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. 

Thursday, June 16, 2016

Mexico has overtaken Brazil as the top destination of India's exports in Latin America

For the first time ever, Mexico has overtaken Brazil as the top destination of India's exports to Latin America. Exports to Mexico were 2.865 billion dollars in 2015-16 (Indian financial year April to March) while the exports to Brazil were 2.65 billion. It is not surprising, given the economic recession and political turmoil in Brazil, the largest market of Latin America. India's exports to Brazil have fallen by 55.5% from 5.96 billion in 2014-15. On the other hand, Mexico, the second largest economy in the region has been growing and India's exports have also been steadily increasing. Mexico is the leading destination of India's car exports in the world. Mexico's share was 1.03 billion out of the total Indian exports of 5.6 bn. What is even more interesting is that the vehicle exports to Mexico have shown an impressive 31% growth from 2014-15.
India's trade with Latin America declined by one third to 29.7 billion dollars in 2015-16 from 43.4 billion in 2014-15.  While India's exports have decreased by 27 %, the imports have also gone down by 33% to 19.7 billion from 29.3 billion in the previous year. This should be seen in the context of the decline in the region's total imports by 10% and exports by 13.5% in 2015. 

Mercosur remained as the largest trading partner of India in the region with 15.9 billion dollars, followed by Pacific Alliance with 11 billion dollars and Central America with close to a billion dollars. Brazil has overtaken Venezuela to become the leading trade partner of India with 6.69 billion dollars. Trade with Venezuela was 5.8 billion, Mexico-5.1 billion, Argentina-3 bn, Chile-2.6 bn, Colombia-1.69 bn and Peru- 1.52 bn.

India's exports to Latin America have come down by 27 % to 10.05 billion dollars in 2015-16 from 13.75 billion in the previous year. Exports have shown decrease in ten out of the total of 19 Latin American countries.  The region's GDP contracted by 0.4 % in 2015 while Venezuela's shrank by 7.1% and that of  Brazil by 3.5%. Another particular reason for the fall in India's exports is the sharp drop in India's diesel exports to Brazil from 3155 million dollars in 2014-15 to just 564 m last year.
Colombia remained as the third largest destination of India's exports with 888 million dollars ( down from 1.1 billion last year), followed by Chile –679 m ( up from 566 m), Peru-703 m ( down from 820 m), Argentina-535 m (up from 460 m) and Venezuela-131m (down from 258 m). Among the smaller markets, exports to Guatemala were 256 million dollars (up from 229 m), Panama-201 m (down from 302 m) and Dominican Republic-175 m (up from 141 m). 
Latin America has become the largest destination of India's vehicle exports accounting for 19 % (2.7 bn) of the total exports of 14.35 bn in 2015-16. The vehicle exports to the region have increased by 20% from last year. Latin America accounted for 29% of India's global motor cycle exports with 516 million dollars. Colombia continued as the top destination with 231 million dollars, followed by Mexico-88 m, Guatemala-50, Argentina-50 m and Peru- 37 m.
Pharma exports of India to Latin America remained close to a billion dollars. Brazil continued to be the top destination of exports with 316 million dollars, followed by Mexico-153 million, Venezuela-74 m, Colombia-71 m, Peru-62 m, Chile-60 m, Argentina-44 m, Guatemala-31 m, Dominican Republic-27 m and Ecuador-24m. In these days of austerity and budget cut in the region, the affordable Indian generic medicines are preferred by Latin American consumers as well as governments.

Venezuela has remained as the largest source of imports in the region with 5.7 billion dollars, followed by Brazil- 4.04 bn, Argentina-2.47 bn, Mexico- 2.28 bn, Chile-1.96 bn, Colombia-808 million, Peru-820 m, Ecuador-564 m, Dominican Republic-479 m, Bolivia-240 m and Paraguay-112 m.
The decrease in India's imports is due to the fall in the price of oil, which accounts for 46 % of the total imports from the region. Crude oil imports were down to 9.1 billion dollars in 2015-16 from 20 bn in 2014-15. This is in line with the fall of total global crude imports of India to 66 bn dollars from 116 bn in the previous year. In 2015-16, Venezuela has maintained its position as the top supplier from the region with 5.7 billion dollars, followed by Mexico-1.4 bn and Brazil 1.2 bn.
South America accounted for 98.6% of India's soy oil imports last year. Argentina was the major supplier with 2.2 billion dollars while Brazil supplied 570 million and Paraguay 104 m. 
Latin America supplied 2.1 billion dollars of copper out of the total Indian imports of 4 bn dollars. Chile has continued its position as the top supplier with 1.6 bn.
The region has emerged as a new source for India's import of gold. Imports from the region have increased to 1.77 billion dollars in 2015-16 from 1.02 bn last year.The suppliers were Peru-464 m, Colombia-442 m, Dominican Republic-379 m, Bolivia-236 m, Brazil-205 m and Ecuador-48 m. 
Latin America is closer to India than you think
For those Indian businessmen who still harp on the distance factor, here are some eye-openers:
--India's exports to the distant Guatemala ( 255 million $) is more than the exports to the neighboring Cambodia (143 m). Both have populations of 15 million each.
-India's exports to Mexico (2.86 bn) are more than the exports to Indonesia (2.84 bn), Myanmar ( 1 bn), Russia ( 1.6 bn), Canada (2 bn) and Egypt ( 2.3 bn). 
- India's trade with the far off Dominican Republic (654 m) is more than India's trade with many European countries such as Hungary(588 m), Romania(565 m), Kazhakstan (505 m), Greece(445 m) and Bulgaria (239 m)
-India's trade with the distant Brazil ( 6.7 billion $) is more than the trade with Bangladesh (6.4 bn), Srilanka (6 bn), Russia (6.1 bn), Canada ( 6.2 bn) and Spain (4.8 bn). This is even after the 41% fall in the trade with Brazil which was 11.4 bn in 2014-15.
-Reliance imports crude oil from Brazil and export diesel to the same distant Brazil profitably.
-Latin America is the leading destination of India's vehicle exports, despite the freight.
- Chile, Peru and Argentina supply fresh fruits and vegetables to India, undeterred by distance.
Latin America's recession is predicted to get worse with GDP contraction of 0.6 % in 2016, due to the continuing low international price and demand for commodities and weakening domestic consumer demand. Venezuela's GDP is projected to shrink by 6.9% and that of Brazil by 3.5% in 2016. However, the region is expected to recover growth next year, except for Venezuela. Brazil is already showing signs of recovery. The macroeconomic fundamentals of the region are healthier with average inflation of just 5.5 % and external debt at just 39% of the GDP. 
Latin America, which has huge petroleum reserves and surplus for exports will continue to be an important contributor to India's energy security. Imports of gold, minerals and soy oil will increase in the future, in view of the large and growing gap between India's domestic production and demand. The new development of direct import of gold from the Latin American producers rather than through the intermediaries in Switzerland saves considerable foreign exchange for India.
India's exports to the region have better prospects for increase in the years ahead. There is need for proactive trade promotion as was done successfully during the Focus LAC programme days. The government should consider signing FTAs with Mexico, Colombia and Peru to get a level playing field for its exports vis-a-vis exports from the FTA partners of these countries. The Indian government could extend large lines of credit to promote its exports to the the region, as it is doing successfully in Asia and Africa. 
While Latin America's share in India's global trade is 4.6%, India's share in the region's external trade is just 1.5%. There is potential for India to increase its share to 5% of Latin America's foreign trade which was 1.88 trillion dollars in 2015 with 914 billion dollar exports and 974 bn imports. The Latin Americans are keen for more trade with India as part of their strategic policy to reduce overdependence on China and diversify their trade partnership. 

Sources of statistics: Ministry of Commerce of India, ECLAC and WTO