Wednesday, May 28, 2008

UNASUR - Union of South American Nations

On 23 May, Presidents of the 12 countries of South America signed the Treaty under which formation of this regional group was formalised in the third south american summit held in Brasilia. The initiative for UNASUR was taken in 2004 with the Cuzco Declaration on 8 December 2004.

This is a fascinating and formidable alliance of all the 12 countries of south america, uniting the 5-member Mercosur with the 4-member Andean Community plus Chile, Guyana and Suriname. The secretariat of UNASUR will be located in Quito, its parliament in Cochabamba and its South Bank in Caracas. The presidents will meet once a year and the foreign ministers of the group will meet once in six months. The Union will have its own flag.

UNASUR aspires to become a Single Market, beginning with the elimination of tariffs for non-sensitive products by 2014 and sensitive products by 2019. UNASUR members have already allowed visa-free movement of their citizens between their countries. They have already taken up projects for the integration of infrastructure( roads, ports, communications etc) and energy. There is also a proposal to form a Defence Council. A common currency and passport are also part of the UNASUR dream whose role model is European Union.

Critics and those whose interests are affected by the regional grouping predict failure of this Union and highlight the political problems and conflicts between the member states and the immaturity of some of the political leaders. Some observers quote the failures of such attempts in the past and dismiss this as yet another doomed venture Latin Americans to integrate.

I believe that UNASUR is going to stay and flourish. The conditions of the market and the mindset for integration are ripe and favourable at this time than ever in the past. Nine out of the 12 countries have been part of the two main integrated groups namely Mercosur and Andean Community. Despite the imperfection of these two Groups, they have been successful in many ways. The governments, business and the people of these two groups have realised the values and advantages of integration. The trade between the UNASUR members have become a significant and growing portion of their external trade. Cross-border investment and collaborations of the business of these countries are already flourishing. More importantly, their dependence on their traditional markets namely USA and EU have come down and UNASUR countries have successfully diversified their exports and foreign trade. For example, Argentina´s trade with Mercosur is more than the combined total of their trade with EU and USA.

UNASUR has a total population of 382 million and GDP of 2,3 trillion dollars. It is an Agricultural Power and a supplier of conventional and biofuels to the world. All the countries of UNASUR are democracies with sustained economic growth and have become less vulnerable to external shocks. All these have given a new confidence and optimism and the leaders of these countries have realised the value of collective strength. It is not ideology or dreams which are behind the current integration process, as it was before the eighties. ....No more Magical Realism... It is sheer realism, pragmatism and the experience of the failures of the past which are the guiding forces of the current integration.

It is noteworthy that Brazil,the biggest power of the region is the one which is pushing seriously for UNASUR integration. And equally to be noted... Argentina, the second biggest power of the region is also betting on the same goal. Imagine a combined football team of Brazil and Argentina !

The world should take note of what President Lula said at the Brasilia summit on 23 may, "A united South America will rearrange the pieces on the board of power in the world."

Bravo..... UNASUR !!!

Friday, May 09, 2008

Latin America receives record FDI in 2007

According to a report released on 8 May by the UN body ECLAC, based in Santiago FDI received by Latin America and Caribbean in 2007 was a record 106 billion dollars surpassing the previous record of 89 billion in 1999.

Highlights of the report
- FDI increased from 72.5 billion dollars in 2006 to 106 billion in 2007. This 46% increase is the highest among various regions.
- natural resources were the main area of investment in south america except in brazil where services received most investment. manufacturing was the main investment area in mexico.
-The main FDI recipient country in 2007 was Brazil, with US$34.6 billion, followed by Mexico (US$23.2 billion), Chile (US$14.5 billion) and Colombia (US$9 billion, Argentina- 5.7 billion, Peru-5.3 billion
- Brazil has come back to claim its top position after having been overtaken by mexico in recent years.
- Costa Rica, Dominican Republic, Panama and El Salvador received between 1.5 and 1.8 billion dollars each in 2007.
- South America received 71 billion dollars while the rest went to Mexico, central america and caribbean.
-The main foreign investors in 2007 were the United States, the Netherlands and Spain

-Outward investment flows from Latin America and the Caribbean to other regions in 2007 fell to US$20.6 billion, after reaching a maximum high of over US$42 billion in 2006. Brazil invested abroad 7 billion dollars followed by Mexico- 5.5 billion, Chile-3.8 billion and Argentina 1.1 billion.

The record FDI is a sign of the confidence of the foreign investors in the stability and growth prospects of the region.

Wednesday, May 07, 2008

Brazil upgraded to Investment Grade

Last week, Brazil was upgraded to Investment Grade ( triple B minus ) by Standard and Poor. This is a reaffirmation of the health and soundness of the Brazilian market which has got its fundamentals right. International economic experts have concluded that Brazil has finally come out of its boom and bust cycle. Brazil is the third country after Chile and Mexico to get investment grading.

Last year the growth was 5.4 % and in 2008 it is expected to be around 4.8 %. Inflation has fallen. Primary budget of the government has been in surplus. Exports are booming thanks to the high demand and price for its agroproducts and minerals. Brasil´s stock market Bovespa has risen by 14 percent this year, while the stock markets around the world are getting beaten.

Foreign direct investment in 2007 was 34 billion dollars. At the same time Brazilian companies have been on an acquisition spree of land, assets, mines, factories and business in the region and outside. CVRD bought a Canadian co for about 15 bilion dollars, the largest acquisition by any Latin American company.´

Brazil is already an agricultural power with its large fertile land and high exportable surplus. It can bring in more land under cultivation without affecting the Amazon.

The recent discovery of large new oilfields has put Brazil in the same league as the OPEC members. Brazil is already the world leader in fuel ethanol.

Brazil´s agricultural strength combined with its energy surplus has given it an edge in these days and coming years of global concern with the rising prices and demand for fuels and food.

What is remarkable is the change in the mindset of Brazilian business and political leaders. They are putting their act together to make the country as a global leader. President Lula has announced support for the Brazilian companies to become multinationals. He wants to create a large Brazilian giant in pharma sector through merger of some existing companies. Brazilian government and business are reaching out to Africa, middleeast and Asia.

Politically, Brazil has set an example in the region for achievement of equilibrium between pro-poor and pro-business policies, pleasing the Wall Street and Favelas with equal earnestness. This is important since progress of some countries in the region have been hampered by domestic ideological conflicts and divide between government and private sector.

Even my Argentine business friends have expressed admiration for the new energy, vision, ambition and aggressiveness which drive the Brazilian business.

What is even more remarkable is that despite the growing strength on its own , Brazil is strongly commmited to regional integration through Mercosur and Unasur. The Brazilian leadership takes their Mercosur partners into confidence while strategising their future. They leverage the collective strength of the region to reinforce their own.

Viva Brazil !!!