Monday, June 24, 2019

Latin America is more important for India’s exports than some neighbours and traditional trade partners


India exported more to the distant (15000 km) Guatemala ( 305 million dollars) than to the neighbouring (3400 km) Cambodia ( 196 million$)in 2018-19,.

India’s export of 181 million dollars to the remote and small Uruguay  (15000 km away; population 3.4 million) is more than to Kazhakstan ( 143 milliondollars) which is 1600 km from Delhi and has more than five times population with 18 million.

India exported more (216 m $) to Dominican Republic (DR) than to the near by Uzbekistan ( 201 m) which has double the population of DR.

India’s exports to Central America ( 968 million dollars) are more than to the Central Asian Republics ( 442 m$) although the latter is close by and has more population (72 million) than Central America’s 42 million.

India’s exports to Mexico ( 3.84 billion$) are more than the exports to Myanmar ( 1.2 bn),  Russia (2.4 bn), Canada (2.9 bn) or Egypt (2.9 bn) or Nigeria ( 3 bn).

Mexico is the second largest destination for India’s vehicle exports with 1.61 billion dollars. This is more than the exports to neighbouring Bangladesh – 1146 million, Nepal -738 m, Srilanka – 473 m. 

India’s vehicle export to Colombia ( 360 m) is four times the export to neighbouring Myanmar -72 m.

India’s motorcycle exports to Colombia ( 216 m) are more than the exports to Srilanka ( 215 m) and Nepal ( 186 m). Colombia is the third largest export destination in the world for Indian motorcycles. In 2014-15 it was the top destination, now overtaken by Bangladesh (261 m) and Nigeria (240 m).
  
The above statistics should open the eyes of those who might think that Latin America is less important for India’s exports on the ground that the region is too far and less familiar.2018-19 is not the first year that Latin American countries have overtaken neighbours and traditional partners as more important for India’s exports. This trend has started since 2010 when the Indian exporters started exploring the Latin American market more seriously. Even with longer shipping time and heavier freight cost, Indian goods have become competitive in Latin America. Some brands such as Bajaj, Hero, Mahindra and Tata have become popular in the region. Indian motor cycles have become the leaders  with the highest market share in a few countries.

President Juan Manuel Santos riding a Hero motor cycle which is being produced in Cali, Colombia 


The growing importance of Latin America to Indian companies is best illustrated by the success story of UPL. This largest Indian agrochemical firm, has more business in Brazil (1.2 billion dollars) than in India. Brazil's share is 25% of the global business of UPL. Latin America accounts for 1.6 billion dollars (34% ) of the total global revenue of 4.7 bn of UPL. The region’s share is more than that of Europe, US or Asia.


Trade 

According to the figures just released by the Ministry of Commerce, India’s exports to Latin America increased by 9.6% in 2018-19 ( April to March) reaching 13.16 billion dollars from 12 billion in 2017-18. The Imports from the region went up by 5.3% to 25.73 billion from 24.44 bn in 2017-18. Total trade with the region has gone up by 6.7% to 38.89 bn from 36.45 bn last year.

Mexico has overtaken Brazil as the top trading partner of India in Latin America for the first time in 2018-19. 

Trade with the 19 countries of Latin America is given in the table below:

                                        Figures in millions of dollars
Country

exports
imports
Total trade
Mexico
3841
5577
9418
Brazil
3800
4406
8206
Argentina
563
1955
2518
Colombia
1117
1055
2172
Chile
990
1238
2228
Peru
721
2405
3126
Venezuela
165
7259
7424
Ecuador
298
219
517
Bolivia
105
852
957
Uruguay
181
43
224
Paraguay
161
21
182
Guatemala
305
16
321
Panama
227
39
266
Honduras
167
18
185
Costa Rica
136
51
187
El Salvador
79
4
83
Nicaragua
54
4
58
Dominican Republic
216
567
783
Cuba
35
4
39




Total
13161
25733
38894


Exports

Mexico is the top destination in the region, having overtaken Brazil in the last two years.

Vehicles are the leading item of exports to Latin America which accounts for 18% of India’s global vehicle exports.India’s exports of 460 m % of motor cycles to Latin America are 22% of India’s global exports ( 2127 m). Major destination of vehicle exports in the region are: Mexico -1.62 billion dollars, Colombia-360 million, Brazil -319 m, Chile -305 m and Guatemala -90 m.

The region has emerged as a significant destination for pharmaceutical exports.  Major  importersof Indian pharmaceuticals: Brazil – 270 million dollars, Chile -91 m, Peru -70 m, Colombia- 62 m, Mexico – 49 m and Guatemala -43 m. 

The main export items of India to the region are given in the table below

                                                                                      Figures in million US Dollars
vehicles
3296
Organic chemicals
1219
Equipments and machinery
1167
pharmaceuticals
920
Chemical products
861
Iron and steel products
813
Synthetic fibres 
619
textiles
613
Plastic products
540
Diesel
417
cotton
390
dyestuff
382
Aluminium products
302
Rubber products
253


Imports

Latin America contributes to India’s strategic energy and food security by supplying 12% of India’s global imports of 117 billion dollars of crude and 22% of India’s vegetable oil.
The competition of Latin American crude and edible oil have put pressure on the monopoly suppliers of these items from the Middleast and South East Asia ( Indonesia and Malaysia supply palm oil) to offer to India lower prices and better terms.

The suppliers of crude were: Venezuela – 7.25 billion dollars, Mexico – 4.27 billion, Brazil – 1.6 bn, Colombia – 571 m, Ecuador -128 m and Argentina – 47 m.

The region has abundant reserves and the potential to meet India’s needs of Lithium ( for electric vehicles) and pulses in the long term.

India has started importing raw gold from Latin America in the last five years. Peru is the top supplier at 2.2 billion dollars, followed by Bolivia 849 million, Brazil -541 m, Dominican Republic – 537 m and Colombia -380 m. The direct imports from the region have helped India to cut costs by saving from the margins paid to gold sellers in Switzerland and UAE.

Venezuela continued as the main source of imports in the region with its crude oil supply. But this will go down drastically this year since India has been forced to stop import of Venezuelan oil by the US sanctions. But India can source more crude from other Latin American suppliers.

                                                                                           Figures in million US Dollars
Petrolum crude
14080
gold
4556
Vegetable oil
2194
copper
1364
Equipments and machinery
1054
Wood and pulp
454
Raw sugar
437
chemicals
290
Iron and steel products
281
Fruits and vegetables
154
Plastic products
145

  
The Market

Latin America is a large market of 600 million people with a combined GDP of 6 trillion US dollars. The regions’ imports are around a trillion dollars.

The economies of the region are doing relatively well. The GDP of the region is projected to grow by a modest 1.3% in 2019 and continue its growth trajectory in the medium and long term. The average inflation and external indebtedness are in manageable figures. Democracy has become stronger in the region with more political stability.

The only exceptions are Venezuela and Argentina.

Venezuela’s GDP is forecast to shrink by 10%. The country suffers from hyperinflation of several hundred thousand percent, devaluation of the currency by 99%, shortages of essential consumer items and energy shortage. The economic misery is compounded by the political crisis, break down of instituitions and social instability. The US sanctions have made the economic situation worse. 

Argentina’s GDP is expected to contract by 1.2% in 2019. The inflation is over 40% and the country has contracted a debt of 57 billion dollars from IMF. The country is preparing for elections in October. It is hoped that 2020 will see recovery of the economy.

Brazil and Mexico, the two largest markets are set to grow in the coming years with the new Presidential terms starting from the beginning of 2019. 

Moving forward

India’s exports can be increased to 25 billion dollars in the next five years if the exporters, the export promotion councils, the government and the embassies coordinate with a plan of action seriously and systematically. India should get inspiration from the Chinese who have set a target of 500 billion dollars of trade with Latin America by 2025 taking it up from their 2018 figures of 148 billion exports and 157 billion imports. 

The Commerce Ministry of India should revive its Focus LAC programme which had helped in the past in encouraging and supporting Indian exporters to explore the business opportunities in Latin America.

The Indian government should consider extending large Lines of Credit to support Indian exports. While China has given 150 billion dollars of credit to the region, India has given less than 300 million. 

India should open embassies in countries such as Ecuador, Bolivia, Paraguay and Dominican Republic.

This is a good time to accelerate the economic push into Latin America which has started attaching importance to India, the third largest export destination for the region’s exports after US and China. Disenchanted with the protectionist US and Europe and determined to reduce the overdependence on China, the Latin Americans see India as a large and growing market as well as a benign economic partner for win-win in the long term.


Sunday, April 07, 2019

Latin America contributes the largest share of the business of the largest Indian agrochemical firm UPL


Latin America accounts for 1.6 billion dollars (34% ) of the total global revenue of 4.7 bn of UPL. The region’s share is more than that of Europe, US or Asia.

UPL, the largest Indian agrochemical firm, has more business in Brazil (1.2 billion dollars) than in India. Brazil's share is 25% of the global business of UPL.


                                                Rajju Shroff, founder and chairman of UPL

UPL has manufacturing units in Brazil, Argentina and Colombia. It has a large Research and Development Centre for seeds in Argentina.
UPL is now the top Indian private sector investor in the region.
In 2018 UPL, had acquired Arysta Lifesciences for 4.2 billion dollars, the largest foreign acquisition by an Indian company in the last ten years.
UPL has become the 5th largest crop protection chemical firm in the world with sales in 130 countries, 48 manufacturing units and 10500 employees.

                                            Vikram and Jai Shroff, the brothers who run the company

UPL's focus on South America is logical in view of the fact that South America is an agricultural super power with large fertile land area, abundant water and ideal climate. This natural blessing is complemented by the innovations and best practices of South American scientists, agronomists and entrepreneurs. The region has the potential to bring in another 40 million hectares of land for agriculture and feed 400 million more people of the world. This means more business in the coming years for UPL.

Friday, March 22, 2019

India and Latin America becoming important to each other's exports

India’s exports to Latin America in 2018 (January-December) increased by10.9% to 12.9 billion dollars in 2018. This is higher than the 9.1% increase in India’s global exports. The increase in export to Latin America is creditable in view of the following two unfavourable developments: The regions’ imports in 2018 had gone down by 10.2% to 894 billion dollars from 996 bn in 2017 and: the regional GDP growth rate was just marginal at 1.1% last year. 
India had exported more to Mexico than to neighbours such as Iran (2.85 bn), Myanmar (1.2bn) or traditional partners such as Canada ( 2.39 bn), Russia ( 2.33 bn), Egypt (2.79 bn) and Nigeria ( 2.74 bn).
Exports to the distant Uruguay at 189 million dollars is more than the exports of 178 million to Cambodia which has four times more population in the neighbourhood.
India exported more to the remote and unfamiliar Guatemala (305 m) than to the nearby Uzbekistan (193 m)which has twice the population of Guatemala.
India’s exports of 918 m to Central America (6 countries with population of 47 m) was more than the 589 m exported to Central Asia (8 countries with population of 95 m).
Mexico continued as the largest export destination with 3.83 billion dollars, having overtaken Brazil (since 2016) which accounted for 3.56 billion. The other top destinations were: Colombia 1.08 bn, Chile 925 m, Peru 758 m, Argentina 631 m and Ecuador 306 m.
Vehicles continued to the top export to Latin America with 3.5 bn dollars, followed by chemicals- 2bn, equipments and machinery-1.1 billion, pharmaceuticals-877 m, iron and steel-775m, textile materials-668 m, apparels-590 m, plastic products-560m and aluminium products-451m.
India’s vehicle exports to Mexico are more than its exports to large neighbouring markets such as Bangladesh or Indonesia. Mexico is the second largest global destination for India’s vehicle exports, after US. 
Colombia is the fourth largest global destination of India’s motorcycle exports. In 2015, Colombia was the number one destination.
Car exports to the region were 2.1 billion, motorcycles-499m and tractors-78m. 
Latin America accounts for 30% of India’s global exports of vehicles and 23% of motorcycle exports. Mexico has maintained its position as the leading destination with 1.7 bn dollars, followed by Colombia 334 m, Chile 326m, Brazil307m, Peru170m and Guatemala-95m
It is interesting that India’s pharmaceutical exports have gone up by 21% to 877 million dollars from 725 m in 2017. Brazil was the number one destination at 257 m, followed by Chile-82m, Colombia-64, Mexico-56, Vnezuela-55, Guatemala-35m, Dominican republic-34m and Ecuador-30m. Argentine domestic lobby has managed to restrict India’s exports to just 9 million dollars. Indian exporters need to focus on the large Mexican market which remains under explored.
Latin American exports to India
Latin America is also equally happy with its increase of its exports to India by 9.9% to 26 billion dollars from 23.4 bn in 2017.
India was the third largest global destination of Latin American exports in 2018. The region exported more to India ( 26 billion dollars) than to their traditional European partners such as Germany-19 bn, France-8 bn, UK-9bn, Spain-16 bn, Italy-10 bn or even Japan-20 billion.
Obviously, the Latin Americans have started attaching importance to the large and fast growing market of India.
Venezuela was the main source of imports with 7.4bn dollars followed by Mexico-5bn, Brazil-4.6bn, Peru-2.5bn, Argentina-1.8bn, Chile-1.7bn, Colombia 1bn, Bolivia 763m and Dominican Republic 549m.
Major imports were: crude oil-13.5bn, gold-4.4bn, Veg oil-2.2bn, copper-2bn,equipments and machinery-990m and raw sugar-567m.
India is the third largest market for Latin American crude (after US and China) and for gold exports ( after US and Switzerland). 
Venezuela continued to be the top supplier of crude with 7.4bn, while Mexico supplied 3.7bn, Brazil-1.5bn, Colombia-574m, Ecuador-127m and Argentina-47m.
It is significant that gold imports have jumped from 1.6bn in 2016 to 4.4 bn in 2018. Peru was the largest supplier with 2.2bn dollars while Bolivia supplied-760m, Dom Republic-510m, Brazil-487m and Colombia-360m
Most of the vegetable oil (soy oil) came from Argentina while Chile was the largest source of copper. Raw sugar was imported from Brazil for refining and reexports. 




Total trade with Latin America in 2018 
India’s trade reached 38.7 billion dollars in 2018 increasing by 10.2% from 35 bn in 2017
Mexico emerged as the largest trading partner in the region with total trade of 8.7 bn, followed by Brazi 8.2 bn, Venezuela 7.4 bn, Peru 3.2 bn, Chile 2.6 bn, and Colombia 2 bn.
This is the first time that Mexico has overtaken Brazil as the largest trading partner of India in Latin America.
Investment
UPL continued its bullishness increasing its investment to over a billion dollars in Latin America. This largest Indian agrochemical company does more business in Latin America than in India. Some Indian autoparts, pharma and IT companies have increased their investment and operations in the region.
There have been some minor increase in Latin American investments in India in food processing and other sectors.

Prospects in 2019.
The Latin American GDP is projected to increase by 1.7% in 2019. Brazil and Mexico the two largest economies are expected to show 2 plus percent of GDP growth in 2019. The pro-business Bolsonaro administration will have positive impact on investment and trade in Brazil, which has recovered from political and economic crisis of the last few years. Except for Venezuela and Argentina all the other 17 countries in the region will experience reasonably positive growth in the 2019. 
The region’s exports were 916 billion dollars and imports 894 bn in 2018
Average inflation of the region had gone up to 8.5% in October 2018 from 5% in 2017. Venezuelan hyperinflation went up to six digits, Argentina’s inflation stood at a high of 45% in October 2018. Except for these two, all other countries had only single digit inflation. Brazil’s inflation rate was 4.6% while Mexican rate was 4.9%.
Given the better prospects of the Latin American market, India’s exports to the region can be expected to increase by another 10% in 2019.
Challenges
Venezuela’s GDP is expected to fall by 10% in 2019, on top of the 50% contraction in the preceding four years. Given the worsening political and economic crisis following the US sanctions, Venezuela is set to collapse in 2019. 
Consequent to the US sanctions on Venezuelan oil exports, India will minimise/stop the Venezuelan purchases in 2019.But no serious problem.. There are other Latin American countries from which India can increase crude imports.
Argentina is likely to suffer a GDP contraction of 1.8% in 2018 after the 2.6% reduction in 2017. Argentine economy cannot avoid further challenges in 2019 consequent to the austerity conditions imposed by IMF which has lent the country over 50 billion dollars.
The recent political developments in the two biggest Latin American countries pose some challenges for Indo-Latin American relations. Bolsonaro, the new President of Brazil has downgraded the strategic partnership with India, established by President Lula. He is pro-Trump and Pro-christian Europe and dislikes South-South cooperation.

India’s relations with Mexico, the second largest country in the region after Mexico, is also becoming less substantive under the new President Lopez Obrador. He is fully absorbed in his domestic priorities and does not have time for foreign policy. 

But the foreign ministries and business leaders of both Brazil and Mexico are likely to sway their governments to realise the importance of India for their countries in the long term.
China-Latin America
Chinese trade with Latin America reached 305 billion dollars in 2018. Of this their exports were 148 billion and imports 157 bn. The Chinese have a target of 500 billion dollars of trade and 250 billion investment by 2025.
They have given credit of 150 billion dollars and invested over 110 billion dollars in the region.

Suggestions for action

The Commerce Ministry of India should revive its Focus LAC programme which had helped in the past in encouraging and supporting Indian exporters to explore the business opportunities in Latin America. There could be a 10 year plan to take our exports to 30 billion dollars. Annual plans and reviews should be instituitionalised. China has 10 year plan to take trade to 500 billion and investment 250 bn in the period 2015-25.

The Export Promotion Councils should also have their own sectoral 10 year plans. They should take delegations atleast once a year to the region and should participate in Latin American trade fairs regularly. Both the councils and embassies should be asked to prepare professional market studies.

India should expedite conclusion of trade agreements with Mexico, Colombia and Peru which are major destinations for exports. 
  
India could become a member of the Inter American Development Bank in whose projects Indian companies can participate. China and South Korea are already members. 

The annual India-Latin America Business Conclave needs to be scaled up and organised regularly by pooling and coordinating the efforts of CII and FICCI and other trade bodies and export promotion councils with substantive financial support by the government. ECLAC, IADB, CAF ( Latin American Bevelopment Bank), BCIE ( Central American Dev Bank) CDB ( Caribbean Dev Bank) and such regional organisations and banks should be coopted as permanent participants/sponsors in the Business Conclaves.

Indian universities need to be encouraged to open Latin America study centres and Spanish and Portuguese language courses. China has 65 Latin America study Centres. India has only three centres: one in JNU, another in Jindal University and the third in Goa University. 

Latin America business events should be organised in second tier manufacturing centres such as Tiruppur, Coimbatore, Jullundur, Ludhiana, Kanpur, Ahmedabad etc in collaboration with Export Promotion Councils, CII, FICCI and other trade bodies as well as Latin American embassies in Delhi.

Heads of pharma regulatory agencies and Health Ministers from the region could be invited to visit India to see for themselves India’s manufacturing and quality control, so that they loosen the restrictions on registration of Indian pharma in their countries. 

Eximbank should transfer its Latin America office from Washington DC to Sao Paulo/Buenos Aires to focus exclusively on the region. 

India should extend large lines of credit to Latin American countries as it is doing in the case of Asia and Africa. While China has extended about 150 billion dollars of credit to Latin America, India’s credit is just under two hundred million dollars. A one billion dollar LOC for the region could be announced during the proposed visit of President to Latin America later this year. China has given credit of 150 billion.

Sources of Statistics: ECLAC, Santiago and ITC Geneva