Simmar Pal Singh - Peanut Prince in Argentina

During my golf game at the Rio Cuarto Country Club on 16 May, the Argentine players asked me where they could buy a Turban and how to wear it. I asked them the reason for this special interest. They showed me a villa within the country club complex and said ¨Here lives an Indian Maharaja. He looks handsome with his Turban. When he goes to the night clubs , he gets premium service and gets it free because they think he is a Maharaja.¨ The Argentines wanted to wear Turbans and get the same special treatment at the night clubs.

The envy of the Argentines is Simmar Pal Singh, a Sikh from India. I clarified to the Argentines that Turbans do not mean Maharajas. They asked me to shut up and not to reveal this secret at the night clubs ! I told them that Simmar Pal is not a Maharaja by birth but has become a Peanut Prince of Argentina.

Here is Simmar Pal in dark suit on the left. In the middle is Nityanand, from Coimbatore, who is the manager of the peanut processing plant. On the right is Narinder Pal Singh, Olam manager in Brazil.

Simmar Pal Singh cultivates 12,000 hectares of peanut farms and another 5000 hectares of soya and corn in Rio Cuarto area in Cordoba province, about one thousand kms from Buenos Aires. His target is to take his company Olam among Argentina´s top three peanut players in the next few years. When he came to Argentina in 2005, his company was 28th in ranking in peanuts and he has already made it as sixth this year. Argentina is the second largest exporter of peanuts after China, accounting for 25% of the world trade in kernels. Rio Cuarto region produces high-quality peanuts with its ideal soil and agroclimatic conditions.

During the dinner at his home, Simmar Pal's wife Harpreet Kaur, an architect with an M.Tech from IIT Delhi, laughed when I told her about the Argentine interest in Turbans. She said that Simmar Pal might have gone to the night club to check the peanuts his company had supplied to the club to serve with the drinks. I believe her. Simmar Pal works sixteen hours a day and has no time for night clubs. This modest young man from Amritsar has fiery ambitions, exceptional talents and is motivated by his success in the last five years. Simmar Pal did his B.Sc Honours in Agriculture from Guru Nanak Dev University and Masters degree in Rural Management from IRMA, Anand. He has worked in Mozambique, Ivory Coast and Ghana before coming to Argentina. He speaks Spanish fluently and his wife and two children have adopted to the life in Rio Cuarto, a small city of 140,000 people.

Simmar Pal works for Olam, the 5.6 - billion dollar Non-Resident Indian company headquarterd in Singapore. It is a leading global supply chain manager of agricultural products and food ingredients. Their 9000 employees worldwide operate an integrated supply chain for 20 products in 60 countries. It is a global leader in many of these businesses including Cocoa, Coffee, Cashew, Sheanuts, Sesame, Rice, Cotton and Teak Wood. Olam has a turnover of 500 million dollars in Brazil and employs 930 Brazilians. In their operations in Colombia and Peru they have sixty employees. More info http://www.olamonline.com

Simmar Pal came to Argentina in 2005 for buying peanuts for the company. When he found that the farmers preferred to sell their products to established companies and were hesitant to deal with new buyers, he proposed to his company that they should go into farming themselves. This was something new for the company which had been operating only in the field of trading and processing. Seeing the fire in Simmarpal´s belly and shine in his eyes, they wanted to give him a chance. He started off with leasing of 700 hectares of land and grew peanuts. It was a sucess. The company let him lease additional acreage. This year he has cultivated 17000 hectares including 2000 hectares in the province of salta about 700 kms away from Rio Cuarto. He has plans to continue the increase in acreage and grow other crops such as wheat, soya and pulses. Some of these and especially pulses could be exported to India.

Picture below is Peanut harvesting by the machine in Simmar Pal´s farm:

Olam has acquired two peanut processing plants. When I went to visit one of the plants, the mayor of the village Dalmacio Velez, of 2000 people, was there. He made a speech expressing his happiness with Olam which has turned around the factory and has given jobs to his village people.

Simmar Pal employs 140 Argentines, most of them in the processing plants. In the farm, he has very few people since the farming in Argentina is mechanised and everything is outsourced. Simmarpal contracts other companies for seeding, spraying of pesticides, harvesting etc. I did not mention ploughing because, in Argentina they dont plough the land anymore. They practise what is called as Direct Seeding ( siembre directa) which means they dont prepare the land with ploughing after the previous harvest. They let the residues from the previous harvest to rot and become manure. Seeding is done with a special machine which puts the seed inside the earth along with fertilisers without opening the earth around the seed.The land retains its moisture and organic materials. This is environment-friendly and sustainable agriculture.

The farming in Argentina is done in large scale, technology-driven and is globally competetive. It is done commercially, scientifically and professionally. The farmers consider 2000 hectares as the minimum land holding necessary to do cultivation on their own. When they have less, or when they dont want to dirty their hands, they rent out their land to companies and individuals who do professional cultivation in large scale. Seventy percent of the cultivation in Argentina is on rented land. Simmarpal paid last year 700 dollars per hectare. He has rented the 17000 hectares from 40 owners with holdings ranging from 40 hectares to 3000 hectares.

An Argentine company called as Los Grobo Group cultivates over 200,000 hectares with its professional management. I told the owner of this company, who has got his own aircraft, that the secret of his success is his previous incarnation in Gujarat. His name is Grobocopatel.... Patel is the last part of his name and the gene behind his entrepreunerial talent! No wonder, he is a follower of Saibaba and practises meditation and yoga.

Simmar Pal employs four agronomists and pays them 45,000 dollars each per year. He uses the consultancy services of four more agronomists. The Argentine agronomists get as much salary and prestige as the software specialists. Last week, I visited the farm of a friend Francisco Okecki in Buenos Aires. He is an agronomist who manages 20,000 hectares including 1000 hecatres which belong to him. He is so passionate about agriculture as much as as I am about Latin America.

What Simmar Pal Singh is doing in Argentina has a lesson for India, which is going to face in the long term shortage of agricultural land and water for irrigation for its population which is increasing by 15 million per year and a population equal to Argentina every 32 months ! But Argentina, which has almost the same area as that of India has a small population of 4o million and plenty of land and water. Argentina is an agricultural power house. It exports 50% of its agriproduction of 100 million tons. It is the world’s largest exporter of soy oil and sunflower oil, the second largest exporter of corn, third largest producer of beef , soyabeans and biodiesel and fourth largest of wheat. Argentina is the fifth largest producer of wine in the world. It has significant potential to increase its area under cultivation ( from the mere 32 million hectares at present, in contrast to India´s 130 million hectares ) and production.

In India, we have irrigation canals, dams, ground water pumps and issues of water table going down and free electricity for farmers. Argentines are free from these issues since their agriculture is almost entirely rain-fed. There is irrigation only for a few specialist farms and some vineyards. Indra, the Rain God takes care of the rest !

Argentina has developed an efficient infrastructure, logistics and network for transportation and shipping. The food processing industries of Argentina are one of the most advanced in the world and globally competitive. For example, the oil crushing capacity of Argentina is the third highest in the world- even ahead of Brazil- with the latest technology and plants.

The Argentines have innovated a new system of storage of grains in open air instead of expensive concrete and steel silos. They have developed polythene silobags which can store 200-400 tons on the field itself. The grains are pumped into the bag by a machine and can be stored for upto 15 months. The bag is ripped open at the time of transfer to the trucks. The Argentines have exported this new technology and bags to a number of countries and want to export to India too. Cost of this new type of storage is four dollars per ton.

Argentina could be a longterm source of supply of grains, oil seeds and pulses to India. Already India is importing from Argentina soya and sunflower oil for about 700 million dollars a year. There are occasional imports of wheat.

The Indians could go beyond imports and invest in Agribusiness in Argentina. There is no restriction on foreign investment in agriculture in Argentina. A number of foreign companies and individuals own land here. Cost of the most productive land is 15,000 dollars, which, I am told is cheaper than in Punjab. The Argentine yield per hectare is about three times higher than that of India in soya, peanuts and some other crops. The Solvent Extractors Association of India has formed a Consortium of companies interested in investment in agribusiness in South America.

I hope the Indian enterpreneurs will come to invest in Argentina, inspired by the successful example of Peanut Prince.... Simmar Pal Singh !

They should not forget the Turbans...

China becomes the biggest trading partner of Brazil

In the first four months of 2009, China, overtook USA, as the biggest trading partner of Brazil. The bilateral trade will increse more with the following two agreements signed during the visit of President Lula to China last week:

Beijing announced a 10 billion dollar loan to Petrobras in exchange for supply of 200,000 barrels of crude oil over the next ten years.

The Chinese agreed to lift restrictions on import of Brazilian chicken and agreed to import more meat from Brazil.

Incidentally, Brazil is the largest exporter of chicken in the world. Their exprts in 2007 were 3.2 million tons

Agreements were also signed for supply of bio fuel to China, joint launch of two satellites etc.

Mexican multiplex chain to invest in India

Mexican global multiplex operator Cinepolis plans to invest 340 million dollars in India for its film exhibition business over the next seven years. It has already established an Indian subsidiary that is in talks with mall developers for opening 500 movie screens by 2016. In the first phase of expansion, the company will open 110 screens across eight locations. The company said it will open its first multiplex in India by the second half of this year.

A $675 million film exhibition company, Cinepolis operates over 2,000 screens globally, 90 per cent of which are located in Mexico. The company, which is currently the fifth largest theatre chain in the world, is aiming to move up in the ladder to the fourth slot and its India venture is part of the company's plans to expand its global footprint.

Cinepolis also plans to introduce the concept of a megaplex where each theatre will have up to 14 screens. "We will make India the country with our largest presence outside Mexico. We will open around 500 screens in the next seven years and for every screen, we will be spending around $700,000," Cinepolis India country head Milan Saini said today at the launch. "We are also looking at launching our operations at a smaller scales, whereby we may convert some of the single screens into multi-screen property. There is a space constraint issue here and we have to adjust our business plans accordingly," Saini said. Most of the fund would go in rentals and developing of screens and the amount would be funded by internal accruals, he added.

Source- IBEF

Latin American economies expected to contract in 2009

According to the April 2009 World Economic Outlook issued by IMF, the Latin American region will suffer GDP contraction of 1.5 % in 2009. The region grew by 4.2 % in 2008.

Mexico will be the worst hit with a contraction of 3.7%, while Brazil´s GDP will reduce by 1.3% and that of Argentina by 1.5%.

Bucking the trend, Peru will see a GDP growth of 3.5%, followed by Uruguay with 1.3% and Central America by 1.1%.

Average inflation of the region in 2009 is forecast to decline to 6.6% from 7.9% in 2008.

The region’s current account deficit will widen to 2.2 percent of gross domestic product in 2009, from about 0.75 percent in 2008.

The IMF predicts the region’s economy will rebound in 2010, expanding 1.6 percent. In 2009, Mexico will see a 3.7 percent contraction in GDP, while Venezuela’s economy will shrink 2.2 percent, the report said.

New Flight connection from India to South America

South African Airways is starting direct flights from Johannesburg to Buenos Aires from 1 April 2009. Here are the schedules:

From Buenos Aires – J-burg – Mumbai
Weds and Fridays :
Buenos Aires – J’burg 1930 – 0855 hrsJ’Burg – Mumbai – 1130 – 0030 hrs

From Mumbai- J’burg – Buenos Aires
Weds-Fridays and Sundays:
Mumbai-J’burg 0230 -0755 hrs J’Burg – Buenos Aires 0950-1730 hrs

This connection has two advantages over connection through Europe. It is cheaper. Secondly there is no need for transit visa in Johannesberg. In the case of Europe, transit visa is needed to pass through airports such as Paris, Frankfurt and London.

Similiar advantage is there in the case of the Emirates direct flight between Dubai and Sao Paulo.

Latin America and the financial crisis - Article by Jorge Heine

Here is the Article of Prof Jorge Heine published in Hindu newspaper of 4 feb 09.

Jorge Heine holds the Chair in Global Governance at the Balsillie School of International Affairs and is a Distinguished Fellow at the Centre for International Governance Innovation in Waterloo, Ontario. He serves currently as Vice-President of the International Political Science Association.

He was earlier the Ambassor of Chile to India. He is the top India expert from Latin America

Latin America and the financial crisis

For the first time in a century, Latin America has managed to at least partially “cushion” itself from the seismic waves of economic turmoil in the U.S. and Europe.
The United Kingdom will face a 2.8 per cent negative growth rate in 2009, the worst economic performance since World War II (in fact, the British economy has already shrunk by 2.7 per cent since last April). In Spain, unemployment has reached 14 per cent, and the government is offering a “golden handshake” to recent immigrants to leave the country for three years. Ireland, so often held up as an example for the developing world because of its relentless tax-cut ting, is in dire straits, and Iceland is bankrupt.
In the United States, Dow Jones slipped below 8000 in the very week President Barack Obama took office, the automobile industry continues its downward spiral (Toyota has already displaced GM as the world’s largest automaker) and in one day in January, some leading companies announced shedding 72,000 jobs. In California, unemployment is just below 10 per cent, and the State faces a staggering deficit. In Canada, which lost 34,000 in December, Ontario, the nation’s industrial heartland (40 per cent of Canada’s GDP), is in trouble and looking for ways to renegotiate existing financial arrangements with Ottawa.
Projections indicate that the developed world will have a negative growth in 2009. What about Latin America?
The standard line is that “when the United States sneezes, Latin America catches a cold.” And that was exactly what happened in the past. The Great Depression had a devastating effect on Latin America — so much so that in the late 1930s and early 1940s, it begot the import-substitution-industrialisation (ISI) strategy, as governments realised that in times of global slowdowns they could not be left at the mercy of having enough hard currency to buy essential goods from the industrialised North; they needed some installed capacity of their own.
Something similar happened in the early 1980s when rising interest rates in the U.S. pushed the region into its worst debt crisis and a “lost decade,” in which countries like Chile saw 14 per cent negative growth in 1982 and unemployment rates of 30 to 35 per cent for several years. According to the conventional wisdom, Latin American economies should be in the doldrums, with the Northern recessionary waves hitting Southern shores with a multiplier effect leading to an even deeper economic downturn there.
Yet, this isn’t happening. Yes, this is a global recession and the region has not been spared. Growth will be cut in half; commodity prices have dropped and so have export volumes, thus affecting regional exports which reached a record $902 billion in 2008. International credit has tightened, and some projected FDI is not materialising. Remittances to the region, which also reached a record ($67 billion) in 2008, will take a hit.
After six consecutive years of over 4 per cent economic growth rates, the region is projected to grow 1.9 per cent in 2009. Unemployment, at 7.5 per cent in 2008, is projected to rise to between 7.8 and 8.1 per cent. Whatever else it may be, this is not a recession.
Countries like Peru, the star economic performer over the past few years, may grow as much as 5 per cent in 2009, with smaller economies like Cuba, Panama and Uruguay clocking 4 per cent or more. And the larger economies like Argentina (2.6 per cent), Brazil (2.1 per cent), Chile (2 per cent) and Venezuela (3 per cent) should perform quite respectably. In fact, South America as a whole, according to ECLAC, will grow at 2.4 per cent. It is Mexico (0.5 per cent) and many Central American and Caribbean nations that will be especially affected by the drop in tourism and in remittances and by lower demand in the U.S. market.
This does not mean that if the financial meltdown continues to wreak havoc on the North and the economic wreckage is extended over time, it will not eventually have a greater impact in Latin America. My point is a different one. For the first time in a century, Latin America has managed, if not totally, to “decouple,” at least to partially “cushion” itself from the seismic waves of economic turmoil in the U.S. and Europe, markets on which it traditionally depended. The fact that several countries from the region (Brazil, Mexico and Colombia) are placing bonds in international markets in these difficult times speaks for itself.
That this should happen at a time when eight of ten countries in South America are ruled by Left or Left-of-Centre parties is ironic. For much of this decade, we have repeatedly been told how Latin America, by veering towards the Left, was once again “missing the boat” on economic development, and how it risked being caught in a time warp, left behind by the twin imperatives of globalisation and economic interdependence, beholden to outmoded ideologies at a time of the end of ideology.
Instead of dollarising their economies (as Ecuador did in 2000, much to its subsequent chagrin) and opening themselves up to whatever Washington demanded, many countries (led by Brazil) preferred a different path, one that turned out to be not so misguided after all. If anything, many Latin American governments seem to have shown a better understanding of the perils of unfettered globalisation and “casino capitalism” than several of their counterparts in the North.
What does the Latin American Left stand for today and what has it done in government?
Far from the “populism” so much of the Western media labels it with, the modern Left in the region today embodies a set of beliefs very different from the mid-20th century populist movements associated with this term.
It is fully democratic, believing in free and fair elections, having strongly opposed the military regimes supported by the Right in the 1970s and 1980s; it is secular, standing apart from the integrista Catholicism of so many conservative forces in the region; it is committed to greater social equality in a region with the dubious distinction of having the highest economic inequality; it believes in diversifying trading and investment partners, as well as the number and variety of export products, thus moving away from the econom’a monoexportadora syndrome of the past; finally, it is fiscally responsible — starting from the premise that only by having macroeconomic equilibria (that is, if the government balances the books) and tackling inflation will you be able to make progress. Prudent economic policies combined with aggressive social programmes — like Brazil’s Bolsa de Familia or Chile‘s recent pension reform — are at the heart of this approach.
It is these principles and the policies that flow from them that have allowed the countries in the region to bring down their foreign debt from 37 per cent of the GDP in 2000 to 20 per cent today. They have permitted Brazil to start a $48-billion infrastructure programme, and Chile to launch a $4-billion stimulus package to deal with the global slowdown.
But the region being partially cushioned from the worst effects of the latter is also due to something else. For large export-oriented economies today, diversifying their export markets means targeting Asia. This is what South America’s leading economies have done. China, Japan, South Korea and India are the prize markets. For Chile, in 2007, China was its number one export market (displacing the U.S.), Japan was number three, South Korea six and India 10 (displacing Germany). Asia received 43 per cent of Chile’s exports that year; not surprisingly, a dip in the U.S. market, which gets a little over 20 per cent of Chilean exports, is not a major blow to its economy. Though Chile, because of its Asia-Pacific orientation, is a bit of an extreme case, for Argentina, Brazil and Peru the pattern is not too different.
In this context, a critical question is whether the “Asian giants,” China and India, will also be dragged down by the recession in North America and Western Europe. Initial indications are that they have already been, with their growth projections going down from double digits to 6-7 per cent. A second question is to what extent this growth will be export- or internal demand-driven. China’s $ 600-billion stimulus package is designed to pump up domestic demand in an economy that until now has been largely driven by exports. India, on the other hand, has based its high growth mostly on its internal market.
These are, make no mistake about it, perilous times, and the treacherous waters of the world economy need to be navigated with a steady compass. Nonetheless, it is refreshing to see, for once, that Latin America may well grow its way through a global recession, as opposed to being once again the region most seriously affected by it.

Brazil emerging as a major oil producer

Petrobras, the national oil company of Brazil has announced( January 2009) plans for investment of 174 billion dollars in the period 2009-13 in exploration and production of its newly discovered oil fields. The scale of investment is a confirmation of the emerging new status of Brazil as a major oil producer in the region and in the world.

production in 2008 was 2.18 million barrels per day and the target is 3.31 million by 2013 and 5.1 million by 2020.

Oil reserves in the new fields discovered in 2007 are said to be 100 billion barrels. The current level of proven reserves is 14 billion barrels.

This development is of direct interest to India and Indian business. We have been importing crude oil from Brazil for the last 4-5 years regularly.This can increase in the years to come and Brazil could be a regular source in Latin America besides venezuela, mexico and ecuador.

ONGC Videsh Ltd ( OVL) has already acquired some oil concessions in Brazil and has invested around a billion dollars.

Brazil has one of the best technologies and expertise for deep sea exploration and production.

Reliance which has been importing crude oil from Brazil has also been exporting diesel oil to Brazil regularly. In 2008 their exports of diesel oil was around 1.8 billion dollars, half of our total exports to Brazil last year. This is likey to continue for some more years since Brazilian refining capacity does not yet match its crude production or requirement of refined products.

More immediately, the massive Brazilian investment in the oil sector offers opportunities for our companies to supply equipments and machinery to the new projects.

In 2008, Latin American growth slowed down but not India´s exports

According to the December 2008 report of ECLAC ( Economic Commission for LatAmerica and Caribbean) the GDP growth of Latin America and Caribbean in 2008 is estimated as 4.6%. This makes it as the sixth consecutive year of growth for the region, a record in the last forty years. From 2003 to 2007, the region grew by an annual average of 5%. The growth was combined with reduction in poverty, increase in employment and surplus of fiscal and external accounts in general.

Uruguay had the highest GDP growth of 11.5 % in Latin America. Peru was the number two with 9.4% followed by Panama with 9.2%. Brazil, the largest market of the region grew by 5.9% while Mexico the second largest market grew by 1.8% and Argentina the third largest market grew by 7%.

In 2009, GDP growth for the region is projected to decline to 1.9%, following the global crisis and slowdown of economies. The highest growth projected is 5% for Peru, followed by Panama at 4.5% and Uruguay 4%. The lowest growth predicted is 0.5% for Mexico. Brazil growth is forecast at 2.1% and that of Argentina 2.6%.

Although the region is better prepared than before to handle external shocks, the global crisis and slowdown will drive down export volumes and prices, remittances, foreign direct investment and the demand for tourism services. In addition, external financing will be more expensive and will be more difficult to obtain for the countries of the region.

Average inflation of the region is expected to go down to 6% in 2009 from 8.5% in 2008.

According to Latin Business Chronicle estimate, exports of the region in 2008 grew by 18% to 902 billion dollars. Imports increased by 23% to 857 billion dollars in 2008. Service exports went up by 18% to 116 billion dollars while imports increased by 20% to 145 billion.

India´s exports to the region had increased by 25% in 2008. Brazil remained as the top destination with 2.7 billion dollars. Mexico maintained its second position with 1012 million dollars in Jan- Sept, followed by Colombia with 452 million dollars in Jan-Oct, Peru with 478 million in Jan-Nov and Argentina with 386 million in Jan-November.

Latin America has withstood the Western financial crisis with relatively modest impact

One would have expected the Latin American economies to come crashing down as a fall-out of the historical crisis in USA and Europe. In the past, Latin America used to sneeze when USA caught a cold. Not any longer. Not a single bank or financial instituition went bust in the region while USA and Europe faced collapse of companies and banks with turnover of more than that of the GDP of many of the Latin American countries. None of the Latin American countries have gone to IMF for rescue, even as some East Europen countries have done so. While Iceland, situated far from the epicenter (USA) of the financial earthquake collapsed and had to seek rescue from Russia, none of the Latin American countries, which are in the proximity of the earthquake zone have suffered serious damage. There has been no panic summit meetings or rescue packages or nationalization of banks in Latin America.

In 2009, the US economy is projected to contract 0.7 % and the Euro economy by 0.5%. The advanced economies will suffer recession in 2009. But in Latin America, the growth story is going to continue, but at a lesser pace.

Welcome to the New Latin America! The region has withstood the external shock and surprised the stereotypes.

According to the October report of ECLAC (UN Economic Commission for Latin America and Caribbean),

¨ The economic slowdown and financial crisis in the United States will have a relatively modest impact on the Latin America and the Caribbean region in 2008, except for its exports. Compared to previous shocks in the United States economy and the world at large, Latin America and the Caribbean(LAC) is much less vulnerable than in the past, with a current account surplus, sounder public finances, a lower level and better profiles of public and external debt, and larger international financial reserves. Considering the severity of the global shocks, LAC economies are, on average, weathering the crisis significantly better than in the past.
The LAC region is relatively well placed to withstand a slowdown in the United States and the resulting direct and indirect effects on its exports. The region also enjoys strong fiscal and debt positions that may discourage drastic shifts in financial flows. Latin America is better prepared because of the progress it has made in macroeconomic management.¨


What does the IMF say?

This is even more important because of the love-hate relationship between the instituition and many of the region´s left-leaning governments and intellectuals. According to the October report of IMF, ¨the LAC region is expected to deal with the current global shocks better than in previous crises. This reflects the progress many countries in the region have made in improving their macroeconomic fundamentals over the past decade. The substantial buildup of international reserves, stronger fiscal positions, more credible monetary policy frameworks and improved structure of public debt have made Latin America more robust to external shocks.
The region is better placed than in the past to absorb the sharp slowdown foreseen in global growth. The high level of reserves coupled with strong banking systems, lower public debt levels, reduced public sector financing requirements and generally flexible exchange rates provide Latin America with more room to deal with adverse global developments than in the past. One major plus, so far at least, has been the stability of money and bond markets in Latin America despite the turmoil in financial markets in the advanced economies. Moreover, reserve levels are high, and flexible exchange rates provide room to maneuver in a number of countries. Latest available financial soundness indicators continue to point to the overall robustness of banks across the region.
LAC region’s resilience to shocks has increased in recent years. Public debt levels and financing requirements have been reduced, and external current accounts have been strengthened. Moreover, the credibility of macro policy frameworks in many countries has been strengthened, while flexible exchange rates have provided an important shock absorber for several countries. Financial sectors too are more robust, with higher levels of capitalization and profitability.¨

Financial Times of 4 November has an article with a title ¨ Latin America sidesteps the worst of the crisis,¨ which says ¨the region´s banks have weathered the current global financial storms in relative comfort. The domestic funding markets have for the most part continued to function, in spite of the dislocation in industrialized markets. In general, Latin America´s banks are proving very resilient. Learning from the past crises, the central banks have curbed bank borrowing in dollars and insisted that the banks are well capitalized.¨

Changes in the market and mindset

The governments and the companies of the region have learnt lessons from the past crises and are exercising more discipline and are better prepared to face external shocks. ECLAC praises the notable improvements in macroeconomic and financial policies; reduced dependency on external capital inflows; major reduction of currency and rollover risks in the governments´ debt portfolios; deepening of local currency debt markets; substantial increase in foreign exchange reserves; flexible exchange rates as part of more robust and credible monetary policy frameworks; and a shift to external current account surpluses or significantly lower deficits.

The Latin American firms have become, on average, substantially more insulated from currency risk. Over the past ten years, many firms have sharply cut their balance sheet exposure to a sudden devaluation by reducing the share of debt contracted in foreign currency. The average share of foreign-currency-denominated liabilities in Latin America dropped from 35 percent in 1998 to 17 percent in 2007. Also, many firms have built up considerable foreign exchange buffers, by hedging a higher share of their dollar liabilities with export revenues and assets denominated in foreign currency.

The way the Latin American economies have withstood the storm from the north is an indication of the new paradigm of stability and growth of the region. It is farewell to the boom and bust cycle of the past.

Growth

Despite the crisis, region’s economic growth is projected to be 4.6% in 2008 and around 3.6% in 2009. Argentina´s GDP will show a growth of 6.5% in 2008 and 3.6% in 2009. Brazil´s growth in 2008 is projected to be 5.2% in 2008 and 3.5% in 2009 while Mexico will have lower growth of 2.1% in 2008 and 1.8% in 2009. The growth of the region is sustained by a strong domestic demand.

The crisis, has of course, ended the boom of the last six years when the region was growing around 5% a year compared to the average of about 3½ percent in the period 1970-2000. In the last six years, per capita growth was over 3% in a row. Unemployment fell from 11% to 7.7%. The current account was in surplus. This period saw the best sustained performance since the 1970s, because of the adoption of strong policy frameworks and favorable global economic conditions. The region’s current account balance is expected to move to deficit in 2008 and 2009, but it will remain quite low.

Now let us see how the triple curses ( inflation, external debt and exchange rate) which had tormented the Latin American economies in the past, are behaving now.

Inflation

Inflation for the region as a whole is projected to reach 8.5 percent in 2008, the highest rate in five years, resulting from strong domestic demand and rising world food and energy prices. But it is expected to decline to 6.6 percent in 2009, helped by softening international commodity prices, tighter monetary policies, and slowing demand growth. It will, however, remain at double-digit levels in some countries such as Bolivia, Paraguay, Venezuela, and Argentina.
It may be noted that Inflation is no longer a curse in the region. It has been decisively tamed and has been kept in single digit in this decade.

External debt

External debt, which was another curse, has also become manageable. IMF has no more clients in the region. Brazil and Argentina paid off their entire debts to IMF in 2006, ahead of due dates. External debt as a proportion of GDP has halved from 42.2 percent in 2002 to 20.2 % in 2007. The average share of foreign-currency-denominated liabilities in Latin America dropped from 35 percent in 1998 to 17 percent in 2007. In the top six countries of the region, firms have built up considerable foreign exchange buffers, by hedging a higher share of their dollar liabilities with export revenues and assets denominated in foreign currency

Exchange Rate

The major currencies of the region had been appreciating since 2002 when the dollar started falling. This trend has reversed after the current crisis and the central banks have intervened in the markets to arrest depreciation. But the currencies and exchange rates are by and large stable and predictable, unlike in the past.

Foreign Trade

Latin American exports are projected to grow by 2.8% this year while the imports are expected to increase by 11.8%. In 2007 exports had increased to 752 billion dollars from 670 billion in 2006. Imports went up to 677 billion dollars from 573 billion in 2006. The South American countries had accumulated large trade surpluses. However the fall in commodity prices and demand this year will reduce the trade surplus. Many governments of the region have started putting some brakes on imports to protect local industries and jobs.


Downside risks

Of course, Latin America cannot escape the inevitable pain arising from the global financial crisis and economic slowdown. They will be affected by the decline in demand and price for their commodity exports and the reduced access to credit. Most analysts expect agricultural commodity prices to peak in 2008 and flatten or decrease slightly in the following years, although on average they will remain higher than during the decade prior to the boom. A prolonged slowdown in the United States will not only threaten the economies of Latin America and Caribbean economies directly through lower import demand and a decline in remittances, but also indirectly through its impact on Asian economies and trade.

Mexico and Central America will face greater impact of the crisis and the recession in the US market since they are more dependent upon USA for their exports and remittances by their expatriates.

Diversification of Latin American exports

One of the reasons why the region has been affected less from the contagion from the west is the decline in the share of USA and EU in Latin American trade. The share of USA in the exports of Latin America and the Caribbean has fallen from 60% to just 42% between 2000 and 2007. Even the Mexican exports to the United States has reduced from nearly 90% of the total in 2000 to 78% in 2007. According to Latin Business Chronicle, Latin America´s exports to USA grew by 4.2% while their exports to China grew by 49.4%. The European Union too is losing ground as a trading partner for the region. Imports from the European Union as a share of total Latin American and Caribbean imports declined from 20% in 1990 to approximately 14% in 2006. In the same period exports to the European Union declined from 25% to 13%. Intra regional exports accounted for 18 % of the total exports of LAC while the exports to EU were just 13%.

The Latin American countries have been consciously diversifying their export markets and reducing their dependence on traditional markets, as seen from the following trade statistics of 2007. For example, 55% of Argentina´s exports went to Latin America and Asia while USA and European Union together accounted for only 27%. Latin America and Asia accounted for 43% of Brazil´s exports while USA and EU took 39%. Chile´s exports in 2007 to Asia Pacific were 36 % while their exports to USA and EU combined were just 37%. Colombia exported more to the rest of Latin America (36%) than to USA ( 31%).

The reduction in dependence on USA and Europe is happening not only in trade but also in investment. Historically, the United States has been the most important source of FDI in Latin America. In the 1990s, Spain came to be a big player acquiring Latin American banks, utilities, telecom companies and manufacturing units. The Spanish were the first movers during the wave of privatizations in the eighties and ninties. In the present decade, the share of intraregional FDI in total FDI inflows in Latin America has doubled (from 5% to 10%) due to the emergence of a number of companies of Latin American origin, the so-called trans-Latins.

Asian attraction

While the shares of USA and Europe are coming down, Asia is increasing its share of Latin American trade. According to ECLAC the dynamic Asian region, led by China, will help offset some of the decline in export demand in the developed countries. Since 2001 more Latin American and Caribbean imports have originated in the Asia-Pacific region rather than in the European Union, and the share of Asia-Pacific imports is rising steadily. If the current trend continues, by 2010, as much as 30% of Latin American and Caribbean imports could come from the Asia-Pacific region.

Nearly 36% of Chile’s exports go to Asia- Pacific region; the figure for Dominica is 31%; for Cuba, 29%; Peru, 24%; Costa Rica, 24%; Brazil, 18%; Bahamas, 17%; Argentina, 16%; Uruguay, 12%; and Bolivia, 12%.

The Latin Americans do not expect increase in their exports in 2009 to the developed markets because of the recession which is setting in the advanced economies. Their hope is on the emerging markets which are going to grow by 5 %, much of which is going to come from Asia.

The Latin Americans are not only facing a declining share of USA and Europe in their trade and investment but are also disillusioned by the western mindset. Many of the Latin American countries in the region who were subjected to neo-liberal policies of the Washington Consensus are now seeing the hypocrisy of the west which is doing exactly the opposite of what they preached by rescuing the market through government intervention. The Latin Americans are frustrated with the protectionist trend in USA and Europe even while the latter are clamouring for the opening of the Latin American markets for their exports and investment. More than these, they are disenchanted by the current dominant mood of doom and gloom, fear and paranoia in the west. They contrast this with the cheerful Indians and Chinese who are brimming with optimism and confidence. They are inspired by the Asian story of growth. They are encouraged by the large and growing markets of India and China which offer increasing opportunities in the short and long term for their exports and business. The Chileans and Argentines dream of putting one glass of their wine in the hands of each of the 500 million middle class people in India and China !

All the reports on Latin America by ECLAC, IMF and global consultancies always have a chapter on China and India and highlight the growing importance of these two giants for Latin America. The latest report of ECLAC advises the Latin American and Caribbean region’s authorities
- to redouble their efforts to identify and capitalize on new opportunities to enhance their countries’ potential complementarities with the Asia-Pacific region.
- To take full advantage of Asia’s trade and investment dynamic, Latin America and the Caribbean must, as a matter of urgency, reorient and realign its relations with the Asia-Pacific region in order to sustain its commodity exports while producing more value added and more technologically complex manufactures for that market.
- With imminent risks bearing down on the world economy and the emergence of a new geography of the world economy increasingly centered around Asia-Pacific, Latin American and Caribbean authorities should redouble their efforts to identify and capitalize upon the potential complementarities between the region and Asia-Pacific.
- Latin America and the Caribbean should take advantage of its current favourable position to lay the foundations for sustained trade and investment relations by creating biregional business alliances, enhancing cooperation in innovation and human capital in order to diversify trade, add greater value and knowledge to exports, and help create more stable conditions for growth.


Opportunity for India

There is a saying in Latin America ¨A Rio reveuelta, ganancia de pescador¨ – means when the river is turbulent, the fisherman will gain. Simply put, every crisis is an opportunity. And the Indian businessmen should take advantage of the current situation of Latin America which is looking towards Asia more seriously than ever.

While talking about the new China- India phenomenon, the Latin Americans tend to have a bias towards India. Surely they are dazzled, like everyone else, by the spectacular growth of China. But they are able to relate themselves, their problems and their situation more with India, which has shown by its example that growth and transformation is possible in a democratic system despite so many challenges arising from such a vast diversity and political spectrum.

Latin America and the Caribbean is a net exporter of fuels, metals and agricultural products and a major producer and exporter of commodities on a global scale. In 2006, the region produced 44% of the world’s soybeans and 13% of global maize output. Its share in the production of zinc, aluminium and copper is also sizeable, at 28%, 22% and 19%, respectively, of the world total. India needs to import edible oils, pulses, petroleum and minerals and metals to sustain its new growth trend and to cope with the ever-increasing consumption. Latin America is a region which can satisfy some of the requirements of India. Already India has started importing copper, soy oil, and crude petroleum from Latin America and these will increase in the coming years.

This is a good time for the Indian companies to acquire assets ( agricultural land, mines, oil fields, forestry, manufacturing units) and expand their business in the region, since at this time the risk-shy companies from US and Europe are reducing their exposure and are relatively less active here.

India exported 5 billion dollars worth of goods to Latin America in 2007. It can be doubled in the next three years, given the large and growing market of 530 million people in the region.

While India´s trade with the region was 11 billion dollars in 2007, the Chinese trade was 103 billion dollars. The Chinese had increased it from 12.6 billion dollars in 2000.

Indian IT companies have established software development centres, BPOs and KPOs in the region employing 8000 young Latin Americans, as part of their new business model of providing 12 hours of service from Latin America (same time zone as USA) and 12 hours from India. The Indian companies have also started picking up local business from Latin American companies including a 150 million dollar contract by TCS from Banco Pichincha of Ecuador.

In the past, Indian companies had a ¨barrier mindset¨, considering distance and language as barriers for business with Latin America. Now the Indian IT companies consider these two factors as advantages and make use of them merrily. Distance is not a barrier either for the Chileans who export fruits to India.
The ex-Chilean Ambassador Jorge Haine used to say, the distant Chile exports more (2.2 bilion dollars) to India than the neighbouring Bangladesh (257 million dollars).

Welcome to the new paradigm of business with Latin America!

Peru gets investment grade rating

Peru's foreign currency debt rating was lifted to investment grade by Standard & Poor's on 14 july. The agency, which raised the ratings to BBB- from BB+, cited the significant decline in Peru´s fiscal and external vulnerabilities as reasons for the upgrade. The move by S&P follows Fitch Ratings upgrade in March of Peru's long-term foreign currency issuer default rating to investment grade.

Peru's low level of inflation and strengthening macroeconomic fundamentals are trends that S&P expects "will remain in place over the medium term despite an increasingly riskier international environment and the continuation of challenging local politics." The upgrade is supported by the significant decline in Peru's fiscal and external vulnerabilities,'' S&P' said in a statement. ``Economic growth has diversified over the last three years evolving from a path mostly driven by external demand into a more complex structure with more reliance on dynamic domestic demand.''

Strong domestic demand and exports of minerals have helped push the Andean country's economy up 9% in 2007. The economy has grown at an average rate of 5% over the last five year and is expected to grow at 8% in 2008.

Peru this year could pay ahead of schedule $1.1 billion to the World Bank and Inter-American Development Bank, the government has said. The nation plans to reduce its foreign debt to the equivalent of 13 percent of gross domestic product this year, from 18.4 percent at the end of 2007.

Meanwhile, inflation is running at 5.7% so far this year, above the central bank's inflation target of 1% to 3%. The central bank in July raised its benchmark interest rate to 6% in a bid to slow the impact of rising prices for commodities.

Peru is the fourth country in Latin America to receive investment grade. Chile was the first country to get investment grade in 1992, followed by Mexico in 2000 and Brazil in May 2008. Colombia is the likely next candidate for this status.

A common denominator of policymakers in the four countries was a sustained effort to diversify their national debt structure and convert a greater portion of it into national currencies as opposed to U.S. dollars. According to a study by the IDB Research Department, the foreign currency composition of the public debt of the seven largest economies of Latin America fell from 65 percent in 1998 to 38 percent in 2007. More than 80 percent of Mexico’s debt is in local currency.In Brazil, local currency accounted for about 92 percent of the country’s sovereign debt in 2008 compared with 60 percent in 2000.Peru’s debt composition moved from 6.3 percent in local currency in 2000 to more than 36 percent in 2008.

India´s first Latin America Equity Fund

Here is the news from today´s Business Standard of India

ING Investment Management India has launched India's first Latin America Equity Fund, an open ended Fund of Funds (FoF) Scheme for Indian investors.

The Scheme opens on June 19, 2008 and closes on July 10, 2008. The scheme will primarily invest in ING's existing Luxembourg domiciled fund thereby seeking to provide an Indian investor long-term capital appreciation and exposure to countries which are amongst the fastest growing economies in the emerging market space. The Lux fund will try and achieve this by investing primarily in stocks of companies based out of Latin American countries or stocks of companies deriving a majority of their revenues from Latin American economies.

Vineet K Vohra, managing director and CEO, ING Investment Management India said, "The emerging markets as a whole have held up fairly well considering that they are generally volatile than the US indices.
All emerging countries have some political risk associated with them, some much higher than others. However, what makes Latin America so attractive is the stable government in place in the recent years and their pro-growth policies. This is one part of the backdrop that isn't always visible to investors, but it plays an important role in medium & long term stability."
Latin America is a lucrative market on account of infrastructure investments, robust domestic demand, strong private consumption & surging commodity exports due to increasing demand from countries like India and China. Valuations for most of the Latin American economies look attractive as compared to their counterparts in the emerging markets.

This adds an additional dimension to India´s business outreach to Latin America reflecting Indian confidence and optimism on the prospects of the region.

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 !!!