Thursday, October 29, 2015

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.

Tuesday, October 20, 2015

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  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.

Tuesday, October 13, 2015

Latin America faces GDP contraction in 2015

Latin America is projected suffer a negative growth of –0.3% in 2015 and resume marginal growth of 0.7% in 2016, according to the 5 October 2015 estimates of ECLAC, the UN Economic Commission for Latin America and Caribbean.
Among the main factors behind the growth drop are a weak internal demand; a global environment marked by a low growth of the developed world; an important deceleration in emerging economies, especially China; the strengthening of the dollar and a growing volatility in financial markets; and an important fall in primary goods prices
South America is expected to contract by –1.6% while Mexico and Central America would grow by 2.6%.
Brazil's GDP is projected to contract by 2.8% and that of Venezuela by 6.7%. Both the countries are likely to continue the negative growth in 2016 too with Brazil shrinking by –1% and Venezuela by –7%.
Mexico's growth projection for 2015 is 2.2%, Argentina's 1.6%,Colombia's 2.9%, Peru 2.7% and Chile 2.1%.
Panama will have the highest growth at 5.8%, followed by Dominican Republic at 5.6% and Bolivia at 4.4%
The Indian business need not be discouraged by this lower growth. 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 the 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.