Friday, December 16, 2016

Latin America outlook for 2017

Latin America is projected to grow by 1.3% in 2017, according to the 14 December report of the UN Economic Commission for the region (ECLAC). This comes as a relief after the economic contraction of the region in the last two years, by 1.1% in 2016 and 0.5% in 2015. 
South America is expected to grow by 0.9%, Mexico by 1.9% (down from 2% in 2016) and Central America at 3.7% (up from 3.6%). Brazil, the largest economy of the region should see a growth of 0.4% (after the negative growth of 3.6% in 2016), Argentina 2.3% ( from –2% in 2016), Colombia 2.7%, Peru 4% ( highest in South America) and Chile 2%. Venezuela's contraction in 2017 will be 4.7%, better than the 9.7% in 2015. Dominican Republic will be the region's growth champion with 6.2%, followed by Panama- 5.9% and Nicaragua - 4.7%.
The main reason for optimism is the expectation of rise in commodity prices by 8% in 2017, which had declined by 6% in 2016. 
The slowdown in the region’s economic activity in 2016 was essentially due to lower investment and consumption as well the fall in demand and prices of commodities and the Chinese slowdown. 
Total imports of the region are estimated to have fallen by 21% from 984 billion dollars in 2015 to 774 billion in 2016 while exports have come down by 6.3% to 866 billion dollars in 2016 from 925 billion in 2015.
The sovereign risk of the region which peaked at 677 basis points in January 2016 has come down to 500 basis points in late October 2016.
Average inflation in the region has increased to 8.4% in September 2016 from 6.9% in Sept 2015. While Venezuela has maintained the world's highest inflation (over 600%) Argentina's inflation has surprisingly doubled to 42.4 % in 2016 from 21.9% in 2015. Brazilian inflation has come down to 8.5% from 9.5% last year.
The total external debt of the region has reached 1.52 trillion dollars in 2016 from 1.44 trillion in 2015. However, the ratio of external debt to GDP  at 36.4% is not high and is very much under control. Foreign exchange reserves have increased (surprisingly) to 812 billion dollars in 2016 from 795 billion in 2015.
Unemployment rate has risen sharply from 7.4% in 2015 to 9.0% in 2016. 
Currencies of many countries of the region have depreciated vis-a-vis dollar in 2016.
The new year brings a new worry for the region. Trump threatens to dissolve NAFTA and other Free Trade Agreements and pursue protectionist policies. Mexico, which is overwhelmingly dependent upon US for over 75 % of its exports, will be in the direct firing line of Trump. He has already arm twisted a few American companies such as Ford to stop their plans for shifting of some manufacturing to Mexico. This will hurt Mexico which has been booming in recent years as the 'manufacturing hub of Americas'. Mexico along with Central America will  be hurt by the fall in remittances from their emigrants in US. The only hope is that as President, Trump is likely to tone down his rhetoric and be more pragmatic. The US will be hit as badly as Mexico if he does all that he says.   
Brazil's political crisis has deepened after the plea-bargain revelations of Odebrecht according to which about 150 political leaders including President Temer and the speakers of the lower and upper houses of the congress as well as Lula had received bribes and illegal campaign funds. The scandal has paralyzed the ongoing infrastructure projects and investments and frozen bank lending to companies. The Temer government and the corrupt Congress have passed a law freezing the spending limits for the next twenty years. This will hit the country's education and health care among other development sectors. It is a reversal of the pro-poor policies adopted by the Workers Party government which had helped millions of people to come out of the poverty line. 
Argentina has surprised everyone with a very high inflation and by its economic contraction in 2016, despite the centre-right President Macri's proactive stimulus measures for the last one year. But it is going to get better in 2017.
Venezuela remains hopeless and continues to worsen. The Chavista regime is still clueless about how to arrest the deterioration. While the Venezuelan people suffer from shortages of food and other essential items, the Wall Street is feasting on the ultra high yield of the Venezuelan bonds.
India can hope to increase its exports to Latin America which will resume growth in 2017. India's car exports to Mexico have increased by 38% in the first eight months of 2016, reaching 1.077 billion dollars as against 728 million in the same period last year. The car exports to Mexico has been steadily going up in the last three years.
India will continue to increase its large imports of petroleum crude, vegetable oils and minerals from Latin America. While the volume of these exports continue to increase, the import bill has sharply declined in 2015 and 2016 thanks to the lower prices of commodities. For example, the oil imports have come down from 20 billion dollars in 2014-15 to 10 billion in 2015-16. This will go up slightly next year. However, the total Indo-Latin American trade in 2016-17 will be much less than the peak of 43 billion dollars in 2014-15 due to the lower value of imports. 
There was no major Indian investment in Latin America in 2016. The Indian companies operating in the region will face less pressure in 2017 after the difficult conditions in 2016. Renuka Sugar, which had invested half a billion dollars in the Brazilian sugar mills, declared bankruptchy in 2016, unable repay the debts. Some other Indian investors including Havells are selling off their assets in Latin America. On the other hand, UPL's (United Phosphorous) agrochemical business has been booming in Brazil. Their Brazilian turnover has now overtaken their Indian business. This should encourage other Indian companies who might be interested in acquisition of assets in Latin America at this time when the prices are low.
Latin American democracies which have matured over the years, cannot believe that the Caudillo (strong man) has reappeared in the north. Trump's bullying and offensive discourses and his protectionist policies are forcing the Latin Americans to look for other markets. This comes on top of their frustration with the protectionist trends in Europe. They are also actively trying to reduce over dependence on China, which has hurt their domestic manufacturing and has been pursuing non-transparent policies in the region.  So the Latin Americans are now looking at India even more seriously as an economic partner in the long term. This is an opportune time for India to formulate a strategic policy and intensify its engagement with Latin America which is contributing to India's energy and food security and is offering a large market for its exports.

Tuesday, October 18, 2016

Latin America will resume GDP growth in 2017 after the recession of 2016

Latin America is projected to recover with 1.5% GDP growth in 2017 after the economic contraction of 0.9% in 2016, according to the 12 October report of ECLAC, the UN Commission for Latin America and Caribbean. 

The growth champion in 2016 is Dominican Republic with 6.5%, followed by Panama at 5.4%, Bolivia and Nicaragua at 4.5%, Costa Rica at 4.2% and Paraguay at 4%.  Central America is expected to grow at 3.5%, Mexico at 2.1%, Colombia 2.3% and Chile 1.6%.  Venezuela holds the top ranking for negative growth with –8%, followed by Brazil at –3.4%, Argentina at –1.8% and Ecuador at –2.5%.

In 2017, all the countries except Venezuela will show positive growth.  Brazil will recover to a positive growth of 0.5%, Argentina 2.5% and Ecuador 0.2%. Dominican Republic, Panama, Nicaragua, Costa Rica and Bolivia will continue to grow over 4%. The ten South American countries will grow at 1.1% in 2017 after a negative growth of 2.2% in 2016. Even Venezuela will half its GDP contraction rate to 4%.

The most significant turnaround in 2017 will be in the case of Brazil which now has a business-friendly government of President Temer since August 2016. The new regime has already started opening the economy and removing some of the restrictive and protectionist policies of  the PT government which was in power from 2002 to 2016. However there are many challenges ahead, given the paralysis of the infrastructure and construction industry as well as bank credit. The top company chiefs are in jail or under investigation following the "Car Wash" (Lava Jato) scandal involving Petrobras. The centre-right government of Macri in Argentina since December 2015 has been pursuing market reforms and business-friendly policies after the disastrous economic management by President Cristina Kirchner in the period 2007-15. However, Venezuela remains hopeless under President Maduro who has no clues to control the inflation raging at over 600% or stop the economic deterioration. Venezuela can hope for improvement only when the Chavista rule ends.

There is a tendency to blame the socialist policies of the Leftist governments in the region for the economic downturn since 2011. It is not a failure of the socialism. It is due to the abuse of power in the name of socialism by some crazy leaders. The Left in Latin America has become moderate and pragmatic moving towards a Brasilia Consensus with a balanced mix of pro-poor and business-friendly policies. President Lula of Brazil was the role model for this New Left. President Michelle Bachelet of Chile, President Ollanta Humala of Peru, Presidents Jose Mujica and Tabare Vasquez of Uruguay, President Evo Morales of Bolivia and President Ortega of Nicaragua have followed the Lula model in varying degrees. President Evo Morales, a staunch leftist has ensured the consistent growth of Bolivia at an annual average of 4.8% since his coming to power in 2006. Bolivia has remained among the highest growth countries in Latin America, although his rhetoric sometimes tends to get extreme. The GDP of the country has grown spectacularly from 9.54 billion dollars in 2005 to 34.68 billion in 2019. Even after the global financial crisis, Bolivia maintained its growth at 3.4% in 2009 and 4.1% in 2010. It is not only the absolute GDP but the per capita growth has also been impressive and consistent, making Bolivia as a successful example of poverty alleviation in the region. It is also true of Nicaragua under the leftist president Ortega, which has consistently grown at an average of 3.8% since his assumption of power in 2007. The GDP of the country has doubled from 6.78 billion dollars in 2006 to 13.26 billion in 2016. But Hugo Chavez, Dilma Rouseff and Cristina Kirchner had tried to control everything and refused to have dialogue with the private sector business. They lost the game playing it their own way. Chavez went out of his way to destroy the Venezuelan industry and business as a revenge against their support to the coup against him in 2002. 

The main reason for the downturn in South America is the drastic fall in demand and price of their commodities, caused mainly by the Chinese slow down. But now the global prices are recovering and the domestic demand is also picking up. It is to be noted that the region has adequate foreign exchange reserves (except Venezuela) and inflation under control in single digit, except for Venezuela and Argentina. No country is in any desperate need for IMF rescue. The region is set on a relatively stable course of growth in the coming years. This is evident form the large inflow of FDI into the region betting on its growth potential. They are, of course, also taking advantage of the lower prices of assets and favorable exchange rates.

Here are some positive stories to cheer up the Indian business who might feel discouraged by the negative news flowing out of Latin America: 

-UPL (United Phosporous Ltd), the number one Indian agrochemical company does more business in Brazil ( over 500 million dollars) than in India. They are not deterred by the so called 'crisis' in Brazil. They have invested over 300 million dollars and are upbeat about their growth prospects in Brazil, which has got solid growth fundamentals as an Agricultural Powerhouse in the world.

-Indian pharmaceutical companies operating in Brazil have an impressive combined annual turnover exceeding 500 million dollars. Torrent alone does a business of more than 100 million dollars.

-India's exports of vehicles to Mexico have increased by 41% in the first quarter of 2016 reaching 380 million dollars from 267 million in the first quarter of 2015. They have doubled from 665 million dollars in 2013 to 1175 million in 2015.

Tuesday, August 02, 2016

2016 is turning out to be worse than 2015 for some South American economies

Latin America will suffer a GDP contraction of 0.8% in 2016, according to the 26 July report* of ECLAC, the UN Commission for Latin America and Caribbean. In December 2015, ECLAC had predicted decline of 0.6%. But the year 2016 is turning out to be worse than 2015 when the region's GDP shrank by 0.5%. The total GDP of the region has come down from 6.13 trillion dollars in 2013 to 4.88 trillion in 2015.

The deterioration is due mainly to low global prices and demand of Latin American commodities and weak domestic consumption. Global prices of crude are expected to be lower in 2016 by 21%, iron ore-23%, soybean flour-14% and copper-13%. But the fall in prices are good for India, though..India's import of crude oil from Latin America halved to 10 billion dollars in 2015-16 from 20 billion in 2014-15, although the the volume of crude imports have gone up. Crude oil is the largest export item for Latin America and the largest import for India.

While four countries face GDP contraction, the remaining fifteen economies will continue to grow.

Dominican Republic is 'the star of 2016' with the top GDP growth rate of 6%, followed by Panama-5.9%, Bolivia-4.5%, Nicaragua-4.5%, Costa Rica-4.3%, Peru-3.9%. Mexico, the second largest economy of the region is expected to grow by 2.3% and Colombia, the fourth largest, by 2.7%. Central America is likely to grow by 3.8%.

South America, dependent more on commodities and China for exports, faces GDP contraction of 2.1%. But Mexico and Central America aligned to the US market will grow by 2.6%.

Venezuela is projected to end up with a GDP contraction of 8%, followed by Brazil 3.5%, Ecuador 2.5% and Argentina 1.5%. Venezuela is, of course, hopeless and could get worse. The other countries would recover next year. Brasil is already showing signs of turnaround. Argentina should resume growth sooner with the business-friendly and pragmatic Macri government which took over in December 2015. But the Argentines could not avoid the cold when Brazilians sneez. Brazil is their largest trading partner.

The unemployment rate of the region is expected to go up to 8.1% in 2016 from 7.4% in 2015. Major currencies of the region have depreciated significantly against the dollar. Total imports of the region which fell by 15% in 2015 is projected to decrease by 7% in 2016. The region's exports are also expected to decline by 3% in 2016, after the 11% fall in 2015. 

Here are some positive statistics. The average inflation (cumulative for the 12 months from May 2015) of the region was just 6.1% in April 2016. Exceptions:  Venezuela's inflation stood at the world's highest figure of 181% ( IMF estimate is much higher); Argentina's, despite the best efforts by Macri administration stood at 43% in May 2016. The external debt of the region in December 2015 was 1443 billion dollars which was a mere 29% of the total GDP. No country in the region needs any IMF rescue or likely to default on its external debt. The total foreign exchange reserves of the region are over 800 billion dollars, which are adequate to face any unexpected external shocks. 

This is a good time for acquisitions in countries like Brazil and Argentina where the asset prices are lower due to local currency depreciation and other such issues. This explains the FDI of 129 billion dollars received by the region in 2015. Brazil received the maximum FDI of 62 billion dollars in 2015. The Wall Street Journal trashes Brazil with negative stories and brings down the value of Brazilian stocks and bonds. The Wall Street funds go in and quietly acquire Brazilian assets. 

The Indian business need not be unduly deterred by the negative numbers. It is just a cyclical downturn. Except for the man-made disaster of Venezuela, all the other economies have stronger macroeconomic fundamentals and have built up the capacity for resilience. During this time of austerity, Latin Americans import more generic medicines from India than the patented ones from the developed countries and look for more such affordable products from India. 

Monday, July 25, 2016

India: Long term bet for Latin America's exports

Many Latin Americans assume that India is less important for their exports than their traditional European partners such as Germany and France. Wake up..amigos. India was the third largest destination for Latin America's exports in 2014. The region exported 29 billion dollars of goods to India, while its exports to Japan and Spain were 21 billion dollars each, Germany-17 bn, Italy and UK-11 billion each and France-8 bn.

In 2015, India was Latin America's sixth important export destination with 18.8 billion dollars. This was more than the export to Japan, Germany, Italy, UK and France.  The reason for the fall in exports to India in 2015 was the sharp drop in the price of crude oil.

India is the number one destination of Latin America's vegetable oil exports, with a share of 26.6% ( 2.57 bn dollars) in 2015. China, the second largest importer, bought just 0.73 billion dollars from the region.  

In 2014, India was the second largest importer of Latin American crude oil exports with 20.9 billion dollars, ahead of China's 17.6 bn. In 2015, India was the third largest, accounting for 9.65 billion dollars. 

India ranks third for the region's exports of copper and fourth for gold. 

India, as a major export market, is not a wonder of one or two years. India has emerged as a large and growing market for Latin American goods in recent years and is set to continue its ranking in the years to come. India has already overtaken China in GDP growth rate and will surpass China in population too.

Petroleum crude, copper, gold and vegetable oil are among the top global Latin American exports and coincidentally these are the major imports of India from the world. India has to increase its imports of these items in the future both globally and from Latin America in view of the of the growing gap between domestic demand and production. The increasing Indian population (15 million a year) and consumption power of the new middle class as well as the need for fuelling the high growth of the economy will continue to drive the rise in imports. This Indian need to import more is complemented by Latin America's potential to export more with its ample resources. 

Crude oil

India's crude imports have doubled in the last decade from 99 million tons in 2005-6 to 202 mt in 2015-16 ( April-March, the financial year used by India). According to a 2015 report of International Energy Agency, imports are projected to reach 358 million tons by 2040. While India's crude imports are relentlessly increasing, Latin America is blessed with huge reserves, production capacity and surplus for exports. At the same time, the US which is the principal market for Latin American crude, has drastically reduced imports after the shale revolution. Although the middle eastern suppliers are nearer, India will continue its purchase of about 15 percent of its global imports from Latin America as part of its strategic energy security policy to avoid  over dependence on the politically unstable gulf countries.


In the case of vegetable oil, India's imports have jumped from 0.1 million tons in 1992-93 to 8.8 mt in 2009-10 reaching 14.6 million tons in 2014-15 ( November-October used as financial year by the Indian vegetable oil industry) and is estimated to touch 15.75 mt in 2015-16. Consumption has doubled from 10.1 million tons in 2001-2 to 20.08 mt in 2014-15 and is projected to reach 26.8 mt by 2025. 

South America has started exporting small quantities of pulses to India which is the largest importer in the world. India's imports have reached 4.5 million tons in 2015-16 from just 0.56 mt in 1998-99 and 2.79 mt in 2007-8.

India's production of oil seeds and pulses is unable to cope with the increasing demand due to a number of issues, although the country is self-sufficient in cereals. 

Chile, Peru and Argentina have started supplying fruits and vegetables to India. These are not considered as competition to domestic production but seen as complementary since they come during India's off-season from South America which is in the southern hemisphere.

Wines of Chile and Argentina as well as Tequila and Corona of Mexico are popular in India and their sales are growing.

Indian agriculture faces daunting challenges caused by the diversion of agricultural land for other purposes, shortage of water and low productivity due to inadequate investment by most farmers whose land sizes are small. On the other hand, South America has vast tracts of fertile land, abundant water, technologies and best practices with which the region has emerged as a global agricultural powerhouse.


Gold is one of the major imports of India, which is the third largest importer after Switzerland and Hongkong/China. In 2015, India's imports were 35 billion dollars. India's imports have had a fourfold increase from 245 tons in 1997-98 to 957 tons in 2015-16.

India has been importing gold mostly from non-producing third countries such as Switzerland and UAE. It is only in the last few years that India has started direct imports from Latin American producers such as Colombia, Peru, Bolivia, Ecuador, Dominican Republic and Brazil. The imports from the region will go up in the coming years.

India's import of copper and other minerals are also set to rise, given the rapid industrialization, boosted by the 'Make in India' campaign. Imports of copper concentrates have seen an increase of twenty times from 0.08 million tons in 2000-1 to 1.8 million tons in 2015-16.

Beyond commodities..

Some critics complain that Latin America's exports to India are mostly commodities and raw materials. But they should be realistic and recognize the fact these are the main exports of the region except for the manufactured goods exported my Mexico to NAFTA partners. The number one item of exports of the region is crude oil, which stood at  115 billion dollars in 2015. This complements the number one item of India's import which is also crude oil. India's imports were 105 billion dollars in 2015-16. 

Latin America has started exporting finished goods to India, although the figures are not that high. In 2015-16 the exports of electrical and electronic equipments were 401 million dollars, iron and steel items- 364 million, machinery and boilers- 196 million, organic chemicals- 195 million and even pharmaceuticals worth 58 million dollars. Embraer has sold planes to India and is set to increase its share in the fast growing aviation sector of India. Brazilian Marcopolo buses, made in joint venture with Tatas, are ubiquitous in Indian roads. 'Perto' from Brazil has supplied ATMs to Indian banks.

The 'retail revolution' of India has opened an unprecedented opportunity for Latin America to export processed foods and other consumables to fill the supermarket shelves. The new Indian middle class has developed taste for typical Latin American products such as quinoa, stevia, tequila, Corona beer, Argentine Malbec and Chilean wines. A Brazilian company 'Surya Brasil' imports henna ingredients from India and exports branded Henna products to many countries including India. A Peruvian firm 'Aje' has set up a plant in India to bottle and market its Big Cola drinks. Cinepolis from Mexico has become the fourth largest operator of multiplexes in India. A dozen other Latin American companies in sectors such as steel, auto parts and electrical motors have manufacturing units in India. There are a few Latin American software companies which provide services to Indian clients.

Uruguayan architect Carlos Ott has designed the largest office complex in India for TCS in Chennai. Another Uruguayan executive rose to the level of executive vice president of TCS for emerging markets, a reward for his success in establishing the company's operations across Latin America. Indian language institutes need more spanish teachers to cope with the growing popularity of Spanish which has replaced French as the most preferred foreign language even in schools. There is also scope for teachers of salsa dance, which has caught the fancy of the young Indians. 

Latin American firms are yet to explore the opportunities offered by the huge investment India is making in infrastructure including highways, airports, ports, power and renewable energy. Some companies such as IMPSA of Argentina and Odebrecht and Andres Gutierrez of Brazil made some tentative attempts but did not sustain them seriously. 

Entertainment and sports business

Mexican actress Barbara Mori and half a dozen Brazilians starlets have acted in Bollywood films. The famous Argentine music director Gustavo Santaolalla composed music for an Indian film Dhobi Ghat in 2010. There are a number of models from South America active in the Indian advertisement and fashion business. A Uruguayan model Carolina has married an Indian male model and settled in Mumbai as Carolina Grewal.

Colombian soap operas such as the Ugly Betty were shown in Indian TV, after adaptation. Mexican ' Kidzania' has set up edutainment theme parks in Mumbai and Delhi in collaboration with the famous actor Shahrukh Khan. Latino music is regular fare in Indian discos and gyms. Shakira from Colombia had successful live music shows in India 2007. Other pop stars and bands could follow. The Latin Americans can explore further opportunities in the Indian entertainment business which is seeking out the exotic.

There are over twenty Latin American football players and coaches in the clubs of India where football's popularity is soaring. Tata Motors has contracted Messi as their global brand ambassador. Cuban coaches have been training Indian athletes for olympics. 

India as a base for regional and global business

The Latin American business could  use India as a base for the Asian and global markets. Techint, a renowned Argentine steel firm has an outsourcing centre in Mumbai to service their engineering projects in West Asia. Three Latin American IT firms have acquired Indian software companies for their global delivery operations. The Argentine cofounder (along with Fabrice Grinda of France) of the online classified advertisement firm OLX  launched the services not in Argentina or France but first in India where it remains as the largest in classified services. After its Indian success, the founders took it to other countries and now the firm has become one of the largest global players.

'Focus India' strategy

Most of the large- volume Latin American commodity deals are done either by multinational corporations operating out of  US, Switzerland, Singapore and Hong Kong or Indian buying companies such as Reliance. There is therefore need for the Latin American governments to encourage their local companies, especially the small and medium ones, to explore the business opportunities in the Indian market. There should be more participation in Indian trade fairs, visits of business delegations and market studies. The Latin Americans could follow the example of the successful entry of Chilean fruits and vegetables in India after the commendable export promotion work done by the Chileans. If Latin Americans do a serious and sustained 'Focus India' strategy similar to the successful 'Focus Latin America and Caribbean' programme of India in the last two decades, there is tremendous scope to increase their share in the imports of India, which promises to be a large long term bet for Latin America. 

Monday, June 20, 2016

Latin America had attracted 172 billion dollars of FDI in 2015

Foreign Direct Investment (FDI) in Latin America in 2015 was 172 billion dollars, according to the June 2016 report of ECLAC. This is not bad considering the the poor economic performance of the region which suffered a GDP contraction of 0.4% last year. While the 2015 FDI was 9.5% less than that received in 2014, it was more than the FDI received in 2010 (168 billion dollars) during the peak of the economic boom of the region. What is even more interesting is that the outward investment by Latin American firms was 47.3 billion dollars in 2015. Chilean firms were the top investors with 15.8 bn.
Brazil continued to be the top recipient of FDI with 75 billion dollars (down from 96.8 bn in 2014) with a share of 42% of the total FDI in Latin America, in spite of the GDP contraction of 3.5% in 2015. 
Mexico had received 30 bn, increasing from 25.6 bn in 2014. Of this, fifty percent went into the manufacturing sector  and mostly into the automotive sector which is flourishing.
Chile received 20.5 bn ( down from 22.6 bn), Colombia –12 bn ( from 16.3 bn last year), Argentina-11.6 bn ( increase from 5 bn) and Peru –6.8 bn ( down from 7.8 bn ). 
The six countries of Central America had attracted an impressive 11.8 billion, the highest in the last ten years. Of this, Panama had received 5 bn and Costa Rica 3 bn.
USA was the major source of FDI with a share of 25.9%, followed by Netherlands (15.9%) and Spain ( 11.8%).
The fall in FDI in 2015 was due to the continuing low international prices of oil, minerals and metals, the decline in Chinese demand and the weaker domestic consumer demand. Mining sector has suffered  drop in FDI while manufacturing, renewable energy and telecom and other services have increased their share. 

ECLAC has predicted FDI decline of 8% in 2016, in view of the GDP contraction of 0.6% projected for the region in 2016.
Outward FDI by Latin American firms declined by 15% from 2014 to 47.3 billion dollars in 2015. Chile was the major foreign investor with 15.8 bn ( up from 9.8 bn in 2014) followed by Brazil-13.5 bn (down from 26 billion in 2014) and Mexico –12 bn (up from 7.4 bn in 2014) and Colombia-4.2 bn (up from 3.8 bn). 
There were two major Indian investments in Latin America in 2015. The biggest was the 342 million dollar plant established by the Jaguar Land Rover of Tata Motors in Brazil. The plant was inaugurated in June 2016. The second one was the 70 million dollar investment of Hero Motors in a motorcycle plant in Colombia. Some small acquisitions took place in IT and other sectors. 
Renuka, which had invested half a billion dollars in the Brazilian sugar sector in 2010 had declared bankruptcy in September 2015, due to operational losses and difficulty in servicing the debts.  Pidilite and Gravitas have been looking at divestment since their operations in Brazil and Honduras have been running in losses.
If any Indian company is interested in acquisitions in the region, this is a good time especially in Brazil and Argentina where the asset prices are low and exchange rates are favorable. 
The only notable Latin American investment in India in 2015 was from Mexico.  In January 2015, Cinepolis of Mexico acquired Fun Cinemas from Essel Group of India. With this acquisition, Cinepolis has added 83 more screens, making its total 193. Its target is 400 screens by 2017. Kidzania from Mexico has opened a second children's edutainment park in Noida, outside Delhi, after its successful first investment in Mumbai. 

Thursday, June 16, 2016

Mexico has overtaken Brazil as the top destination of India's exports in Latin America

For the first time ever, Mexico has overtaken Brazil as the top destination of India's exports to Latin America. Exports to Mexico were 2.865 billion dollars in 2015-16 (Indian financial year April to March) while the exports to Brazil were 2.65 billion. It is not surprising, given the economic recession and political turmoil in Brazil, the largest market of Latin America. India's exports to Brazil have fallen by 55.5% from 5.96 billion in 2014-15. On the other hand, Mexico, the second largest economy in the region has been growing and India's exports have also been steadily increasing. Mexico is the leading destination of India's car exports in the world. Mexico's share was 1.03 billion out of the total Indian exports of 5.6 bn. What is even more interesting is that the vehicle exports to Mexico have shown an impressive 31% growth from 2014-15.
India's trade with Latin America declined by one third to 29.7 billion dollars in 2015-16 from 43.4 billion in 2014-15.  While India's exports have decreased by 27 %, the imports have also gone down by 33% to 19.7 billion from 29.3 billion in the previous year. This should be seen in the context of the decline in the region's total imports by 10% and exports by 13.5% in 2015. 

Mercosur remained as the largest trading partner of India in the region with 15.9 billion dollars, followed by Pacific Alliance with 11 billion dollars and Central America with close to a billion dollars. Brazil has overtaken Venezuela to become the leading trade partner of India with 6.69 billion dollars. Trade with Venezuela was 5.8 billion, Mexico-5.1 billion, Argentina-3 bn, Chile-2.6 bn, Colombia-1.69 bn and Peru- 1.52 bn.

India's exports to Latin America have come down by 27 % to 10.05 billion dollars in 2015-16 from 13.75 billion in the previous year. Exports have shown decrease in ten out of the total of 19 Latin American countries.  The region's GDP contracted by 0.4 % in 2015 while Venezuela's shrank by 7.1% and that of  Brazil by 3.5%. Another particular reason for the fall in India's exports is the sharp drop in India's diesel exports to Brazil from 3155 million dollars in 2014-15 to just 564 m last year.
Colombia remained as the third largest destination of India's exports with 888 million dollars ( down from 1.1 billion last year), followed by Chile –679 m ( up from 566 m), Peru-703 m ( down from 820 m), Argentina-535 m (up from 460 m) and Venezuela-131m (down from 258 m). Among the smaller markets, exports to Guatemala were 256 million dollars (up from 229 m), Panama-201 m (down from 302 m) and Dominican Republic-175 m (up from 141 m). 
Latin America has become the largest destination of India's vehicle exports accounting for 19 % (2.7 bn) of the total exports of 14.35 bn in 2015-16. The vehicle exports to the region have increased by 20% from last year. Latin America accounted for 29% of India's global motor cycle exports with 516 million dollars. Colombia continued as the top destination with 231 million dollars, followed by Mexico-88 m, Guatemala-50, Argentina-50 m and Peru- 37 m.
Pharma exports of India to Latin America remained close to a billion dollars. 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. In these days of austerity and budget cut in the region, the affordable Indian generic medicines are preferred by Latin American consumers as well as governments.

Venezuela has remained as the largest source of imports in the region with 5.7 billion dollars, followed by Brazil- 4.04 bn, Argentina-2.47 bn, Mexico- 2.28 bn, Chile-1.96 bn, Colombia-808 million, Peru-820 m, Ecuador-564 m, Dominican Republic-479 m, Bolivia-240 m and Paraguay-112 m.
The decrease in India's imports is due to the fall in the price of oil, which accounts for 46 % of the total imports from the region. Crude oil imports were down to 9.1 billion dollars in 2015-16 from 20 bn in 2014-15. This is in line with the fall of total global crude imports of India to 66 bn dollars from 116 bn in the previous year. In 2015-16, Venezuela has maintained its position as the top supplier from the region with 5.7 billion dollars, followed by Mexico-1.4 bn and Brazil 1.2 bn.
South America accounted for 98.6% of India's soy oil imports last year. Argentina was the major supplier with 2.2 billion dollars while Brazil supplied 570 million and Paraguay 104 m. 
Latin America supplied 2.1 billion dollars of copper out of the total Indian imports of 4 bn dollars. Chile has continued its position as the top supplier with 1.6 bn.
The region has emerged as a new source for India's import of gold. Imports from the region have increased to 1.77 billion dollars in 2015-16 from 1.02 bn last year.The suppliers were Peru-464 m, Colombia-442 m, Dominican Republic-379 m, Bolivia-236 m, Brazil-205 m and Ecuador-48 m. 
Latin America is closer to India than you think
For those Indian businessmen who still harp on the distance factor, here are some eye-openers:
--India's exports to the distant Guatemala ( 255 million $) is more than the exports to the neighboring Cambodia (143 m). Both have populations of 15 million each.
-India's exports to Mexico (2.86 bn) are more than the exports to Indonesia (2.84 bn), Myanmar ( 1 bn), Russia ( 1.6 bn), Canada (2 bn) and Egypt ( 2.3 bn). 
- India's trade with the far off Dominican Republic (654 m) is more than India's trade with many European countries such as Hungary(588 m), Romania(565 m), Kazhakstan (505 m), Greece(445 m) and Bulgaria (239 m)
-India's trade with the distant Brazil ( 6.7 billion $) is more than the trade with Bangladesh (6.4 bn), Srilanka (6 bn), Russia (6.1 bn), Canada ( 6.2 bn) and Spain (4.8 bn). This is even after the 41% fall in the trade with Brazil which was 11.4 bn in 2014-15.
-Reliance imports crude oil from Brazil and export diesel to the same distant Brazil profitably.
-Latin America is the leading destination of India's vehicle exports, despite the freight.
- Chile, Peru and Argentina supply fresh fruits and vegetables to India, undeterred by distance.
Latin America's recession is predicted to get worse with GDP contraction of 0.6 % in 2016, due to the continuing low international price and demand for commodities and weakening domestic consumer demand. Venezuela's GDP is projected to shrink by 6.9% and that of Brazil by 3.5% in 2016. However, the region is expected to recover growth next year, except for Venezuela. Brazil is already showing signs of recovery. The macroeconomic fundamentals of the region are healthier with average inflation of just 5.5 % and external debt at just 39% of the GDP. 
Latin America, which has huge petroleum reserves and surplus for exports will continue to be an important contributor to India's energy security. Imports of gold, minerals and soy oil will increase in the future, in view of the large and growing gap between India's domestic production and demand. The new development of direct import of gold from the Latin American producers rather than through the intermediaries in Switzerland saves considerable foreign exchange for India.
India's exports to the region have better prospects for increase in the years ahead. There is need for proactive trade promotion as was done successfully during the Focus LAC programme days. The government should consider signing FTAs with Mexico, Colombia and Peru to get a level playing field for its exports vis-a-vis exports from the FTA partners of these countries. The Indian government could extend large lines of credit to promote its exports to the the region, as it is doing successfully in Asia and Africa. 
While Latin America's share in India's global trade is 4.6%, India's share in the region's external trade is just 1.5%. There is potential for India to increase its share to 5% of Latin America's foreign trade which was 1.88 trillion dollars in 2015 with 914 billion dollar exports and 974 bn imports. The Latin Americans are keen for more trade with India as part of their strategic policy to reduce overdependence on China and diversify their trade partnership. 

Sources of statistics: Ministry of Commerce of India, ECLAC and WTO

Monday, May 09, 2016

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 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 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