Friday, August 04, 2017

Latin America is increasing its imports in 2017.

Latin America is projected to increase its imports by 6% in 2017, according to the 3 August report of the Economic Commission for Latin America and Caribbean ( ECLAC). This is welcome news coming after the decline of imports in the last four years since 2013.
The region is resuming GDP growth (1.1%) in 2017, after the contractions of 0.4% in 2015 and 1% in 2016.
Panama will have the highest growth rate of 5.6% followed by Dominican Republic – 5.3%, Nicaragua-4.7% and Costa Rica-4.1%. Brazil will have a modest growth of 0.4%, Mexico-2.2%, Argentina-2%, Colombia-2.1%, Peru-2.5% and Chile-1.4%. South America is expected to see growth of 0.6%; Central America and Mexico, 2.5%. Venezuela will suffer 7.2% GDP contraction..no surprise. In the last three years, Venezuela has lost almost one third of its GDP.
The economic recovery of the region is being driven by the rise in domestic consumption and demand, the increase in global prices of commodities exported by the region and favourable global economic conditions. Commodity prices are expected to rise by 12% on average compared with 2016. In particular, energy prices are expected to increase by 19%, and metals and minerals by 16% and food prices by 3%.
The exports of the are projected to expand by 8%. Average inflation of the region has fallen from 7.3% in 2016 to 5.7% in May 2017. However, Argentina’s inflation stood at 24.7% while Venezuela’s rate has gone up over 600% and beyond control.
It is interesting to note that despite the recession in 2016, the region attracted 141 billion dollars of foreign direct investment (FDI), an increase from 2015. Brazil received 71 billion dollars, Mexico-28 bn, Colombia –9 bn, Peru- 6.6 bn, Chile –5.1 bn, Panama-5 bn, Costa Rica- 2.6 bn, Argentina-2.4 bn,  Dominican Republic- 2.4 bn and Guatemala- 1 bn.
Total External debt of the region has increased to 1.47 trillion dollars from 1.42 trillion in 2015 but the ratio of external debt to GDP is a manageable 35%.
Total international reserves of the region have increased to 831 billion dollars in May 2017 from 795 billion in December 2015. This is a comfortable level for the region except for Venezuela whose position has become insecure with just about 10 billion dollars but with some debt repayments due this year.
Venezuela has become the black sheep of the region with its political and economic crisis. It has buried itself in a deeper hall with the Constituent Assembly elections held this week. The election has been rejected by key Latin American countries besides US and EU. The Chavistas are moving the country to a Cuban model of dictatorship which is untenable in Venezuela and is bound to collapse. The economy  is in a free fall with total mismanagement, the world’s highest inflation, multiple exchange rates, large scale corruption, shortages of essential consumer items and the destruction of the domestic industry. Caracas has become the capital of crime and violence in the region. It is just a matter of time for the Chavista regime to collapse.
Brazil avoided another Presidential impeachment last week. Although the country will continue to suffer from political turbulence, it appears that the current President Temer is likely to stay till the elections due in 2018. He might take more initiatives to bring about some economic reforms in the coming months to show off his legitimacy. In any case, he is in a position to try the difficult and impossible since he has no future as President and nothing to lose. He has been disqualified to stand for Presidential elections as a conviction for his violation of electoral rules. The economy has started recovery and is set to grow. However investment, infrastructure and public spending will continue to be low key in the aftermath of the ongoing corruption scandals involving companies and politicians.
Mexico is heaving a sigh of relief seeing that Trump’s bite is less worse than his bark. During his campaign, he attacked NAFTA as the worst deal ever signed by US. But now he has realised the limitations and is talking about just a review of the Treaty. He has gone soft on the border wall and his capacity to hurt Mexico has diminished. So NAFTA is safe and the Mexican economy is not going to be disrupted by Trump.
India’s trade with the region should increase in 2017 from the 30 billion dollars in 2016, given the rise in commodity prices and the expected increase of global imports by the region. It is encouraging to note that India’s exports to Mexico had increased by over 20% in 2016. Vehicles have become the largest exports of India to the region at 3.4 billion dollars. The vehicle exports have been increasing significantly in recent years.
Indian investment in the region is coming down. Some companies such as Havells and Aegis have sold off their Latin Americans assets and operations. One of the sugar mills of Renuka in Brazil is being auctioned by the court in the first week of September. Renuka, which had invested about 500 million dollars in Brazil, has already declared bankruptcy. However, UPL, the largest Indian agrochemical company, is planning more acquisitions in Latin America. Its Brazilian turnover has overtaken its business in India.
The Indian business should get inspiration from China’s trade of 215 billion dollars with Latin America in 2016 and its investment of 110 billion dollars and credit of 141 billion dollars to the region. The Latin Americans want to reduce their over dependence on China and seek diversification and reach out to new markets such as India.  There is tremendous potential for Indian business in the large and growing market of Latin America with a combined GDP of five trillion dollars and a population of 620 million. 

Wednesday, August 02, 2017

NAFTA is safe and Trump has become less dangerous to Mexico

According to Economist (27 July) seventy percent of farmworkers in US are Mexicans. In California it is even higher at 90%. The farm industry, especially the fruits and vegetable part, faces serious problems of shortage of workers, after Trump's persecution of Mexicans. The American farmers had to plough under vegetables and fruits since they did not have enough pickers. The wages have gone upto 19 dollars per hour in some places.This means that US has to increase imports of fruits and vegetables.

The US has a provision for guest workers under H2A. In 2016 US imported 134,000 guest workers. The request for H2A visa have steadily increased from 55000 in 2011. Even Trump's son Eric has applied for 29 visas for workers for his vineyard.

It is, therefore, not surprising that Trump barks less these days at Mexico under pressure from the farm lobby. He is just trying to tweak NAFTA a little for face saving rather than rip off the Treaty as he threatened during campaign. He had earlier claimed that NAFTA was the worst ever deal signed by US. He has now realised that most of the Mexican factories which export to US using NAFTA belong to his own American buddies who have set up assembly and manufacturing units in Mexico to cut costs. In fact, Mexico has helped US companies to reduce their over dependence on China for manufacturing and diversify. Today Mexico has become more competitive than China in the production of cars and appliances thanks to the Chinese wage rise. Trump can only bully those American companies who want to set up new plants in Mexico but not those who are already established there. If Trump stops the ongoing flow of Mexican-made products into US, the American industry will suffer more since they cannot quickly shut their Mexican shops and restart in US.

Mexico has also hinted that it can play its trump card. They have announced that they will reduce/stop import of corn and some other food products from US and source them from Argentina and Brazil. This has alarmed the US exporters of such products who are now putting pressure on Trump administration. 
If Trump wants to reduce trade deficit he should go after China with whom the US trade deficit is a massive 366 billion dollars while it is just 66 bn with Mexico in 2016.

So NAFTA is safe and Trump is no longer a serious threat but just a minor nuisance to Mexico.

According to a Pew research centre study, more Mexicans have left US than arrived in the period 2005-14 even before the apparition of Trump. 
The Trump Wall seems to have become like a Magical Realism..Trump, the Caudillo, is set for 'one hundred years of solitude'.