Thursday, July 30, 2015

Latin America is projected to post lower growth in 2015

Latin America is projected to post a lower GDP growth of 0.5% in 2015, according to the Economic Survey released by ECLAC (Economic Commission for Latin America and caribbean of the UN) on 29 July. This is the lowest growth since the decline started in 2011 after the boom period of 2003-10.
Panama is expected to have the highest growth of 6% followed by Dominican Republic and Nicaragua with 4.8% each and Bolivia with 4.5%. Mexico's growth projection is 2.4%, Colombia's 3.4%, Argentina 0.5% Peru 3.9% and Chile 2.5%. Brazil is likely to face a GDP contraction of -1.5% and Venezuela –5.5%. 
South America is expected to contract by 0.4% but Central America and Mexico are likely to expand by 2.7%. South America which is more dependent on commodity exports has suffered mainly due to the slow down of the Chinese economy. On the other hand, Mexico and Central America which are aligned more to the US market have benefitted from the increase in the growth of US. 
The main reasons for the low growth are the fall in demand and prices of commodities, the slowdown in domestic consumption, investment and manufacturing. 

The growth rate in 2015 has come down from 1.1% in 2014 and it is the lowest since the decline started after its peak of 5% in 2010. This corresponds to the trend of fall in demand and prices of commodities including oil, metals and agroproducts since 2011.

The total GDP of the 20 Latin American countries reached 6.172 trillion dollars in 2014 doubling from 3.2 trillion in 2006.

Average inflation of LAC region reached a decade-high level of 9.5% in 2014 from 7.6% in 2013. The lowest rate was 4.6% in 2009. Venezuela and Argentina are the only countries with double digit inflation. Venezuela had the highest inflation of 68.5% in the region. Even Brazil is struggling with inflation which was 8.5% in May 2015.

Despite the low growth, the unemployment rate in the LAC region reached its lowest level of 6% in 2014 declining from 8.1 % in 2009. It has been under 7% since 2011.

The total external debt of Latin America has increased to 1.385 trillion dollars in 2014 doubling from 738 billion in 2006. However, the ratio of gross external debt to GDP in 2014 was a manageable 24.5%. This is way below the situation of many developed countries including US and Germany.

The exports of the region fell in 2014 to 1.083 trillion dollars from 1.116 trillion in 2013. The imports have also gone down to 1.091 trillion in 2015 from 1.104 trillion in 2014.
The trend of fall in trade is likely to persist in 2015 too.

Net Foreign Direct Investment (FDI) of Latin America in 2014 was 135.43 billion dollars, an impressive fourfold increase from just 30.96 billon in 2006. 
Gross international reserves of Latin America have reached a high of 828.96 billion in May 2015, having steadily increased from 639.79 billion in 2006. This has given extra strength and cushion to the policy makers to be prepared for external shocks. Venezuela has however seen dwindling of its reserves to 17 billion, its lowest level in the last decade.
The Indian business need not be discouraged by the lower growth of the region. There are many  overall macroeconomic indicators of the region which are positive. The economies of the region have developed resilience and have the capacity to accelerate growth in the coming years. India's trade with the region continues on its trajectory of growth.  It can reach 100 billion dollars by 2020 from 43 billion in 2014-15. The good news is that the Latin Americans have started paying more attention to India after the slow down of the Chinese market. 

Note:  Latin America consists of  20 Latin American countries while LAC includes the 13 Caribbean countries also. Full report of ECLAC

Monday, July 20, 2015

Latin America is getting closer to India in trade

Mention Latin America, many Indian businessmen dismiss it as distant and marginal for India's trade. Here is an eye opener for this old mindset. In 2014-15 (April to March) India's trade with Venezuela (12.24 billion dollars) and Brazil (11.36 billion dollars) were more than its trade with France (9.37 billion). India's exports to Brazil last year were more (5.96 bn) than the exports to France (4.96 bn), Japan (5.38 bn), Malaysia (5.81 bn), South Africa (5.29), Indonesia (4.04 bn) and Republic of Korea (4.6 bn) which are considered as close trading partners of India. Brazil has emerged as the ninth largest global destination of India's exports.

Venezuela supplied more crude oil (11.85 billion dollars) to India than United Arab Emirates (10.93 bn ) and Kuwait ( 11.48 bn) in 2014-15. Venezuela was the fourth largest supplier of crude to India after Saudi Arabia, Iraq and Nigeria. Latin America (Mexico, Colombia, Brazil and Ecuador besides Venezuela) has come to account for (17.96 bn) 15% of India's total crude imports. 

India's trade with Latin America was 43 billion dollars in 2014-15 of which exports were 13.74 billion and imports 29.26 billion. Venzuela was the largest trading partner in the region with 12.24 billion dollars, followed by Brazil- 11.36 billion, Mexico- 6.26 bn, Chile-3.65 bn, Colombia-3.24 bn, Argentina- 2.45 bn, Peru 1.41 bn and Ecuador 1.29 bn.
Among the regional economic groupings, Mercosur (Brazil, Argentina, Uruguay, Paraguay and Venezuela) was India's largest trading partner with 25 billion dollars, while the Pacific Alliance ( Mexico, Colombia, Peru and Chile) had a share of 14 billion dollars.
Main exports of India to the region were: diesel- 3.25 bn (to Brazil), vehicles and autoparts- 2.47 bn, pharmaceuticals-726 m, organic chemicals- 824 m, equipments and machinery-700 m, garments-654 m, synthetic yarn and fibres-573 m, iron and steel products-455 m, chemical products- 470 m and cotton-406 m.
After Brazil and Mexico, the third largest export destination was Colombia (1.1 bn), followed by Peru (820 m), Chile (566 m) and Argentina (460 m).
It is an encouraging news that India's exports to Central America reached almost a billion dollars in 2014-15. This region consisting of Guatemala, Costa Rica, Panama, El Salvador, Honduras and Nicaragua deserves more attention from the Indian exporters. Dominican Republic, a spanish-speaking Caribbean country with a population of ten million accounted for 141 m exports and 291m imports of India. 

After crude oil, the other major imports from the region are minerals (mainly copper from Chile) worth 3.48 bn, edible oil (mostly soy oil from Argentina)- 2.08 bn, gold and precious stones- 1.13 bn, raw sugar- 596 m (from Brazil) and wood- 350 m besides chemicals, machinery and iron and steel items.

Latin America is a large market with a population of 580 million people, six trillion dollars of GDP and global trade of over two trillion dollars. The consumer segment of the population is growing thanks to the successful poverty reduction programmes of most governments. Over sixty million have come out of poverty line in the last decade. Although the GDP growth of the region is projected to be less than one percent in 2015, the region has stronger macroeconomic fundamentals with high foreign exchange reserves, low external debt and inflation, stronger resilience and potential for higher growth. The democracies of the region have become better institutionalized and more mature. The policy makers follow balanced pragmatic mix of pro-poor and pro-business policies. Exceptions are Venezuela and Argentina which have recontracted the old diseases of high inflation and unstable exchange rates among other problems.

India's trade with the region has the potential to reach 100 billion dollars by 2020. The Indian and Latin American businessmen are still in the process of discovering synergies and complementarities between the markets of the two sides. 

Given the large untapped potential of the region, the Commerce Ministry of India could revitalize its Focus-LAC programme which had helped in the opening of the region's market for Indian exports in the late nineties. India could consider signing FTA/ PTA with Mexico, Colombia and Peru which have signed FTAs with many countries. India should expedite the deepening and widening of the PTA with Mercosur and Chile.The Indian government could increase the lines of credit to boost its exports to the region. India's cumulative credit to the region is just under 300 million dollars in contrast to the 120 billion dollars extended by China. It would be useful for India to become a member of the Inter-American Development Bank so that Indian companies can participate in their projects in the region. A major visit to the region by Prime Minister Modi would  highlight the importance of the region to Indian business. The Chinese Presidents have been regularly visiting the region every year. 

The forthcoming annual India-Latin America Business Conclave being organized by the Confederation of Indian Industries (CII) on 8-9 October provides an occasion for the Indian government to announce some major policy initiatives.