of copper from Zambia. Brazilian purchases of African primary products are often part of bilateral trade agreements designed to boost Brazil's exports of manufactured goods. Thus a contract has been signed with the Algerian government for the exchange of automobiles for Algerian phosphate. Apart from trade, two further forms of Brazilian economic involvement in Africa should be noted. First, there is the export of Brazilian technology to Africa in the form of direct investment, turn key projects, licensing, management and consultancy. Little is known about the range and scale of this activity and the topic will be taken up later in connection with Nigeria. Second, as a major exporter of cocoa and coffee, Brazil has a direct interest in the policies of African producers of these commodities. Attempts have been made to control the world markets of these commodities through commodity agreements, and this has occasionally led to friction between Bra- zil and its African competitors, particularly the Ivory Coast.

Brazil and Nigeria The Brazilian strategy of loosening ties with South Africa and Portugal had its counterpart in the attempt to woo Nigeria, which has remained opposed to the racist regimes in South Africa. Historical links between Nigeria and Brazil provide a reference point for modern diplomacy. Aspects of Yoruba culture are present in Bahia today. In Lagos, there are families who descend from freed Brazilian slaves who returned to West Africa in the last century. The last decade has seen a steady growth in economic and political ties between Brazil and Nigeria. Apart from economic links, common positions have been taken on a number of foreign policy issues. These include verbal condemnation of apartheid and the recognition of SWAPO, recognition of Angola and Mocambique, opposition to the idea of a South Atlantic Treaty Organisation, and an identity of interest in the acquisition of nuclear technology. Before looking at these areas in more detail, it is worth recording some of the favourable responses to Brazilian overtures in Nigeria, and the creation of a generally favourable image of Brazilian development. Nigeria's military leaders, top bureaucrats and politicians share with Brazilian leaders an intellectual and emotio- nal antagonism to socialism, and a nationalist vision of an industrial future. Both countries have followed a capitalist path, though the Nigerian ruling class has so far exhibited less coherence and a weaker ideological commitment to capitalism and market incentives than its Brazilian counterpart. These views provided a basis for dialogue. When the Nigerian Finance Minister, Ekukinam, opened the first representative office of the Banco do Brasil in Africa in Lagos in 1976, he declared that both Nigeria and Brazil were pursuing the same economic and social objectives. 8, Chief Henry Fa jemirokun, President of the Nigerian Chambers of Commerce, after he had returned from a mission to Brazil in 1976 sponsored by the First Bank of Boston, wrote that the mission was convinced that Nigeria had much to gain from the Brazilian experiment which in many respects, especially in the areas of agricultural and industrial development, was an interesting model of development. ) Chief Fa jemirokun had earlier that year opened his own shipping line to Brazil. The Adeosun panel on indigeni- sation visited Brazil, and the government white paper that followed their report shows the strong impact on the panel of the Banco do Brasil as a model for development banking.'') In 1979 Army Chief of Staff Brigadier Shehu Yar'adua stated in Rio that Nigeria had always been a great admirer of the giant strides made by Brazil in the economic field which could be compared with the Japanese economic achievements in the post-war era. Such achievements would be the more meaningful to the extent that they were shared with other countries of the Third World to which both Nigeria and Brazil belonged. 11) Press reports on Brazil have been more variable, but generally enthusiastic. For example, a New Nigerian news editor who travelled on the inaugural Varig flight from Lagos to Rio wrote that "I can say without fear of contradiction that the two countries have identical aspirations".12) It is a part of Brazilian policy to encourage the flow of Nigerian officials, businessmen, academics and students to Brazil. Brazil has provided football coaches for the Nigerian national team and sponsored cultural tours to Nigeria. Links between the Universities of Lagos and Sao Paulo are planned. We now turn to some foreign policy issues. Both Portugal and South Africa attempted in the late sixties to promote the idea of a South Atlantic Treaty Orga- nisation (SATO) as a means of safeguarding the South Atlantic against Soviet expansion. Under President Medici, this project, which had support in Brazilian military circles, was seriously considered. In 1969, the Foreign Ministry was forced to deny that a treaty had been signed with South Africa and Argentina. Argentina, on the other hand, has taken part in joint naval exercises with South Africa. Brazil's new role in Africa, and its ties with Nigeria, clearly rule out any formal military collaboration with South Africa. One consequence of the absence of such a pact is closer NATO links with South Africa. With the advent of the Reagan administration, the SATO idea has been revived, but it has found no support in Brazil. A second strategic proposal, put forward unofficially on two occasions by Nigerians, is for a Brazil-Nigeria-Angola treaty to secure the South Atlantic against incursions by super powers. This argument was recently advanced by the Director General of the Nigerian Institute of International Affairs in the context of the need for Nigeria to increase its military force and capability to the level of a European middle power. 13) Offi- cially, both Brazil and Nigeria support an Atlantic free from any pact. The end of Portuguese colonialism provided new opportunities for Brazilian diplomacy. Both Nigeria and Brazil rapidly recognised the new regime in Angola. The Nigerian recognition of the MPLA was prompted by the invasion of Angola by South African troops. Immediately before this event, Nigeria was attempting through the Organisation of African Unity to create a government of national unity in Luanda. Brigadier Garba, the Nigerian foreign minister, had even gone to the extent of suggesting that Angolan independence should be delayed to allow time for this preferred solution to materialise. 14) Apart from recognition and diplomatic support, the gift of 13m, and some military assistance, Nigeria has not pursued close economic ties with Angola. Much of Nigeria's diplomatic energy and resources went, instead, into the creation of an Economic Community of West African States (ECOWAS). Commercial relations between Nigeria and Angola are negligible. A move for closer relations with Angola would probably only have found support among a few military officers and those advi- sers who came into prominence during the short period of the Murtala Mohammed regime. Even the financial assistance to Angola must be attributed to the decisive action of the Moham- med regime and not to any basic change in attitude of senior bureaucrats in Lagos. Murtala Mohammed's speech to the OAU on Angola in January 1976 was the strongest and most serious attack on Western imperialism in Africa to come from a Nigeri- an leader. 15) On a number of occasions Brazil and Nigeria have taken a common position on the acquisition of nuclear technology. Brazil was not a signatory to the Non-Proliferation Treaty of 1970. Following the German-Brazilian nuclear sales agreement in 1975, President Carter questioned the acceptability of Brazil's nuclear agreement and tried through public statements and emissiaries to persuade Brazil to forget the idea of nuclear power stations and above all an enrichment plant and a fuel processing plant which would give Brazil the capability to make nuclear weapons. Brazilian reaction was one of great anger. Carter's attacks on Brazil's human rights record had already led to the suspension of the bilateral military agreement between the two countries. Nigeria, a signatory to the 1970 treaty, had itself begun negotiations with the German company Kraftwerk Union for the purchase of nuclear reactors, and provided support for the Brazilian position. Thus in 1979, a joint communique reiterated that "access to nuclear technology for peaceful purposes must be open to states wishing to use it in the promotion of economic development under appropriate, acceptable and non-discriminatory safeguards". 16) Nigerian diplomacy has been characterised by attempts at every turn to push Brazil into a tougher line on South Africa. Thus, General Obasanjo, when he saw off the departing Brazi- lian ambassador called on Brazil to identify herself more positively and directly with the aspirations of Africans as far as South Africa is concerned. ') Nigeria, like other African countries, has not conducted any vigorous diplomacy in South America. The major preoccupation of Nigerian foreign policy in the seventies has been to secure a preeminent role in African affairs. How far Nigeria's relations with Brazil will be tempered by a concern for the position of blacks in Brazilian society is uncertain. During the Carter administration which had an important black constituency, the Nigerian foreign policy elite secured some leverage on United States policy through appeal to the black population. This led to close ties with Andrew Young, and close consultation with the United States on African affairs. Such a black constituency does not exist in Brazil. Diplomatic exchanges and agreements provide the background to the expansion of trade and a series of state contracts between Brazil and Nigeria. In 1979 agreements covering a wide range of economic and technical cooperation were signed. These include a joint commission to facilitate joint ventures and technology transfer. Bilateral trade, excluding oil, was projected at $ 3 billion over five years. 18) A breakdown of Brazilian exports to Nigeria shows meat, sugar, soya, rice and tomato paste among the food items ($ 25m 1978/79 average). In 1978-79 other major items imported included paper products ($ 7m average), cotton yarn ($ 21m average), synthetic yarn ($ 12 m average), iron and steel ($ 13m average), vehicles including CKD kits ($ 48m average) and re- fined oil products ($ 35m average). Brazil does not not appear to have made a large impact with exports of electrical machinery, mechanical instruments, or domestic appliances, though the range of items imported by Nigeria is impressive. In 1975, the Nigerian government began to import chilled meat through the Brazilian state trading company Interbras as part of its anti-inflation measures. In 1977 a shipping line, Nigerbras, was established as a joint venture between two state shipping companies. A joint venture, Nigerian Ranches Ltd, has been set up between the Nigerian Livestock Produc- tion Company and a Brazilian company, Cotia Comercia, to establish large scale cattle ranches. Another Brazilian company is to establish a joint venture with the Nigerian Grains Pro- duction Company for large scale food farming. Brazil has bought rubber from the Nigeria Rubber Board. The National Roots Production Company has purchased Brazilian cassava-processing technology. Another state contract involves the deli- very and management of cold storage equipment worth $ 18m. Other contracts which Brazilian companies have secured from the Nigerian state include telephone systems, road and hotel construction, forestry and ship building. The Brazilian state company, Novacap, has a contract with the Federal Capital Authority to help with the transfer of the Federal capital to ~buja.l A Brazilian proposal for exchange of business between the Institute de Resseguros do Brazil (IRB) and the Nigerian Re-Insurance Corporation has been adopted. Greater cooperation between the state oil companies, Petrobras and the Nigerian National Petroleum Corporations is planned. Nigeria also plans to purchase arms and weapons manufacturing technology from Brazil. Over one hundred armoured vehicles have been ordered. According to the Brazil foreign minister, "there is no reason why sale need not go through. Although Nigeria shares o frontier with Chad, where Libyan troops use some Brazilian military equipment, Brazil considers Nigeria as a peaceful country unlikely to intervene in the neighbouring country". 20) Private ventures involving Brazilian technology are few at present and information is scarce. The Volkswagen plant in Lagos, like the plant in Egypt, imports completely knocked down kits for assembly from Volkswagen do Brasil, the largest manufacturing company in Brazil. In 1980, the Nigerian company imported some 10 % of Brazilian production. Other companies which supply African assembly operations from Brazil include Mercedes-Benz and Saab-Scania. Fig has argued that the in- ability of South African-based manufacturing plants to obtain African markets has led multinationals to turn to their Bra- zilian enterprises to provide a base for the penetration of Afri~a.~')He cites Volkswagen as an example and there may be others. A joint venture between Nigerian individuals, the Nigerian Bank for Commerce and Industry and Cotia Comercio manufactures nuts and bolts in Kaduna and aims to supply car components in the future. The Cotia company which originated in the agricultural and livestock sectors in Brazil, has been very active and has four joint ventures in Nigeria. The Sabbagh company plans a $ 18m venture with the Nigerian Fashe- un grcup for the production of mosaic tiles. Other Brazilian- Nigerian ventures that have materialised or are in the pipeline include aluminium products, soft drinks and beer. The soft drinks venture is to import guarana concentrate from Bra- zil. There is no reason to think that Brazil's technology exports to Nigeria are as important as those of India. India has a longer history of technology exports to Nigeria (paper mills, asbestos, domestic appliances, railway management, engineering, steel consultancy, machine tools). There are currently fourteen Indian joint ventures in ~i~eria.~~'Brazil, with a manufacturing sector two times the size of India's, has pursued a strategy of exporting manufactures, giving special incentives to multinationals to locate in Brazil and export. But Brazil's open economy and the reliance on foreign capital have meant that domestic learning processes have not been protected with the consequence that Brazil's capacity for research and development and competitive technology exports is weaker than lndiats.23) These differences in the Brazilian and Indian strategies would probably be confirmed if data for technology exports for Africa as a whole were available. Outside Nigeria, Brazilian construction companies have secured contracts for railways, housing and a hydroelectric dam in Algeria, a sewerage system in Libya, roads in Maure- tania, hotels in the Ivory Coast, and river development in Senegal.24) The company Cia Vale do Rio Doce has set up a steel plant in Egypt. Petrobras, the state oil company, has investments in Algeria and Libya. In the Ivory Coast there is a soya bean project (Cooperativa Agropecuria de Campinas). In Ghana, Ceramica Cordeiro, in a joint venture with the Bank for Housing and Construction of Ghana, is building industrial plants for ceramic tiles and industrial lime with a total investment of $ 15m. 25) Official technical assistance has also been provided in construction (Senegal), and the reorganisa- tion of postal services (Angola, Mozambique, Madagascar, Guinea-Bissau and Sao Tome) .26) Brazilian alcohol fuel technology has been sold to a new methanol plant in Zimbabwe. Brazilian financial interests in Africa include the Bancc do Brasil's 20 % share in the Banque Internationale pour 1'Afrique Occidentale and a subsidiary of the private Banco Real in the Ivory Coast. 27) If economic and political ties between Brazil and Nigeria have grown steadily stronger, there have nevertheless been a number of occasions when relations have been questioned and debated. For example, controversy flared over the exclusion of Professor Abdias do Nascimento from participation in the Black and African Festival of Arts and Culture in Lagos in 1977. Professor Nascimento was then a visiting professor at the University of Ife. He had founded the Black Experimental Theatre in Rio in 1944, and went into exile from Brazil in 1968. He questioned the authenticity of the Brazilian official delegation to the conference and attempted to get his own contribution officially recognised. The exclusion of his paper was widely reported and condemned in the Nigerian press Nascimento provided vital testimony on racism and black struggles in Brazil, and he later published a book in Nigeria about the events surrounding his exclusion together with an account of racism in Brazil. 28) Another occasion when the Brazilian connection was questioned was in 1976 at a conference at the Nigerian Institute of International Affairs on the Brazil-Nigeria-Angola axis. Brigadier Joseph Garba, the Minister for External Affairs who attended the conference, appeared to support the idea of a strategic axis. After vigorous criticism of the ideal, the Ministry of External Affairs was forced to deny that it represented official Nigerian policy. The Daily Times commented in an editorial, 29)

Even if some theoreticians were flying a trial balloon by suggesting a Brazil-Nigeria-Angola axis it is the kind of balloon that will not fly, Brazil is a strange bedfellow in the company of Nigeria and Angola. For one thing Bra- zil is a member of the Organisation of American States. Even recently she gave a pledge to Kissinger that Brazil would always consult the US government on all major issues. Such a pledge would be unthinkable for Nigeria and Angola in a Brazil-Nigeria-Angola axis. ... Also Brazil openly sympathised with Portugal during the period when that fascist country was waging genocidal colonial wars against Africans in Guinea-Bissau, Mozambique and Angola ... It could be argued that Brazil is no more than America's cat's paw within Third World countries. It would be wish- ful thinking therefore for anyone to think that by drawing up a so called axis Brazil could be influenced to modify her domestic policies to become more liberal towards the black population of Brazil.

More recently, in 1980, a thirteen man Nigerian delegation visited Brazil for a dialogue promoted by the Nigerian Insti- tute of International Affairs. The visitors found their hosts unprepared and evasive. There could, of course, be no debate when Brazilian foreign policy was controlled by the foreign ministry without participation by intellectuals. By contrast, foreign policy debates were public and vigorous under the Nigerian military. One participant, who met black groups during the visit, ended his report by asking, "whether or not the Federal Government should attach political strings to our economic ties with Brazil until she humanises her internal policies. Such a policy would be consistent with our foreign policy which is dominated by a concern for blacks everywhere". 30)

Brazil and Angola The end of the slave trade between Brazil and Angola in 1860 practically severed trading links between the two countries for over one hundred years. There remained an intermittent circulation of Portuguese capital from Brazil to Angola and Mocambique, which involved a few wealthy Portuguese families. In the other direction, profits from colonial banks were used to finance banking operations in Brazil. In the 1970s there has been a renewal of trade between Brazil and Angola, and Brazilian capital has begun to enter Angola. Brazil's economic links with Angola have developed more rapidly than those with Mozambique, partly because Brazil wished to diversify her oil imports. The presence in Mocambique of Brazilians, who opposed the military regime and assisted Frelimo in the struggle against Portuguese colonialism may also have been a factor. The Angolan government, on its part, does not exclude economic relations with countries like Brazil, whose regimes are ideologically opposed to its socialist model, since it needs technology and capital from these sources. Brazilian exports to Angola have grown from negligible amounts in the early seventies to $ 89m in 1979. A breakdown of Brazilian exports for the years 1978 and 1979 shows that vehicles make up over half the total. Since 1979, a wide variety of food items have been imported from Brazil ($ 28m in 1979). Agricultural output fell after independence and food now accounts for about a quarter of Angola's import bill. In the wake of the Portuguese withdrawal, the food distribution system collapsed. The food processing industry is also in poor condition. In addition large scale migration to Luanda has forced the government to increase food supplies and other services to the city. The Brazilian supermarket chain Pao de Acucar has a management contract to assist state supermarkets in Luanda. A private Brazilian construction and consultancy company, Sisal, has contracts of $ 210m with the Angolan National Directorate of Tourism and Hotels for the construction and improvement of hotels. Brazilian imports from Angola are small, but an agreement signed between two state oil companies has long term implications for the expansion of bilateral trade. Petrobras, has a contract to buy 7.000 barrels of oil a day, and the value of oil exports in 1980 was $ 85m. Petrobras, has a 17,5 % stake in one concession and another is being negotiated. Petrobras is also to provide technical assistance for Angola in all aspects of the oil industry. One way in which Brazil has actively pursued closer relations with lusophone countries in Africa is through technical assistance. Here the Portuguese language gives Brazil a first class advantage. Brazil is a leading exponent of South-South relations and advertises her "tropical technology". The Brazilian government has supported technical cooperation between developing countries (TCDC). In 1980, Brazil set up a fund for the promotion of TCDC activities. Such activities involve Africans visiting Brazil on study tours and training programmes to familiarise them with Brazilian technology and know how. In the longer run this serves to promote Brazilian technology and consultancy services. In 1979, UNIDO contracted a Brazilian consultancy firm to carry out a survey of food processing plants in Angola, and a large scale project to assist these plants will, if accepted by the Angolan government, be carried out by Brazili- an companies.

Brazil and South Africa It remains to consider Brazil's interests in Africa in relation to South Africa. We have already seen that, in the pursuit of national economic objectives in Africa, Brazil has adopted an entirely pragmatic position in its political relations with capitalist Nigeria, socialist Angola and apartheid South Africa. Trade ties with South Africa have developed, and in 1978-79 South Afeican exports to Brazil were larger than those of any other African country ($ 143m average). Brazil's exports to South Africa were considerably lower in 1978-79 ($ 45m average). Apart from trade, there is considerable South African private monopoly capital in Brazil. A subsidiary of the Anglo-American Corporation, Arnbras, has interests in gold mining, mineral prospecting, explosives, construction and fertilisers in Brazil. 31) In a recent interview, the Brazili- an foreign minister explained that there is no political dialogue with South Africa that makes it possible for Brazil to intervene directly with Pretoria in order to achieve a solution to the Namibia question or any other political problems. 32) In Lagos, the minister condemned the South African invasions of Angola and Mozambique and spoke of "future perceptible differences between Brazil and the United States regarding Black Afri~a".~~' In geopolitical terms there is a real sense in which the exclusion of South African capital and goods from African markets is to Brazil's advantage. Thus Brazil has no immediate interest in working for any changes that would allow South African capital or trade to expand into African markets. South Africa has in the past shown great interest in the establishment of a free trade area or common market in Southern Africa. Over the period 1963-1970 South Africa's trade with the rest of Africa accounted for about 16 % of total exports by value. In 1977-79 the figure was 4,4 %.Much of this trade consisted of manufactured goods and part of the importance of African markets to South Africa lies in the opportunity they provide for changes in the industrial structure of South Africa. 34) Zambia and Rhodesia/Zimbabwe have in the past accounted for over half this trade. South African penetration of markets in Angola and Mozambique increased rapidly in the sixties, and South Africa made large investments in the Cabora Bassa and Kunene projects. One consequence of the failure of dialogue has been an attempt by South Africa to develop political ties and markets in South America. These strategies and ties have been well documented by E'ig. 35) In 1977-79 South African exports to South America were less than 2 % of total exports.

Conclusions We have documented Brazil's pragmatic African policy, and traced the beginning of a Brazilian economic presence in Africa. These developments have their roots in the capitalist development of Brazil, and the increased power of the nation state which is based on it. For Brazil, capital accumulation requires the expansion of exports, especially new markets for manufactured goods outside the advanced economies where protectionist pressures are a constant threat.36) The basis of trade with Africa is the exchange of manufactured goods and food for oil and other raw materials. Exports of goods are presently much more important than direct investment abroad or other forms of technology export, though consultancy services, civil construction activities, and technical assistance have increased. Though transnational capital dominates some export sectors, both state and private capital are active in trade and technology exports. In the case of Nigeria, the largest national market in Africa, there has been a steady expansion of relations. The Brazilian share of the Nigerian market is still modest, roughly equivalent to that of Belgium or Sweden. Political tensions arising from Brazilian links with South Africa and the subordinate position of blacks in Brazilian society, do not appear to have impeded this development. The diversification of ties is perceived as mutually advantageous by the respective ruling classes. Military cooperation in the South Atlantic is a possibility for the future. The extension of Brazilian interests to Africa, and the underlying dynamic of the Brazilian economic model, cannot be explained in terms of a dependency perspective that views the process of domestic accumulation as structured by, and subordinate to, accumulation at the centre. The power of the Brazilian state has increased, and capital based in Brazil, whether foreign or local, now competes for markets in Africa and elsewhere. Despite the heavy presence of transnational capital in Brazil, the Brazilian state acts as much more than a mere staging post for transnational capital. The large domestic market gives Brazil considerable leverage over competing foreign corporations. The development of a coordinated export policy in Brazil has brought capital more clearly under the control of the domestic state. In various ways, state power and state monopoly capital have been used to extend and direct Brazil's external economic interests in conjunction with foreign policy. These measures include export incentives, trade promotion, new transport and communication links, the growth of concessionary credit through the Banco do Brasil, the coordinating role of the state trading company, Interbras, and the overseas operations of the state petroleum corporation, Petrobras. In addition, the development of political relations secures privileged access to African markets for Brazilian goods and services through bilateral trade agreements and state contracts. The development of arms exports, based on a large domestic industry, adds a further dimension to the expansionist tendencies of Brazilian capitalism. Though the arms industry is largely privately owned, the state influences the price, profitability and destination of overseas sales, in the interests of national security. The highly uneven development of world capitalism and the shifting geography of national economic power does not support the crude polar categories of the "North-North" division. stewart3" has used the latter categories to argue from an interventionist, developmental policy perspective, that "South- South" trade should be expanded by institutional reforms because existing trade channels are biased against it, because it will help the "South" to unite and fight the "North", and because it will lead to less unequal relationships and the generation of more appropriate products and technologies together with a more equitable distribution of income. Under- lying Stewart's perception of the "South" is a group of national economies with roughly similar levels of income, consumption patterns, and efficiency. Similar efficiencies are held to moderate those polarising forces that characterise "North-South" exchange due to the dynamic linkages between growth, productivity and technical change. There are a number of objections to these arguments. First, they give a to- tally misplaced priority to international trade as a determinant of domestic patterns of development. It is rather the adoption of different strategies towards the international economy by countries like Brazil and India that has implications for domestic development. These strategies are explained primarily by the history of national accumulation, class forces and state intervention. Second, the geopolitical argument in favour of the "South", which is similar to that advanced by the ruling classes in Brazil and Nigeria, ignores the realities of uneven capitalist development within the "South" and the forces that make for interpenetration between states in a capitalist world. In the case of Brazil's relations with Africa, we have observed disparities in power and the exchange of manufactured goods for primary products. Ironically, if we replace the current North-South ideology by the older Temperate-Tropical ideology, the industrial growth of Brazil, Argentina and South Africa falls clearly into the temperate category. Third, the argument about the necessity for institutional reform to promote "South-South" trade is not valid. We have seen how in the case of Brazilian trade with Africa, the power of the Brazilian state has been used to increase links with Africa and to support the extension of Brazilian capital overseas in a manner that is similar to the methods used by the major capitalists powers with which Brazil is in competition. Finally, regarding the question of appropriate products and technologies, the onus is on those who believe that "South- South" trade generates them to demonstrate their case. Certain- ly, in the case of Brazil, agricultural technology is likely to be well adapted to tropictil conditions (cocoa processing, sugar milling and distilling, alcohol refining, manioc processing, soya etc). It is also possible that Brazil may develop a competitive advantage in the export of mini-steel plants and light armoured vehicles. This is, however, very far from showing that the expansion of "South-South" trade would promote changes in products and technology that would, in turn, have favourable consequences for the pattern of development in the societies concerned. NOTES

1) Roy A Glasgow, "Recent Observations on the Developing- ~oithernstrategy of Brazil, Portugal and Africa", Issue 2/3, Fall 1972.

See Daily Sketch (Ibadan) 18 November 1972; Rennaissance (Enugu) 26 November 1977; Nigerian Broadcasting Corpora- tion, News Talk 18 November 1972. See also a series of articles by Anani Dzidzienyo, West Africa No. 2891, 2893, November 1972; No. 2895, December 1972; No, 2905, March 1973.

Wayne A Selcher, "Brazilian Relations with Portuguese Africa in the Context of the Elusive "Luso-Brazilian Community", Journal of Interamerican Studies and World Affairs, 18/1, February 1976.

For discussion of Brazilian economic policy see, J R Wells, "Brazil and the post-1973 Crisis in the Interna- tional Economy" in Inflation and Stabilisation in Latin America, ed R Thorp and L Whitehead, Macmillan, 1979.

A Profile of Brazil, No. 17, Banco do Brasil, 1980.

Yearbook 1981, Stockholm International Peace Research In- stitute, Stockholm.

Helga Hoffmann, "Towards Africa? Brazil and the South- South Trade", (in Danish), Den Ny Verden, 14/2, 1980.

Nigeria Trade Journal, January/March 1977.

Commerce in Nigeria, Vol. 17, 1975/76.

Federal Military Government's Views on the Report of the Industrial Enterprises Panel, Lagos, 1976.

Nigerian Herald (Ilorin) 16 January 1979.

New Nigerian (Kaduna) 8 August 1977.

Daily Times (Lagos) 7 March 1981, 11 March 1981.

The New Nigerian Foreign Policy. Text of an Address by the Commissioner for External Affairs, Brigadier Joseph Garba, at the University of Ife, 26 November 1976. 15) Speech by General Murtala Mohammed at the Extraordinary Summit Conference of the OAU held in Addis Ababa on 11 January 1976, Federal Ministry of Information Release No. 145, 31 January 1976.

16) Daily Sketch (Ibadan) 16 January 1979.

17) Daily Times (Lagos) 10 February 1979.

18) Financial Times (London) 22 January 1979.

19) Africa Economic Digest, 2/14, 3 April 1981.

20) West Africa, 6 April 1981.

21) David Fig, "The Atlantic Connection: Growing Links Be- tween South Africa and Latin America", in Britain and Latin America, Latin American Bureau, London, 1979.

22) Business Times (Lagos) 3 February 1981.

23) S Lall, "Developing Countries as Exporters of Industrial Technology", Research Policy, 9, 1980.

24) Hoffmann, op cit.

25) Brazil Export, No. 139, March 1981.

26) Hoffmann, op cit.

27) S J Gitelman, "The Africa Connections", Africa Report, September-October 1980.

28) Abdias do Nascimento, Racial Democracy in Brazil: Myth or Reality? Second Edition, Sketch Publishing House, Ibadan, 1977.

29) Daily Times (Lagos) 16 April 1976.

30) Clem Baiye, "Nigerian View of Brazil", West Africa, 1 September 1980.

31) Fig, op cit.

32) Cadernos do Terceiro Mundo, No. 29, December 1980.

33) The Times (London) 31 March 1981. 4) Duncan Innes, "The Role of Foreign Trade and Industrial Development in South-South Africa", in Foreign Invest- ment in South Africa, The Economic Factor, Africa Publi- cations Trust, 1975.

35) Fig, op cit.

36) See J S Odell, "Latin American Trade Negotiations with the United States", International organisation, 34/2, 1980.

37) Frances Stewart, "The Direction of International Trade: Gains and Losses for the Third World", in A World Divi- ded, ed. G K Helleiner, Cambridge, 1976. * U Joy Ogwu

NIGERIA AND BRAZIL: A MODEL FOR THE EMERGING SOUTH-SOUTH RELATIONS?

Introduction

In pursuing its systemic objectives as an upwardly mobile power and an "industrialising developing nation" within the international system, Brazil has employed a pragmatic bilateral diplomacy in Africa to bolster its domestic economy and enhance its image and prestige among the developing nations of the South. Nigeria is one of the major countries where the Brazilian strategy and economic thrust has not only been visible but also most effective. But the interaction between Nigeria and Brazil appears to be in great disequilibrium and to Brazil's advantage. The asymmetrical relationships that are developing and are likely to continue may indeed pose an obstacle to the two giants development as a model for South-South relations. One sees in both Brazil and Nigeria manifestations of great or middle power status. Both countries, each being the most influential in its continent will have to redefine the foundations on which their bilateral relations with each other should be built and the pattern and directions which such relationships should take, especially within the context of a South-South relationship. In the long term, it is conceivable that Nigerian and Brazilian interests would best be served by clinging to the new South-South relationships, not only on the economic front, but also on the political, cultural and most importantly the technological level. * U Joy Ogwu, Research Fellow at the Nigerian Institute of International Affairs, Lagos, Nigeria, specialises in Latin American International Relations and Nigerian Foreign Policy. Her articles have appeared in such journals as the Nigerian Journal of International Affairs, The Nigerian Forum and Neuva Sociedad (Venezuela). This paper was originally presented at the staff seminar of the Department of Political Science, University of Lagos in June, 1982. The paper is part of a larger study under the title "Nigeria and Brazil: The limits of Inter-dependence and Co-operation". The insightful contributions by the staff is gratefully acknowledged. The intensification of the Nigeria-Brazil relationship in recent times has brought not only Afro-Brazilian, but also the emerging South-South concept into sharp focus. Indeed, there has been a widespread tendency to view the special relationship, not only as a model for inter-action between two rising regional powers, each distinctive in its own region, but also as a "show case" for the emerging South- South association. 1) Relations between Nigeria and Brazil can best be examined within a regional context. Thus the task here is to establish a logical link between the bilateral relationship and the broader regional dimensions of the Nigerian-Brazilian dyad. As relations have progressed from cultural-ethnic linkages to intense economic and political diplomacy, observers of Nigeria's international relations have become highly conscious of the reciprocal need to transform this intensive relationship into a mutually constructive one, that is essentially geared toward the promotion of a more symmetrical relationship. This essay seeks to identify the crucial aspects of their bilateral interaction, assess the level of the Nigerian receptivity to Brazil's very visible presence in Nigerian economy and the varying perspectives on the viability of a supposed "special relationship".

Brazil's African Policy

For a long time, Brazil's attitude toward Africa suggested a tendency to see Africa from a Portuguese prism. This tendency is best understood within a wider context of the binding "father-son" relationship that existed between Portugal and ~razil.) Brazil ' s strong ties with Portugal therefore determined Brazil's response to events in Africa. For example, Brazil accepted the thesis that Angola and Mozambique were integral parts of Portugal and for a long time refused to lend its support to anti-colonial resolutions in the United Nations. 3) By 1960, however, Brazil sought to develop diverse interests - toward a more globally oriented foreign policy, designed primarily to achieve an accelerated economic development within Brazil with simultaneously intensified trade relations with the less developed countries of the world. President Jkio Quadros set the tone for this new shift in policy at a meeting of the Republican Party in Rio de Janeiro. According to him, "Brazil could not continue its current timid position, for the way was clear in Asia and Africa". Expansion of international relations and advantageous shifts in trade, he noted, will increase our activity among nations, for we already are a country with a definite future". 4) The pragmatic national interest orientation toward Africa, propelled the Quadros administration into dramatic and unprecedented foreign policy decisions. A prime example was the appointment of a black Brazilian Yaymundo Sousa Dantas as ambassador to Ghana, making him the first black Brazilian ambassador accredited to a foreign country.5) This new policy was also illustrated by the establishment of embassies throughout the West African sub-regi~n.~)Nigerian doctors were trained in Brazil as part of the "drawing closer" to Africa policy. Although the administration of Quadros was shortlived, the Brazilian penetration of Africa had begun. The succeeding Goualart regime sought to maintain continuity in the policy of Quadros. But the coup d'etat in 1964 reversed the policy of Goulart. The successive Brazilian regimes from (1964-1972), assumed a more conservative character, pursuing a policy of intensified support for Portugal's resistance to African decolonisation.7) By the early 70s, the imminent end of Portuguese colonialism in Africa signalled the need for a re-assessment of Brazil's African policy: a need also reinforced by Brazil's pragmatic economic objectives in ~frica. The 1972 visit of Brazil's Foreign Minister, Mario Gibson Barbosa, to several African countries underlined the paramountcy of trade as Brazil's major goal in Africa. Wayne Selcher, an American specialist on Brazilian foreign policy delineated the new Brazilian objectives: 9) 1. Projecting Brazil's image as an industrialising tropical power with something to teach other less developed countries.

2. Project and defend a strong African policy to convince black African states that Brazil's previous relationships with Portugal should not inhibit development of closer ties with Africa.

3. Muster sufficient political support for Brazil's 200- mile territorial waters position.

On the bilateral front, Brazil's new African policy sought to achieve the following objectives: 1. Siqn trade and technical co-operation treaties that would allow up to private enterprise. 2. Advance cultural relationships based on Afro-Brazilian ties. 3. Survey the possibilities for Brazilian services and investments in development projects. 4. Work to increase direct transportation routes across the South Atlantic.

It is significant that Brazil's commercial strategies did not need much advertising, especially in Nigeria. By the end of Barbosa's visit, no less than two trade agreements had been signed with Brazil. This Nigerian receptivity is also illustrated by the numerous visit of Nigerian delegations to Brazil over the past decade, seeking Brazilian services, technical advice and investment ties. O) In spite of the gains in favour of Brazil, there has been a considerable element of ambivalence in its policy toward Africa - in which Nigeria is a unit. On the one hand, Brazil expresses solidarity with African aspirations both in the economic and political spheres and derives attendant benefits and concessions. On the other hand, it displays a strong and genuine identification with the First World, primarily because it sees itself as an industrialised nation and an exporter of technology. Brazil has maintained vital trade links with South Africa; trade which amounted to over $60 million in 1978. l') In spite of its professed support for African aspirations, Brazil has been eager to maintain economic and strategic interests in South Africa which in essence run counter to African objectives. The glaring contradictions in Brazil's African policy has not only raised cause for concern, but also serious doubts about the viability of the "special relationship" which Brazil seeks to develop with Nigeria, and Africa in general.

Nigeria's National Interest and Brazil's Foreign Policy

One of the basic elements of Nigeria's foreign policy has been the preservation of its sovereignty both political and economic. Nigeria has also for a long time pursued the aim of eliminating all forms of colonialism, racial oppression and discrimination and of ensuring the victory of the ideals of human dignity, freedom equality and justice on Southern Africa. In placing primacy on African issues, Nigeria is not merely seeking to protect African peoples from external aggression or oppression, but also promoting vigorously its own national interest - which in its broadest sense can be interpreted to mean that African economic prosperity and political unity and freedom from racial domination does concern the Nigerian government and people. This concern is well stated in Article 19 of the new Nigerian Constitution:

The State shall promote African unity as well as total political, economic, social and cultural liberation of Africa and all other forms of international co-operation conductive to the consolidation of universal peace and mutual respect and friendship among all peoples and states, and shall combat racial discrimination in all its manifestations. 12)

In this section, we shall examine the interplay of Nigeria's economic and political objectives and Brazil's pragmatic foreign policy from the perspective of two parameters. The first is the degree of contradictions between Nigeria's economic national interests and the Brazilian economic thrust into Nigeria's economy. The second is the consequence of intensive asymmetric bilateral interaction to the achievement of broader African goals. The basic economic objective of Nigeria at independence was to erase the colonially inspired economic structure and build a new one based on self-reliance and control of the vital sectors of the economy. It was perceived that internal economic strength and growth in the economies of other African countries and the developing world at large would ensure self-determination and eventual economic decolonisation. The objective of this essay is not to explore why the realisation of these goals have been slow. The literature on the impediments to national selfreliance in developing economies is available elsewhere.13' The central focus is the latent contradiction between the Brazilian penetration of the Nigerian economy and the much publicised value goals of the Nigerian political system. The nature of Brazil's intensive trade with Africa in general and Nigeria in particular provides an interesting case study of a vertical relationship in which economic leverage determines the dominant state's control over the economically subordinate state. Brazil's rapidly expanding industrial base has provided an impetus for its expanded economic penetration of Nigeria, a relatively larger market with immense purchasing power. Over the past decade Nigeria has become the major funnel for Brazilian products. The major commodities include vehicles, textiles, gasoline, building materials, paper and paper products, food and the much advertised "tropicalised" refrigerators and air conditioners. One of the main instruments for promoting Brazil's consulting and commodity trade is the multinational establishment, some of which have established their bases in Brazil and South Africa. The immediate problem posed for Nigeria is the negative role which the multi-nationals have played in Africa and are likely to continue to play, and its consequences for the fulfilment of the aspirations and goals of African peoples. Brazil's economic expansion and industrialisation strategy have essentially been dependent on the import and transfer of foreign capital and importation of foreign technology and expertise. Multi-nationals from Western countries have varying shares of investment in Brazil. In the electrical industry for example, multi-national corporations increased their control from 60 per cent to 77 per cent, calculated as a percentage of net assets, through take-overs of local industry during the period from 1960 to 1974.15) In the early 1970s, about two out of three subsidiaries of multinationals in Brazil were created through absorptions of existing local companies. 6, Thus, Brazil provides a haven for foreign multi-nationals whose capital investments have further entrenched capitalist control over the Brazilian industry. The overwhelming presence of multi-nationals in Brazil raises serious questions about the degree of indigenous technology that it has actually attained. Indeed, the question that arises is whether Nigeria is dealing with Brazil or the multi-nationals. Nigeria has consistently expressed its responsibility (as exemplified by the Indige- nisation Decree 1972) to protect its economy from domination by foreign business enterprises which are integrated not with the local economies, but with the economies of the developed industrialised states. The long term national interest is to create an economic system that meets the demands for national self-reliance without destroying the basis and prospects for economic co-operation and global inter-dependence.

Nigeria and Brazil - Mutual Perceptions Nigerian receptivity to Brazil can be characterised as a "mixed blend" of admiration and suspicion. They reflect the ambivalent feeling of thirst for accelerated development and industrialisation and distrust and resentment of the prevalent processes for achieving these goals. There is considerable admiration for Brazil's economic achievements. There is also an unmistaken awareness of the paramountcy of trade and economic objectives in Brazil's African policy. The problem is that Nigeria expects the Brazilian investors in Nigeria will establish the kind of investment that would provide a more solid base for trade and development rather than transform Nigeria as a conduit for the major international CO-operations. A closer association with Brazil would be more desirable if it would lead to a genuine collaboration and a model for co-operation between two prominent regional state actors - devoid of paternalist tendencies. In other words, the implicit tendency is to regard Nigerian-Brazilian relations as "horizontal" state-to-state relations even though both countries could be characterised by significant disparities of power. Nigeria sees Brazil as a rising intermediate power, having a vital role in international affairs, especially in the continuing negotiations between the North and South, and the achievement of economic and political decolonisation within a South-South framework. Perhaps, this expectation is why the Nigerians lament the hysterical attention being devoted to the role of Cuba in Africa and the linkages drawn to communist incursions in- to African states.17) The Organisation of American States is seen by Brazil not only as a means of fostering hemispheric unity, but also as a means of guaranting the Western Hemisphere against communist infiltration. An illustration of this undue concern is the Brazilian support for the exclusion of Castro's government from participation in the OAS. Even more so is the Brazilian encouragement of Cuba's isolation from hemispheric activities for its participation in African liberation efforts. The cautious welcome of Cuba to Africa should serve as proof of Nigeria's unwilling- ness to join any ideological camps. Indeed, a rational explanation was made for Cuba's intervention. According to Nigeria's former Head of State, Lt. General Obasanjo, "in every case where Cuba's intervention was established, they intervened as a consequence of failure of Western policies and on behalf of legitimate African interest". He added, "we have no right to condemn the Cubans nor the countries which felt they needed Cuban assistance to consolidate their sovereignty or territorial integrity.18) For Nigeria, like most African governments, the crucial issue in the liberation struggle is not ideological but one essentially based on principles and basic human rights, and they expect geniune solidarity, not symbolism from Brazil. In the Brazilian perception, Nigeria looms large in any consideration of African international politics. The recognition of Nigeria's unique position both at the economic and political levels in global politics perhaps explains why the Brazilian Third World thrust has been most visible in Nigeria.'') Nigeria's leadership role and influence in regional organisations like ECOWAS and the Or- ganisation of African Unity may remove some of the obstacles to Brazil's goals in the rest of sub-Saharan Africa. In other words, an intensified relationship with Nigeria could serve as a bridgehead for further penetration of Brazilian goods and capital into other markets in Africa in general and the West African sub-region in particular. In this regard ECOWAS becomes very significant for Brazil in the linkage. Brazilian concern about communism has inevitably steered the country into a visibly pro-Western policy path and this precisely hinges on Nigeria's non-aligned orientation. 20) But the conflicts in the Nigerian-Brazilian relationship should not be emphasized to the detriment of the immense co-operative prospects that exist in the relationship. As the interaction becomes more intense, issues of national interest, interest priorities and conflict in bargaining will surface. This means that the relationship will be subject to more intensive scrutiny on Nigeria's domestic front. The trend toward a conflictive or co-operative relationship will be largely dependent on the attentive Nigerian public and the politico-economic orientation of the people in government. But the central question is: does Nigeria in fact gain in the relationship? Would it continue to be relevant in the 1980s and beyond? Whatever one's evaluation of the relationship, however, the positive and negative perceptions of both sides might help to identify the most important factors and issues that are likely to affect their interaction.

The Issues The fundamental parameters of the Nigerian-Brazilian relationship can be categorised as: (1) Cultural affinity and race, (2) Trade, and (3) Politics. Cultural Affinity and Race The relevance of "Cultural affinity" in the Nigerian-Brazilian dyad has been demonstrated at every point of interaction. Early identification with Nigeria was based on the cultural linkages arising from over three centuries of slave trafficking from Africa to Portuguese Brazil. A distinguished Brazilian historian, Jose Honorio Rodriques noted that "over the whole course of its history, Brazil had more Negro inhabitants than whites and ~ndians.21 ) The origins of the first Negroes in Brazil have been traced to the west coast of Africa. Indeed, the discoveries of minerals and mining in Brazil was accompanied by the large scale importation of Yorubas from Nigeria, Ewes and Phndingos from the Gold Coast (Ghana ), Dahomey, (Benin Republic ) and the Ashantis from ~hana.~~)These centuries long linkages perhaps also help to explain Brazil's long standing relationship with West Africa. Brazil has made very effective use of its African linkages in its African diplomacy. The African influence of Brazilian culture is exemplified by the life styles, beliefs values and customs of Afro-Brazilians. As expressed by President Figueredo in a message of welcome to Zambia's President Kaunda in 1979, both Africans and Brazilians must build on the bridge of a long association for their mutual material and social progress.23) This sentiment is reinforced by the numerical strength of the Blacks in Brazil. Brazilian officialdom declare Brazil after Nigeria in terms of population. 24) In concrete terms the "Cultural af f inity" factor explicity confers to Black Brazil the role of power brokers, not only for Brazil, but also for ~frica.~~)In other words, the presence of such a large population of blacks in Brazil provides a potential solid base for mutually beneficial ties. This potential was recognised over two decades ago by Nigeria's labour Minister, Chief J M Johnson at an exhibition of Brazilian painting in Lagos. He observed that since Brazil had the second largest Negro population in the world it had the right to belong to the Organisation of African unity. 26) Such a statement was significant for it demonstrated Nigeria's abiding concern and interest in its kith and kin all over the world wherever they may be. The Nigerian interest in the welfare of Black peoples has been reiterated in numerous policy statements of successive Nigerian governments.27) To that extent, the concept of governmental support for Blacks in other political centres of the world has become a matter of national interest. In pursuit of its national interest therefore, it is inevitable that the "Cultural affinity" factor will come into conflict with the issue of race in Brazil which in this context implies the disadvantaged status of blacks in Brazil's political economy. As long as there are contradictions between the cultural affinity claim of Brazil and the intense racial discrimination of Brazil there would be serious doubts about Brazil's posture on African issues.

Trade

Over the period 1970-1975, Brazil's exports to Nigeria increased sharply from N3.1 million (Naira) in the first quarter of 1974 to N21 million in the corresponding period of 1 975.28) From 1974 to the early 1980s Brazil has recorded substantial surpluses in its trade with Nigeria. 29) (Ministerio da Fazenda, Foreign Trade of Brazil). Thus, it may be stated that the crucial importance of the Nigerian market for Brazilian export commodities has remained very stable and lucrative. The most persuasive explanation for this trend is that Brazil offers competitive prices for the sale of "tropical goods and technology" that are particularly adop- tive to the Nigerian environment and level of sophistication. Nigeria's major import items from Brazil have been industrial products, including chemicals and manufactured goods. The need for these products have continued to rise. The value of exports to Nigeria rose to $68 million in December, 1979 - an indication that the relative importance of Nigeria for Brazil's products have not changed. 29) Brazil relies heavily on foreign sources of energy for its industrial production. Nigeria has provided one of the Brazilian sources of oil in exchange for products. Even with this attempt there is still a significant trade in- balance. It has been pointed out in this paper that Nigeria seeks diversification of its economic relations and the pursuit of progressive economic policies seem to be paramount. But it is clear that the foreign investment strategies and the trade practice of capitalist multinationals contradict these objectives. There is no doubt that Brazil has attained a relatively high level of technological capacity, but this is essentially operated by multinationals. In this regard, two questions immediately become relevant: to what extent should Nigeria accept Brazilian economic interaction without sacrificing its basic national objectives? Given the objective Brazilian commercial interests in Nigeria and its generally lukewarm stance on political issues affecting Africa, should Nigeria pursue economic relations in isolation of politics?

Politics

In contemporary international relations trade cannot be realistically divorced from politics. Nigeria's political relations with Brazil has gradually become an issue of domestic concern as Nigerians become more aware of the lackof a balanced relationship. On the other hand if Nigeria does not achieve the desired accelerated internal economic self- reliance and finds itself vulnerable to Brazilian trade and aid, its assertiveness may wane and criticisms of the sordidness of the paternalistic trade pattern will never move beyond public opinion rhetoric. Brazil's continued ties with South Africa and the alleged South Atlantic military collaboration with South Africa will remain potentially the most vulnerable area of Nigeria- Brazil relations. The closely guarded plans to link the navies of South Africa, Southern Atlantic countries and the United States began to materialise in Argentina in May, 1981. According to Hugh O,.Shaughnessy in a Financial Times (London) report, the idea of a South Atlantic Treaty Orga- nisation has come to birth su essfully in Buenos Aires, despite the fact that its parents are somewhat shy of acknowledging their parenthood. This South Atlantic Pact that would establish a military alliance between South Africa, the U S, Brazil, Argentina and Uruguay poses a real threat to world peace in that it may bring the super powers into conflict. Specifically, the militarisation of the South Atlantic Ocean presents a clear danger for Nigeria and Africa. Perhaps an elaboration of Nigeria's threat perception in the South Atlantic would clarify this point. First, Nigeria and South Africa have a mutual perception as enemies. South Africa represents for Nigeria, national and strategic interests. Second, Nigerians and Africans see themselves as potential victims of apartheid and therefore have a duty to protect the black race. Third, the Southern Atlantic itself is of vital strategic interest and importance to Nigeria for the West African Coastline is a channel that could be rendered vulnerable given South Africa's military capability. The question that arises, is, a South Atlantic military alliance against whom and to protect what? It appears that security issues in the South Atlantic tend to obscure the threat posed by the interests of the super powers. The Soviet Union has a vital interest in maintaining free access to the newly independent Southern African countries while the United States seeks to protect its capital investments in South Africa itself. During the period when the Brazilian economic miracle attained a crescendo, the Brazilian development strategy was perceived as a "model" for Nigeria's development. In recent times, there is a growing perception that adopting Brazilian development strategies would mean adopting Brazil's development problems. On the political front it was expected that as a coloniased people, Brazil was in a position to appreciate the demoralising effects of colonialism. The feeling therefore was that Brazil and Nigeria as former colonies had been thrown together by the issue of decolonisation. This feeling of affinity was reinforced by the ethnic linkage with Brazil. Today, growing economic and political nationalism in Nigeria appears to dampen the original fervour. There is still significant admiration for Brazil's development successes, but only as far as it excludes multi-national admiration. Nevertheless, in the future, Brazil will continue to be prominent in Nigeria's international relations, basi- caly in trade, but eventually achieving a balance with intensified political and diplomatic interaction. Brazil's involvement in Nigeria's international political activities has been cautious and slow. What we may see in the years ahead will be a vigorous and sustained pressure from Nigeria to increase the Brazilian political identification with Nigeria. The following perspectives drawn from a recent Nigerian-Brazilian dialogue on foreign policy point to some disqueting issues that will need to be resolved if Nigerian-Brazilian relations are to continue to have a meaningful and dynamic purpose "as a model" for South-South relations.

Nigeria and Brazil: Perspectives on a Dialogue

The Problem

The recognition of the lack of balanced relationship and the urgent need to take a longer perspective about the national interest of Nigeria in its bilateral relations with Brazil led the Nigerian Institute of International Affairs, to initiate a dialogue with Brazil in preference to other Third World "Middle Powers". The dialogue presented a challenging opportunity for both sides to explore and review vital issues affecting Nigeria-Brazil relations. In spite of the differences in perceptions, the common factors shared by both countries cannot be ignored. Brazil like Nigeria has a federal structure consisting of relative large heterogenous regions and states each with its unique ethnic, cultural and economic features, yet existing under a common flag. Both countries have suffered the convulsions of sessionist threats, but have also managed to find unity in diversity. They also have in common abundance of raw materials for which they need technology to explore and develop. More significantly, Brazil is the home of about 20 million blacks of African descent. This factor points to the common struggle which Nigeria and Brazil must share - the fight to eradicate racism wherever it exists in the world.

Mutual Perception of Foreign Policies

A Nigerian delegate in an illuminating analysis of Brazilian foreign policy, clearly delineated four major factors condi- tioning Brazil's international behaviour as geographical location, population, economics and her colonial heritage. The most significant of these factors is Brazil's geographical location in the hemisphere which has propelled it into stressing the vital importance of territorial waters to its national interest and security. Indeed, it is the same security concern and interest that led Brazil into the recently alleged South Atlantic alliance with South Africa and the United States. Undoubtedly, Nigerians recognise that security interests are paramount in determining Brazil's policies, it was perhaps the quest for security and great power aspiration that had led Brazil into concluding a nuclear deal with West Germany in 1975. The Brazilians themselves recognise the growing importance of Nigeria in international relations. They also recognise Nigeria's crucial role in the OAU and ECOWAS as a major step in promoting the Pan-African consciousness. According to the Brazilians, awareness of Nigeria's leadership role in Africa makes it not only imperative to dialogue with Nigeria, but also to consider relationship with Nigeria as a model of Brazil's relationship with the rest of Africa. On economic relations between the two countries and the issue of the mechanisms for ensuring a new world economic order, both sides had a clear appreciation that they face common economic problems. The desire to change this under- privileged situation is illustrated by the active involvement of the Latin American bloc led by Brazil in negotiations at United Nations Conference on Trade and Development UNCTAD. This is not to imply the total absence of divergent opinion at the dialogue. Indeed, the mood of the dialogue changed when the cultural and strategic aspects of Nigeria-Brazil relations were introduced. Divergent Perspectives on Nigeria's Commitment to the Black World

Considerable attention was focused on the issue of race and racism throughout the dialogue. The Nigerian delegation stated the key factors to understanding their country's foreign policy as:

(1) support and commitment to the liberation of African countries still under colonial rule; and

(2) support and solidarity for black human rights all over the world.

Although Nigeria shares with Brazil the underlying juridical doctrine and concept of non-interference in the affairs of other states, Nigeria would not hesitate to demonstrate its commitment to the protection of the political and economic rights of black people wherever they are located. In reaction to the Nigerian perspective on the racial situation in Brazil, a black Brazilian participant disclosed that a Negro Front For Political Action was established to deal with the problem of racism and oppression, but there was no support from black politicians in Brazil. He noted that Brazil's close ties with South Africa illustrated by the presence of over 300 South African families in Brazil (most of them employed in the labour force as technicians ans skilled workers) has caused apprehension among black Brazilian that there may be an intensification of racism. Another Brazilian presented a sharply divergent view which according to him, was based on historical and demographic facts. He pointed out that Brazil and Nigeria are entirely different, the only common trait, perhaps is the colonisation by European powers. In spite of colonisation, however, African heritage was preserved; Pan-Africanism was revived and accelerated. But in Brazil, diverse cultures can be identified. There is a mixed population with different strains of races running through the system. Of this, the Negro race constitutes only about ten per cent (10 %) of the population. This participant was of the view that identification of a special kind - one that tends to distinguish the black group in the society could lead to a white blacklash. Yet another Brazilian participant felt that the emergence of Negro groups, particularly among the young, is a contemporary Brazilian reality. It is evident that the Negro population in Brazil is trying to revive its cultural patterns (as evident in the state of Bahia) in an attempt to recapture and revive their cultural values. The evidence above points to the sharp differences of opinion on the imotive issue of race not only between Nigeria and Brazil but more significantly among the Brazilians themselves. The Nigerians stated that they were acutely aware of the enormous differences between Nigeria and Brazil but this does not discountenance the fact that there are shared aspirations namely, justice for allraces, which makes it imperative for the two countries to work together to accomplish common objectives. By identifying common aspirations, Nigeria does not intend to interfere in the internal affairs of Brazil, rather it is an attempt to urge the implementation of international action against apartheid and racism. The Nigerians asserted that nations that have accepted the equality of races should assume international obligation to foster these rights. In reiterating the commitment of their country to the protection of blacks all over the world, the Nigerians re-emphasised that an increased economic and social interaction between Nigeria and Brazil, in which Brazilian blacks do not participate and benefit, would be difficult to justify to the Nigerian people. It is therefore left to the Brazilians to decide how to achieve the pre-requisites for mutual cooperation. In this connection, it was important that Nigeria's position wasn't misconstrued. Even the United States links the sale of wheat to Jewish emigration from the Soviet Union. Over forty nations excluded themselves from the 1980 Olympics in Moscow to demonstrate their opposition to the abuse of the sovereign rights of Afghanistan. Nigeria therefore, is not making a unique request, but exercisinq its sovereign pre- rogative in linking the benefits derived by foreign investors in Nigeria to the welfare of black peoples. Differing Perspectives on Strategic Relations

It is noteworthy that security interests constitute the basic tenet of Brazil's strategic policies. In this connection, the participants at the dialogue attempted to address themselves to two crucial issues namely; the power vacuum created in the South Atlantic and the alleged alliance between Brazil and South Africa in the South Atlantic. The Brazilians reaffirmed their perception of the world in bi-polar terms, stressing that they have deliberately chosen the path of capitalism instead of socialism to develop and maintain their society. They see Brazil manifesting the necessary conditions for great power status. Even though the Brazilians refuted the allegation of seeking hegemony in Latin America, they nonetheless, stressed their concern about communism which they perceive as a clear and ever present danger not only in the Brazilian society but also in Southern Africa. It was on this issue that the basic divergencies of both sides became more pronounced. In the Nigerian view, it is disturbing to note that the dominant perception of Brazilian interests is to combat communism especially in the Southern Atlantic where Nigeria also identifies its security interests. The Nigerians pointed to the need for both Brazil and Nigeria to realise the potentially strategic importance of the South Atlantic ocean in both countries' quest for industrialisation and urged that efforts should therefore be geared toward initiating a continuing process of dialogue for some form of mutually beneficial arrangements to monitor super-power manoeuvres in the South Atlantic. Reacting to the Brazilian perception of the communist danger in the South Atlantic, the Nigerians asserted that the precondition of Soviet interference in the South Atlantic is the presence of the illegal regime in South Africa. The Soviet Union does not constitute a threat to African states. Indeed, if anything, it is the Soviet Union among other great powers that has maintained a relative consistency in its support of the African position in Southern Africa. Thus, the question is: if the Soviets have demonstrated more preparedness and consistency in supporting the African cause, why should Nigeria decline to accept their hand of fellow- ship? The Nigerian delegation however reiterated Nigeria's abhorence of the idea of ideological camps. While Nigeria's stance on this remains unequivocal, the real issue that it addresses itself to is: "who is on Nigeria's side"? Since Nigeria has identified the Soviets as supportive of African issues, especially in the Southern African problem, it is only logical that they should be encouraged. The alleged evil of Soviet influence in Africa is grossly misleading and the case of Soviet support for Ethiopia cited by Brazil in support of this allegation was a clear case for the preservation of colonial boundaries which the Latin American countries supported.

Conclusion

The Nigerian/Brazilian dialogue was the fifth in the series of such dialogues with key countries initiated by the Nigerian Institute of International Affairs. It is significant that the format for this dialogue differed radically from established and accepted procedure of having equal numbers of participants on each side in a closed door dialogue. The idea of having an audience in a dialogue contributed immen- sely to the diversities and divergencies of views articulated. However, the prominent themes at the dialogue - security, economics and the problem of racism were profoundly beneficial for both sides in the search for improved ways of translating the common factors and affinities between Brazil and Africa into mutually beneficial policies. For the Brazilians, the bridgebuilding has already begun, illustrated by the programmes of Sao Paulo University, which maintains mutual realtions with the Universities of Ife and Lagos. 30) In spite of these linkages, the major sources of mis- understanding will still be found in the wide divergence of views on the concept of national interest. In the Nigerian view, the "cultural, ethnic affinities" that the Brazilians consistently advanced during the dialogue should not be allowed to mask the more profound issues at the stake, particularly, political, racial and economic questions. The problem of communication is perhaps the greatest impediment to real progress in Brazil's relations with Africa in general. The Brazilians appear to be victims of the mani- pulation of the mass media by the developed first world. It was revealed that a three-month case study of Brazilian newspapers on the publications on Kenya illustrated the public thirst for sensationalism. One of the strategies for rectifying and overcoming the distorted images and stereotypes that Brazilians have of Africa would be to institute both long and short term exchange programmes between educational institutions, information establishments, cultural and sports organisations. Indeed, what is indicated is a concerted strategy and sustained effort to overcome mutual problems toward attaining mutual advantage. This dialogue is a beginning. 31 NOTES

1) South-South Co-operation is designed to provide a new structure of international relations favourable to the LDCs (Less Developed Countries) - a relationship that would eventually make them more capable of action idepen- dent from the North. See Jacques d1Adeskyr "Brazil- Africa: Convergencia para Uma CO-operacao Privilegiada". Cardernos Candido Mendes, Estudos Afro-Asiaticos, (1980) No. 4 pp. 5-20. See also Candido Mendes "Brazil's International Policy". Text of a lecture delivered in May, 1982, under the auspices of the Nigerian Institue of International Affairs.

2) These comments were contained in a presentation by a Nigerian Spokesman at a Nigerian-Brazilian Dialogue on Foreign Policy in Sao-Paulo, Brazil July 29 - August 1, 1980.

3) Jose Honorio Rodrigues, "Aspiracocos National", Sao Paulo 1963.

4 ) 0 Globo, Rio de Janeiro, (May 12, 1960).

5) This information was provided by the Ambassador himself, who had an observer status at the "Dialogue" mentioned above.

6) Dr. Pola Soremekuu, in a background paper prepared for the Nigerian delegation to the Nigerian-Brazilian Dialogue on Foreign Policy.

7) Wayne Selcher, The Afro-Asian Dimension of Brazilian Policy (Gainesville: University of Florida Press, 1974). See also a wublication of the Niuerian Institute of International Affairs, Lagos. "Nigerian-Brazilian Dialogue on Foreign Policy", (forth-coming).

8) Brazil's economic power and international ambitions, especially its African economic objectives has been comprehensively dealt with by Wayne Selcher in The Afro-Asian Dimension of Brazilian Foreign Policy (Gaines- ville, Fla.: University of Florida Press, 1974). See also, Wayne Selcher, Brazil's Multilateral Relations Between First and Third Worlds, (Boulder, CO: West View Press; 1978).

9) Wayne Selcher, ibid.

10) Daily Sketch (November 28, 1972). Daily Times (Nigeria, November 8, 1978). New Nigerian (August 2 1 , 1980). Information based on the figures presented at the discussions on Brazil's trade with South Africa. At the Nigerian-Brazilian Dialogue see also "Apartheid's Hands Across the South Atlantic" referred to by Anani Dzidzienyo and Michael J Turner in "African-Brazil Rela- tions: A Reconsideration" in Wayne A Selcher (ed.) Brazil in the International system: The Rise of a Middle Power (Boulder CO: West View Press) 1981.

See section 14 of the Report of the Constitution Drafting Committee Containing the Draft Constitution. New Section 19 of The Constitution of the Federal Republic of Nigeria.

See for example, Pierre Jalee, Pillage of the Third World, (New York, Monthlv Review Press, 1968) Patric McGowan, "Economic ~e~endenceand Economic Performance in Black Africa", Journal of Modern African Studies, 14, (1976, pp. 25-40.

Charles Harvey, "Foreiqn Investment in South Africa: The Economics-of withdrawal", In Foreign Investment in South Africa: The Policy Debate, Uppsala, African Publi- cations Trust, 1975. Also, Ian Mackler, Pattern for Profit in Southern Africa (New York, Antheneum 1975).

W. Newfarmer "INC" Takeovers in Brazil: The Uneven Distri- bution of Benefits in the Market for Firms", World Deve- lopment, Vol. 7 1979, pp. 25-43. ibid.

Brazilian perceptions at the dialogue mentioned above reflected the fears about Communist designs in the South Atlantic.

Lt. General Obasanjo at the 15th Ordinary Session of the OAU Assembly of Heads of State and Government in Khartoum. Federal Ministry of Information Release No. 992 and 993, Lagos. July 19, 1978.

Wayne Selcher, op.cit.

See for example Joseph Garba in an Address to Members of the International Students Association, University of Lagos. Federal Ministry of Information Release No. 354 of March 16, 1976.

For an excellent history of Brazil-Africa relations, see Jose Honorio Rodrigues, Brazil and Africa (University of California Press, 1965. 23) Journal de Brazil, August 30, 1978, p. 8.

24) African Mirror, December 1, 1977, p. 31.

25) The concept of the "Power Broker" system has been analysed thorougly by Tilden J Le Melle, "The Power Broker System" in Africa Today, Vol. 18, No. 4 (October, 1971), pp. 18-22.

26) Olinto Antonio, African Forum Vol. 2 (November 4, Spring 1976), p. 8.

27) Lt. General Obasanjo in Tarikh, (Vol. 6 No. 3) p. 17. Also in an interview with Raph Uwechue, Africa, No. 58, June 1976, pp. 10-14. See The Presidency in Nigeria: Continuing Pre-occupation with African Problems, Office of the President, Department of Information, p. 12.

28) Federal Ministry of Trade, see Appendix I.

29) Nigerian-Brazilian Dialogue on Foreign Policy, op.cit.

30) The special relationship with Ife in the West of Nigeria derives from the cultural and historical similarities between Ife as the cradle of Yoruba civilization and culture and Bahia as the major concentration of African descendants. For historical details, see Antonio Viera da Silva, "The development of Portuguese Language in Luso Brazilian Studies in Nigeria" in Lusophone Area Studies Association Newsletter, Vol. 1, No. 1, May 1981, p. 3.

31) This section is essentially an excerpt from the Nigerian- Brazilian Dialogue soon to be published by the Nigerian Institute of International Affairs. The Author was the Rapporteur at the dialogue. TABLES

MAIN COMMERCIALIZED PRODUCTS BETWEEN BOTH COUNTRIES BRAZIL X NIGERIA

Vehicles Vehicles Vehicles Beef Beef Mineral Combustibles Cotton Cotton Machinery Iron and Steel Iron and Steel Cotton Machinery Machinery Beef

NIGERIA X BRAZIL

1976 Unrefined oil Unrefined oil Unrefined oil Scoria Scoria Natural Rubber

Source: Federation and Centre of Commerce of Sao Paulo State. S1 News No. 4, July 1980. COMPARATIVE DATA ON NIGERIA AND BRAZIL (1977) (Million US$)

Nigeria Brazil

Population 118.0 Gross National Product 148.674 GNP Per Capita 1.259.9 Armed Forces (thousand) 450 Military Expenditures 1.536 Military Expenditures Per Capital Arms Imports Total Imports Total Exports Total External Debt Teachers (1 974, thousand) Area (sq.km)

Membership Of International Organisations

Nigeria UN, OAU, ADB, ACP, COMMONWEALTH, WORLD BANK, UNCTAD, GATT, ECOWAS, WORLD BANK AND IMF.

Brazil UN, GATT, UNCTAD, IAEA, OAS, Alliance for Progress, Latin America Free Trade Organisation, International Development Bank, Economic Commission for Latin America, and The Andes Group.

Major Exports

Nigeria Crude Petroleum, Cocoa Beans and Butter, Palm Kernels, Tin Metal, Hides & Skins, Rubber (natural) and Columbite.

Brazil Vegetable Products, Coffee, Food Beverages, Vinegar and Tobacco, Cocoa Beans, Sugar, Mineral Products, Haematite, Textiles and Textile Articles, Machinery, Mechanical Applicances and Electrical Equipment and Transport Equipment.

Sources: (1) World Military Expenditures and Arms Transfer 1968-77 US ACDA, Washington D.C. 1979. (2) Europe Yearbook 1978: A World Survey, London, 1978. SUMMARY OF NIGERIA'S TRADE WITH BRAZIL: 1971-1979

TRADE 1971 1972 1973 1974 1975 * Exports / 19.845.628~14.057.28014.191.3951 48.1161 27.967 Imports 4.999.38 1.128.002 4.257.631 9.748.843 35.930.135 Balance of Trade t19.345.690 +12.929.278 -66.236 -9.700.727 -35.902.168 Volume of Trade 20.345.566 15.185.282 8.449.026 9.796.959 35.958.102

Sources: (1) Nigeria Trade Summary: 1971-1978 (December Issues) (2) Federal Office of Statistics Trade Tabulation, 1979 * Exports Include Re-Exports 1979 figures are provisional * Sanyaya La11 THIRD WORLD MULTINATIONALS: THE INDIAN CASE

Introduction There is a rising tide of interest in the emergence of multinationals from the Third World. Pioneering papers by Diaz- Alejandro and Wells (both in Agmon and Kindleberger 1977) and Lecraw (1977) have been followed by a number of studies on Third World MNCs (see, in particular, the collection in Kumar, forthcoming), and on developing countries as exporters of technology more broadly defined (see Lall, forthcoming). In the broad historical perspective of industrialization and international economic relations the appearance of MNCs from the more advanced developing countries may be entirely expected. In the narrower realms of economic analysis of development and international investment, however, this phenomenon does occasion some surprise. Developing countries are not expected to possess the attributes that permit MNCs to emerge. Moreover, there is little reason to expect that MNCs from different developing countries will exhibit different patterns of "revealed comparative advantage" in international markets: there is, in other words, little appreciation of the differences in the environments for "learning" that permit developing country enterprises to grow and become international. There has been a general tendency in the early writings on such MNCs to treat them as specializing in low technology, labour intensive, simple activities with little product differentiation or innovation. The experience of Indian MNCs, limited and novel as it is, persuades us to question much of received knowledge on developing country multinationals. The point of greatest interest

* Institute for Economics & Statistics, University of Oxford. This paper draws heavily on research being conducted by the author for the World Bank on exports of technology by developing countries. The sponsorship of the Bank is gratefully acknowledged, but the author retains full responsibility for views expressed here. which seems to emerge is that India exports the most diverse, complex and highly "embodied" (embodiment defined as the use of the home country's own machinery, equipment, components and knowhow) technology in its overseas investments in the Third World - a fact which is rather unexpected in view of its low GNP per capita, rather poor economic performance and slow expansion of manufactured exports. This paper reviews the evidence on Indian MNCs, particularly in Africa, compares it to that from other developing countries, and advances some hypotheses about why this may be so.

The Theory of Developing Country MNCs Conventional theories of direct investment, drawing upon Hymer's pathbreaking thesis, have argued that the same forces that make for larger firm size and greater market concentration within the developed countries (i.e. barriers to entry of new competition) provide the monopolistic advantages that are exploited overseas. Thus, technological leads, product differentiation, managerial skills, scale economies and capital market imperfections enable certain firms to grow at the expense of others. Not all these advantages are equally trans- ferable, of course; some are necessarily exploited at home, at least to start with, while others have to be exploited overseas (Lall, 1980 and Dunning, 1980). It is assumed that an advantage developed in the home country yields a net advantage over similar firms abroad: this assumption may be justified if firms are highly specialized in their activities, if the home environment is different from others and so breeds a different set of advantages, or if the home market is so large that the sheer size of its dominant firms yields an edge over leading firms abroad. This explanation of the origin of monopolistic advantages works fairly well to explain the internationalisation of developed country firms, but even there it does not work per- fectly. In particular, doubts have been expressed about the relevance of the standard monopolistic advantages theory to the growth of small firms, from relatively competitive industries, operating in low-technology activities. ) The answer that seems to be emerging is not that monopolistic advantages do not exist - by now it has become almost tautological to say that a foreign investor has some advantage - but that all advantages are not necessarily "monopolistic" in the original sense (i.e. of the sort that lead to entry barriers in developed countries). Firm-specific advantages may derive from mastery over particular adaptations to well-diffused technology, from access to cheaper or more appropriate management, from ethnic factors, from better knowledge of particular markets or simply from "being first" in a newly industrialising economy. Since these are the sort of factors which have been generally used to explain the emergence of LDC MNCs, let us consider them at some length, especially as they relate to technology. Technology: It is generally argued that LDC firms cannot have an advantage in what are normally regarded as high-technology industries, or, within industries, in activities which are at the complex, capital-intensive, innovative end of the scale. Current trade theory assigns LDCs a role at the bottom of the ladder of skills and technology, the two factors which dominate the new theories of comparative advantage. Further- more, the accumulation of local skills and technology (the two are often merged with each other) is taken to be a direct function of per capita income (Hirsch, 1977), so that the poorest countries have a natural comparative advantage in the production and export of the lowest-skill and simplest-technology products, while those higher up the income ladder have a corresponding advantage in the production of somewhat more complex goods. 2) This need not preclude LDCs from building up monopolistic advantages in their respective spheres of production and so becoming direct investors. The necessary condition for this is that production know-how is adapted in such a way that it becomes a unique asset. Thus, the product is changed to suit LDC conditions; the process is adapted to smaller scales, to particular raw materials or to particular skills (or lack thereof); older techniques or machines are used which other firms cannot operate efficiently. This assumes that there are dualistic product markets in LDCs, with distinct markets for older, more "appropriate" products which are not seized by DC (developed country) MNCs; or that technical progress is evolu- tionary (in the Nelson sense, see his excellent (1980) summary) and undirectional, so that a DC firm cannot "go back- wards" and efficiently handle technologies which exist but which are of a smaller scale or older vintage than those it is currently using. These are realistic assumptions, but not in accordance with the standard theoretical analyses of technology, which take for granted that there exist production sets of existing techniques which are fully known to all firms and over which they can range costlessly in response to changed factor prices. In general, the few studies which have been done of LDC MNCs have concluded that they specialize in labour-intensive, standardised technologies, usually adapted to local conditions. Wells, Lecraw and White (all in Kumar, forthcoming) all concur that LDC firms have developed some special advantages in the operation and transfer of relatively simple, old technologies and that these advantages are strengthened by cheaper manpower. White, in describing Latin American MNCs, allows for greater innovativeness than do Lecraw and Wells (who base their observations mainly on Asian firms), in terms both of independent contributions to technology based in their own research work and of rapidly internalizing and diffusing very new technologies introduced in the developed world. Wells and Lecraw stress the down-scaling of standardized technology and its lower level of automation. Wells points to the innovativeness of LDC firms in making technologies (equipment) more flexible and more amenable to using local materials; Lecraw, on the other hand, emphasises their "experience in using and adapting labour intensive, small scale production techniques to produce undifferentiated products of low to medium quality at low cost". It is expected on the basis of the existing literature that LDC firms will have advantages which are (a) exploited in other LDCs, generally lower down the income (or industrialisation) scale; (b) confined to mature technologies, not competing directly with DC firms, or else to technologies where their specific adaptations have given them a unique asset; (c) confined to small scale operations, using more la- bourintensive technologies than obtainable from DCs and (d) subjected to a rather rapid erosion of their advantages, so prone to retract from foreign operations. This literature does not offer any specific hypotheses about which developing countries are most likely to be the home of MNCs, nor about different sets LDCs. If the stock of human capital or per capita expenditures of R&D are taken to be the main determinants of a country's technological advantage embodied in its MNCs (see Dunning 19809, a country like India should have the smallest (and, by implication, least sophisticated or diver- sif ied) foreign involvement. Marketing Skills: There are two, closely related aspects of marketing skills: 1) product differentiation (the ability to distinguish one's own branded product on the basis of real or imagined advantages), and 2) the ability to understand and meet customer requirements (quality control, product adaptation, after-sales service). Product differentiation generally requires large and rich markets, and is generally an acknowledged area of strength of DC MNCs. Thus, firms from LDCs are thought to be unable to compete in products where advertising, product variety, rapid model changes etc are important components in corporate strategy, A few exceptions are, again, noted for Latin American firms by White (in pharmaceuticals and soft drinks), but in general LDC MNCs are said to specialize in undifferentiated products where price is the main element in competitiveness. Other marketing skills are not so dominated by large MNCs from developed countries. LDCs like Hong Kong and Singa- pore, with long experience of selling to sophisticated markets, have learnt to keep abreast of fast moving fashions, to "package" their wares nicely and to maintain high levels of quality (for the range of products they can handle technologically). Countries with fairly rich markets and "Western tastes", e.g. the big Latin Americans, may also set high standards of marketing performance. By contrast, firms from countries like India, with poor, highly protected markets, strict and perva- sive official controls on all aspects of industrial activity and low exposure to international consumers, may be expected to be much worse at marketing. Analysts of Indian industrialisation (led by Bhagwati and Srinivasan, 1975) have roundly attacked the evils of its import-substituting strategy, and cited instances of poor quality, neglect of consumers' needs, and short-sighted attitudes to product development. It is probably the example of such firms which leads Lecraw to talk of "low quality products" made by LDC MNCs in Asia. Managerial Skills: The early MNC literature had tended to accord to DC firms a significant edge in all types of managerial and organisational skills. The emergence of LDC MNCs has lead to some implicit revisions of these views, since the latter have clearly shown themselves to be aggressive and capable in their own sphere of technical capabilities. Insofar as managerial ski1l.s other than those related to technology and marketing are concerned, the main advantage perceived for DC firms arises from their size and greater international spread and experience. Thus, they are much better geared to large scale operations, global communication, rational alloca- tion of resources internationally and highly developed forms of transfer pricing, financial planning and avoidance of exchange rate losses. As far as standardized technologies and small-scale operations are concerned, however, earlier doubts about the entrepreneurial vision, adaptability and speed of LDC firms have been cast aside. This particular factor now rarely appears as a significant discriminator between developed and less-developed country investors. What does appear important is the much greater willingness of LDC firms, especially in manufacturing, to accept minority equity positions (in this they are similar to Japanese, and very different from US MNCs); and a marked propensity on the part of medium size firms to go abroad (especially from Hong Kong). What does all this lead us to expect of Indian MNCs? India is the poorest (and so the least capable of generating ownership advantages), the least export-orientated (and so the most burdened by the inefficiencies of import-substitution policy) and slowest-growing (and so, if growth is linked to increases in productivity, the least capable of absorbing and creating technical progress) of the LDCs with significant industrial structures. These conventional views of its economy, thus, lead us to predict it will be a minor exporter of capital and that its MNCs will be at the lower end of the technology/skill scale, using more labour-intensive technologies, operating at smaller scales, concentrated in poorer (or as poor) countries, and specialized in low-quality products not in direct competition with DC firms. The revealed comparative advantage of LDC TNCs in small scale, labour-intensive technologies should be accentuated for India by two factors: lower wage rates, and the strong monopolistic positions established by the leading business houses, which should make them more prone to stay at home in sheltered markets rather than go abroad with their inappropriate, capital-intensive technologies. Thus we should observe a negative correlation between foreign investment propensity and domestic size, capital- intensity and product sophistication.

Indian MCNs Evidence and Comparisons

Stocks of direct foreign investment A few Indian firms had launched foreign production during the 1960s in Sri Lanka, Iran, Kenya and Nigeria. They were concentrated in light engineering products and textiles, the traditional "low technology" products where production know-how is widely diffused, small scale operation is profitable and a great deal of "learning by doing" is possible on the shop floor. These projects did not exceed 10 in number; the total equity participation of Indian firms came to Rs 14 million (under $ 2m) and total dividends earned abroad until 1970 came to Rs 1 million. Between 1970 and 1978 there was a rapid increased in equity exports by Indian firms (nearly all of it was in kind, i.e. equipment and capitalised knowhow, rather than cash). The eight years saw Rs 192 million ($ 24m) invested abroad, with total dividends repatriated of Rs 19m ($ 4m) and technical fees and royalties of Rs 42m ($ 5,2m). During this period the government acquiesed in, rather than encouraged, foreign investment, and few efforts were made to liberalize foreign exchange availability for investment, travel or promotion. However, with a realization of the export-generating capacity of overseas affiliates (export of intermediate goods to affiliates came to Rs 42m or $ 53m up to 1978, or 2,2 times the value of equity investment), with growing foreign exchange reserves which the sluggish domestic economy could not absorb, with the pressure of growing oil imports and with growing demands by Indian MNCs, policies became much more positive in 1979. It was decided to speed up approval procedures, to allow the export of equity in the form of cash in exceptional cases, to allow the taking of majority equity partipation, again in exceptional cases, to allow wholly owned subsidiaries in trading and other service activities, and to generally use foreign investment as an important tool of export promotion. The year 1979 thus witnessed a virtual explosion of foreign investment activity. By early 1980 total equity overseas came to Rs 800m ($ loom), in 192 projects in production as well as under construction; of these, about 95 % were in manufacturing industry. The value of projects under construction far exceeded the total value of past investments, and the value per project of the former (Rs 6m or $ 740 thousand) was also far larger than the value per investment in projects in production (Rs 3m or $ 350 thousand). However, it is not clear whether the data on the value of existing investments include reinvested profits in the affiliates, if they do not, as I suspect, then the Indian stake abroad in functioning enterprises is overstated to an unknown degree. The available data on the values of investment, earnings and additional exports generated and shown in Table 1. TABLE 1 (Rs m)

Indian Joint Ventures Abroad: Cumulative Data as at End - Jan 1980

(a) Projects under production Projects under implementation Total No of effective Projects

(b) Total Investment in Effective Projects Rs 79.45 crores Investment in Projects under production Rs 30.54 crores Investment in Projects under implementation Rs 48.91 crores

(C) Total Earnings Repatriated Rs 9.70 crores Dividends Rs 2.60 crores Other remittances including managerial fees and technical know-how fees Rs 7.10 crores

(d) Exports Additional exports generated Rs 62.00 crores z..E 1 crore = 10 millions Source: Federation of Indian Chambers of Commerce and industry. Report of Workshop on Indian Joint Ventures, Turnkey and Third Country Projects, New Delhi, 1980, p 36.

Table 2 presents somewhat earlier information (for end- April 1979) on Indian investment in countries of sub-Saharan Africa. Total equity investment by Indian enterprises in the 39 ventures in operation or under implementation comes to Rs 215,4 millions (about 28 % of the total) of which the largest share (Rs 103,5 or 48,l %) goes to Nigeria and the second largest (Rs 82,7m or 38,4 %) to Kenya. It is interesting to note the very sharp surge of interest in the former, and a sharp decline in the latter, as far as the values of new and previous investments are concerned: a reflection of their relative economic growth performance and the size of their markets. It is also worth noting that these economic considerations now outweigh the pull of ethnic relationships which Indian enterprises may have had with expatriate Indian com- munities in Kenya or Mauritius. The marked absence of investments in Francophone Africa reveals, however, that linguistic and legal similarities play a very significant role.

TABLE 2

Investment in Indian Joint Ventures in Southern Africa (as on 30.4.1979) Equity in Rs ' 000

In production Under implementation No. of Actual No. of Indian Country Joint Indian Joint Equity Ventures Equity Ventures Approved

Kenya Mauritius Nigeria Zambia Uganda Seychelles Libya Total 22 99,905 17 115,541

X Includes (a) Source: Indian Investment Centre, "Indian Joint Ventures in Africa", 1979 (mimeo).

Let us now quickly compare Indian direct investments with those of other LDCs. According to White (forthcoming), foreign investments of Latin American countries in that region (which probably accounts for the great bulk of their activity) by 1978 came to $ 60m for Brazil, $ 62m for Mexico, $ 37m for Argentina, $ 55m for Colombia and $ 54m for Venezuela. By some aberration, Uruguay, which does not seem to have any MNCs, recorded $ 144m in overseas investments. This is not the only peculiarity of White's data: the Argentine figure seems greatly understated. More recent research by O'Brien (1981) shows that the cumulative value of its authorized investments over 1967-80 came to $ 63m (in 89 projects), some 90 % of the total being in Latin America and the rest spread over the US, France, Spain, Germany, Italy and Belgium. About 50 % of the value went into manufacturing, and over one- third in petroleum, and the rest in trade, transport, agriculture, construction and service activity. O'Brien also com- piles data on intra-Latin investments by other countries, which show that Brazil had an overseas stake of $ 43,4m, Mexico $ 31,5m, Colombia $ 35,2m, Venezuela $ 68,2m and (the same aberration) Uruguay $ 56,4m. The Latin American data are thus of rather dubious reliability. Based on a distant knowledge of the area, I would estimate that in manufacturing industry (the main concern of this paper) the leading investors are Argentina, Brazil, Mexico, Colombia and Venezuela, in descending order of magnitude, with the largest single stock being around $ 40m. In Asia, the largest single foreign investor, and one which far leads the Third World in terms of value, is Hong Kong. Unfortunately, Hong Kong keeps no records of its foreign investments, though some data are available from host countries. The value of its investments in other countries includes funds channelled by DC firms via Hong Kong subsidiaries; furthermore, the presence of such giant international firms as Jardine Matheson, which is, while nominally a Hong Kong firm, to all intents and purposes a British expatriate firm, distorts the contribution of indigenous enterprises. Despite these problems, local Chinese enterprises from Hong Kong do seem to have gone multinational in a significant way since the early 1960s.~) Hong Kong investments in Indonesia (till 1976) came to $ 219m, in Malaysia (till 1977) to $ 251m, in Taiwan (till 1978) to $ 223m and in Singapore (till 1973) to $ 155m - a total of $ 848m in these main areas of its operation. Recently Hong Kong firms have invested in Sri Lanka and are on the brink of entering the EEC. At a very rough guess, Hong Kong has a total foreign investment stake of around $ 2 billion today. South Korean foreign investments (according to Jo in Kumar, forthcoming) came to $ 90m by end 1978, with $ 15m going to 19 manufacturing affiliates, and the rest mainly trading and natural resource extraction activities. Taiwan's investments overseas numbered 77 by the end of 1979;~'the value of equity involved was $ 59 million, placed mainly in South- East Asian developing countries (but not in other industrialized LDCs like Korea, Hong Kong or Singapore). The investments include manufacturing as well as service activities, and presumably the value of the former would be under $ 40 million. Singapore has important investments in Malaysia ($ 80m of total fixed assets in 1973, value of equity not known), and Indonesia ($ 116m in 1976). Presumably it also invests in other ASEAN countries, though far less vigorously than Hong Kong: its total foreign equity may be about $ 500 million. Malaysia itself has some overseas investments (over $ 50m in 1976 according to the limited data provided by the UN CTC); here, as with Hong Kong, the operation of a large "expatriate" UK firm Sime Derby (in which the government has now taken a share) may distort the picture. The Philippines has, according to the IMF, direct investments of $ 59m abroad by 1978 (though none of this is recorded as "equity capital" in the 1979 IMF Balance of Payments Yearbook); the UN CTC (1978) shows its equity stock to be $ 273m by 1976, almost certainly an overestimate. As far as the stock of direct foreign investments by LDCs is concerned, therefore, Hong Kong appears to be far and away the leader, followed at some distance by Singapore. Other LDCs are difficult to rank because the data are poor and often apparently misleading. A weaving together of im- pressions and the available bits of data leads me to place Argentina, Mexico, Brazil and India at about the same level as the second group of overseas investors. The third group comprises Colombia, Peru, Venezuela, Korea and Taiwan. The other LDCs seem to have only occasional ventures abroad (despite the figures) and can be placed in the fourth group. If per capita incomes in countries with significant manufacturing sectors are used as a composite index of factors leading to "ownership advantages" (industrialisation, litera- cy, R&D etc), the general picture is more or less as one would expect. Hong Kong and Singapore are the richest countries of the LDCs, with per capita incomes of over $ 3000 in 1978. Brazil, Argentina and Mexico have incomes in the range $ 1.300-1.900. The third group of countries is more variable. However, if we take Venezuela out (oil accounts for its high income of $ 2.910), they range between $ 740 for Peru and $ 1.400 for Taiwan. The last group of countries, the recent industrializers, are in a rather lower range (Thailand and Philippines around $ 500), though some natural resource- endowed countries (Malaysia, Chile) are relatively rich. The odd-man-out is clearly India according to this simple predictor. With a per capita income of $ 180, its actual participation in international production far exceeds its predicted share. Not that this is very surprising, of course: India is the odd case more generally of having the 13th largest contribution to value added in manufacturing in the world in 1976, and the third largest in the developing world (after Brazil and Mexico). Any sort of deflation of Indian figures, by population or total GNP, obviously tends to greatly under- state the size of its manufacturing sector. Value added in manufacturing is not, however, the only determinant of the internationalization of a country's manufacturing ind~stry.~)While the size of the manufacturing sector may be a good proxy for skill accumulation and technical knowledge in a country, sheer size does not capture such important elements as international competitiveness, export experience, technological progressiveness etc, all of which affect the building-up of ownership advantages by the firms involved. At first sight, however, the inclusion of these variables would also not prepare us to expect India to be an important capital exporter: its obsessively inward-looking strategy has been accused of fostering widespread inefficiency and a reluctance to enter foreign-markets, its tight control on MNC entry and on the purchase of foreign technology of per- petuating obsolete technologies, and its restrictions on private domestic companies of stifling entrepreneurship and breeding complacence. Industrial Composition of Foreign Investments and Some Inte- resting cases Table 3 sets out some early data on the industrial distribution of Indian foreign ventures. As far as the number of ventures is concerned, engineering products broadly defined dominate Indian foreign investments (the Indian classification of "engineering" products includes simple metal goods as well as machinery and transport equipment); in terms of value of investments in operational ventures, however, they account for only 15 per cent of the total. Textiles and garments, the traditional areas of strength of LDCs, are strongly in evidence both in terms of number and values, though their importance is declining over time. Paper and pulp projects are few in number but very large in size, and so constitute the largest sector in terms of value (most of the equity is accounted by two ventures in Nigeria and Kenya). Food processing, dominated by some large palm oil processing investments in SE Asia, constitute the third largest industry by value, followed by chemicals and pharmaceuticals; both seem to be gaining in importance in recent years. Non-manufacturing investments do not contribute much to the value of equity, but their numbers have been rising with a shift in policy to establish sales agencies, consultancies, civil construction offices and the like abroad (banks, also with several branches abroad, are left out of the available data). The Middle-East has attracted a number of such investments, since the promotion of various forms of technology (turnkey projects, consultancies) and commodity exports requires an active continuous presence there. Indian hoteliers have been notably successful overseas: the Oberoi group, operating mainly under management contracts, has set up a chain of 20 or so luxury hotels from Australia, via South East Asia, Sri Lanka, Egypt and Spain to the United States. The Taj group, part of the Tata conglomerate, is now venturing abroad with a Ceylon Rs 500m hotel in Sri Lanka and negotiating several others in the Middle East and elsewhere. Our main interest, however, lies in manufacturing. Here the aggregate figures show that, despite their late entry, Indian firms have spread abroad in a very diverse range of TABLE 3

101 Indian Joint Ventures in Production Abroad: Industrial by Distribution Value of Indian Equity Holding (Sept 1979)

EQUITY No of Industry % % Value of manu- Venture Equity Total factur- (RS m) ing l I I Textile, Garments Sugar Other Food Pro- cessingl) Steel, Rolling Mills Chemicals and Pharmaceuticals Paper & Pulp Metal Products Machinery Electrical Pro- ducts Transport Equip- ment & Parts Glass Other 2)

Sub-total Mfg.

Electrical Distri- bution3 ) Civil Construction Trade, Management & Engineering, Con- sultancy Hotels, Restau- rants etc

TOTAL

Notes: 1) Includes palm oil processing, beverages and other foods 2) One rubber and one construction materials 3) Venture set up to undertake transmission line projects

Source: Data provided by Ministry of Commerce activities. While a number of simple, relatively low technology and labour intensive ventures (textiles, sugar, simple metal products), are, as received theory predicts, present, roughly half of foreign equity is accounted for by ventures in more complex capital-intensive (steel mills, paper and pulp, chemicals) or skill and technology intensive (machinery, pharmaceuticals, transport equipment) activities. The grouping of industrial activities into broad "high" and "low" technology groups is, of course, a risky procedure. Even "low" technology industries like textiles have very modern, innovative branches, while such "high" technology activities like machinery or electronics have pockets of stable and/or well- diffused technology like simple machine-tools, radios or consumer electronics. It may be useful, therefore, to mention some of the more interesting cases of Indian foreign investments, both existing and in the pipeline, to get a "feel" for their nature and capabilities. The description is necessarily anecdotal, and is patchy in that I only describe a few cases on which I happen to have information. Moreover, it is focused on instance of "unconventional" behaviour, to highlight points where I pro- pose to challenge the accepted wisdom on LDC MNCs. Let us start by briefly reviewing the identity of the main MNCs from India. Table 4 sets out the values of foreign equity held by the top seven enterprises in the 101 operational ventures in September 1979. The figures may not be completely accurate in that it has not been possible for me to identify the conglomerate origin of some enterprises; however, the broad magnitudes of concentration accord with figures given by other observers. There are over a hundred Indian enterprises active in various types of joint-ventures abroad. Some very large Indian enterprises (especially those in the public sector or which are themselves affiliates of MNCs) are not foreign investors, and some of them are just dipping their toes into the cold but exciting waters of international production. At present, however, there is a very high level of concentration of overseas activity in the two largest industrial groups in the country: Birla and Tatae6) Birla by itself TABLE 4

Main Indian Foreign Direct Investors, as of September 1979

Main Activities No of Value of Invest Share Abroad Firm Ven- Invest- Per 0 f tures ments ven- Total (Rs m) ture (%) (Rs m)

1. Birla Paper, Rayon, Group Textiles, Palm Oil

2. Tata Oil mills, Group trucks, tools, metal products

3. J K Textile, Metal Group Products

4. Shahibag Textiles Enter- prises

5. THAPAR Paper, trading Group

Sarabhai Chemicals Group

IZiroska~Engines, Group machinery

TOTAL I accounts for nearly 40 per cent of total Indian foreign equity and Tata for another 9 per cent. (This excludes ventures under implementation or under active consideration - their inclusion would probably raise their share even further). The top seven investors together account for nearly three-fourths of total foreign equity (at the very least). All of them are large, diversified and long-established business houses, with considerable industrial experience. Nearly all are in a much broader range of activity at home than overseas, and all are major exporters of products. Size, experience and exposure to foreign markets are clearly of great importance in determining exports of capital from India. This is hardly surprising, since it reproduces (in a more extreme form) the pattern of concentration observed for foreign investments by the developed countries, and is in accordance with what we would expect given the costs, risks and requirements of going abroad. White finds a similar pattern for Latin America (where the role of giant state corporations, especially from Brazil, is noteworthy), though he does not provide enterprise-level data. Analysts of Hong Kong and other SE Asian investments have, on the other hand, stressed the large role played by medium/small enterprises: whether this is a peculiar feature of Hong Kong and Singapore enterprises, or is simply a mistaken interpretation based on the size of the foreign ventures (especially in comparison with investments by DC MNCs), we cannot say. Let us now consider some examples. Birlas had 12 overseas ventures in operation last year. My most recent compila- tion of data shows that it now has 16 in operation and a further 9 under implementation (plus an unspecified number under active scrutiny) .7) There are several companies of this group which are independently investing overseas, with no apparent attempt to co-ordinate their activities. Recently, however, a "Birla (International) Private Ltd" has been set up to control some of its foreign affiliates, though even this, with its 9 ventures, does not cover more than a part of the field. The 25 ventures exclude a firm nationalized in Ethiopia, an oil processing plant sold to local interests in the Philippines, several management contracts, and, most in- terestingly, a large ($ 125m) turnkey contract won in China (the first of its kind by India) to build a rayon plant with Indian technology and equipment. 8 Birlas first went abroad in 1966, with a light engineering goods plant in Nigeria. This was followed by textile plants in Thailand (1970) and Malaysia (1972) ; a jute plant in Uganda (1971) ; a paper plant in Kenya (1974) and subsequently Nigeria (1979); 2 palm oil refining plants in Malaysia (1974, 1979) and a coconut oil plant in the Philippines (1979); rayon plants in Thailand (1976) and two in Indonesia (under implementation); a cement products plant in the UK (circa 1976); and other textile plants, including one in the Domini- can Republic. It is currently setting, jointly with a US and a local firm, an export-orientated canvas shoes plant in Sri Lanka, a dyestuff plant in Indonesia and a chemical plant in Thailand. There are several "stories" of interest in Birla-experience abroad. A sample are as follows: (a) In 1976 Birlas were invited by the International Finance Corporation to take over the management of a lossmaking textile affiliate of a US firm (Spring Mills) in Indonesia, Daralon Mfg Co. This firm had been poorly managed and saddled with a limited product range and outdated equipment. Birlas ordered new looms (from Switzer- land) and other equipment (from India), rearranged the organisation, and are about to declare profits. They undertook a similar operation in the Philippines with Evertex Industries, and turned the loss into a profit in three months. (b) The Orient Paper Mills' paper plant in Kenya is the largest on the African continent, financed by the World Bank, with extremely modern equipment and technology, and highly profitable. In 5 years it has earned dividends of Rs 11 million (on an equity of Rs 41m) and created additional exports from India of Rs 57m.

(C) Birla's Gwalior Rayon developed its own rayon technology from scratch, set up the Thai Rayon Company in 1976 (equity Rs IOm, dividends Rs 1,l million and additional exports (Rs 25m) and is constructing the Indorayon plan in Indonesia. Its Indian technology and equipment (selected by the Chinese) will, curiously enough, have to compete with Swiss technology and equipment in a rayon plant built by Tungabhadra Industries, another Birla company, in Indonesia - evidence of the relative "freedom" (or lack of centralised planning) within the Indian conglomerates. Gwalior Rayon has just brought into production, jointly with Phillips Petroleum of the US, the Thai Carbon Black CO, the largest plant for carbon-black (a sophisticated chemical used in tyres) in Asia outside of Japan. (d) Birla's Edible Oil Products in Malaysia was, in 1973, the first company in the host country "to develop the concept of refining palm oil for export" (rather than exporting the kernels). (e) The canvas footwear plant in Sri Lanka was set up, jointly with CITC of the US (in turn a subsidiary of Mitsubishi), to export to the US. It was located in Sri Lanka rather than India because of the former's cheaper rubber and better fiscal incentives. Careful evaluation of location was made between the two, as well as Malaysia, Indonesia and the Philippines; a ray of true global planning that marks the MNC. The plant is to be imported second-hand from a failed facility in the US - it was too labour intensive for US standards - rather than from India (not efficient enough) or from Uniroyal (new US machinery was too capital intensive): another interesting example, this time of entrepreneurial initiate in selecting appropriate technology. In sum, Birla's expansion overseas is a mixture of aggressive and imaginative entrepreneurship and technological capability, with the former element predominant. The group has areas of technological excellence (Orient Paper and Gwalior Rayon) solidly rooted in Indian knowhow and equipment (both firms have large R&D facilities), though it is quite open to Western technology and sometimes uses its affiliates to gain access that is denied to it in India. However, many of its affiliates (especially in textiles) operate in fairly low technologies, where its competitive edge lies in good management, marketing and productivity (including the ability to select appropriate technology). It is quality of entrepreneurship which seems more important than its low cost, in contrast to the impression conveyed by Chen, Lecraw and Wells (op cit). ata as:^) The Tata group is far less involved in direct investment than Birla's, but is a much larger exporter of technology in the form of turnkey contracts (Rs 1,042m) executed and in hand, moostly in power generation and sugar and cement plant), consultancy earnings (of Rs 40m in 1978-79), licensing and sale of training services. In contrast to Birla's tradition of aggressive entrepreneurship, Tata's have a reputation of cautious but excellent management, technological dynamism and far-sighted strategy. The Tata Engineering and Locomotive Company (TELCO) is the largest truck manufacturer in India, holding about two- thirds of the total domestic market. It is also a major exporter: 15 per cent of its output is sold overseas, making it the largest private sector exporter of engineering products in India. With a production capacity of 37.000 vehicles (all 74 tons), it is one of the largest truck producers in the world of a single model. It thus reaps most economies of scale; its products have a reputation for rugged reliability; and the design (originally imported from Daimler Benz, but subsequently greatly modified by TELCO's own R&D) is well adapted to LDC conditions. It has set up an assembly plant in Malaysia, TATAB, with a capacity of 1000 vehicles per annum, for which it designed and manufactured all the equipment and fixtures. It will provide knowhow and training to local technicians for free for 15 years: it claims that its products are already outselling those of Daimler Benz (which also as a long-standing assembly operation) in Malaysia. TELCO has also licensed and equipped 5 licensees (Indonesia, UAE, Guyana etc) to assemble its products; presumably most of its exports are channelled through these assembly facilities. To my knowledge, TELCO is the first automotive transnational to emerge from the Third World which is exporting its own equipment, components and knowhow (as opposed, say, to Volkswagen's Brazilian affiliate supplying other VW plants in developing countries). TELCO built up so much expertise in the building of special tools for its own second plant that it set up, jointly with the host government, a plant for making precision tools in Singapore. In 1977 Tata Precision Industries was producing $ 4m worth of tools, 80 per cent of which were exported to the OECD countries. It is widely regarded as the most advanced facility of its kind in the SE Asian region, and it runs The Technical Training Institute of Singapore, one of two such in- stitutes helping Singapore to move up to high-skill activities. The INITATA palm oil complex in Malaysia, is the "largest, most integrated and diversified facility in the world based on palm oil". Tata Oil Mills have been involved in oil refining and soap manufacture for decades in India and their first overseas venture proved an enormous success, with sales ex- ceeding Rs 360m in the first year. Tatas are also setting up a truck plant in Saudi Arabia jointly with Mack Trucks of the US to assemble their respective products (management will rest with Tata). Unlike Birlas, this joint venture with a DC firm involves a full use of Indian technology for the Indian product. The same is true of a prestressed beam plant being set up with Polliet of France, again in Saudi Arabia. The group is considering another 6 foreign investments at this time, including one for making shoes in Europe (with Bally designs). We have already remarked on the internationalisation of Tatas hotel group. Kirloskar: Three companies of this group are operating overseas to manufacture power pumps, diesel engines and milling machinery. Kirloskars are now one of the world's largest manufacturers of small diesel engines, carving a significant export market as the developed countries have been forced into larger engines. They are operating a diesel engine assembly and milling machinery plant in West Germany, and have earned dividends of Rs 2m and sent Indian equipment of Rs 10m for this venture; their other plants are in Malaysia and the Philippin- es. This case is particularly noteworthy because Kirloskar's early experience of making diesel engines, with a Cumrnins license, was the subject of a very critical and pessimistic book by Baranson (196 7) some time ago. Mahindra and Mahindra: Another large engineering company, Mahindras are renowned for their export success with jeeps and tractors. They started an auto component plan in Iran in 1976, and are setting up a jeep and truck assembly plant in Greece with 40 per cent equity. The original license from Willys (American Motor Corporation) expired some time ago, and the firm has apparently successfully internalised and adapted the basic technology. Hindustan Machine Tools: A very successful "high technology" public sector firm, HMT is a major exporter of turnkey plant for machine tools to LDCS,") an exporter of nurnerically- controlled (NC) tools to the developed countries, a provider of consultancy and technical services, a licensor of designs (e.g. a chucking lathe to the UK), and a direct investor. It was persuaded to take equity participation in two turnkey machine-tool manufacturing ventures for the local governments in Nigeria and Kenya. It has set up a small operation in the US to attach General Electric computers to its own-designed NC tools (apparently Indian computers, though equally efficient, would not be acceptable to the US market); it is setting up a similar operation, to attach Japanese electronics, in Singapore. Much of HMT's technology sales to LDCs has been at the well-diffused end of the scale, for simpler varieties of tools where it has complete mastery of the product and process technology, and where firms in DCs are tending to run down their activities. Some of its technology exports have, in fact, occurred to "simplify" over-specified, expensive and unworkable technology supplied by European companies. This does not, however, mean that its technological competence ends with such "low" technologies: its own R&D is concentrated on frontier technologies, to developed export markets in the advanced countries and to give it the capability to absorb the latest developments in its field. Its US operations, small as they are, are a proof of its competence, as are the very advanced facilities under negotiation with Iraq and Algeria. Hindustan Computers Ltd: ) HCL is a medium sized manufacturer of mini-computers which has unusually high R&D activity (10-15 % of sales) for an Indian company, and which has been selected by the Singapore government to set up a computer manufacturing plant there. It was chosen over some 40 other international firms which sell mini-computers in Singapore and which were in the running for this project. It is planning to set up three other offices in the Middle East and SE Asia to sell its Singapore products in 13 countries. HCL is an obviously interesting case because it is in a truly "high" technology activity. While India has no production base in microchips or sophisticated peripherals, HCL has devoted considerable effort in product design and software. It claims to have developed a much better system of computeri- sation for LDCs than the larger manufacturers, and can back it up with cheap programming manpower based in India. The components for its computers in Singapore will not be exported from India (and in this it differs from the usual Indian MNC), but will be sourced internationally. This will elimina- te the 6-month technology lag which it claims it suffers in India. MECON: Metallurgical and Engineering Consultants are a large public sector consultancy firm specialized in iron and steel. While it is only one of several major exporters of advanced consultancy services from India, it has the unique distinction of having been approached by a large European counterpart, Alusuisse, to set up a joint firm. Thus, Indo- Swiss Engineering (with 50-50 participation) which came into being in 1980 and is already in operation, was termed a "breakthrough" in the field of Indian Joint ventures by the Financial Times of London and testifies to the capabilities and competitiveness of Indian firms in this highly skill- intensive activity. We have given enough examples to establish the variety and sophistication of Indian investors. There are numerous others in fields requiring very high levels of mechanical engineering skills (automotive pistons, tractors, scooters), chemical skills (pharmaceuticals), markering skills (soft drinks, pharmaceuticals) and so on, but a longer discussion would add little. The main points we should note about Indian MNCs are as follows: First, while a number of small-medium enterprises occasionally venture abroad, the field is heavily dominated by large conglomerate enterprises with considerable managerial, technical and financial resources and a detailed knowledge of foreign markets. The process of internationalisation seems to be a cumulative one, with experience creating a stronger base and providing greater incentives to those who have gone abroad. While no direct evidence can be cited on this, it seems that spare managerial and financial resources are an important factor pushing the larger enterprises abroad. Second, a strong motivating factor on the part of the large enterprises has been the slow growth of the domestic economy compounded by tight anti-monopoly restrictions which has held back diversification. Thus the desire to grow and spread risks initially pushed the big houses abroad: once established, they have become relatively "multinational" in their outlook, finding many advantages in spreading overseas. Third, many investments have been made to counter import- substitution threats to established markets. However, most of them have served as an export promotion measure, to enter markets which could not be served by product or other forms of technology exports. Fourth, company strategies differ. Birlas seek, for instance, to exploit their expertise by direct investments, though occasionally they sell turnkey projects and technical services. Tatas are much more diversified over the whole range of export transactions. Public sector firms prefer to sell turnkey projects, but are sometimes obliged to take equity participation. A number of large Indian enterprises remain inward looking, and the structure of incentives remains such that they can afford to do so (Bhagwati and Srinivasan, 1975, La11 and Kumar, 1981). Fifth, Indian enterprises are not major innovators in the sense of creating new technological breakthroughs: clearly, they do not undertake that sort of massive R&D activity. It would, nevertheless, be wrong to describe them as producers of "unbranded low R&D, low quality products that competed on the basis of price" that invariably were "smaller, used more labour-intensive technologies", as Lecraw and others have done. Certainly, there are areas in which this sort of characterisa- tion is apt. There are others, increasingly important, in which it would be wrong: many investments are large and technologically advanced, often very capital-intensive; the products are sophisticated and backed by extensive advertising and after-sales service. In some cases they compete directly with established MNCs, especially in the production of intermediate products (chemicals, rayon) where continuous processes render down-scaling and adaptation nearly impossible, where (as with mini-computers or jeeps) considerable production knowhow has been accumulated, or where (trucks of machine tools) they offer a slightly older but more appropriate product. In others, they operate at a "lower" level, as received theory leads us to expect. Sixth, the technology which is transmitted by Indian enterprises has a very high "embodied" content in terms of Indian plant, equipment and components (over 80 % of equity contributions are in the form av equipment). While a few investments "source" their equipment and components elsewhere, in general Indian investors go abroad to exploit their country's comparative advantage in the manufacture of a wide range of capital and intermediate goods, and their own knowhow in setting up projects and operating the relevant technologies. Seventh, a number of foreign ventures are highly export- orientated (though very few are aimed at providing low-cost goods to the Indian market). This is particularly true of investments in SE Asia, there are no MNCs with vertically integrated production structures spanning countries, and no MNCs have a truly global system of corporate planning. Finally, a number of firms going abroad have felt a defi- ciency in their product differentiation capabilities. The protected domestic market has not engendered the right selling skills, especially for mass-produced consumer goods (and here they certainly do differ from export-orientated LDCs). A few firms have nevertheless learnt these skills quickly, by entering into partnerships with DC multinationals or by benefitting from their own mistakes. Some joint ventures have gone out of business, especially by smaller firms unable to finance these learning costs. By and large, however, the relatively low consumption standards of the Indian market are reflected in the weakness of Indian investors on highly diffe- rentiated consumer goods. So much for the Indian MNCs: how about other developing countries? Hong Kong firms seem to be much more specialized in their areas of export strength: textiles, plastics, footwear and toys in the early days, consumer electronics more recently A few firms have taken equity participation in chemical ventures launched by other MIdCs; this is, according to Chen, to allow them to learn the technology and import it into Hong Kong at a later stage. They export little from their home country except their managerial expertise: lacking a basic capital/ intermediate goods production capability, Hong Kong firms source their equipment and components worldwide (though they may, according to Wells, have an advantage in knowing where to get second-hand equipment). Their technological capabilies reside in the organization and implementation of production of light consumer goods: this is backed by formidable marketing expertise (and presumably considerable financial access) and excellent contacts. Chen points out that the main motivation of Hong Kong investors has been to find low-cost bases for exporting to the developed countries, not to substitute for imports in the host countries. He also notes the desire to acquire new technologies and to exploit profitable investment opportunities as the motivation in investing in industries like chemicals, machinery and opticals, where Hong Kong has no experience. The majority of Hong Kong investors seem to be medium sized firms (though the absence of comprehensive data make this conclusion very suspect). Latin American manufacturing investors follow patterns more similar to those of India, though non-manufacturing activity is much more important in overall flows of L A capital. Of a rather small sample (77 cases) collected by White, roughly a quarter (by number, apparently) were in "engineering" defined broadly, 16 % in food products, 15 % in metals, 5 % in textiles and the rest in miscellaneous activities. 12) The much greater importance of food as compared to India is explained by the importance of food production and exports by the major Latin Americans; the lesser one of textiles presumably by the already semi-industrialized nature of most of the smaller economies. Private sector enterprises are concentrated in simple engineering products (like bicycles, agricultural implements, and simple machine tools) and pharmaceuticals and consumer electronics. A few large public sector firms dominate the sophisticated, capital-intensive metallurgical and petrochemical sectors. The three big Latin American countries differ among themselves. Argentina has a strong and experienced local private sector, which is active abroad in pharmaceuticals, food processing and light engineering goods; there is no state participation in foreign activity, and there is a relatively weak showing in high technology, capital-intensive activities. Argentina has a fairly well-developed capital goods sector with some local design capability, and has undertaken some low to medium technology turnkey activity abroad (Katz and Ablin, 1978). Brazil, on the other hand, has a large capital goodsproduction base but a weaker national private sector. Its high-technology industries are heavily dominated by DC MNCs, and only the giant state corporation provide a counter- balance in sectors like mining, petroleum, petro-chemicals and steel. Its foreign investments reflect this dichotomy; private firms invest abroad mainly in light consumer and engineering goods, while the state enterprises sell much "heavier" technology overseas. A few MNCs also use their Brazilian experience and production base to serve investments elsewhere (as mentioned above, VW will assemble its Brazilian model in other LDCs). Mexico is also heavily dominated by MNCs, but still lacks a substantial capital goods sector. Its areas of local strength are petroleum and petrochemicals (following on the setting up of the powerful PEMEX after an early nationalisation of foreign oil companies), paper, cement and iron and steel. It invests abroad or sells technology in other forms in many of these sectors, but relies heavily on capital goods and engineering expertise from the developed countries. In general its basic technological capabilities are narrowly developed and suffer from the lack of basic design work in equipment manufacturing. These countries are similar to India in that their foreign investments are diversified into complex, capital-intensive and high-technology activities, especially in the process industries.13) They differ from it by their lower capabilities in areas of advanced mechanical engineering, where their domestic industries are predominantly foreign owned and indigenous design capabilities are less developed. Some of the enormous Korean integrated trading-manufacturing companies have entered fairly advanced areas of foreign investment (tyres), but in general they are concentrated in traditional products like textiles, plastics, cement and simple metal goods. A few have invested in natural resource extraction activities, while one or two have taken equity participation in high-technology US firms to gain direct access to new (electronic) technologies. Jo describes its manufacturing investments as "horizontal investments in the production of labour-intensive standardized products" where there had been some "firm-specific adaptation of foreign technology and/or standardized process to a relatively small scale of operations and some adaptation of products designs to LDC conditions".14) Since the country still lacks a capital goods base (its plans to shift quickly into heavy industry have been drastically set back as a result of the current recession), its overseas investments embody relatively low levels of local technological capability, and depend heavily on foreign licen- ses and components. In sum, therefore, India emerges as the most diversified and technologically advanced foreign investor in the Third World, with the highest embodiment of local goods and knowhow in its overseas activities. A consideration of technology exports more generally (see Lall, forthcoming) strengthens this impression. The puzzle becomes more intriguing; how, despite its poor growth and export performance, its stifling policies, its low income levels and (in relation to Brazil and Mexico) smaller industrial sector, can this be explained?

An Explanation of The Indian Performance Let us start by comparing Indian MNCs with the "real" MNCs from the industrialized countries. We need here to hark back to the theories of "monopolistic advantage" which have been developed to explain international investment as such (Lall, 1980). In general, the advantages of Indian (or other LDC) MNCs lies in factors which enable them to learn new technologies and assimilate and adapt them to the extent that they become unique, proprietary assets. The literature reviewed at the start of this paper had attributed certain characteristics to these technologies: in general, they should be simple and well-diffused; they should be amenable to scaling down and being made more labour intensive; they should be for products where price rather than quality or differentiation are important; they should not be in high skill or high technology sectors populated by DC MNCs. Our review of the evidence suggests that such factors do apply to some LDC MNCs, but there is a substantial and growing part of their activity where they do not. Thus, MNCs from developing countries are showing the capability to set up large-scale, complex, "leading edge" technology, marketing-intensive projects where they compete head on with established MNCs. They compete, moreover, not in a well-defined set of low technology industries, but over a broad range of MNC activity. This is not to say that there is no distinction between DC and LDC multinationals. Far from it: the dividing line is sharp, though it shifts over time. It is drawn, not by requirements of high skills, advanced technologies or capital-intensive processes in general, but by the specific conditions under which the relevant skills and technologie are learnt. Since the home economies of Third World MNCs will support production technological and marketing activity which takes them to international frontiers in some cases and not in others, the final determinant of their competitiveness will be the scale of production required to sustain the assimilation of internationally viable technologies. It may be noted that internationally viable technologies may be the most advanced in some cases (where there is little scope for intermediate technologies, e.g. chemicals or electronics) and rather out-of-date in others (e.g. some consumer or engineering products). Since LDC enterprises are, for the foreseeable future, going to be imitators and diffusers of technology rather than major innovators, they clearly cannot establish an advantage in activities requiring enormous R&D: in all others, however, they can become competitive, regardless of skill requirements. The limitations here are those imposed by scale and income levels: if the minimum efficient scale is larger, or the level of income (and also consumer sophistication) required higher, than their "learning base" (even if the technology as such is not highly R&D intensive) they will not be able to develop a competitive advantage in it. Let us now try to explain the different patterns of "revealed comparative advantage" in capital exports by LDCs. To reiterate: small, open economies without indigenous capital goods industries set up MNCs in light consumer goods industries with little "embodied" (equipment and component) technological content from their home countries; they exploit mange- rial and marketing expertise and a mastery of production knowhow. The larger Latin American countries set up a more varied range of ventures abroad, with some very advanced ones in metallurgy and chemicals where state enterprises are powerful; they have greater technological embodiment but are weak in advanced engineering industries where their own industries are dominated by MNCs. India has the broadest range of foreign ventures and the greatest technological embodiment; it is relatively weak in sophisticated consumer goods, but relatively strong in complex mechanical engineering sectors. The difference between the first group and the others is obvious: the small size of the economy, its openness and nature of export-orientated domestic manufacturing in the former explain why they export their form of multinationals. That between the leading Latin countries and India is not so obvious: all have large economies, long histories of import-substitution and fairly "heavy" industry (though Mexico lacks a diverse capital goods base). The difference lies in their technological strategy. The Latin American countries have, in the past, adopted a policy of essentially passive reliance on foreign technology, mainly in the form of direct MNC presence and in the licensing of local producers. Where MNCs predomina- te, of course, the multinationalisation of such local competitors as are present is difficult: they tend to be too small and technologically dependent to venture abroad. MNCs themselves may generate some local technology, but this tends to be in terms of minor process and product adaptation rather than in basic design technology; it would simply be uneco- nomical for them to relocate major R&D activities to affiliates in LDCs. Furthermore, any technical progress experienced by MNC affiliates would get transmitted abroad through the firm's own international network than through investment by that affiliate or by other means of selling technology. This is why there are few instances of technology exports by MNC affiliates based in the LDCs. Where local producers are strong in Latin America, as in light consumer and engineering products, foreign investment by them does occur, but often with a lower degree of embodiment because of the relative lack of basic design skills and R&D in the enterprises and their local suppliers. The main exceptions are state enterprises where their size and status enables them to finance the heavy "learning" costs of acquiring and assimilating very complex technology, and to set up a strong local supplier industry. India has followed a strategy of greater technological self-reliance. It has applied to licensing and foreign investment the same sort of obsessive controls that it has applied to import substitution (described in Desai, 1980). While this has undoubtedly resulted in various inefficiencies and technological lags, it has also enabled its national enterprises to built up a very broad base of technological competence. They have acquired the "know why", (i.e. basic design capabilities) of many industries rather than simply the "know how" (production technology): a strong foreign presence inhibits the move of LDCs from one to the other, even with high growth rates and large manufacturing sectors. The success of many Indian enterprises which only a decade or so ago were regarded as hopelessly inefficient leads us to believe that there is a strong case to be made for the protection of "infant technological learning" rather than only the classic protection of "infant industry" (where production knowhow is mastered). Such protection of learning requires the protection of domestic output against imports, but this is not enough: it requires that local enterprises be made to invest in the risky and costly process of learning the basic technology, by re- stricting the entry of foreign technology and raising the returns to indigenous R&D. The assimilation of production knowhow is inherent to the production process - it occurs in every enterprise local and foreign, regardless of where the basic technology is obtained. The assimilation of know-why requires a local capital goods industry and often a substantial components supplying industry with which close linkages are established; it requires R&D activity and independent engineering consultancy activity; and, to some extent, it requires the periodic injection of foreign technology to supplement local efforts. The interaction between imported and local technology is a highly complex one, varying across industries and products. In cases where local efforts can, within a reasonable period, completely substitute for foreign technology, their relationship is competitive. In cases where local efforts cannot begin to master the technology, it is complementary, and in cases where periodic injections of foreign technology followed by periods of assimilation are needed, it is both. India has gone so far in the search for self-sufficiency that it has pushed many technologies to their limits in terms of local development: to render these technologies internationally competitive it will have to import new technologies, though on a far less "packaged" basis than if it had not developed its local capabilities. It will be noted that I have not mentioned the availability of skilled manpower as a determinant of ownership advantages. This is obviously important, and India clearly has an advantage in terms of a large absolute stock of technicians, engineers etc available at low cost. I believe, however, it is not university degrees as such which determine enterprise competitiveness, but the practical value of such degrees, i.e. it is really the opportunities for technological development and innovation which are crucial. Thus, this factor is sub- sumed under the previous one.

Conclusions The two main conclusions that may be drawn from this paper about Third World MNCs are: First, the multinationalisation of LDC enterprises is a dynamic and complex phenomenon. The existing literature has tended to underplay its sophistication and dynamism, and relegated it to too low a place on the technological scale. LDC firms will increasingly enter the haunts of DC MNCs with large, high-skill and capital-intensive foreign ventures: the ultimate dividing line between them will be the scales of R&D and production required to generate or assimilate particular technologies rather than some general notion of technological complexity or skills. The historical evolution of Japanese enterprises may well serve as a model which industrializing LDCs may follow. Thus, it would be wrong to portray LDC MNCs generally as small, low-technology, labour intensive and low quality manufacturers. There are numerous cases of this sort but the number of exceptions is large enough to lead us to reject it as a generalisation. Second, there are important differences between the "revealed comparative advantage" of MNCs from different LDCs. India emerges as having a much "higher" RCA than its income and supposedly inefficient import-substituting policies would lead us to predict. According to the (admittendly patchy) evidence at hand, it seems to have the most diverse, complex and technologically advanced set of foreign ventures of the industrialising LDCs, with the highest local "embodiment" of skills, capital goods and components. My evaluation of technology exports more generally (Lall, forthcoming) suggests that this is true of its exports of turnkey industrial projects and consultancy services also. This pattern is explained, in my view, by the technological strategies followed by the different countries. Countries which have pursued an "open door" policy to foreign technology, especially in the form of direct investment by DC firms, have built up a smaller base of indigenous capability in the design, improvement and adaptation of technologies, even if they have enjoyed high rates of growth and industrial production. (This is not to argue that foreign technology is a substitute for local technology: their relationship is a complex and con- tinuously changing one, and needs further research.) Countries which have deliberately restricted access to foreign technology (but not cut it off altogether) have been able, after considerable "learning" costs, to assimilate unexpectedly high level of technological "know how", and this is reflected in their foreign activity. The lessons of this are, however, not as obvious as may appear at first sight. Is it necessarily a "good thing" to have a high level of multinational activity by one's firms? Or even to have achieved a stronger indigenous technological base? If rates of growth are the sole or prime objective of economic policy, the answer is far from clear: Japan succeeded brilliantly with a highly protectionist policy towards local technology, but, then, some LDCs have also done well with a highly "dependent" strategy. The longer-run implications of different technological strategies are hardly understood; even the most advanced countries today worry a great deal about the mainspring of technological progress. Thus, economics by itself does not enable us to find an answer to questions about the value of technological strategy. If other national objectives besides growth of GNP are introduced, an- swers become more complex and remote. The aim of this paper has been to raise these interesting questions, not answer them. NOTES

1) These doubts have surfaced most strongly in the case of Japanese overseas investment. See Kojima (1977), Ozawa (19771, Mason (1980).

2) These products may or may not be capital-intensive, as Hirsch (1977) points out. However, there is a general tendency for capital-intensity to be associated with skill, if not with technology, intensity. Thus, countries with no skill endowments will tend to specialize in products which are also labour intensive, while those with greater human resources may move up to more capital- intensive products even if they have innovative capabilities. Offshore processing of high-technology components by MNCs can, of course, cut across these patterns.

3) See Chen's paper in Kumar (forthcoming) and Wells (1979). Most Hong Kong investments seem to be in manufacturing, though financial institutions based in Hong Kong are also extremely active abroad. Hong Kong is undertaking several export-orientated operations in China, but no data on values are available yet.

4) Taiwanese data are taken from a manuscript by K Kumar and Chi Schive on "The Third World Multinationals: A Study of Taiwanese Figures", Honolulu: East-West Centre, which will be published in due course.

5) According to data provided by the World Bank (m),manu, facturing value added (1976) was: Brazil $ 19,l billion, Mexico $ 12,2 billion, India $ 9,O billion, Hong Kong $ 1,3 billion, Singapore $ 0,7 billion, Korea $ 3,9 billion, Taiwan $ 4,3 billion and Argentina $ 8,3 billion

6) The 20 largest business houses in India control 50-60 % of the entire corporate sector in the economy. Birla and Tata account for about 40 % of the stock controlled by the largest 20 houses, and so far about 20 % of the entire corporate sector. I am grateful to M S Siddharthan for this information.

7) Much of this information was kindly provided by Mr A V Birla earlier this year.

8) Reported in the Financial Times, London, 7 July 1970, p. 2.

9) I am grateful to Mr B Nehru, Managing Director of Tata Exports, for much of the information given here. 10) Its major turnkey projects include an Rs 120m meter plant in Algeria, an Rs 94m training centre in Nepal besides the ones in Nigeria and Kenya (Rs 151m together). It is negotiating a Rs 2,5 billion plant in Iraq and an Rs 2,6 billion cutting tool complex in Algeria. This information was kindly provided by K Kutty, Managing Director of HMT International.

11) Information provided by Mr A Malhotra, Director of HCL.

12) Paper and cement are significant areas of activity for Mexican firms. A Mexican firm HYLSA has also pioneered a direct-reduction steel-making process which has been licensed to several countries; as far as I know, however, HYLSA has not exploited its invention by direct investment.

13) India does not exploit its metallurgical skills by direct investment in a major way since the industry is dominated by public sector firms which are, unlike the Brazilian ones, reluctant to go multinational, and which are fully stretched to meet local needs. However, Indian firms have built some steel mills overseas by turnkey contracts, and consultants like M N Dastur and MECON (mentioned above) are very active internationally.

14) Jo, Sung-Hwan, (forthcoming), p.40. REFERENCES

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BARANSON, J (1967), Manufacturing Problems in India: The Cummins Diesel Experience, Syracuse: Syracuse Univ Press.

BHAGWATI, J N and SRINIVASAN, T N (1975), Foreign Trade Re- gimes and Economic Development: INDIA, New York: NBER.

CHEN, E K Y (forthcoming), "Hong Kong Multinationals in Asia: Trends, Patterns and Objectives", in Kumar (ed).

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DUNNING, J H (1980), "Explaining the International Direct In- vestment Position of Countries", Reading University: Paper presented to the International Economics Study Group Conference, September.

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JO, SUNG-HWAN (forthcoming), "Overseas Direct Investment by South Korean Firms", in Kumar (ed).

KOJIMA, K (1977), "Transfer of Technology to Developing Countries - Japanese Style versus American Style", Hitosubashi J of Economics (Id:?).

KUMAR, K (ed), (forthcoming), Multinationals from Third World Countries, Lexington: DC Heath.

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LALL, S (1980), "Monopolistic Advantages and Foreign Invest- ment by US Manufacturing Industries", Oxford Economic Papers (32:l).

LALL, S (forthcoming), Developing Countries as Exporters of Technology, London, Macmillan. LALL, S and KUMAR, R (1981), "Firm-Level Export Performance in an Inward-Looking Economy: The Indian Engineering Industry", World Development, May, (9:5).

LECRAW, D J (1977), "Direct Investment by Firms from Less Developed Countries", Oxford Economic Papers (29: 3) .

LECRAW, D J (forthcoming), "The Internationalisation of Firms from LDCs: Evidence from the ASEAN Region", in Kumar.

MASON, R H (1980), "A Comment on Professor Kojima's Japanese Type versus American Type of Technology Transfer", Hitotsubashi J of Economics, (20:2).

NELSON, R R (1980), "Production Sets, Technological Knowledge, and R&D: Fragile and Overworked Constructs for Analysis of productivity Growth", American Economic Review, - Pa~ersand Proceedings (70:2).

O'BRIEN, P (1981), "The Argentinian Experience in Export of Technology: Retrospect and Prospect", Vienna: UNIDO (mimeo).

OZAWA, T (1979), "International Investment and Industrial Structure: New Theoretical Implications from the Japanese Experience", Oxford Economic Papers (31:l).

UN Centre on TNCs, (1978), Transnational Corporations in World Development: A Re-examination, New York: UN.

WELLS, L T (1978), "Foreign Investment from the Third World: The Experience of Chinese Firms from Hong Kong", Columbia J Of World Business, Spring.

WELLS, L T, (forthcoming), "Foreign Investors from the Third World", in Kumar (ed).

WHITE, E, (forthcoming), "The International Projection of Firms from Latin American Countries", in Kumar (ed). The traditional division of labour in the world economy, with its clearest expressions during the colonial period, is gradually disappearing. The emerging world order exhibits as one of its most significant features, increasing economic and political contacts between countries situated in the South. This trend represents a challenge to the previously so dominant North-South relations. It therefore raises a number of important questions, particularly with regard to the future of the South. To examine and discuss the problem areas involved, the Scandinavian Institute of African Studies organized a seminar in May 1981 on "The Emergence of South-South Relations in a Changing World Order". The agenda of the seminar concentrated on two major issues: Do South- -South relations contain possibilities for development in the South not found in the old international division of labour? Or do they simply possess the same exploitative characteristics as the classic North-South exchange, therefore creating a process of accelerating unequal development in the South? The present volume addresses itself to these important issues by focusing on two particularly interesting cases of expansionism in the South, the Brazilian penetration of West Africa and the Indian activities in Asia and Africa.

Published by:

Scandinavian Institute of African Studies P.O. Box 2126, S-750 02 UPPSALA, Sweden

Distributed by: Almqvist & Wiksell International P.O. Box 62, S-101 20 STOCKHOLM, Sweden ISBN 91-7106-206-8