Tuesday, April 25, 2017

Latin American GDP projected to grow by 1.1% in 2017

Latin America is projected to have a GDP growth of 1.1% in 2017, according to the 24 April report of the UN Economic Commission for Latin America and Caribbean (ECLAC). This latest growth estimate is less than the prediction of 1.3% in ECLAC's December 2016 report.
Even the 1.1% growth comes as a welcome news, given the fact the region had suffered an economic contraction of 1.1% in 2016 and 0.5 % in 2015. 
South America is expected to have a low growth of 0.6% while Central America will have a higher rate of 3.6%  
Growth estimates for the major countries are as follows:
Brazil  0.4% 
Mexico- 1.9%
Argentina 2%
Colombia- 2.4%
Peru- 3.5%
Chile- 1.5%
Dominican Republic will be the region's growth champion in 2017 with 5.3%, followed by Panama at 5.2%, Nicaragua at 4.6% and Bolivia-4%.
Venezuela is likely to suffer yet another economic contraction at 7.2% in 2017. The country is in a hopeless free fall. Its only hope is change of the Chavista regime which has no clues to stop the economic deterioration. The country is heading towards a political explosion and economic collapse. 
The recovery in the global prices and demand of commodities should help South America to hope for a higher growth in 2018. 
Brazil , the biggest economy faces internal problems while Mexico, the second biggest faces external challenges. Brazil is lurching from one political crisis to the next and is coming out with more and more incredible scandals of corruption. Earlier this month, the Supreme court has authorized investigation of 108 politicians which include nine ministers in President Michel Temer's government, three state governors, 29 senators and 42 members of the lower house of Congress. Consequent to this, the corporate activities are paralyzed, bank credits frozen, infrastructure projects delayed and investments postponed. The Odebrecht corruption scandal has claimed victims in Colombia, Peru and other Latin American countries. China is taking advantage of the situation and buying up assets whose prices have come down due to the economic crisis. In the first four months of 2017 the Chinese have invested 5.7 billion dollars in Brazil. Last year they invested 11.9 billion dollars and they are the largest foreign investor in Brazil.
The Brazilian situation has an adverse impact on Argentina which is finding it difficult to grow faster as expected under the business-friendly Macri government. 
Mexico faces challenging times with Trump's threats to build a wall, repatriate illegal Mexicans in US and change NAFTA to favor US more. Foreign investors have become more cautious about investing in Mexico which was emerging as the ' manufacturing hub' of Americas, becoming even more competitive than China in some manufacturing sectors such as cars and appliances.
Peru and Colombia are the countries which show promise of higher growth. Being a larger market, Colombia should be considered as the best opportunity for business in the region.

Sunday, March 26, 2017

Mexico has emerged as the top destination of India's exports to Latin America

Mexico has emerged as the top destination for India's exports to Latin America with a record high of 3.38 billion US dollars in 2016  (January- December). For those Indians who think that Mexico is too far and less important for India's trade than the neighbors or the traditional trade partners, here are the statistics to open their eyes:  India's exports to Mexico in 2016 are more than its exports to the neighbors such as Indonesia –3.13 bn, Thailand-2.96 bn, Iran-2.41 bn and Myanmar-1.13 bn; and more than to the traditional partners: Russia-1.81 bn, Canada-1.97 bn, Australia-2.95 bn, South Africa-3.24 bn, Spain-3.36 bn, and Egypt-2.09 bn.

While India's exports to Latin America as a whole have declined in 2016, it is heartening to note that the exports to Mexico have increased by an impressive 22 percent from last year (2.77 bn) and doubled from 1.56 bn in 2012. In Latin America, Mexico has overtaken Brazil (2.3 billion dollars) in 2016 as the largest market for India's exports.

What is even more interesting is that Mexico has emerged as the biggest market for India's vehicle exports which amounted to 1.83 bn.  Mexico accounts for 13% of India's global exports of vehicles which stood at 14.98 billon in 2016. This is remarkable in view of the fact that Mexico itself exports 80 billion dollars of vehicles and is the fourth largest exporter in the world. India's vehicle exports to Mexico have increased by an incredible 56% from 2015 (1.17 bn), 83 % from 2014 ( 1 bn) and from a mere 397 m in 2012. 

The major exports to Mexico are: vehicles –1.83 bn, Other engineering goods – 590 million, chemicals – 333 m, textiles- 214 m, plastics-83 m and pharmaceuticals- 47 m.

India's imports from Mexico were 2.44 billion dollars in 2016, down from 3.44 bn in 2014 due to the drastic fall in the prices of crude oil which accounts for 60 % of India's total imports from Mexico. Crude imports in 2016 were 1.48 billion dollars, down from 2.74 bn in 2014. India is the third largest destination for Mexican crude exports which have the potential to increase in the coming years. The other import items: engineering products –593 million dollars, gold-77m, chemicals-76m, optical products –57 m, and ores-54m. 

Mexico is the second largest market in Latin America with a population of 126 million and GDP of 1.15 trillion dollars. It is a politically stable country with vibrant democratic credentials. The macroeconomic fundamentals are generally healthy and strong.  The average inflation in the last decade was just 4.3%. The Mexican economy grew over 2% in the last two years, while Latin America as a whole had suffered GDP contraction in 2015 and 2016. The Mexican GDP growth rate in 2017 is projected to be around 2%. Mexico is the largest trading nation in Latin America, accounting for about 40% of the  region's external trade. Its market is open with low tariffs and predictable and investor-friendly policy regime. In the last four years, it has carried out many reforms opening up the previously restricted sectors such as energy. It has become a manufacturing hub of Americas with global leadership position in some consumer appliances and competitive in aerospace and high-tech industries. Manufactured products account for over 80% of exports unlike the South American countries which are dependent on exports of raw materials and commodities. Mexico is blessed with rich reserves of gold, silver, copper and other minerals as well as oil. However, Mexico has its its own share of challenges which include drug-related violence and Trump's threats to deport Mexicans from US and disrupt NAFTA.  

Thirteen Mexican companies have invested about a billion dollars in India. Around forty Indian companies have invested in Mexico in sectors such as pharmaceuticals, auto parts, IT and chemicals. Indian companies use Mexico as the platform for access to the markets of North and Central America with whom Mexico has signed FTAs. The Mexican Ambassador to India Melba Pria, known for her proactive economic diplomacy and riding in a colorful auto rickshaw with diplomatic number plate, has invited Indian IT professionals to use Mexico as the base for near-shore US operations, after Trump's H-1B visa restrictions. 

The Indo-Mexican trade of 5.82 billion dollars in 2016 have the potential to reach 10 bn in the next five years. After Trump's trade threats, Mexico is trying very seriously to reduce its over dependence on the US market which accounts for 81% of its exports and 50% of imports. It wants to diversify its trade partnerships and intensify its engagement with large markets such as India. This is, therefore, the most opportune and unmissable time for India to accelerate its trade promotion activities with Mexico.The Indian government could extend an invitation for state visit to the Mexican President Nieto who is keen on a strategic economic partnership with India. It is imperative for India to sign a Free Trade Agreement to remove the tariff disadvantages faced by India's exports vis-a-vis the exports from the 45 countries which have signed FTA with Mexico. 

Thursday, March 09, 2017

Trump triggers greater Latin American interest in India

" So far from God ….but so close to Trump", is the cry of the Mexicans these days to their patron saint, Virgin of Guadalupe, affronted by Trump's racist comments and accusation of Mexican immigrants as 'criminals, rapists and drug dealers'. They feel insulted by his demand for Mexican money to build the border wall. Not since the American annexation of Mexican territories and the US-Mexico war  in the 19th century that the Mexicans are so outraged with the Big Brother. Trump has called NAFTA as the 'worst trade deal in human history' and has threatened to impose tariffs on imports from Mexico, which depends on US for 81 percent of exports and  close to 50% of its imports. In 2016, Mexico's exports to US were 294 billion dollars and imports 231 billion. Traumatised by Trump, Mexico has started pursuing diversification of trade partnership focussing on large markets like India. 

Like Mexico, Central America also fears deportation of large numbers of their citizens from US and loss of remittances. Cuba, which began normalization of relations with US, is back to the wall again by Trump's reversal of some of the policies of Obama administration. Colombia, Chile, Peru, Dominican Republic and the five Central American countries which have signed Free Trade Agreements with the US are apprehensive expecting the worst fromTrump. The Latin Americans cannot believe that the US, which preached and forced Latin American governments to open up their markets and liberalize imports in the name of "Washington Consensus", is doing exactly the opposite by resorting to protectionism.  

During the annual CELAC (Community of Latin American and Caribbean States) summit in January this year, the leaders of the region were unanimous in their condemnation of the Wall and solidarity with Mexico. The outgoing Secretary General of UNASUR (South American Community) Ernesto Samper had said, "U.S. President Donald Trump's migration policy and trade protectionism are threats to South America and the region must take a stand against them instead of appeasing him". Mario Vargas Llosa, the celebrated Peruvian writer and Nobel Prize winner, whose latest novel is about the Fujimori dictatorship in Peru, has called Trump as an ' uncouth, populistic and nationalistic demagogue dangerous for Latin America'.  The Latin Americans who had suffered long in the past from dictatorships are shocked that the Caudillo (typical Latino authoritarian strong man) has reappeared in North America in the form of Trump  reviving their  bad old memories of the 'arrogant Yankee'

While Trump is alienating the Latin Americans, the Chinese have steadily expanded their presence in the region. China has overtaken US to become the largest export destination for Brazil, Chile and Peru among others. It has replaced European Union as the second largest trade partner of the region. The Chinese target is 500 billion dollars of trade and 250 billion investment by 2025. China has given a credit of 21 billion dollars to Latin America in 2016 alone and their cumulative credit is an impressive 141 billion dollars, since 2005. They have captured the imagination of Latin Americans with announcement of mega infrastructure projects such as the Bi-Oceanic Railway between the ports of Santos in Brazil and Callao in Peru as well as the Nicaragua Canal project. But the Latin Americans have become conscious of the risks and perils of over dependence on China which has used its leverage to bully some countries in the region. In any case, the Latin Americans, who have come out of dictatorships just three decades back, are uncomfortable with the Chinese communist dictatorship and its non-transparent policies and intentions. Not surprisingly, the US think tanks and NGOs are stoking the fires of distrust of China by maligning Chinese projects and exaggerating the damage to region's industry and environment by the flooding of cheap Chinese products and extractive ventures.

The Latin Americans are disillusioned equally with Europe, with its rising nationalism, anti-immigrant agenda and trade barriers. 

Caught between the bullying Trump, indifferent Europe and the suspect Chinese, the Latin Americans have started looking more seriously at India, attracted by its huge and growing market as well as its vibrant and diverse democracy. They have taken note that India has already overtaken China in growth rate and the Indian population is set to exceed that of the Chinese in the coming years.They do not feel threatened by the Indian exports or investment unlike in the case of Chinese. The Indian IT and pharma companies are perceived as having contributed positively to the region. India has already become the second largest market (after US) for crude oil, the largest export of Latin America. Since US is reducing imports of crude oil (thanks to the shale discoveries), India will become even more important a market for Latin American crude exports.  In 2014, India was the third largest destination for Latin America's exports. The region had exported more to India than to Germany, France, UK, Italy, Spain and Japan. 

Trump's withdrawal from TransPacific Partnership (TPP) is good for India. The TPP had extra protection for patents (pushed in by multinational corporations) which would have caused problems for the pharmaceutical exports of India to Mexico, Colombia and Chile, the Latin American members of TPP. If TPP had become successful, it would have inspired more such second generation trade agreements adversely impacting some of India's exports. 

The Latin American economy has recovered from the recession of the last two years and has resumed growth in 2017. Except for Venezuela, the macroeconomic fundamentals of the region are generally stronger and  growth prospects better. The region offers a large market of 614 million people with a combined GDP of 5.2 trillion dollars and per capita income of 8500 dollars. The region's imports are close to a trillion dollars. 

Distance is no longer a deterrent. Fresh fruits from Chile, Peru and Argentina are available in Indian markets. India exports more to the distant Guatemala than to the nearby Cambodia.India's exports to Brazil in 2014-15 were more than its exports to Japan, Korea, Malaysia, Indonesia, Thailand, France, Italy and Spain. India's exports to Mexio exceeded its exports to Russia, Canada and Australia.

Latin America is the largest destination for India's car and motor cycle exports. Indian pharmaceutical exports to the region are around a billion dollars. Over twenty Indian IT and BPO companies have established operations in the region employing more than 25,000 local staff. Latin America, with a 15-20 percent  share of India's crude oil imports, has come to stay as an important contributor to India's energy security helping India's strategic policy of diversification and reduction of over dependence on the Middle East. Besides large reserves of oil, the region is well endowed with minerals and agricultural potential which are useful for 'Make in India' and food security.The India- Latin America trade which was 30 billion dollars in 2015-16 has the potential to reach 100 billion in the near future. 

This is, therefore, the right time and an unmissable opportunity for India to intensify its win-win economic partnership with Latin America. One of the immediate measures to take is to increase the credit to the region to facilitate trade and investment. The cumulative Indian credit to the region is very much below one hundred million dollars while the Chinese credit is 141 billion. The negotiations for widening and deepening the PTA with Mercosur ( which has been going on indifferently for the last ten years) needs to be concluded without further delay. Trade Agreements could be signed with Mexico (the largest destination of India's exports to the region in the last two years) as well as with Colombia and Peru the other major markets. Prime Minister Modi should undertake annual visits to the region, like the Chinese President does.The Commerce and External Affairs Ministers of India need to engage their Latin American counter parts with a new message of serious partnership.The annual India-Latin America and Caribbean Business Conclave needs to be organized in a larger scale with more funds and high-level participation. Opportunities for Indian exporters and business in the region need to be disseminated regularly with the latest information on the economies and markets through trade and industry bodies and export promotion councils.

Edited version of this appeared in The Wire

Wednesday, March 08, 2017

India's trade with Brazil has declined again.

India's trade with Brazil has gone down by 28 % reaching USD 5.6 billion in 2016 (January to December) from 7.90 billion in 2015 after reaching a peak of 11.4 billion in 2014. India' exports declined by 42% to USD 2.48 billion while imports went down by 12% to USD 3.16 billion from the previous year.

India's main exports were:  Agro chemicals for crop protection – 251 million, Diesel-169 m, polyester yarn- 151 m, chemicals-76 m and pharmaceuticals – 31 m
Major imports: raw sugar-884 m, crude oil-671 m, soya oil-378 m, copper sulphate-175 m, gold-88 m, copper products –88 m, pvc -70 m , ferro nickel– 40 m, iron ore-32 m.

In 2014, India's  export of diesel was 3.52 bn dollars and crude oil imports were 2.3 billion dollars from Brazil. These have come down drastically.

Brazilian global imports had decreased by 20 % to 138 billion and exports by 3% to 185 billion in 2016. The Brazilian recession of the last two years and the fall in commodity prices are the main reasons for the decline. 

But the good news is that the Brazilian economy is resuming growth in 2017 and the commodity prices are going up. The inflation has been contained in single digit and the external debt is under control. Foreign Direct Investment keeps pouring in, reflecting confidence of investors who take advantage of the lower cost of Brazilian assets. The political situation has become better and the government of President Temer is pro-business. These mean that the bilateral trade should grow in 2017. If the  ongoing ( for the last ten years ) negotiations to widen and deepen the PTA with Mercosur is concluded without further delay, it could boost the trade with Brazil, besides other Mercosur members. 

Friday, December 16, 2016

Latin America outlook for 2017

Latin America is projected to grow by 1.3% in 2017, according to the 14 December report of the UN Economic Commission for the region (ECLAC). This comes as a relief after the economic contraction of the region in the last two years, by 1.1% in 2016 and 0.5% in 2015. 
South America is expected to grow by 0.9%, Mexico by 1.9% (down from 2% in 2016) and Central America at 3.7% (up from 3.6%). Brazil, the largest economy of the region should see a growth of 0.4% (after the negative growth of 3.6% in 2016), Argentina 2.3% ( from –2% in 2016), Colombia 2.7%, Peru 4% ( highest in South America) and Chile 2%. Venezuela's contraction in 2017 will be 4.7%, better than the 9.7% in 2015. Dominican Republic will be the region's growth champion with 6.2%, followed by Panama- 5.9% and Nicaragua - 4.7%.
The main reason for optimism is the expectation of rise in commodity prices by 8% in 2017, which had declined by 6% in 2016. 
The slowdown in the region’s economic activity in 2016 was essentially due to lower investment and consumption as well the fall in demand and prices of commodities and the Chinese slowdown. 
Total imports of the region are estimated to have fallen by 21% from 984 billion dollars in 2015 to 774 billion in 2016 while exports have come down by 6.3% to 866 billion dollars in 2016 from 925 billion in 2015.
The sovereign risk of the region which peaked at 677 basis points in January 2016 has come down to 500 basis points in late October 2016.
Average inflation in the region has increased to 8.4% in September 2016 from 6.9% in Sept 2015. While Venezuela has maintained the world's highest inflation (over 600%) Argentina's inflation has surprisingly doubled to 42.4 % in 2016 from 21.9% in 2015. Brazilian inflation has come down to 8.5% from 9.5% last year.
The total external debt of the region has reached 1.52 trillion dollars in 2016 from 1.44 trillion in 2015. However, the ratio of external debt to GDP  at 36.4% is not high and is very much under control. Foreign exchange reserves have increased (surprisingly) to 812 billion dollars in 2016 from 795 billion in 2015.
Unemployment rate has risen sharply from 7.4% in 2015 to 9.0% in 2016. 
Currencies of many countries of the region have depreciated vis-a-vis dollar in 2016.
The new year brings a new worry for the region. Trump threatens to dissolve NAFTA and other Free Trade Agreements and pursue protectionist policies. Mexico, which is overwhelmingly dependent upon US for over 75 % of its exports, will be in the direct firing line of Trump. He has already arm twisted a few American companies such as Ford to stop their plans for shifting of some manufacturing to Mexico. This will hurt Mexico which has been booming in recent years as the 'manufacturing hub of Americas'. Mexico along with Central America will  be hurt by the fall in remittances from their emigrants in US. The only hope is that as President, Trump is likely to tone down his rhetoric and be more pragmatic. The US will be hit as badly as Mexico if he does all that he says.   
Brazil's political crisis has deepened after the plea-bargain revelations of Odebrecht according to which about 150 political leaders including President Temer and the speakers of the lower and upper houses of the congress as well as Lula had received bribes and illegal campaign funds. The scandal has paralyzed the ongoing infrastructure projects and investments and frozen bank lending to companies. The Temer government and the corrupt Congress have passed a law freezing the spending limits for the next twenty years. This will hit the country's education and health care among other development sectors. It is a reversal of the pro-poor policies adopted by the Workers Party government which had helped millions of people to come out of the poverty line. 
Argentina has surprised everyone with a very high inflation and by its economic contraction in 2016, despite the centre-right President Macri's proactive stimulus measures for the last one year. But it is going to get better in 2017.
Venezuela remains hopeless and continues to worsen. The Chavista regime is still clueless about how to arrest the deterioration. While the Venezuelan people suffer from shortages of food and other essential items, the Wall Street is feasting on the ultra high yield of the Venezuelan bonds.
India can hope to increase its exports to Latin America which will resume growth in 2017. India's car exports to Mexico have increased by 38% in the first eight months of 2016, reaching 1.077 billion dollars as against 728 million in the same period last year. The car exports to Mexico has been steadily going up in the last three years.
India will continue to increase its large imports of petroleum crude, vegetable oils and minerals from Latin America. While the volume of these exports continue to increase, the import bill has sharply declined in 2015 and 2016 thanks to the lower prices of commodities. For example, the oil imports have come down from 20 billion dollars in 2014-15 to 10 billion in 2015-16. This will go up slightly next year. However, the total Indo-Latin American trade in 2016-17 will be much less than the peak of 43 billion dollars in 2014-15 due to the lower value of imports. 
There was no major Indian investment in Latin America in 2016. The Indian companies operating in the region will face less pressure in 2017 after the difficult conditions in 2016. Renuka Sugar, which had invested half a billion dollars in the Brazilian sugar mills, declared bankruptchy in 2016, unable repay the debts. Some other Indian investors including Havells are selling off their assets in Latin America. On the other hand, UPL's (United Phosphorous) agrochemical business has been booming in Brazil. Their Brazilian turnover has now overtaken their Indian business. This should encourage other Indian companies who might be interested in acquisition of assets in Latin America at this time when the prices are low.
Latin American democracies which have matured over the years, cannot believe that the Caudillo (strong man) has reappeared in the north. Trump's bullying and offensive discourses and his protectionist policies are forcing the Latin Americans to look for other markets. This comes on top of their frustration with the protectionist trends in Europe. They are also actively trying to reduce over dependence on China, which has hurt their domestic manufacturing and has been pursuing non-transparent policies in the region.  So the Latin Americans are now looking at India even more seriously as an economic partner in the long term. This is an opportune time for India to formulate a strategic policy and intensify its engagement with Latin America which is contributing to India's energy and food security and is offering a large market for its exports.

Tuesday, October 18, 2016

Latin America will resume GDP growth in 2017 after the recession of 2016

Latin America is projected to recover with 1.5% GDP growth in 2017 after the economic contraction of 0.9% in 2016, according to the 12 October report of ECLAC, the UN Commission for Latin America and Caribbean. 

The growth champion in 2016 is Dominican Republic with 6.5%, followed by Panama at 5.4%, Bolivia and Nicaragua at 4.5%, Costa Rica at 4.2% and Paraguay at 4%.  Central America is expected to grow at 3.5%, Mexico at 2.1%, Colombia 2.3% and Chile 1.6%.  Venezuela holds the top ranking for negative growth with –8%, followed by Brazil at –3.4%, Argentina at –1.8% and Ecuador at –2.5%.

In 2017, all the countries except Venezuela will show positive growth.  Brazil will recover to a positive growth of 0.5%, Argentina 2.5% and Ecuador 0.2%. Dominican Republic, Panama, Nicaragua, Costa Rica and Bolivia will continue to grow over 4%. The ten South American countries will grow at 1.1% in 2017 after a negative growth of 2.2% in 2016. Even Venezuela will half its GDP contraction rate to 4%.

The most significant turnaround in 2017 will be in the case of Brazil which now has a business-friendly government of President Temer since August 2016. The new regime has already started opening the economy and removing some of the restrictive and protectionist policies of  the PT government which was in power from 2002 to 2016. However there are many challenges ahead, given the paralysis of the infrastructure and construction industry as well as bank credit. The top company chiefs are in jail or under investigation following the "Car Wash" (Lava Jato) scandal involving Petrobras. The centre-right government of Macri in Argentina since December 2015 has been pursuing market reforms and business-friendly policies after the disastrous economic management by President Cristina Kirchner in the period 2007-15. However, Venezuela remains hopeless under President Maduro who has no clues to control the inflation raging at over 600% or stop the economic deterioration. Venezuela can hope for improvement only when the Chavista rule ends.

There is a tendency to blame the socialist policies of the Leftist governments in the region for the economic downturn since 2011. It is not a failure of the socialism. It is due to the abuse of power in the name of socialism by some crazy leaders. The Left in Latin America has become moderate and pragmatic moving towards a Brasilia Consensus with a balanced mix of pro-poor and business-friendly policies. President Lula of Brazil was the role model for this New Left. President Michelle Bachelet of Chile, President Ollanta Humala of Peru, Presidents Jose Mujica and Tabare Vasquez of Uruguay, President Evo Morales of Bolivia and President Ortega of Nicaragua have followed the Lula model in varying degrees. President Evo Morales, a staunch leftist has ensured the consistent growth of Bolivia at an annual average of 4.8% since his coming to power in 2006. Bolivia has remained among the highest growth countries in Latin America, although his rhetoric sometimes tends to get extreme. The GDP of the country has grown spectacularly from 9.54 billion dollars in 2005 to 34.68 billion in 2019. Even after the global financial crisis, Bolivia maintained its growth at 3.4% in 2009 and 4.1% in 2010. It is not only the absolute GDP but the per capita growth has also been impressive and consistent, making Bolivia as a successful example of poverty alleviation in the region. It is also true of Nicaragua under the leftist president Ortega, which has consistently grown at an average of 3.8% since his assumption of power in 2007. The GDP of the country has doubled from 6.78 billion dollars in 2006 to 13.26 billion in 2016. But Hugo Chavez, Dilma Rouseff and Cristina Kirchner had tried to control everything and refused to have dialogue with the private sector business. They lost the game playing it their own way. Chavez went out of his way to destroy the Venezuelan industry and business as a revenge against their support to the coup against him in 2002. 

The main reason for the downturn in South America is the drastic fall in demand and price of their commodities, caused mainly by the Chinese slow down. But now the global prices are recovering and the domestic demand is also picking up. It is to be noted that the region has adequate foreign exchange reserves (except Venezuela) and inflation under control in single digit, except for Venezuela and Argentina. No country is in any desperate need for IMF rescue. The region is set on a relatively stable course of growth in the coming years. This is evident form the large inflow of FDI into the region betting on its growth potential. They are, of course, also taking advantage of the lower prices of assets and favorable exchange rates.

Here are some positive stories to cheer up the Indian business who might feel discouraged by the negative news flowing out of Latin America: 

-UPL (United Phosporous Ltd), the number one Indian agrochemical company does more business in Brazil ( over 500 million dollars) than in India. They are not deterred by the so called 'crisis' in Brazil. They have invested over 300 million dollars and are upbeat about their growth prospects in Brazil, which has got solid growth fundamentals as an Agricultural Powerhouse in the world.

-Indian pharmaceutical companies operating in Brazil have an impressive combined annual turnover exceeding 500 million dollars. Torrent alone does a business of more than 100 million dollars.

-India's exports of vehicles to Mexico have increased by 41% in the first quarter of 2016 reaching 380 million dollars from 267 million in the first quarter of 2015. They have doubled from 665 million dollars in 2013 to 1175 million in 2015.

Tuesday, August 02, 2016

2016 is turning out to be worse than 2015 for some South American economies

Latin America will suffer a GDP contraction of 0.8% in 2016, according to the 26 July report* of ECLAC, the UN Commission for Latin America and Caribbean. In December 2015, ECLAC had predicted decline of 0.6%. But the year 2016 is turning out to be worse than 2015 when the region's GDP shrank by 0.5%. The total GDP of the region has come down from 6.13 trillion dollars in 2013 to 4.88 trillion in 2015.

The deterioration is due mainly to low global prices and demand of Latin American commodities and weak domestic consumption. Global prices of crude are expected to be lower in 2016 by 21%, iron ore-23%, soybean flour-14% and copper-13%. But the fall in prices are good for India, though..India's import of crude oil from Latin America halved to 10 billion dollars in 2015-16 from 20 billion in 2014-15, although the the volume of crude imports have gone up. Crude oil is the largest export item for Latin America and the largest import for India.

While four countries face GDP contraction, the remaining fifteen economies will continue to grow.

Dominican Republic is 'the star of 2016' with the top GDP growth rate of 6%, followed by Panama-5.9%, Bolivia-4.5%, Nicaragua-4.5%, Costa Rica-4.3%, Peru-3.9%. Mexico, the second largest economy of the region is expected to grow by 2.3% and Colombia, the fourth largest, by 2.7%. Central America is likely to grow by 3.8%.

South America, dependent more on commodities and China for exports, faces GDP contraction of 2.1%. But Mexico and Central America aligned to the US market will grow by 2.6%.

Venezuela is projected to end up with a GDP contraction of 8%, followed by Brazil 3.5%, Ecuador 2.5% and Argentina 1.5%. Venezuela is, of course, hopeless and could get worse. The other countries would recover next year. Brasil is already showing signs of turnaround. Argentina should resume growth sooner with the business-friendly and pragmatic Macri government which took over in December 2015. But the Argentines could not avoid the cold when Brazilians sneez. Brazil is their largest trading partner.

The unemployment rate of the region is expected to go up to 8.1% in 2016 from 7.4% in 2015. Major currencies of the region have depreciated significantly against the dollar. Total imports of the region which fell by 15% in 2015 is projected to decrease by 7% in 2016. The region's exports are also expected to decline by 3% in 2016, after the 11% fall in 2015. 

Here are some positive statistics. The average inflation (cumulative for the 12 months from May 2015) of the region was just 6.1% in April 2016. Exceptions:  Venezuela's inflation stood at the world's highest figure of 181% ( IMF estimate is much higher); Argentina's, despite the best efforts by Macri administration stood at 43% in May 2016. The external debt of the region in December 2015 was 1443 billion dollars which was a mere 29% of the total GDP. No country in the region needs any IMF rescue or likely to default on its external debt. The total foreign exchange reserves of the region are over 800 billion dollars, which are adequate to face any unexpected external shocks. 

This is a good time for acquisitions in countries like Brazil and Argentina where the asset prices are lower due to local currency depreciation and other such issues. This explains the FDI of 129 billion dollars received by the region in 2015. Brazil received the maximum FDI of 62 billion dollars in 2015. The Wall Street Journal trashes Brazil with negative stories and brings down the value of Brazilian stocks and bonds. The Wall Street funds go in and quietly acquire Brazilian assets. 

The Indian business need not be unduly deterred by the negative numbers. It is just a cyclical downturn. Except for the man-made disaster of Venezuela, all the other economies have stronger macroeconomic fundamentals and have built up the capacity for resilience. During this time of austerity, Latin Americans import more generic medicines from India than the patented ones from the developed countries and look for more such affordable products from India. 

Monday, July 25, 2016

India: Long term bet for Latin America's exports

Many Latin Americans assume that India is less important for their exports than their traditional European partners such as Germany and France. Wake up..amigos. India was the third largest destination for Latin America's exports in 2014. The region exported 29 billion dollars of goods to India, while its exports to Japan and Spain were 21 billion dollars each, Germany-17 bn, Italy and UK-11 billion each and France-8 bn.

In 2015, India was Latin America's sixth important export destination with 18.8 billion dollars. This was more than the export to Japan, Germany, Italy, UK and France.  The reason for the fall in exports to India in 2015 was the sharp drop in the price of crude oil.

India is the number one destination of Latin America's vegetable oil exports, with a share of 26.6% ( 2.57 bn dollars) in 2015. China, the second largest importer, bought just 0.73 billion dollars from the region.  

In 2014, India was the second largest importer of Latin American crude oil exports with 20.9 billion dollars, ahead of China's 17.6 bn. In 2015, India was the third largest, accounting for 9.65 billion dollars. 

India ranks third for the region's exports of copper and fourth for gold. 

India, as a major export market, is not a wonder of one or two years. India has emerged as a large and growing market for Latin American goods in recent years and is set to continue its ranking in the years to come. India has already overtaken China in GDP growth rate and will surpass China in population too.

Petroleum crude, copper, gold and vegetable oil are among the top global Latin American exports and coincidentally these are the major imports of India from the world. India has to increase its imports of these items in the future both globally and from Latin America in view of the of the growing gap between domestic demand and production. The increasing Indian population (15 million a year) and consumption power of the new middle class as well as the need for fuelling the high growth of the economy will continue to drive the rise in imports. This Indian need to import more is complemented by Latin America's potential to export more with its ample resources. 

Crude oil

India's crude imports have doubled in the last decade from 99 million tons in 2005-6 to 202 mt in 2015-16 ( April-March, the financial year used by India). According to a 2015 report of International Energy Agency, imports are projected to reach 358 million tons by 2040. While India's crude imports are relentlessly increasing, Latin America is blessed with huge reserves, production capacity and surplus for exports. At the same time, the US which is the principal market for Latin American crude, has drastically reduced imports after the shale revolution. Although the middle eastern suppliers are nearer, India will continue its purchase of about 15 percent of its global imports from Latin America as part of its strategic energy security policy to avoid  over dependence on the politically unstable gulf countries.


In the case of vegetable oil, India's imports have jumped from 0.1 million tons in 1992-93 to 8.8 mt in 2009-10 reaching 14.6 million tons in 2014-15 ( November-October used as financial year by the Indian vegetable oil industry) and is estimated to touch 15.75 mt in 2015-16. Consumption has doubled from 10.1 million tons in 2001-2 to 20.08 mt in 2014-15 and is projected to reach 26.8 mt by 2025. 

South America has started exporting small quantities of pulses to India which is the largest importer in the world. India's imports have reached 4.5 million tons in 2015-16 from just 0.56 mt in 1998-99 and 2.79 mt in 2007-8.

India's production of oil seeds and pulses is unable to cope with the increasing demand due to a number of issues, although the country is self-sufficient in cereals. 

Chile, Peru and Argentina have started supplying fruits and vegetables to India. These are not considered as competition to domestic production but seen as complementary since they come during India's off-season from South America which is in the southern hemisphere.

Wines of Chile and Argentina as well as Tequila and Corona of Mexico are popular in India and their sales are growing.

Indian agriculture faces daunting challenges caused by the diversion of agricultural land for other purposes, shortage of water and low productivity due to inadequate investment by most farmers whose land sizes are small. On the other hand, South America has vast tracts of fertile land, abundant water, technologies and best practices with which the region has emerged as a global agricultural powerhouse.


Gold is one of the major imports of India, which is the third largest importer after Switzerland and Hongkong/China. In 2015, India's imports were 35 billion dollars. India's imports have had a fourfold increase from 245 tons in 1997-98 to 957 tons in 2015-16.

India has been importing gold mostly from non-producing third countries such as Switzerland and UAE. It is only in the last few years that India has started direct imports from Latin American producers such as Colombia, Peru, Bolivia, Ecuador, Dominican Republic and Brazil. The imports from the region will go up in the coming years.

India's import of copper and other minerals are also set to rise, given the rapid industrialization, boosted by the 'Make in India' campaign. Imports of copper concentrates have seen an increase of twenty times from 0.08 million tons in 2000-1 to 1.8 million tons in 2015-16.

Beyond commodities..

Some critics complain that Latin America's exports to India are mostly commodities and raw materials. But they should be realistic and recognize the fact these are the main exports of the region except for the manufactured goods exported my Mexico to NAFTA partners. The number one item of exports of the region is crude oil, which stood at  115 billion dollars in 2015. This complements the number one item of India's import which is also crude oil. India's imports were 105 billion dollars in 2015-16. 

Latin America has started exporting finished goods to India, although the figures are not that high. In 2015-16 the exports of electrical and electronic equipments were 401 million dollars, iron and steel items- 364 million, machinery and boilers- 196 million, organic chemicals- 195 million and even pharmaceuticals worth 58 million dollars. Embraer has sold planes to India and is set to increase its share in the fast growing aviation sector of India. Brazilian Marcopolo buses, made in joint venture with Tatas, are ubiquitous in Indian roads. 'Perto' from Brazil has supplied ATMs to Indian banks.

The 'retail revolution' of India has opened an unprecedented opportunity for Latin America to export processed foods and other consumables to fill the supermarket shelves. The new Indian middle class has developed taste for typical Latin American products such as quinoa, stevia, tequila, Corona beer, Argentine Malbec and Chilean wines. A Brazilian company 'Surya Brasil' imports henna ingredients from India and exports branded Henna products to many countries including India. A Peruvian firm 'Aje' has set up a plant in India to bottle and market its Big Cola drinks. Cinepolis from Mexico has become the fourth largest operator of multiplexes in India. A dozen other Latin American companies in sectors such as steel, auto parts and electrical motors have manufacturing units in India. There are a few Latin American software companies which provide services to Indian clients.

Uruguayan architect Carlos Ott has designed the largest office complex in India for TCS in Chennai. Another Uruguayan executive rose to the level of executive vice president of TCS for emerging markets, a reward for his success in establishing the company's operations across Latin America. Indian language institutes need more spanish teachers to cope with the growing popularity of Spanish which has replaced French as the most preferred foreign language even in schools. There is also scope for teachers of salsa dance, which has caught the fancy of the young Indians. 

Latin American firms are yet to explore the opportunities offered by the huge investment India is making in infrastructure including highways, airports, ports, power and renewable energy. Some companies such as IMPSA of Argentina and Odebrecht and Andres Gutierrez of Brazil made some tentative attempts but did not sustain them seriously. 

Entertainment and sports business

Mexican actress Barbara Mori and half a dozen Brazilians starlets have acted in Bollywood films. The famous Argentine music director Gustavo Santaolalla composed music for an Indian film Dhobi Ghat in 2010. There are a number of models from South America active in the Indian advertisement and fashion business. A Uruguayan model Carolina has married an Indian male model and settled in Mumbai as Carolina Grewal.

Colombian soap operas such as the Ugly Betty were shown in Indian TV, after adaptation. Mexican ' Kidzania' has set up edutainment theme parks in Mumbai and Delhi in collaboration with the famous actor Shahrukh Khan. Latino music is regular fare in Indian discos and gyms. Shakira from Colombia had successful live music shows in India 2007. Other pop stars and bands could follow. The Latin Americans can explore further opportunities in the Indian entertainment business which is seeking out the exotic.

There are over twenty Latin American football players and coaches in the clubs of India where football's popularity is soaring. Tata Motors has contracted Messi as their global brand ambassador. Cuban coaches have been training Indian athletes for olympics. 

India as a base for regional and global business

The Latin American business could  use India as a base for the Asian and global markets. Techint, a renowned Argentine steel firm has an outsourcing centre in Mumbai to service their engineering projects in West Asia. Three Latin American IT firms have acquired Indian software companies for their global delivery operations. The Argentine cofounder (along with Fabrice Grinda of France) of the online classified advertisement firm OLX  launched the services not in Argentina or France but first in India where it remains as the largest in classified services. After its Indian success, the founders took it to other countries and now the firm has become one of the largest global players.

'Focus India' strategy

Most of the large- volume Latin American commodity deals are done either by multinational corporations operating out of  US, Switzerland, Singapore and Hong Kong or Indian buying companies such as Reliance. There is therefore need for the Latin American governments to encourage their local companies, especially the small and medium ones, to explore the business opportunities in the Indian market. There should be more participation in Indian trade fairs, visits of business delegations and market studies. The Latin Americans could follow the example of the successful entry of Chilean fruits and vegetables in India after the commendable export promotion work done by the Chileans. If Latin Americans do a serious and sustained 'Focus India' strategy similar to the successful 'Focus Latin America and Caribbean' programme of India in the last two decades, there is tremendous scope to increase their share in the imports of India, which promises to be a large long term bet for Latin America. 

Monday, June 20, 2016

Latin America had attracted 172 billion dollars of FDI in 2015

Foreign Direct Investment (FDI) in Latin America in 2015 was 172 billion dollars, according to the June 2016 report of ECLAC. This is not bad considering the the poor economic performance of the region which suffered a GDP contraction of 0.4% last year. While the 2015 FDI was 9.5% less than that received in 2014, it was more than the FDI received in 2010 (168 billion dollars) during the peak of the economic boom of the region. What is even more interesting is that the outward investment by Latin American firms was 47.3 billion dollars in 2015. Chilean firms were the top investors with 15.8 bn.
Brazil continued to be the top recipient of FDI with 75 billion dollars (down from 96.8 bn in 2014) with a share of 42% of the total FDI in Latin America, in spite of the GDP contraction of 3.5% in 2015. 
Mexico had received 30 bn, increasing from 25.6 bn in 2014. Of this, fifty percent went into the manufacturing sector  and mostly into the automotive sector which is flourishing.
Chile received 20.5 bn ( down from 22.6 bn), Colombia –12 bn ( from 16.3 bn last year), Argentina-11.6 bn ( increase from 5 bn) and Peru –6.8 bn ( down from 7.8 bn ). 
The six countries of Central America had attracted an impressive 11.8 billion, the highest in the last ten years. Of this, Panama had received 5 bn and Costa Rica 3 bn.
USA was the major source of FDI with a share of 25.9%, followed by Netherlands (15.9%) and Spain ( 11.8%).
The fall in FDI in 2015 was due to the continuing low international prices of oil, minerals and metals, the decline in Chinese demand and the weaker domestic consumer demand. Mining sector has suffered  drop in FDI while manufacturing, renewable energy and telecom and other services have increased their share. 

ECLAC has predicted FDI decline of 8% in 2016, in view of the GDP contraction of 0.6% projected for the region in 2016.
Outward FDI by Latin American firms declined by 15% from 2014 to 47.3 billion dollars in 2015. Chile was the major foreign investor with 15.8 bn ( up from 9.8 bn in 2014) followed by Brazil-13.5 bn (down from 26 billion in 2014) and Mexico –12 bn (up from 7.4 bn in 2014) and Colombia-4.2 bn (up from 3.8 bn). 
There were two major Indian investments in Latin America in 2015. The biggest was the 342 million dollar plant established by the Jaguar Land Rover of Tata Motors in Brazil. The plant was inaugurated in June 2016. The second one was the 70 million dollar investment of Hero Motors in a motorcycle plant in Colombia. Some small acquisitions took place in IT and other sectors. 
Renuka, which had invested half a billion dollars in the Brazilian sugar sector in 2010 had declared bankruptcy in September 2015, due to operational losses and difficulty in servicing the debts.  Pidilite and Gravitas have been looking at divestment since their operations in Brazil and Honduras have been running in losses.
If any Indian company is interested in acquisitions in the region, this is a good time especially in Brazil and Argentina where the asset prices are low and exchange rates are favorable. 
The only notable Latin American investment in India in 2015 was from Mexico.  In January 2015, Cinepolis of Mexico acquired Fun Cinemas from Essel Group of India. With this acquisition, Cinepolis has added 83 more screens, making its total 193. Its target is 400 screens by 2017. Kidzania from Mexico has opened a second children's edutainment park in Noida, outside Delhi, after its successful first investment in Mumbai.