Latin America: a growth area for Indian pharma exports

India exported 995 million dollars of pharmaceuticals to Latin America in 2015-16 (April to March). In addition, India had exported surgical products worth 21.8 million dollars, herbal products- 6.4 m and Ayush products- 1.4 m. 

This billion dollar show of Indian pharma in Latin America is creditable in the context of the disheartening news headlines from Latin America about the Venezuelan crisis, the Brazilian presidential impeachment and the regional GDP contraction of 0.4% in 2015 which is projected to worsen to 0.6% in 2016. It is even more encouraging to know that exports to 16 out of the 20 countries have shown increase from last year. Exports to Mexico have gone up from 120 million dollars to 153 million, to Colombia from 65 to 71 m, to Peru from 48 to 62 m , to Chile from 56 to 60 m, to Argentina from 40 to 44 m and to SICA group (the group of 8 central american countries) from 136 to 138 m.

Despite the slowing down of the region's economy since 2011, the Indian pharma exports have been steadily increasing from 826 million dollars in 2011-12 to 916 million in 2012-13, to 943 m in 2013-14 and crossing a billion dollars in 2014-15. It is true that the pharma exports have declined marginally from 1035 million in 2014-15. But this 3.8% decrease is insignificant in comparison to the 10% (estimate) drop in the total imports of (all products) the region in 2015. 

In 2015-16, Brazil continued to be the top destination of exports with 316 million dollars, followed by Mexico-153 million, Venezuela-74 m, Colombia-71 m, Peru-62 m, Chile-60 m, Argentina-44 m, Guatemala-31 m, Dominican Republic-27 m and Ecuador-24m. 

Exports to Mercosur were 450 million dollars, to Pacific Alliance –346 million and to SICA - 138 m.

Out of the total exports of 995 million dollars, finished formulations accounted for 650 million and bulk drugs 345 million. It is worth noting here that India has been increasing its export of finished formulations in recent years even while the bulk drug exports have shown decline.

There has been a 50% fall in exports to Venezuela (from 145 m to 74 m), which is not surprising, given the shortage of foreign exchange and the mismanagement of the Venezuelan economy. The drop in the exports to Brazil from 363 m to 316 m is understandable, given the Brazilian economic recession. The other two countries which saw some decline in Indian exports were Haiti and Uruguay. Even in the case of Brazil, the fall in India's exports is just 13% while the total Brazilian pharma imports have fallen by 24% from 7 billion dollars in 2014 to 5.3 bn in 2015.

Brazil is the leading destination not only quantitatively but also qualitatively. It had bought 201 million dollars of finished formulation and 115 m of bulk drugs from India. But Mexico had imported  just 41 m of finished drugs but 112 million dollars of bulk drugs.

India's exports are set to continue to grow in the coming years in view of the (a) expected recovery of the economies (b) more proactive healthcare policies of the governments and  (c)the growth in pharma sales and imports predicted for the region. With the tightening budget for health care due to the slower income growth, both the governments and the consumers are likely to go in for more generic drugs and less patented ones. This is good for Indian pharma which has earned a good name in the region for having helped reduce the cost of healthcare with affordable generic drugs.

Here is a brief overview of the leading pharma markets of the region.

Brazilian pharma market

Brazil is Latin America's largest pharmaceutical market with sales of 19.7 billion dollars in 2015 which is forecast to reach 29 bn by 2020. In 2015, sale of prescription drugs were 14.7 billion ( 73% of total sales) and over the counter (OTC) drugs 5 bn. Sale of patented drugs in 2015 were 9.4 billion and generics 5.3 bn.

The proportion of generics has reached  35% of prescription drug sale and 25% of total drug sale. These have been increasing since 1999, when the Brazilian government introduced the Generic Law proactively promoting the sale and use of generics. Thanks to the governmental intervention, the Brazilian prices of medicines are much lower than in the other big countries of the region such as Mexico and Argentina. The local companies dominate the generic production with 70% of total sale in Brazil.

The country has over 6,700 pharmaceutical wholesalers and 56000 independent drugstores, which account for 90% of all drugstores in the country. The independents have a share of  49% of total pharmaceutical sales, while the chain stores have 51% share. Abrafarma chain, which accounts for only 5% of all drugstores has a 36% share of sales.  

Mexico

Mexico imported medicines worth 3.9 billion dollars in 2015. This is forecast to increase to 4.9 bn by 2020. Of the totale sales of 11.2 billion in 2015, prescription sales were 9.7 bn and OTC sales 1.5 bn. Generic medicines which accounted for 30% of the total pharma sales in 2015 is projected to increase to 47% in the next ten years. There are over 25,000 pharmacies of which 70% are small and medium ones which account for 60 % of the total sales. 

Argentina

Argentina imported pharma worth 2.1 billion dollars in 2015.  Of the Argentine pharma sales  of 6.9 billion dollars in 2015, prescription drugs accounted for 87% of the sales and OTC 13%.

Patented drugs have a share of  56% of the Argentine pharmaceutical market. Around 71.8% of the domestic market demand is met by locally produced pharmaceuticals, while imported products supply the other 28.2%. There are around 150 pharmaceutical wholesalers in Argentina. The distribution sector is dominated by three distributors - Disprofarma, Rofina Farmanet and Globalfarm - accounting for over 65% of sales. 

Central America

The pharma sales of six countries of the region ( Guatemala, Costa Rica, Panama, Nicaragua, El Salvador and Honduras)  increased to 3.9 billion dollars in 2015 from 3.7 bn in 2014. It is projected to reach 7.3 bn by 2024. The pharma imports are projected to increase to 3.5 bn dollars in 2019 from 2.8 bn in 2015. 

Sources:  Pharmexcil and BMI Research 

Latin America faces GDP contraction in 2016 too...

Latin America is projected to face a GDP contraction of 0.6 percent in 2016, after having suffered a decline of 0.4 in 2015, according to the 8 April 2016 report of ECLAC, the UN Commission for Latin America and Caribbean. The region has been sliding downwards in this decade, after reaching a peak GDP growth of  6% in 2010. The only consolation is that the economic contraction in 2016 is half of what the region had suffered in 2009, in the wake of the financial crisis. But then the region bounced back to a spectacular growth of 6% in 2010. Can the region repeat this magic in 2017? It does not look so. The forecast for the next year and in the coming 2-3 years is only modest growth.

The main contributors to the fall in growth of the region are Venezuela and Brazil whose GDP are expected to shrink by 6.9% and 3.5% respectively in 2016. Argentine GDP is forecast to decline by 0.8% and Ecuadorean one by 0.1%. With four countries in the negative growth zone, South America as a whole is set to suffer a GDP decline of  –1.9 % in 2016.

On the other hand, the Pacific Alliance members will enjoy some growth: Mexico- 2.3%, Colombia-2.9%, Chile-1.6% and Peru-3.8%. Central America will have a better growth in the region with 3.9%.  Panama will have the highest growth rate of 6.2%, followed by Dominican Republic- 5.5% , Nicaragua- 4.6% and Bolivia-4.5%.

The reasons for the poor performance of the economies of the region are the same ones which had caused the decline last year: fall in the global demand and prices of commodities, the sluggish global growth, the weak domestic consumer demand and most importantly, the slow down of the Chinese economy. According to the April 2016 annual report of the Inter American Development Bank, every one percent fall in Chinese growth, brings down the growth rate of Latin America by 0.6%.

Mexico and Central America, whose markets are oriented towards the US, have been somewhat insulated from the Chinese slowdown and benefited from the stronger US growth. In fact, Mexico has become more competitive after the rise in Chinese wages. Manufactured goods account for over 75% of Mexico's exports. A number of foreign and domestic companies are increasing their Investment in Mexico to sell their products to its NAFTA partners US and Canada as well as to the 40 plus countries with whom Mexico has Free Trade Agreements. Ninety percent of Mexico's trade is with its FTA partners. 

In the case of Brazil and Venezuela, the economic problems have been aggravated by the ongoing political crisis which has paralyzed economic policy making and stopped reforms and bold policy initiatives needed at this time. The political situation in both the countries could get much worse in the coming months and add to the economic problems.

There is a possibility of impeachment of the Brazilian President Dilma Rouseff. More business and political leaders could be convicted in the Petrobras corruption scandal. This has already affected seriously the ongoing projects and has dried up credit for companies under investigation. The firms involved in the scandal are downsizing their operations and selling assets to stop the bleeding caused by the free fall of their share values and to repay debts. Petrobras, which had the largest corporate investment plan in the world in 2010 with over 220 billion dollars has drastically cut its investment budget. The multinational oil companies are already salivating to feast on the carcass of Petrobras, which was a pride of Brazil and a global leader in deep sea exploration and production.

The Venezuelan President Nicholas Maduro is absolutely clueless to stop the deterioration of the economy. He has no control over his own ministers, military officials and party leaders who are trying to make as much money as they could make before the ship sinks. Maduro faces aggressive confrontation at every step from the Congress controlled by the opposition which is pulling out all the stops to overthrow his government. The fall in oil prices has handicapped him from resorting to any more populist polices to please the poor, who are angry like the rest of the population with the empty supermarket shelves and the endless queues for bread and toilet paper. Inflation is in three digits and the black market exchange rate is hundred times more than the official rate of 10 Bolivars to a dollar. Shortage of electricity has forced the government to declare three day weekend holidays to save energy. Cuba, the godfather of Maduro has ditched him as part of its process of  normalization of relations with US. Cristina Fernandez and Lula, the ex-presidents of Argentina and Brazil who used to offer external support have lost power. The new rightist Argentine president Mauricio Macri is openly opposed to the Chavista regime. The current Brazilian President Dilma Rouseff is fighting for her own survival and is least bothered about the fate of Venezuela. This makes Venezuela ripe and vulnerable for external destabilization with support from the domestic oligarchy. But the ugly truth is that there is absolutely no hope for Venezuela as long as the Chavistas are in power. The country needs liberation from the Chavism as early as possible.

The Argentine economy which was driven into a mess by President Cristina's disastrous mismanagement in her second term, has already started the process of recovery under the new President Macri. However, Ecuador, being dependent on oil exports, will continue to be affected as long as the oil prices remain slow. 

The continuing bear market and lower prices of commodities and the Chinese slowdown forecast for the near future, do not augur well for a quick and robust recovery of Latin America within this year. The depreciation of most of the currencies of the region will continue to dampen their global imports.

But the good news is that no Latin American country is going bust like Greece. Nor does any country need emergency IMF rescue. Except Venezuela, all the other countries of the region have relatively better macroeconomic fundamentals and have developed the resilience to withstand shocks and downturns better than in the past. The inflation ( average for the region-5.5% in 2015) and external debt ( 39% of GDP which is safe) are  under control except for Venezuela and to some extent Argentina.

India's trade with Latin America will decline in 2016 in view of the poor performance of the region's economies and the fall in its foreign trade. However, it will be the imports which will fall more ( in terms of value, not volume) than the exports. India will benefit from the lower prices of crude oil, minerals and edible oil which are its main imports from the region. For those Indian companies interested in acquisitions in the region, this is a good time to take advantage of the low price of assets. This is the reason why Brazil continues to attract the largest FDI in the region, despite the economic problems.

India's exports to Brazil fell by thirty five percent in 2015

India's trade with Brazil was expected to decline in 2015 in the wake of the Brazilian recession and the fall in commodity prices. But the 30% percent fall in the trade and 35% drop in India's exports have come as a surprise. 

The trade was just 7.9 billion dollars in 2015 (January to December), dropping from 11.4 bn in 2014. Before 2015, the bilateral trade had been growing by 20 percent annually from 2010 to 2014 despite the steady slowdown of the Brazilian economy after its peak growth of 7.6% in 2010.

India's exports had decreased by 35% to 4.29 billion dollars in 2015 from 6.64 bn in 2014. This was caused mainly by the 54 % fall in export of diesel to 1.58 billion from 3.5 billion in 2014. The other major items of export were: insecticides-121 million dollars, polyester yarn-113 million and ceramic tiles-55 m, besides chemicals and pharmaceuticals. 

Despite the fall in exports, India retained its position as the number one supplier of diesel to Brazil (with 46% share, as against the US share of 39.6%), polyester yarn (with 57% of total Brazilian imports while China's share was 27%) and of ceramic tiles and insecticides.

India's imports had decreased by 24% in 2015 to 3.61 billion dollars. Main imports were: crude oil- 1.1 billion dollars, soy oil- 552 million dollars, raw sugar-457 m, gold-280 m and Copper concentrates and sulphate- 250 million.

India's import of crude oil from Brazil had deceased by 52%, mainly due to fall in crude prices. However India had increased its soy oil imports by 50% in 2015. 

The decrease in India's trade with Brazil should be seen in the context of the overall fall in Brazil's global trade by 19% to 363 billion dollars and 25% drop in Brazilian imports in 2015, reaching 171 billion. It is important to note that even after the 30% fall in 2015, India remained as the tenth largest  trading partner of Brazil.

The decline in trade in 2015 was part of the overall worsening of the economic situation of Brazil which suffered a GDP contraction of 3.5% in 2015. Inflation was high at 10.6 %. Fiscal deficit reached 10%. The currency had depreciated by over 30%. Industrial production had gone down significantly. Global prices and demand for Brazil's export commodities had fallen. Brazil lost its investment grade rating and was moved down to junk status by the rating agencies. The cut in public spending and other austerity measures as well as the high interest rates have brought down consumer demand, which was one of the main drivers of growth earlier.

Many of the economic problems of last year are likely to continue and the GDP is projected to shrink by 2.5 to 3% in 2016. But there is no need for alarm. The economic problems are short term in nature and manageable. The Brazilian economy has sufficient resilience and depth to recover on its own. It has more than adequate foreign exchange reserves (357 billion dollars in January 2016) to deal with emergencies.There is no danger of hyper inflation nor debt default. Brazil's external debt is just 15% of its GDP. It does not need a IMF rescue as some European countries such as Greece needed. Brazil had bounced back from bigger crises in the past. The latest was the spectacular growth of 7.6% in 2010 after the GDP contraction of 0.2% in 2009 caused by the global financial crisis.

The economic difficulties were aggravated by the uncertain political situation caused by the moves to impeach President Dilma Rouseff and the massive Petrobras corruption scandal in which top businessmen, political leaders and members of the Congress besides the senior executives of Petrobras have been jailed and are being investigated. More evidence might come up in the ongoing investigations which are coming closer and closer to ex-President Lula as well as to the current President Dilma. The bribery scandal has felled Brazilian icons such as Petrobras,Odebrecht and even Lula. It has impacted adversely and paralyzed the ongoing and planned infrastructure projects and extension of credit to corporate sector by public sector banks. Many companies including Petrobras have drastically cut down their investments. 

The political situation could get worse. Seeing an unmissable opportunity to put an end to the rule of Workers Party which has been in power since 2002, the opposition will make the Dilma government bleed by resisting and refusing to cooperate in the Congress on urgent legislative reforms needed. In any case, it seems that the Workers Party has very little chance in the next elections in 2018, after having been discredited so badly. But there is an upside to the corruption scandal. Both the politicians and businessmen have learnt a historic and painful lesson in the Petrobras case. They have realized that they would not be able to continue with impunity their old practice of crony capitalism and free for all corruption. Independent and crusading prosecutors as well as the assertive civil society have come to be an effective check on the system of corruption.

The year 2016 is not likely to see any significant increase in India's trade with Brazil, given the projection of continuation of low prices for crude oil and diesel which account for one third of the total bilateral trade, as well as the Brazilian recession. If at all, the trade might increase only marginally. However, this is a good time for acquisition of assets and companies in Brazil, taking advantage of lower prices and weaker currency. Foreign Direct Investment was an impressive 42 billion dollars in the first half of 2015 and 96 billion in 2014. These figures represent 50% of the total FDI in Latin America. It shows not only the investment opportunity but also reflects the long term confidence in the business potential of the country among foreign investors. The Indian business should not be deterred by the current downturn of Brazil and should keep the bigger picture in mind. Brazil has the economic resources and potential as well as the political maturity and resilience to emerge stronger in the coming years.

Latin America limping forward to a less painful year in 2016

Latin America experienced the worst in 2015 in the last six years, suffering a GDP contraction of 0.4 percent, according to the December 2015 report of the Economic Commission for Latin America and Caribbean (ECLAC). After a peak growth of 6% in 2010, the regional GDP growth had steadily slowed down reaching 1.2% in 2014 and shrinking in 2015. However, the GDP contraction in 2015 is less than the 1.2 % suffered in 2009 in the wake of the global financial crisis. Venezuela had suffered the most with a GDP contraction of 7.1% followed by Brazil with 3.5% contraction. Brazil has lost its investment grade rating in December 2015. The ten countries of South America together had a GDP decline of 1.6% in 2015.

The main reasons for the cyclical economic downturn are the sharp fall in prices and commodities (oil, minerals and food products) exported by the region, the slowdown of the Chinese economy, sluggish global growth and the weak internal demand. Oil, Metal and agricultural commodity prices have declined by 57%, 50% and 30% respectively since 2011. Commodity prices are expected to fall further in 2016, although less steeply than in 2015. This will hurt South America which depends more on commodity exports and the Chinese market. Mexico and Central America which are aligned to the US market will be affected much less. It is worth noting here that Mexico has emerged as the 'manufacturing hub' of the Americas with the massive investments in production by foreign companies, its competitive wages and the major reforms undertaken by the government of President Penha Nieto in the last three years opening up the economy and stimulating investment.

In 2015, Dominican Republic would have the highest growth (6.6%) followed by Panama ( 5.9%) and Bolivia (4.5%). Mexico has increased its growth rate from 2.2% in 2014 to 2.5% in 2015 while Central American growth rate has gone up from 4.0% in 2014 to 4.4% in 2015.

ECLAC forecasts a GDP growth of 0.2% in 2016 for the region. Panama will have the highest growth of 6.2%, followed by Dominican Republic- 5.2% and Bolivia- 4.5%. Mexico's growth rate is projected at 2.6% and that of Central America at 4.3%. Venezuela will continue to be the black sheep in the region with a GDP contraction of 7% while the Brazilian GDP is expected to shrink by 2%. The two countries are dragging South America towards a 0.8% GDP contraction in 2016.

The good news is that the old curses of hyper inflation and excessive external debt will not come back. The average inflation of the region has gone up slightly to 6.6% in 2015 from 6.3% in 2014. Exceptions are the high inflation rates in Venezuela at 60% and Argentina around 20%.  The external debt of Latin America and Caribbean is just 33% of the GDP, which is very good in comparison to many European and other developed countries which have high external borrowings.  The international reserves of LAC region stands at a comfortable high level of 825 billion dollars in end 2015. So no country from the region needs any IMF rescue.

Many currencies of the region have depreciated in 2015. The Argentine peso, Brazilian Real and Colombian Peso have lost over 30% in value. These have made exports more competitive but imports more expensive.

Total imports of the region are projected to decline by 10.3% and exports by 14%, according to a December 2015 report published by the Inter American Development (IDB). Imports of the region have gone down to an estimated value of 932 billion dollars in 2015 from the trillion dollar plus levels of the previous four years. The exports are also down to 875 billion dollars in 2015 from over a trillion dollars each year since 2011.

Foreign direct investment (FDI) fell by around 22% in 2015 from its 2014 level and is expected to stand at around US$ 107 billion at the end of the year. 

Although the economic growth is negative, there is positive news on the political side. In Argentina, the Peronists have lost the elections to pro-business Mauricio Macri who has taken over on 10 December 2015. He has already removed the currency controls and some export taxes imposed by the previous regime which had mismanaged the economy with its obsessive command and control policies. The Argentine economy is poised for better times in the four-year term of the new President. The Venezuelan voters have defeated the Chavista party in the Congressional elections in the December 2015 elections giving a majority to the opposition. This should shake up the Maduro administration towards more sensible policies and economic management. In any case, the Chavista regime is likely to be voted out in the next elections in 2018. This is the only hope for the country since the Chavistas have run out of ideas and are clueless to get out of the deep hole in which they have put the country. The thaw in the diplomatic relations with US has brought Cuba out of its isolation with bright prospects for economic improvement.  The successful conclusion of the Colombian government's peace talks with the guerrillas should soon put an to end the civil war and open up the country for more agriculture, exploration for minerals and oil as well as for building better infrastructure.

The people of Guatemala created history in 2015 by forcing (through peaceful protests) President Otto Perez to resign and get him jailed on corruption charges. They punished the corrupt political oligarchy by voting a political outsider Jimmy Morales as president in the elections held in October 2015. In Brazil, several dozens of political and business leaders and top executives of Petrobras have been arrested and sentenced to imprisonment for their involvement in the Petrobras corruption scandal. In the Brazilian history, this is unprecedented and was unimaginable. These two examples as well as the mass protests against corruption in some other countries of the region have given a loud warning to the political and business elite that they cannot get away with impunity anymore and that they would be held accountable. Clearly, democracy has become stronger and more mature in the region.

The year 2016 promises to be a better year for Latin America with the exception of Brazil and Venezuela which will continue to suffer economic contraction and political instability.

Given the internal economic pains and political uncertainty, Brazil will not be able to focus on foreign policy and work actively with India for the revival of IBSA, permanent membership of UNSC and other such issues of Indian global agenda.

India's exports might not grow significantly in 2016, given the low growth and lower imports projected for the region in 2016. India's import figure will be less consequent to the lower prices of oil and minerals which constitute the bulk of India's imports from the region. It should, however, be emphasized that Latin America has become a regular and reliable source for India's crude oil requirements, accounting for about 20% of India's global imports and contributing to India's energy security. 

It is an opportune time for Indian investment and acquisitions in the region, taking advantage of the lower prices of assets especially in oil and mineral sectors. The Indian investors need not be discouraged by the bankruptchy declared in 2015 by the Brazilian subsidiary of Renuka Sugar in which the parent company had invested about half a billion dollars. Renuka's business model was right but the timing was wrong. It had paid  high price for its acquisition at the peak of the market boom and took too much of debt. While Renuka had excellent expertise on its sugar and ethanol business, it lacked understanding of the Brazilian culture.

After the Chinese slowdown, the Latin Americans have started focussing more on India which has exceeded the Chinese growth rate and has raised its global profile under the ambitious administration of Prime Minister Modi. It would be advisable for India to to have a long term perspective and and intensify engagement with Latin America, which will appreciate friends during bad weather.

India can learn from the successful example of Brazil's use of ethanol as vehicle fuel. Ethanol blending of petrol will reduce pollution, save foreign exchange and help the sugar cane farmers and industry to manage the cyclical crisis caused by low sugar prices. India can also study the smart city programme of Bogota which has made its roads more friendly for pedestrians and cyclists besides reducing pollution and improving the urban living conditions.

Sources ECLAC report http://repositorio.cepal.org/bitstream/handle/11362/39559/S1501289_en.pdf?sequence=1

               IDB report https://publications.iadb.org/bitstream/handle/11319/7330/Latin-American-Trade-Trends-2016.pdf?sequence=8

Latin American contribution to India's energy security

Latin America has become a regular new source for India's imports of crude oil in the last fifteen years. In 2014-15 (April to March), the region supplied  36 million tons and held a 19% share in India's global imports of 189 mt . Out of the 700,000 bpd imported from the region, typically 400,000 bpd comes from Venezuela, 100,000 bpd each from Mexico and Brazil and about 50,000 bpd each from Colombia and Ecuador, depending on prices and availability.

It was Reliance which opened Latin America as an import source in 2000. Before that, Indian oil companies did not have the capacity to refine Latin American crude. The Reliance refinery established in 1999, with its versatile capacity to refine many crude varieties from around the world, was the first one to use the Latin American crude. Later, Essar has set up a similar refinery and the public sector oil firms have also followed this model now. 

In the past, there was another mental barrier of Indian business which was deterred by the distance factor and high freight cost. Reliance found a smart solution by making use of the VLCCs (Very Large Crude Carriers) which were coming empty from US after discharging the Middle Eastern crude there. The freight through this arrangement works out to just 2.5 to 3 dollars per barrel in comparison to 0.5 to 1 dollar from Middle East in regular oil tankers.

Reliance continues to be the leading importer of  Latin American crude with 400,000 bpd, while Essar and the Public Sector oil companies import about 150,000 bpd each. It is interesting to note that Reliance exports diesel to Brazil regularly. It amounted to 3.1 billion dollars in 2014-15.

India's global import of crude is projected to reach 7.2 million bpd from 3.7 m in 2014 and import dependency to go up from 70% of demand in 2014 to 90% in 2040, according to the November 2015 'World Energy Outlook' of International Energy Agency. The IEA  predicts India's dependency on Middle East to go up from 57% in 2014 to 63% in 2040.

It is India's strategic policy to reduce the over dependence on the politically unstable Middle East and diversify its crude import sources. This Indian objective fits in with Latin America's own strategy to cultivate India as a market for its crude exports.

Latin America has the potential and capacity to increase crude exports from its current 4.5 million bpd to over 7 million. The Venezuelans will be able to raise their production and exports, as soon as the political situation stabilizes. Brazil already has the capacity to increase exports. Mexican production will increase with the entry of private sector and foreign companies in the oil sector, made possible after the 2013 energy reforms. 

The region has discovered more new reserves in the last decade and its current total is 336 billion barrels, which is one fifth of the total global reserves of 1.4 trillion barrels. Venezuela has the world's largest reserves of 298 billion barrels and has overtaken Saudi Arabia's 266 billion barrels. 

Besides conventional oil, the region has 58 billion barrels of shale oil reserves, which is beginning to be exploited. Argentina has the fourth largest shale oil reserves of 27 billion barrels. Chevron has just started production in a joint venture with the Argentine national oil company YPF. Unlike the shale reserves near cities in US and the consequent controversies, the Argentine reserves are in the remote and sparsely populated Patagonia region. 

The US, which used to be the principal market for Latin American crude, has almost halved its imports and doubled its domestic production of oil, thanks to the shale revolution. Canada has eaten into Latin American share of the US market by steadily increasing its supplies. Canada itself has huge oil reserves.

So, the Latin American crude exporters are desperate for new markets and are targeting India along with China which have large markets with fast growing economies and consumption.  The Latin Americans are willing to give extra discounts to increase their market share. This gives additional bargaining power for India vis-a vis the Middle Eastern and other suppliers.

Indian companies have invested about 3 billion dollars in oil fields in Venezuela, Brazil and Colombia. OVL is the major investor with 2.5 billion dollars and the balance is by public sector oil companies, Videocon, Gammon India and Assam Oil Company. Given the current low prices of  crude and the oil fields, it is a good time for more acquisitions and investment in Latin America.

Crude oil imports from Latin America (20 billion dollars) accounted for 66 % of the total imports of 30 billion dollars and 46% of the total trade of 43 billion with the region in 2014-15. The total trade figure goes up or down corresponding to the crude oil price fluctuation. In any case, crude imports will continue to be the largest part of Indo-Latin American trade in the future. India can source 20 percent or more of crude regularly from Latin America and can count on the region as a reliable contributor to its energy security.

Latin America: a billion dollar destination for Indian pharma exports

Pharmaceutical exports of India to Latin America crossed the billion dollar milestone in 2014-15 ( April to March - India's financial year) reaching 1063 million dollars. 

Brazil is the largest destination of exports with 374 million dollars, followed by Venezuela-146 m, Mexico-126 m, Colombia-67 m, Chile –56 m, Peru-49 m, Argentina-41 m, Dominican Republic –27.6 m,  Guatemala – 27.1 m  and  Haiti – 26.9 m.

Pharma exports were 7.7% of India's total exports of 13.7 billion dollars to Latin America in 2014-15.

Latin America accounted for seven percent of India's global pharma exports of 15.3 billion in 2014-15. The pharma exports to Latin America have increased by 12 % from 949 m in 2013-14, while India's global exports have shown only a marginal increase of 2.6%. 

The exports to the region have steadily increased from 826 m in 2011-12 to 916 m in 2012-13 to 943 m in 2013-14 and to 1063 million dollars in 2014-15 despite the slow down in the growth of the region since 2011.

In the past, India exported more bulk drugs (raw materials and intermediates) and less finished formulations to Latin America. But this trend has reversed since 2012-13. Out of the total of 1063 m in 2014-15, formulations were 680 million dollars and bulk drugs 350 m. The bulk drug exports have declined from 426 m in 2011-12 to 350 m in 2014-15 reflecting the trend of growing value addition by Indian exporters. The export of finished formulations have shown a remarkable increase from 393 m in 2011-12 to 680 million in 2014-15. Exports of formulations to Brazil have almost doubled from 113 m in 2011-12 to 222 m in 2014-15 despite the more stringent inspection procedures of ANVISA, the Brazilian drug regulator. In the case of Venezuela, most of the exports are formulations. Mexico is a contrasting case where finished formulations accounted for just 20 m  while bulk drugs were 100 m. 

There is scope for india to increase the exports in the future. The pharma market of the region, estimated to be around 80 billion dollars, is expected to reach 100 billion in the next five years. The governments of the region are promoting generic medicines to cut the cost of health care in their budget as well as for the consumers. The governments (majority of them centre-left) are spending more on health care as part of their inclusive development agenda. Millions of people are coming out of poverty, thanks to the pro-poor policies of the governments and this new lower middle class can afford to buy medicines. The governments and the consumers in the region have come to realize the value of affordable Indian generic medicines. In fact, the governments of Brazil and Chile had taken initiatives in the last decade to invite and encourage the Indian pharma entry into their countries to put pressure on the MNCs and local drug makers to increase the availability of generics and reduce the cost of medicines. The Indian pharmaceutical companies have established their image and brands in the region. The long distance factor has kept out the small unscrupulous Indian traders and it is only the reputed Indian exporters and manufacturers who have invested in the entry into Latin America. 

India's export of generics to Mexico, Chile and Peru will, however, face some challenges when these three countries ratify the just-concluded Trans Pacific Partnership (TPP) which is said to be more MNC-friendly with stricter patent protection.

Some Indian companies such as Reddy Labs, Lupin, Ranbaxy, Torrent, Cellofarm and IPCA Labs have local production facilities in the large markets of Brazil and Mexico. Glenmark has a plant for oncological products in Argentina. Some of these Latin American units are also used for exports. 

In a seminar organized at the National Autonomous University of Mexico in the first week of October 2015 ( in which I had also participated as a speaker) a Mexican expert on pharma patents made a comparison between the pharma patent regimes of Mexico and India. According to him, Indian and Mexican pharma companies had the same levels of scale, technology and growth till the eighties. The government of Mexico had adopted the patent regime of the developed world under pressure from US and the European Union with whom it has signed FTAs. This has favored the domination of the multinational drug makers at the expense of the Mexican domestic firms who have failed to grow like the Indian pharma firms. The Mexican expert expressed admiration for the policy of the government of India which has helped create a formidable Indian pharma industry. 

The growing popularity of Ayurveda in the region has opened up opportunities for export of Ayurvedic medicines and preparations too. There are some Latin American universities and institutions which give regular courses in Ayurvedic system. The Indian government needs to extend support to these Latin American initiatives and facilitate collaborations and exchange programmes with the Indian Ayurvedic institutions. 

Financial Express of 20 November 2015 published this article 
http://www.financialexpress.com/article/fe-columnist/column-a-billion-dollar-destination-for-indian-pharma-exports/168088/

Latin America's foreign trade declines in 2015

Latin America's imports are projected to decline by 9.8% in 2015, according to a report issued by the  the Economic Commission for Latin America and the Caribbean (ECLAC) in October. The imports of the region are expected to go down to 974 billion dollars in 2015 from 1082 billion in 2014 and 1087 billion in 2013.

Brazil will have the highest decrease in imports with 22.6%, followed by Ecuador-20.9%, Venezuela-15.7%, Colombia-13.8%, Chile-13.7%, Argentina-9.9%. However, Mexico's imports are expected to drop by just 1%  and Peru- 5.5%. 

While the South American sub region will experience a fall in imports of of 16.7%,  Central America will have just 3.4%

The region's exports are estimated to shrink by 13.8 % in 2015  to 914 billion dollars from 1060 billion in 2014 and 1089 billion in 2013. There is a possibility of further decline in exports in 2016, going by the current trends in the global market.

Venezuela will have the highest fall in exports by 40.6 %, followed by Colombia-29.2%, Argentina-16.9%, Chile-16.8%, Peru-16.3%, Brazil-15.1%. But Mexico's exports are projected to decrease by just 4.1%.

The South American sub region will suffer a decline in exports by 21% while Central America will have a drop of just  3.7%.

The year 2015 will be the third consecutive year of decline in Latin American exports. This has made the three-year period from 2013 to 2015 as the region’s worst in terms of export performance in the last eight decades.

The sharp drop in international prices of crude oil, metals, minerals and agro products exported by the region,  the decline in demand from China, the weak economic recovery of Euro zone and the general slow down in global growth are the main factors for the decrease in exports. The steep fall in crude oil prices have affected Venezuela and Ecuador severely while the impact is moderate in the cases of  Mexico and Colombia, the main exporters of the region. 

The South American countries which are more dependent on China have suffered steeper fall in their exports while Mexico and Central America whose main market is US, have suffered only marginally.

Most of countries of the region are expected to ride out the current situation with their high forex reserves, low external debt, macroeconomic resilience and prudent policies. It is important to note that Brazil, Argentina and Chile are likely to end the year with trade surplus despite the fall in their exports.

The currencies of most of the countries in the region have depreciated since mid-2014. This has made imports more expensive and given boost to exports. For example, the Brazilian Real has depreciated by sixty percent in the last one year from 2.46 Reais to 3.94 for a dollar. Foreign currency conversion is open and transparent in most countries of the region except in Venezuela and Argentina which have imposed severe restrictions on imports and foreign currency transactions due to inadequate foreign exchange reserves.  

The Indian exporters need not be alarmed by the fall in imports of Latin America. India's exports have increased from 12.31 billion in 2013-14 to 13.75 billion in 2014-15 despite the fall in the imports of the region from 1083 billion in 2013 to 1082 billion in 2014. In fact, India's exports have tripled in the last five years from 4.47 billion in 2009-10, although the GDP growth rate of the region has fallen from 6.2% in 2010 to 1.1% in 2014.

source: ECLAC report  http://repositorio.cepal.org/bitstream/handle/11362/39011/S1500865_en.pdf?sequence=1

Brazil has received more FDI than India in 2015

The Indian media was ecstatic last month reporting that India had overtaken China and US in Foreign Direct Investment (FDI) in the first half of 2015. They quoted a Financial Times report which had estimated that India had received FDI of 31 billion dollars as against 28 billion received by China and 27 billion by US. It is not clear how FT arrived at this figure, since DIPP shows a figure of just 19.4 billion dollars. 

The Indian media have, however, missed the news that Brazil had received 42 billion dollars of FDI in the first semester of 2015 which is more than India's. In 2014, Brazil got FDI 97 billion dollars in FDI.

According to the 15 October report of ECLAC (the UN Economic Commission for Latin America and Caribbean), Brazil's FDI of 42 billion is 47% of the total FDI in Latin America and three times more than the 13.7 billion received by Mexico. 

The Brazilian FDI data becomes interesting in the light of the fact that Brazil is at the moment in the middle of painful political and economic problems including the massive Petrobras corruption scandal which has lead to arrest and jailing of dozens of top business barons and politicians. Brazil's GDP is projected to contract by 2.8% in 2015 and 1% in 2016 after an insignificant growth of just 0.1% in 2014. The Brazilian Real has depreciated by 38% in the last six months to 4 Reais to a dollar from 2.9 in April 2015 and from a strong peak of 1.66 in 2010.  Despite these issues, foreign investors have shown confidence in the long term prospects of Brazil.

According to ECLAC, Latin America had received a total FDI of 88.7 billion dollars in the first half of 2015. Chile was the third largest destination of FDI with 8.2 billion, followed by Colombia-6.8 billion, Argentina-5.3 billion and Peru-4 billion.

For Indian companies with global ambitions, this is an ideal time for investment and to build on the cumulative Indian investment of 15 billion dollars in Latin America. Details in http://www.businesswithlatinamerica.com/.  The asset prices in the region are low due to depreciation of currencies against the dollar, the fall in prices of commodities and the low growth of the region. But this is a cyclical downturn caused mainly by the Chinese slow down and decline in domestic consumption. The region has healthy macroeconomic fundamentals (with a few exceptions, of course) and the policy makers have learnt from past mistakes and misadventures. Latin America has done better than all the other regions in reducing poverty and inequality in the last decade. Democracies have become stronger with the rise in middle class which has become more assertive in holding the politicians more accountable.

Indian energy companies could expand investment in the oil sector of Brazil, Mexico and Colombia. They could enter the shale sector of Argentina, which has the third largest reserves in the world and  has just started producing oil and gas from shale. Indian companies could invest in mining in the region where mines are cheaper these days due to the low price and demand for metals at this time. There are also a number of manufacturing plants available for acquisition across the region from ethanol plants to pharmaceuticals.

The outgoing FDI from Latin America in Jan-June 2015 was 30.66 billion of which Brazil accounted for 13 billion, Chile-7.8 billion, Mexico-7.3 billion and Colombia-1.4 billion.

The Latin Americans have invested about 1.5 billion dollars in India in steel, auto parts and even cola drinks. Carlos Slim, the Mexican billionaire, who reclaimed his position as the world's richest person in 2014 with net worth of 79 billion dollars had visited India in May this year, on his first business exploratory trip. There are a number of other big Latin American investors and pension funds for whom the growing Indian market is an attraction. It is time that DIPP include the Latin American investors too as targets in their global FDI campaign.

source: http://www.cepal.org/sites/default/files/pr/files/tablas_ied_actualizacion_2015_english_edited_final_.pdf