Thursday, July 12, 2018

Thoothukudi's loss is Sao Paulo's gain...


Latin America received 156 billion dollars of Foreign Direct Investment (FDI) in 2017, according to the report published by the UN Economic Commission for Latin America and Caribbean (ECLAC) this week. Of this South America received 111 billion dollars, Mexico and Central America 45 billion.

As usual, Brazil was the number one recipient in the region with 71 Billion dollars, followed by Mexico-32 bn, Colombia-14 bn, Argentina-12 bn, Peru-7 bn, Chile-6 bn , Panama-6 bn and Costa Rica-3 bn. Brazil was thefourth largest FDI recipient in the world.

FDI in Brazil was mostly acquisition of assets by Chinese firms. Foreigners are taking advantage of the low value of assets in Brazil, caused by the political uncertainty, the aftermath of the Car Wash scandal which has severely damaged the big Brasilian corporations and the drying up of domestic investment. The largest investment (acquisition)  in Latin America in 2017 was by the State Grid of China which invested 6.7 billion dollars in the energy sector of Brazil. The third largest investment in the region was also by a Chinese company State Power Investment Corporation in the renewable energy sector of Brazil with 2.3 billion dollars..

In contrast to Brasil, most of the FDI in Mexico went into greenfield investments strengthening especially the automobile, electronic and aerospace sectors in which Mexico has become a significant global player. Thanks to FDI, the Mexican automotive industry reached historic levels of production, exports and FDI in 2017, despite the uncertainty generated by the renegotiation of NAFTA. Today, 9 of the 10 largest manufacturers and the great majority of tier-1 suppliers in the world have operations in Mexico. There are some 2,600 plants producing parts, pieces and components, almost 600 of which are tier-1. In 2017, Mexico was the world’s seventh largest producer and fourth largest exporter of vehicles, as well as the sixth largest producer of car parts. 

Mexico has also emerged as the world’s second largest exporter of electronic equipment (mainly television sets), the third largest exporter of computers and the fifth largest exporter of communications equipment. 

In Mexico, there are some 300 firms, the great majority of them foreign, specialized in manufacturing parts and components for aeroplanes that are assembled in other countries. In the past five years, Mexico has positioned itself third, behind China and the United States, as a destination for FDI in the aerospace industry.

India has not made any large investment in the region in 2017, although Mexico has attracted a series of investment by medium and small Indian companies in recent years. Motherson Group has 15 autoparts plants in Mexico employing 22000 Mexicans. JK Tyres has 3 plants.The latest investment is by Parle in biscuit manufacturing in Mexico. 

In 2017, there was one significant Latin American investment in India. Grupo Bimbo of Mexico (the largest bread maker in the world) has acquired two Indian firms Harvest Gold and Ready Roti to make bread and rotis in India.


In 2018, Sterlite has won in auctions six Brazilian power transmission line projects, for which the company has committed 1.7 billion dollars of investment. Sterlite is bullish and is confident of winning more auctions in the future and has announced intention to invest 4 billion dollars in Brazil in the next four years. This is the largest ever project contract done by an Indian company in Latin America. The company is also exploring opportunities in Argentina, Chile and Mexico.




The CEO of Sterlite says, “We went to Brazil because the regulatory framework and the demand-supply scenario there are similar to what we have in India. What he did not say is "Thoothukudi's (Tuticorin) loss is Sao Paulo's gain..."



Thursday, April 05, 2018

India’s trade with Latin America has started growing again..


Highlights
  

India’s trade with Latin America grew by 24% in 2017 to 36.3 billion dollars, after the decline in 2015 and 2016. The exports have increased by 15% to 12.9 billion and imports by 28 %to 23.4 bn in 2017 from the previous year. The trade is poised to grow in the coming years in view of the increase in the economic growth forecast for the region and the higher global prices of commodities.


India’s exports to some Latin American countries were more than the exports to neighbouring countries and traditional trade partners. India exported more to the distant Costa Rica than to the neighbouring Cambodia: more to Mexico than to Indonesia or Thailand. 

Vehicles are the largest part of India’s exports to Latin America, which accounted for 3.7 billion dollars ( 23%) of India’s global exports. Mexico is the top destination of India’s global vehicle exports. 

The Trump factor and the fear of China has motivated the Latin Americans to attach more importance to India, which is their fourth largest destination for global exports. They export more to India than to their old trade partners such as Germany, Spain, France, UK or Japan. 

This is an opportune time for India to intensify its engagement with serious and systematic trade promotion with Latin AmericaTwenty billion dollars of exports in the next five years is an achievable target.


India- Latin America trade in 2017


Trade with the region increased by 24% in 2017 from the previous year, helped by the recovery of Latin American economies and the increase in their global imports. After reaching a peak of 49 billion in 2014, the trade had come down in 2015 and 2016 due to the recession in the region and the drastic fall in the global prices of crude oil and minerals imported by India from the region.

Mexico is the top trading partner of India with 8.5 billion dollars followed by Brazil, Venezuela and Argentina, as seen from the table below.

India’ trade with Latin American countries in 2017 (January-December) in Million US dollars

Country


India’s exports
imports
Total trade
Mexico

5020
3352
8372
Brazil

2873
5099
7972
Venezuela

82
5898
5980
Argentina

661
2486
3147
Peru

729
2068
2797
Chile

745
1700
2445
Colombia

912
647
1559
Dominican Rep

196
595
791
Bolivia

99
598
697
Ecuador

265
329
594
Panama

234
135
369
Paraguay

150
155
305
Guatemala

282
18
300
Uruguay

189
24
213
Costa Rica

134
69
203
Honduras

142
15
157
Nicaragua

79
4
83
El Salvador

66
9
75
Cuba

46
2
48

Total


12884

23383

36267


India’s exports to Latin America

India’s exports have gone up by 15% in 2017 from the previous year, although they have fallen by almost 50% from the peak of 2014. Diesel exports to the region which reached several billion dollars in 2013-14 has come down to just about hundred million in 2017. 

Mexico was the top destination ( 5 billion dollars) of India’s exports to Latin America, having overtaken Brazil ( 2.8 billion) in recent years. Colombia ranked as the third largest destination, followed by Chile, Peru and Argentina. It is interesting to note that Guatemala has emerged as the sixth largest destination  with 282 million dollars.

In 2017, India’s exports to some Latin Americans countries were more than the exports to neighbouring countries and traditional trade partners. Examples:
- India’s exports of 134 million dollars to Costa Rica ( distance 15000 km, population 5 million) was more than the exports of 120 million to Cambodia which is just 3500 km away and has a population of 16 million
- India’s exports of 142 m to Honduras which is 15000 km away with a population of 9 m was more than the exports of 118 m to Kazhakstan, just 1600 km away with a population of 18 m.
- India ‘s exports of 282 million to the distant Guatemala are more than the combined exports to Cambodia or Kazhakstan.
- Exports to Mexico ( 5 bn) were more than the exports to Japan (4.5 bn), Srilanka (4.4 bn)  South Korea (4.3 bn), South Africa (4 bn) Indonesia (3.8 bn) Thailand ( 3.59 bn), Canada ( 2.3 bn) and Russia ( 2.14 bn). 
-exports to Brazil ( 2.87 bn) were more than to Iran (2.6 bn) and Egypt ( 2.34 bn). 
-Exports to Colombia ( 911 m ) were more than the exports to Scandinavian countries such as Sweden ( 754 m) and Denmark( 760 m). 
-Exports to Chile (745 m) were more than the exports to Portugal (736 m) 
-Exports to Peru (729 m) were more than the exports to Ireland (517 m), Austria ( 437 m), Greece ( 423 m). 

India ranked as the 7thlargest supplier of goods to Latin America in 2017.

The composition of the main exports is given in the table below:

Major exports of India to Latin America - in million US Dollars

Vehicles

3672
Organic chemicals

910
Iron and steel products

781
Pharmaceuticals

725
Equipments and machinery

650
Chemical products

607
Synthetic fibres and filaments

603
Plastic products

451
Raw cotton

354
Aluminium products

316
Dyestuff

304
Garments and made ups

276




Vehicles (mainly cars and two wheelers) continue to be India’s top exports to the region, reaching 3.67 billion in 2017.  Vehicle exports in 2017 have increased by 12% from 2016 and an impressive 38% from 2015. Vehicles are the number one item of India’s exports to Mexico, Colombia, Argentina, Peru, Chile, Guatemala, Ecuador and Panama. India is the sixth largest supplier of vehicles to Latin America.

Mexico is the leading destination for India’s vehicle exports to the world accounting for 12% of  the total exports of 16.2 billion.  With 2 billion dollars of imports, Mexico’s share is 55% of India’s exports to the region. India’s vehicle exports to Mexico have been consistently growing in the last few years and has doubled from 2015 and tripled from 2013 figures. This is incredible in the light of the fact that Mexico itself is the fourth largest exporter of vehicles in the world with 101 billion dollars in 2017.

Surprisingly, India’s vehicle exports to Colombia have declined from 546 million dollars in 2014 to 254 m in 2017.

Organic chemical exports which remained around 800million dollars in the last four years has crossed 900 million dollars in 2017. Brazil and Mexico account for 60% of India’s exports to the region.

It is heartening to note that India’s pharma exports have increased to 724 million dollars in 2017 from 650 m in 2016. Brazil has maintained its position as the largest market for Indian pharma with 212 million dollars, followed by Chile-63 m, Venezuela-57 m and Colombia 52 m. India is the sixth largest supplier of pharma to Latin America. It is important to note that India’s pharma exports to Latin America are more than that of China (343 million in 2017)


India’s imports from Latin America
India’s imports have increased to 23 billion dollars in 2017 from 18 billion in 2016. This is mainly due to the rise of crude oil prices and the growth in imports of gold from the region. Gold imports have overtaken the imports of vegetable oil and copper which are being sourced regularly from the region.

The top imports of India from Latin America are given in the table below:

Main items of India’s imports from Latin America – in million US Dollars

Crude oil

10597
Gold and other precious metals 

3206
Vegetable oil

2812
Copper

2589
Raw sugar

1045
Equipments and machinery

812
Wood

350
Plastic products

195
Organic chemicals

182
Fresh fruits and vegetables

112
Pharmaceuticals

82



Venezuela has remained as the top source of India’s imports from the region. Out of the 10.59 billion crude imports from the region, Venezuela accounted for 5.89 billion, Mexico-2.39 billion and Brazil-1.72 bn. Crude imports from Colombia have been down to just 270 million dollars in 2017 from 4.1 bn in 2013. Imports from Ecuador have also come down to just 225 million from almost a billion in 2014. 

India has started importing gold from Latin America in recent years. Peru is the major source of import in the region with 1.47 billion dollars, followed by Bolivia with 593 million dollars. Imports from Bolivia started only in 2015. Dominican Republic has supplied gold worth 536 million dollars while Colombia supplied 266 million, Brazil 247 m and Mexico 92 m.

India imports 44% of its copper requirements from Latin America. Chile is the world’s largest supplier of copper to India with 1.4 billion dollars, followed by Brazil-590 million dollars and Peru-536 m.

Argentina is the second largest global supplier of edible oil to India accounting for 20% of India’s total imports. In 2017, Argentina supplied 2.27 billion dollars worth soy oil while Brazil supplied 390 million and Paraguay 144 million.

Renuka Sugar of India imports a billion dollar worth raw sugar from Brazil, refines it in India and reexport the refined sugar to Asia and Middleeast.


Prospects

Given the increase in the growth of the economies of the region in 2018-19 and the higher prices of commodities, India’s trade with the region should continue to grow in the coming years.  The GDP growth of Latin America is projected to increase to 2.2% in 2018 from 1.3 % in 2017. Before that, the region’s GDP had contracted in 2015 and 2016.  The growth of the region in 2018 will be driven by increase in domestic demand, higher exports and favourable growth of global economy and trade. The commodity prices which increased by 13% in 2017 are expected to maintain the same level of prices in 2018 too. Except for Venezuela(whose GDP has been shrinking in the last four years), all the other countries will increase their economic growth. Brazil, the largest economy in the region has turned around already with positive growth.Inflation, external debt and other macroeconomic indicators of the region are generally under control in the region except for Venezuela which could suffer more economic and political disasters in the future.

Mexico, Brazil and Colombia, the three largest markets for India’s exports to the region, will have presidential elections this year. While the leftist Lopez Obrador is leading in the opinion polls in Mexico, there is no clear leader in Colombia. In Brazil, the conviction of Lula has compounded the political uncertainties. Irrespective of the electoral outcome, the three countries are expected to sustain their economic growth in the coming years.

The Trump factor has forced the Latin Americans to review their dependence on US and reach out to other large markets. China has, of course, become the largest investor, creditor and the second largest trading partner for the region. However, the Latin Americans are very uncomfortable with the hidden agenda and non-transparent investment and trade practices of the Chinese. The Latin Americans do not find Europe appealing, given Brexit and the protectionist trends there. In this context, the large and fast-growing Indian market has become the focus for Latin American political and business leaders.  Latin America has been exporting more to India than to their old trade partners such as Germany, France, Italy, Spain, UK or Japan. In 2017, India was the fourth largest market for Latin American exports after US, China and Canada. India is the top destination for Latin American vegetable oil exports: second largest market for crude exports; and the fourth largest for copper and gold exports. India is the 9thlargest supplier of goods to Latin America and is the seventh largest trading partner.

The ongoing talks to expand the Indo-Mercosur PTA and the proposed Trade Agreement with Peru should help the trade to grow. In addition, India should consider signing FTAs with Mexico and Colombia which are the number one and number three markets for India’s exports in the region. The Central American region of seven countries including Dominican Republic accounts for over a billion dollars of India’s exports with a 10% share in the region. The Commerce Ministry and the Export Promotion Councils should focus on these markets which have been under explored by Indian exporters. 

For India’s exports, Latin America is a large and growing market of 620 million people, 5.5 trillion dollars of GDP and close to a trillion dollars of imports. The region is also useful to India’s strategic energy security and to some extent food security (edible oil and pulses). For the Latin Americans, India is even more important as a long term export market. Over one hundred Indian companies have invested about twelve billion dollars in Latin America and a dozen Latin American companies have invested over a billion dollars in India. The businesses from both sides are discovering and exploring new complementarities and synergies between the two markets, laying the foundation for a win-win long term economic partnership.

This is an opportune time for India to intensify its engagement seriously and systematically and invest more resources in trade promotion with Latin America. India should target 20 billion dollars of exports in the next five years and 1.5 billion dollars of increase per year. To reach this achievable target, the government should invest annually atleast 15 million dollars which is just one percent of the expected increase. The Chinese have given a cumulative credit of 150 billion dollars to Latin America while the Indian credit to the region is just under 300 million dollars. India should consider giving atleast one percent ( 1.5 billion dollars) of the Chinese figure, to promote exports and investment in the region. India should intensify its export promotion (more business delegations, participation in trade fairs, market studies and buyer-seller meets) to Latin America in collaboration with export promotion councils and chambers of commerce and industry who should be asked to prepare annual plans as well as 3-5 year plans.  The government of India should invest in the  upcoming CII India-LAC Business Conclave in Santiago, Chile 26-27 September to make it in a bigger scale and make the Conclave a not-to-be missed annual event for  Indian and Latin American business.


 Sources:  ITC Geneva for trade and ECLAC Santiago for economic data.