Decade of Deception for Latin America 2011-19

Latin America’s GDP is projected to grow by 0.2% in 2019, according to an IMF report of October. This meagre growth will close the miserable second decade with an average annual growth of just 1.4% in the last nine years.

After the peak growth of 6.3% in 2010, the rate has gone down in the last nine years and ran into negative growths in 2015 and 2016. 

The good news is that it is going to be better in 2020 and possibly in the next decade.

The GDP growth rate is projected to increase to 1.8% in 2020.

The ten South American countries will together suffer a GDP contraction of 0.2 this year but will resume growth of 1.8% next year.

Central America’s growth rate will increase to 3.4 % in 2020 from 2.7% in 2019.

The changes projected in GDP growth of the major markets of Latin America from 2019 to 2020 are:

Brazil’s growth rate will increase from 0.9% this year to 2% next year.

Mexico 0.4% to 1.3 %

Argentina from negative 3.1 to negative 1.3 percent

Colombia 3.4% to 3.6%

Chile 2.5% to 3 %

Peru 2.6% to 3.6%

Even Venezuela is going to improve… from 35% economic contraction this year to just 10% contraction next year. However, their inflation will increase from 200,000 % in 2019 to 500,000% in 2020. I wonder how IMF has arrived at this exact number despite the fact the Venezuelan government figures are unreliable, some of them secret and some information which the Venezuelans themselves don’t know.

The Argentine inflation will come down to 51% next year from 54 % this year.

But the average inflation of the region will dip from 7.2% this year to 6.7 % next year ( not including Venezuela)

In the first decade of the twenty first century, Latin America underwent a paradigm shift with remarkable political stability, economic growth, Inclusive Development and a new promise. There was a new wave of confidence and optimism when the region grew by 6.3 % in 2010, in the aftermath of the global financial crisis. There was unanimous acclaim when the first decade was named as the “ Decade of Latin America”. It was also called as the “ Decade of Growth” to contrast with the “ Lost Decade” of the eighties when the region’s economy was hit by the “ Washington Consensus” resulting in increased poverty and inequality. The decade of growth was guided by Brasilia Consensus which reduced poverty and inequality through a pragmatic and balanced mix of pro-poor and business-friendly policies.

So how does one describe this unfortunate second decade in which neoliberalism was revived in some countries but again without positive outcome. The best example is Argentina, where President Macri did everything what the Free Market told him. Result, Argentina is worse than what it was in the pre-Macri days  with more poverty, higher inflation, debt and devaluation. On the other hand, the Chavistas misused the name of socialism to ruin the country with incompetent and corrupt policies. Venezuela is in a hopeless mess politically, economically and socially. 

So let us call us this as a “Decade of Deception”. The region was betrayed by the Left as well as the Right.

Hopefully, the region will learn the right lessons and move “ up” through the Centre instead of swerving to extreme Left or Right.. It has been conclusively proven that neither 100% socialism nor Free Market can solve the problems of development. There is need for a flexible, pragmatic mix of pro-poor and business-friendly policies. 

The next decade starting from 2020 could be the Decade of Hope.

The main reason for my hope is the power of the people of Latin America. In the last few weeks and years they have taught lessons to both the Rightist and Leftist political leaders and governments.

In the recent weeks, the people of Chile, Peru and Ecuador have shown their power through protests and made their governments to reverse some policy decisions. The electors have punished both the Left and the Right in the recent elections in Brazil, Mexico and Argentina.

Political leaders from both the Right and Left have learnt enough lessons in recent years. So the governments in the coming decade would be more careful and less adventurous.They have no choice but to be more responsive to the needs of the people. 

This Power of the People is the best hope and guarantee for the democracy and prosperity of the region. 

Investment in the Lithium Triangle of South America

Lithium has emerged as important  for major countries and companies since it is one of the key inputs for the manufacture of lithium-ion batteries, which store the energy that powers mass-market electronic devices (such as telephones, tablets, laptop computers, wireless tools), automobiles and other electric vehicles, as well as electric power grids (when connected to wind turbines and photovoltaic cells). Demand for lithium is expected to  triple between 2017 and 2025. 

The government of India, which also has a Lithium strategy, should take note of the ongoing foreign investment in the Lithium Triangle of Argentina, Chile and Bolivia, which has more than half of the world’s Lithium reserves.

The single largest FDI in Latin America in 2018 was by the Chinese company Tianqi Lithium which paid US$ 4.066 billion for 24% of Sociedad Química y Minera de Chile (SQM), the world’s second largest lithium producer with 23% of the global market. With this acquisition, Tianqui has become the world’s leading lithium producer with 14% of global output. 

The Korean firm POSCO has announced its intention to invest US$ 450 million in a project to produce lithium at Salar del Hombre Muerto, where it acquired a deposit in 2018; and it estimates that production will start in 2021. Another major project was announced by France’s Eramet, the world’s largest producer of nickel and magnesium, which will invest US$ 380 billion in Salta for the production of lithium carbonate which should start production in 2020. The start of construction of South America’s first lithium battery factory was also announced, resulting from a partnership between the province of Jujuy and the Italian firm SERI. The factory, representing an estimated investment of US$ 60 million, will be managed by Jujuy Litio S.A., a joint venture between Jujuy Energía y Mineria Sociedad del Estado (JEMSE) (60%) and SERI (40%)

Although Bolivia has 9 million tons of Lithium reserves, (16% of the global total), the country still does not produce lithium. Recently it has signed two agreements for the industrial production of lithium. One of these is between the State enterprise Yacimientos de Litio Bolivianos (YLB) and the German ACI Systems Germany GmbH (Acisa), for an estimated investment of US$ 1.3 billion. In late 2018, a joint venture for the sustainable extraction and production of lithium hydroxide was set up in Salar de Uyuni, Potosí. In a second stage, it was agreed to form another joint venture to manufacture cathode and battery systems material in Bolivia and in Germany. Another agreement was signed with China, for the creation of a joint venture in 2019 to undertake lithium industrialization projects in the salt flats of Pastos Grandes (Potosí) and Coipasa (Oruro), with an expected investment of over US$ 2 billion. The Bolivian government has been inviting Indian government and companies to invest in their Lithium mines.

More information in ECLAC report of August 2019 

https://repositorio.cepal.org/bitstream/handle/11362/44698/10/S1900447_en.pdf

Latin America's modest economic growth in this year and decade

 Latin American GDP is forecast to grow by a modest 0.5% in 2019, according to a report released by UN ECLAC this week.

The decrease in growth is due to domestic reasons such as lesser investment, reduction in exports, fall in public spending and private consumption.  Growth was also affected by the global environment of fall in commodity prices, slow down by China which has reduced imports and trade wars unleashed by President trump.

Latin America started this decade with the highest growth rate of 6.2% in 2010. It came down since then and even went into negative 0.2% in 2015 and 1% in 2016. It recovered to positive 1.1% in 2017 and 0.9% in 2018.

The region will end this decade with a modest average growth rate of 1.9% as against 3.15% in the last decade.

Dominican Republic will have the highest growth in 2019 at 5.5%, followed by Panama 4.9% and Bolivia 4%. Brazil, the biggest economy will see a growth of 0.8% and Mexico, the second biggest 1%. Colombia, Peru and Chile will grow around 3%. 

Bolivia has a cumulative growth of 44.3% in the last nine years. With the prediction of 4% growth in 2019, Bolivia will end the decade with an impressive 4.83% average growth. The lowest growth in the decade was 4.1%.  

What is interesting is that this has been achieved by the Leftist government of Evo Morales. He has been in power for the last 14 years since January 2006. The cumulative GDP growth in this period is 67.2% at an average annual growth of 4.8%. This is not only a commendable achievement. This kind of sustained growth and stability for 14 years at a stretch should be a record in the history of Bolivia.

It is not just growth. It is an impressive Inclusive Growth. The socialist government of Morales has reduced poverty and inequality in the last 14 years much more than any other country in Latin America. This is a success story of Socialism in the contemporary democratic history of the world. Unfortunately Chavez and a few other Leftist have given a bad name to socialism with mismanagement of the economy. 

Unsurprisingly, Venezuela will suffer contraction of 23% in 2019. But surprisingly, Argentina too will face economic contraction of 1.8% ( although it is better than the 2.5% contraction in 2018) while Nicaragua’s GDP will shrink by 5% after the 3.8% drop in GDP in 2018.

The region’s average inflation is expected to climb to 8.1% in 2019 from 7 % in 2018 and 5.7% in 2017.  This is after excluding Venezuelan inflation which reached 280,000 percent in 2018. Again, Argentina has an unwelcome surprise. Its inflation reached 56.8 % in May 2019 from 26% in May 2018

On the positive side, FDI in Latin America went up in 2018 to 143 billion dollars from 119 bn in 2018. Brazil received the highest FDI amount of 74 bn, followed by Mexico 26 bn, Peru 6.5 bn, Colombia 6.2 bn, Panama 5.4 bn, Chile 4.1 bn and Dominican republic 2.5 bn.

The total exports of the region crossed a trillion dollars to 1.08 trn in 2018 from 995 billion in 2018. The imports also passed the trillion mark reaching 1.06 trn in 2019 from 961 bn.  The region maintained a marginal trade surplus in 2019, as in most of the years in the past.

The foreign exchange reserves of the region in May 2019 was 879 billion dollars, a comfortable figure. Venezuela’s reserves were just 7 billion dollars, not sufficient to cover even essential imports. 

Gross external debt of the region stood at 2 trillion dollars in 2018, which is just 40% of the total GDP. This ratio is reasonable and manageable.  The only exceptions are: again, Venezuela and Argentina. Venezuela has 151 bn external debt but does not have the capacity to pay even interest due to severe shortage of foreign exchange. The US sanctions on venezuela’s oil exports has the hit the country hard since oil export is the mainstay of the Venezuelan economy. Argentina has received 38 billion dollars of credit from IMF as part of the package of 57 billion dollars. Repayment of this large debt will force Argentina into austerity with public expenditure cuts in the coming years.

The Argentine economy which is precarious at this moment will know its direction in the elections in October. The centre-right President Macri is facing tough challenge from the leftist Peronist challenger ex-president Cristina Fernandez who has gained strength because of the poor economic performance of the Macri government.

In the October 2019 elections, President Morales will seek a fourth term, which is a violation of the limit on mandate according to the constituition framed by Morales himself. It would be better if he stands down and let somebody else take over this time. This will safeguard his glorious legacy. But he insists in continuing in power, following the disastrous example of Chavez and Ortega. Pity..

The Venezuelan economic situation is getting worse and becoming desperate after the US sanctions on oil exports. Although the threat of US military intervention is now ruled out, Venezulan political crisis might drag on and lead to further misery for the population.

If President Trump gets reelected in 2020, the region will continue to face challenges of growth.

But there is a surprising positive news. Bolsonaro, the extremist right President of Brazil started off with dangerously negative statements on Mercosur, China and globalization. But the neoliberalists in his government have stopped these pronouncements becoming policies. In a dramatic surprise, Mercosur has just concluded a Free Trade Agreement with European Union. The negotiations were going on for the last twenty years indifferently and it looked hopeless. Now the Brazilian government has shown interest in more Mercosur FTAs with Canada, Korea, EFTA and even USA. These FTAs will open up Brazil and Argentina which have remained as closed markets for a long time. 

Despite Latin America’s meagre economic growth in 2018-19, India’s exports have increased by 9.6% in the period April 2018-March 2019 reaching 13.16 billion dollars from 12 billion last year. UPL, the largest Indian agrochemical company, has increased its business to 1.2 billion dollars in Brazil and 1.6 billion in Latin America, overtaking their 0.9 billion Indian business. 

Of course, the US sanctions has forced Reliance and the public sector oil companies to stop oil imports from Venezuela. However some oil keeps coming through the Russian oil company Rosneft which has invested in Venezuelan oil production and acquired the Essar oil refinery in Gujarat. In any case, India can buy more oil from Brazil, Mexico, Ecuador and Colombia, the other oil exporters to offset the loss of Venezuelan oil.

The Latin American business is focusing on India more seriously after the Chinese slow down, Brexit uncertainty in Europe and the Trump trade wars. 

Although the region's economic growth in this decade is just 1.9%, India's exports have doubled from 6.2 billion dollars in 2009-10 to 13.16 bn in 2018-19. This could be doubled if India explores seriously and systematically the 5 trillion dollar market of Latin America with a middle income population of 600 million people. 

ECLAC report
https://www.cepal.org/en/pressreleases/economic-slowdown-continues-regional-gdp-expected-grow-05-2019

Ecuador joining Pacific Alliance

Ecuador has started the process to become member of Pacific Alliance in the first week of July 2019. This was confirmed and welcomed at the summit of the Alliance held on 7 July.
It is geographically logical given the fact that Ecuador is tucked in between Colombia and Peru, the only neighbours of the country.
Since UNASUR and Andean Community (of which Ecuador was a member) are dead, Ecuador needs to join a Group and Pacific Alliance is a natural choice.
In any case, Ecuador has already signed FTA with Colombia, Peru and Chile.. It will soon sign one with Mexico.
While all the four members of Pacific Alliance have signed FTA with US, Ecuador is the only one which has no FTA with US.

It is a pity that the Andean Community, which was the best instituitionalised Group in Latin America, was killed by Chavez, at the height of his arrogance.
On the other hand, UNASUR has been buried by the rightist Presidents of South America, who did not like the Group formed by Lula and the other Leftist Presidents.
The only countries remaining solo without being part of any regional groups in South America are Venezuela and Bolivia. Although Venezuela had joined Mercosur, the rightists of Brazil and Argentina threw out Venezuela from membership. Bolivia is hanging on to Associate membership of Mercosur.

Ecuador's membership interest is due to President Lenin Moreno who is a centrist pragmatist in contrast to his radical Leftist predecessor Rafael Correa who would not have joined the Pacific Alliance. Correa was enthusiastic about UNASUR and got its headquarters in Quito.

While Chile, Peru and Colombia the three members of the Pacific Alliance Group have centre-right presidents, Mexico the biggest member has a leftist one Lopez Obrador. It seems that he is not too enthusiastic about the Alliance. He did not attend the 7 July summit. Of course, he is focussed more on Mexico's domestic issues and does not care much for foreign policy. alliances or global profile. 

India's trade with Ecuador in 2018-19 was 517 million dollars of which exports were 298 million and imports 219 m. Ecuador is a regular source of crude oil imports of India. In May 2019, India had initiated FTA negotiations with Ecuador.

Mercosur-European Union Trade Agreement

Mercosur and European Union reached a political agreement for a Free Trade Agreement (FTA) on 28 June. The new trade agreement is part of a wider Association Agreement between the two sides.

This is a surprising but positive news.  

Surprise, because of three things. First, the negotiations have been going on since 2000 slowly and indifferently and almost forgotten for many years. Even I did not anticipate its conclusion now. Secondly, both Mercosur and EU are in a stage of internal crisis at this time and one did not expect them to focus on conclusion of the deal, which is complicated. Bolsonaro did not show any enthusiasm for Mercosur in the beginning and was skeptical. He and his foreign minister were anti-globalisation and anti-trade extremists as part of their imitation of Trump’s vision. This had put a question mark on the future of Mercosur itself. On the other hand EU was mired in the Brexit crisis. Thirdly, the negotiations faced the great challenge of access to the agricultural exports of Mercosur to EU, which is protectionist especially in the case of agro products. 

Positive, because the FTA with EU will boost trade and prosperity of the members of the Group ( Brazil, Argentina, Uruguaya and Paraguay) .  The FTA gives hope for the future of Mercosur, besides adding to its collective strength. In fact, it is more than positive. It is fantastic news for South America especially after the disruptive Bolsonaro and Argentine economic crisis.

This is the most serious, comprehensive and biggest FTA Mercosur has signed so far. Since EU is a big force, the Mercosur members especially Brazil and Argentina will be forced to discipline themselves more in trade practices. Otherwise, these two big brothers used to change trade policies any time freely without restraint. Brazil will no longer be able to keep its market closed as in the past. In short, it is a game changer for Mercosur.

The deal has a clause mentioning the commitment of both sides to environmental protection and sustainable development under Paris Climate Agreement. Brazilian foreign minister Araujo, who called climate change agenda as a project of cultural Marxists, has to eat his words now. President Bolsonaro has to restrain himself and his rancher friends from poaching into Amazon. Brazil has no choice but to reiterate its commitment on environment. Macron had threatened not to sign any EU-Mercosur trade deal if Brazil pulled out of the Paris climate accord.

The EU-Mercosur deal has to be ratified by the parliaments of the countries on both the sides. This should not take that long since it is considered as a fair and win-win deal by many observers on both sides. 

The conclusion of this large trade deal between the substantial markets of EU and Mercosur is a victory against the trade protectionist challenges and trade wars from Trump and his right wing fellow travellers.  

This is the largest deal both for Mercosur and for EU. It covers a combined market of 800 million people. Mercosur is market of 285 million population and EU has  over 500 million people. It is indeed a formidable combination in global trade.

The deal will boost the  EU bilateral trade with Mercosur which was  €88 billion in 2018 and services which was €34 billion.

The deal is comprehensive with elimination/reduction of tariffs, facilitation of entry into services market, government procurement and E-commerce as well as intellectual property rights. There are environmental and labour protection clauses too.

Elimination of customs duties

The agreement will, over time, remove duties on 91% of goods that EU companies export to Mercosur. For example, Mercosur countries will remove high duties on industrial products, such as:

§  Cars (taxed today at 35%)

§  Car parts (taxed at 14 to 18%)

§  Machinery (taxed at 14 to 20%)

§  Chemicals (taxed up to 18%)

§  Clothing (taxed at up to 35%)

§  Pharmaceuticals (taxed at up to 14%)

§  Leather shoes (taxed at up to 35%)

§  Textiles (taxed at up to 35%)

The agreement will also progressively eliminate duties on EU food and drink exports, such as:

§  Wine (taxed today at 27%)

§  Chocolate (taxed at 20%)

§  Whiskey and other spirits (taxed at 20 to 35%)

§  Biscuits (taxed at 16 to 18%)

§  Canned peaches (taxed at 55%)

§  Soft drinks (taxed at 20-35%)

The agreement will also eliminate import duties on 92% of Mercosur goods exported to the EU. Under this deal, Mercosur would increase exports of beef, sugar, poultry and other farm products to EU. Tariffs on products such as orange juice, instant coffee and fruit are being eliminated. Products such as meat, sugar and ethanol would have greater access to the EU.

The EU has admitted that this agreement presents some challenges to European farmers. It has promised that it will only open up to agricultural products from Mercosur with carefully managed quotas that will ensure that there is no risk that any product will flood the EU market and thereby threaten the livelihood of EU farmers. France, which has regularly expressed concern over the risk of a surge in South American agricultural exports to Europe, welcomed provisions protecting European geographical origin certification for food products and limiting Mercosur exports of sugar and beef.

Trade in services and establishment

Each year, the EU exports more than €20 billion in services to Mercosur countries.

The agreement will make it easier for EU firms to provide services to the rapidly expanding Mercosur market and will provide new opportunities to invest through establishment in both services and manufacturing sectors. It will also ensure a level playing field between EU service providers and their competitors in the Mercosur market.

The services covered include a wide range of sectors and sector-specific regulatory provisions exist for postal and courier services, telecommunications and financial services.

The agreement also contains advanced provisions on the movement of professionals for business purposes, such as managers or specialists that EU companies post to their subsidiaries in Mercosur countries.

E-commerce

The agreement contains general rules regarding e-commerce that aim to remove unjustified barriers to trade made by electronic means, bring legal certainty for companies and ensure a secure online environment for consumers, with their data being appropriately protected.

Government procurement

For the first time, Mercosur countries will open up their government procurement markets. EU companies will be able to tender for contracts with public authorities, such as central government ministries and other governmental and federal agencies, on an equal footing with companies from Mercosur countries.

The trade agreement will also make the tendering process more transparent. Each Mercosur country has agreed to publish contract notices for the procurement covered by the agreement online at a national single point of access.

The EU has offered Mercosur suppliers reciprocal access to the EU procurement market at central level, meaning procurement by EU institutions, and by central government contracting authorities in EU Member States.

Intellectual Property Rights

The agreement includes solid provisions covering Intellectual Property Rights on copyright, trademarks, industrial designs, geographical indications and plant varieties. The section on Intellectual Property Rights also includes comprehensive provisions on the protection of trade secrets.

More information  http://trade.ec.europa.eu/doclib/press/index.cfm?id=2040

Mercosur-EU trade

§  The EU is Mercosur's second biggest trade in goods partner, accounting for 20.1% of the bloc's total trade in 2018.

§  The EU's exports to the four Mercosur countries totalled €45 billion in 2018. Mercosur's exports to the EU were €42.6 billion in 2018.

§  Mercosur's biggest exports to the EU in 2018 were agricultural products, such as foodstuffs, beverages and tobacco (20.5%), vegetable products including soya and coffee (16.3%) and meats and other animal products (6.1%).

§  The EU's exports to Mercosur include machinery (28.6%), transport equipment (13.3% of total exports), chemicals and pharmaceutical products (23.6%).

§  The EU exported €23 billion of services to Mercosur while Mercosur exported € 11 billion of services to the EU in 2017.

§  The EU is the biggest foreign investor in the region, with an accumulated stock of investment that has gone up from €130 billion in 2000 to €381 billion in 2017.

§  Mercosur is a major investor in the EU, with stocks of €52 billion in 2017.

Mercosur's major trade partners

China remains as the largest trading partner with 130 billion ( exports-46 bn and imports from Mercosur 84 bn)

 US is the second largest with 92 billion of which 54 bn are exports and 38 bn imports from Mercosur).

India-Mercosur trade

India's trade with the four Mercosur member countries was 11.13 billion dollars in 2018-19. Of this, exports were 4.7 billion dollars and imports 6.43 billion.

The Mercosur-EU should not seriously affect India’s business with Mercosur since the products exported by India are different from EU’s exports. However, there is concern in the case of few products such as pharmaceuticals and cars. The intellectual property clause in the FTA might cause some problems for India’s export of generic pharmaceuticals. 

Preferential Trade Agreement (PTA) was concluded in march 2005. Preferential duty ( 10-20 percent in most cases) is given to 452 Indian products entering mercosur and reciprocal concession to 450 products of mercosur entering India. The PTA has become effective from June 2009.

Duty discount for 452 Indian exports as follows:

10 % : 394 products 
20 % : 45   products 
100%: 13 products 

Duty discount on 450 Mercosur exports:

10 % : 93 products 
20 % : 336 products 
100 % : 21 products 

The two sides decided to expand the PTA by including more items and make deeper tariff cuts. Negotiations have been going on for the last several years. This is a good time for India to press Mercosur to finalize the negotiations for expansion of the India-Mercosur PTA. Mercosur should find it very easy and simple to conclude the expanded PTA with India in comparison to the tough and complicated FTA with EU. President Bolsonaro has said that Mercosur is looking forward to sign trade agreements with more countries.

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 number one market for India's export of cars at 1281 million dollars.  Car exports to Latin America ( 1839 m) is 26% of India's global exports of 6958 m

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).

Motor cycle exports to Latin America at 573 m are 27% of India's global exports.

  

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.