Some facts and figures to sharpen the focus of Indian exporters to Latin America

Which country is the largest importer in Latin America? Not Brasil, even though it is the largest market of the region. Mexico's imports in 2012 were 371 billion dollars as against Brasilian imports of 223 billion. India's exports to Mexico were 2950 million dollars which is just 0.8% of the total Mexican imports. Indians need to focus more on Mexico, which has a more open market with liberal import policies while Brazil is relatively more protective. India's exports to Brasil in 2012 were 5042 million dollars. But forty one percent ( 2.1 billion) of the exports were diesel oil. The Brasilian imports of this will come down and stop with the ramping up of Brasilian refining capacity soon. In the case of Mexico, the exports of India are well diversified with engineering products, chemicals, pharmaceuticals and textiles.

The third largest importer in Latin America is not Argentina, which is the third largest economy of the region. Chile has emerged as the third largest importer in 2012 with 75 billion dollars, overtaking Argentina's imports of 69 billion dollars. In 2012, India's exports to Chile were 658 million dollars which is 0.87% of Chile's total imports. Chilean population is just 17 million while Argentina has 40 million people. The Argentines keep imposing new and arbitrary import and foreign exchange restrictions taking the country to the old and outmoded license raj system. But the Chileans have the most open economy with a single uniform tariff of just six percent on imports.

Many Indian exporters think that the central american markets are too small for their attention. They need to know that the total imports of the eight countries which form the central american integration group SICA were 94 billion dollars in 2012. Panama is number one importer with 24 billion dollars followed by Costa Rica- 18 bn, Guatemala-17 bn and Dominican Republic- 15 billion. If the Indians target one percent of the total imports of Central America, the exports would amount to almost a billion dollars ! 

India should target 20 billion dollars of exports to Latin America by 2017 from the 12 billion dollars in 2012. This is a realistic target in the light of the new paradigm of the market of Latin America which continues to grow with solid macroeconomic fundamentals, as seen from the latest ( 23 April 2013) report of  the Economic Commission for Latin America and Caribbean ( ECLAC). Some highlights of the report:

-Latin America's total trade had increased to 2151 billion dollars in 2012 from 2092 bn in 2011. The regions' exports increased to 1090 bn $ from 1074 bn while imports increased to 1061 billion dollars in 2012 from 1018 bn in 2011. 

- The GDP of the region is projected to grow by 3.5% in 2013. 

-Paraguay will be the topper of the Latin American chart of GDP growth in 2013 with 10%. Paraguay was the topper in 2010 too with 13.1%. 

-Panama will have the second highest growth of 8%. It had the highest growth (over 10% ) in 2012 and 2011 as well as in 2008. 

-Peru will have the third highest growth of 6%. Peru has emerged as a consistent high growth country in recent years. Its annual average growth from 2003 to 2008 was an impressive 6.9%

-Brasil is expected to grow by 3% and Mexico by 3.5%, Argentina by 3.5%, Colombia-4,5%, Chile-5%, Venezuela-2%. Central America is projected to grow by 4.3%.

-In 2012 the actual growth of the region was 3%. Domestic demand continued to be the main driver of growth, sustained by solid labour market indicators and credit expansion.

-Average inflation rate for the region in 2012 declined to 5.6% from 6.8% in 2011.Venezuela which had the highest inflation of 29% in 2011 had brought it down to 19.5% in 2012. 

-The favourable labour trends that marked much of the last decade in the region continues. Urban open unemployment rate went down again, from 6.7% in 2011 to 6.4% in 2012, the lowest in the last twenty years. Brasil has the lowest unemployment rate of 5,5% in its recent history.

Colombia has become a billion- dollar destination for India's exports

Yes. India's exports to Colombia has crossed the billion dollar mark, reaching 1.124 billion dollars in 2012. Colombia is the third biggest destination of India's exports to Latin America after Brasil and Mexico.

The rate of increase of India's exports to Colombia has been impressive in recent years. The exports have more than doubled in the last three years from 504 million dollars in 2009, 686 m in 2010 and  976 million dollars in 2011.

Major export items in 2012 were: motor cycles - 285 million dollars, vehicles-126 million, cotton yarn and fabrics-130 m, organic chemicals-78 m and pharmaceuticals-59 m.  Bajaj, TVS, Tata and Hero and even Reva electric cars have established their brands in the country.

In addition to exports, Indian IT/BPO companies such as TCS, Infosys, Genpact and Sutherland have operations in Colombia. A group of four young Indians have set up a successful and growing IT company in Bogota called as Sophos Solutions which provides banking solutions. Three of the founders of this company are married to Colombians. They are proof for my theory that " the risk of doing business with Latin America is...falling in love "

ONGC Videsh Ltd ( OVL) has invested a billion dollars in oil. If you thought India is a poor competitor and cousin of China in foreign investments, here is a surprise. OVL's investment in the Colombian oil field is a 50:50 joint venture with the Chinese company Sinopec. More surprise.. the original owner of the oil field from whom OVL and Sinopec bought was an Indian based in US. Reliance also has some off-shore concessions in Colombia.

United Phosporous Ltd ( UPL) has acquired a local company manufacturing agrochemicals. Praj from Pune has implemented contracts worth 30 million dollars for setting up ethanol plants.

Some Indian companies including Renuka Energy are exploring opportunities for investment in mining.  Colombia is one of the largest exporters of coal in the world. India has started importing coal from Colombia.

India's imports from Colombia in 2012 were 1363 million dollars in 2012. Of these, 1283 m ( 94%) were crude oil. Emeralds, of course, is an important item of import.

The Colombian economy is in an unstoppable growth trajectory. The GDP growth was 4.5% in 2012 and the prospects are better for 2013. The macroeconomic fundamentals are strong and healthy.

Colombia has come out (almost) of its domestic curses of guerrilla warfare, drug trafficking and bad image of crimes including kidnapping. The guerrillas are on the run. The government has an upper hand and is taking more and more control of the guerilla occupied territories in an irreversible manner. This means more land is now available for exploration of oil and minerals as well as agricultural and industrial expansion. Medellin, which was notorious as the den of drug lords, is now a peaceful and thriving industrial and business centre. The government of President Manuel Santos is business-friendly, predictable, open and transparent in trade policies and is proactive in welcoming foreign investment.

Colombia is now threatening to overthrow Argentina as the third largest economy of Latin America. I can say with confidence that the Colombian political and business leaders have what it takes to achieve their goal.

Steady rise of India's trade with Mexico

Yes.. Steady is the word to describe the growth of India's trade with Mexico, the second largest market of Latin America. The bilateral trade reached 6.29 billion dollars in 2012 from 4.15 billion in 2011,  2.9 bn in 2008 and 1.03 bn in 2003.

India's exports were 2.95 billion dollars in 2012 increasing by 24% from 2.38 bn in 2011. Engineering products topped the list of export items of India as usual. Exports of vehicles and parts were 466 million dollars followed by diesel- 439 m, organic chemicals-306 m , electrical and sound equipments-290 m, equipments and machinery-211 m and garments -150 m.

Crude oil imports in 2012 were 2.83 billion dollars (accounting for 88% of India's imports from Mexico) followed by electrical machinery and equipments - 242 m. India was the eighth largest export destination of Mexico in 2012. Reliance was the importer of Mexican crude oil, as in the past several years.

Although Brazil is the largest market of Latin America, Mexico is the trade leader in the region. Mexico's trade in 2012 was 741 billion dollars while Brasil's trade was 408 billion. Eighty percent of Mexico's exports go to USA and Canada, with which Mexico is bound in NAFTA.  Surprisingly USA accounted for only 49% of Mexico's imports. Mexico had a trade surplus of 89 billion dollars with USA in 2012.

Mexico had a massive trade imbalance with China in 2012 as usual. Mexican exports to China in 2012 were just 5.7 billion dollars while their imports were 57 billion.

Mexico's macroeconomic fundamentals are strong with healthy indicators such as 3.57% of inflation, interest rate of 4.5%, current account surplus and ample forex reserves. GDP growth in 2012 was 3.8% and it is expected to go up in 2013.The manufacturing sector is growing with a new vibrancy after having overcome the Chinese competition. Many American and  foreign companies have started production of manufactured goods in Mexico for the markets of USA and Canada. Mexico has become the fourth largest exporter of cars in the world after Germany, Japan and South Korea.

The assumption of Enrique Pena Nieto, the young, dynamic and visionary leader as the new President of Mexico augurs well for accelerated economic growth and prosperity. He has already implemented some reforms, which were considered as politically impossible even last year. He has shown courage and diplomacy to work with the opposition parties to bring about the reforms needed by the country.

Given the positive prospects of Mexico in the coming years, India's trade with Mexico could reach 10 billion dollars by 2015. 

India's Trade with Argentina increased marginally in 2012

The marginal increase is not at all bad given the fact that Argentina's global trade had decreased to 151.3 billion dollars in 2012 from 161.6 billion in 2011. Their imports reduced to 60.5 billion in 2012 from 64.6 bn in 2011. Their exports declined to 90.8 bn in 2012 from 97 bn in 2011.

The reduction in imports is mainly due to the stringent Argentine government restrictions on imports and foreign exchange. Importers are generally required to export an equivalent amount of what they import.The Import license and foreign exchange for imports are complicated/ delayed/denied arbitrarily by the authorities in a non-transparent manner. The government has taken recourse to these measures because of inadequate foreign exchange reserves to pay for imports and service the debts. The government is also doing this as part of their ideology to control the economy and business more and more.
This policy is likely to continue in 2013-14 ( till the next Presidential elections) too with minor variations.

Argentina's exports were down in 2012 due to the slow down of the economies of Brasil, China, and Europe. Exports to China had decreased by23% in 2012 from 2011.

India's trade with Argentina increased by 2.2% to 1837 million dollars in 2012 from 1774 million in 2011.
India's exports in 2012 were 573 million dollars as against 561 m in 2011. India's imports in 2012 were 1264 m while they were 1213 m in 2011.
India ranked 18th in both exports and imports in 2012 among the global trade partners of Argentina.

India's major exports in 2012 were: organic chemicals- 154 million dollars ( 27% of total exports), sound and image devices - 91 million dollars ( 16%), vehicles and parts-64 million, yarn and fabrics-45 m, garments-21 m, dyestuff- 17 m..
India's main imports in 2012 were: edible oil ( mostly soy oil)- 1111 million dollars ( 88%), minerals- 30 m, leather- 29 m, cotton- 10 m
Argentina is the main source of soy oil imports of India. The annual imports are around one billion dollars in recent years except in 2010 when it went up to 2 billion. The soy oil imports from Argentina fluctuates depending upon the international palm oil prices. However, given the ever-growing deficit of India  in edible oil production, India's imports of soy oil from Argentina will increase in the long term.

Argentina, which is the third largest market of Latin America after Brasil and Mexico, used to be the third largest destination for India's exports in the past. Not any longer.. It has slipped to the sixth position in 2012.  Colombia has replaced Argentina in the third rank while Peru and Chile have assumed fourth and fifth rankings.

Despite the current Argentine restrictions on imports, there is lot of scope to increase India's exports in the long term. Most of the macroeconomic fundamentals of the Argentine market are relatively strong and the economy is set on a course of sustainable growth.  The Indian exporters need to keep this positive long term perspective and work harder....

India's trade with Brasil crosses the 10 billion dollar mark

India's trade with Brasil reached 10.6 billion dollars in 2012 ( January to December), increasing by 15% from 9.2 bn $ in 2011. Twenty years back, in 1992 the bilateral trade was just 177 million dollars. Ten years back, in 2002, it was 1.2 billion dollars.

India's exports to Brasil declined in 2012 to 5.04 billion dollars from 6 billion in 2011.  

Forty one percent of India's exports ( 2.1 billion dollars) in 2012 were diesel exported by Reliance. The fall in India's exports in 2012 is due to the 33% decline in exports of diesel. 

The second biggest export was chemicals and pharmaceuticals which amounted to 697 million dollars. The third largest export item was polyester yarn – 225 million dollars. Autoparts exports were 106 million dollars. Apart from these items, the exports are well diversified with a wide range of  engineering products and industrial raw materials besides textiles and traditional items. Surprisingly coal was an important export – 99 million dollars.

India's imports from Brasil in 2012 were 5.58 billion dollars, increasing from 3.2 billion in 2011.  Crude oil ( imported by Reliance) accounted for 61% of the imports- 3.4 billion dollars. In fact, crude oil imports had increased by 100% in 2012 from 2011.

Sugar ( imported by Renuka Sugar ) was the second largest import-500 million dollars, accounting for 9 % of total imports.

Soya oil imports were 364 million dollars and Copper imports were 294 million dollars.
Imports of Embraer aircrafts amounted to 184 million dollars in 2012.

Of the total bilateral trade of 10.6 billion dollars Reliance alone accounted for 5.5 billion dollars with their import of crude oil and export of diesel.  In fact, this kind of exchange by Reliance has been the major factor for the significant growth in India- Brasil trade in recent years.

India is expected to increase its imports of crude oil in the coming years, given the increasing capacity of Brasil to produce more oil and the ever-increasing dependence of India on imported oil. India will also steadily buy more soy oil from Brasil to bridge the growing gap between domestic demand and production of edible oil. Copper imports will also go up in tune with the economic growth of India.

Renuka has regularly started importing sugar from Brasil in recent years. They imported for the Indian market in 2008-9 when India had a deficit in sugar production. In other years renuka imports raw sugar, refine it in their facilities in India and export it as white sugar to other countries.

The Indian exports of chemicals, pharmaceuticals, engineering and other manufactured products as well as industrial raw materials will continue to increase steadily with the intensification of export promotion by the Indian exporters who are targetting Brasil as a large and growing strategic market.The only exception is diesel export which will decline in the coming years as Brasil increases its refining capacity.

Bilateral trade with India accounted for two percent of Brasil' total trade of 408 billion dollars in 2012. It is significant to note that India has moved up as the seventh largest market for Brasil's exports.

The next milestone by 2016 should be 20 billion dollars..

Mexican IT company Softtek acquires Indian software firm

This is the first time that a Latin American IT company has acquired an Indian software firm to make entry into India. So far it was the other way. The Indian companies have acquired and established operations in Latin America employing 20,000 Latin Americans.

Softtek, the Mexican IT firm has now acquired an Indian software company Systech Integrators, founded by Indian Americans and headquartered in San Jose, California with centers in India and US. Systech specializes in SAP solutions and services.

Softtek employs 8000 staff and operates in 30 countries including in India and China.

Another point of interest - Gabriel Rozman, the Executive Vice President of TCS and who established TCS in Latin America was the CEO of Softtek in 2000 before joining TCS in 2001.

Boom in mining investment in Peru

There are 52 ongoing mining projects in Peru with 53 billion dollars of investment in the coming ten years.

In 2012, the government gave 4668 mining permits to 582 companies up from 3100 in 2011.

Peru expects to increase its copper production from the current level of 1.3 million tons to 5 m tons by 2025. Peru is currently the third largest coppoer producer. Chile, the number one, produces 5.7 m tons
Mining accounts for 15% of the GDP of Peru.

The big investments include
- Chinalco ( Chinese) - 2.2 bn $ copper mine
-Newmont - 5 bn in gold and copper
-Anglo American - 3 bn
-Xtrata - 6 bn

One of the major challenges for mining is the protests from local communities displaced and affected by the mining operations. There have been more than 200 conflicts some of which turned violent resulting in the death of some protestors. Chinalco is spending 150-200 m $ for resettlement of the affected families but the community leaders demand 300 m. Other companies are also making provision for " social funding" to avoid the social tensions. Fortunately, Ollanta Humala, the leftist president of the country, is able to manage the conflict between the miners and the local communities with his leftist credentials.

Brazilian investment in new hydroelectric power

Brazil is investing in 34 new dams to be completed by 2021 to increase the generation of hydroelectricity by fifty percent.
The two biggest are:
the 7.5 billion dollar Jirau Dam.
and the Belo Monte project, to be completed by 2015 at a cost of 9 billion dollars, will produce 11,000 MW.
90% of power consumed by Brazil comes from the hydroelectric sector.
Itaipu power plant alone accounts for 25% of the Brazilian electricity generation with its 14000 MW capacity.
The biggest challenge is not finance or technology. It is the coalition of motivated western NGOs and the media who use the bogey of Amazon rain forest and environment. They carry out misleading propaganda and try to put obstacles in the way of Brazilian economic development.

Devaluation of Venezuelan currency

The Venezuelan government devalued the currency by 32% to 6.3 Bolivars for a dollar from 13 February. This was not unexpected. It was predicted for some time because of the large fiscal deficit which reached 11% of GDP in 2012. 

This is the fifth devaluation in nine years.

The black market rate is 19.53 Bolivars for a dollar. 

Imports are constrained by the delays and restrictions in releasing foreign exchange by CADIVI, the control agency of the government.

Shortages of food items, empty super markets, chaotic distribution system and the nationalisation and mismanagement of many companies have made a Cuba out of Venezuela.

The economy and secuity situation of the country are as bad as the cancer of Chavez.

The Bolivarian Revolution and the 21st Century Socialism of Chavez which started with good intentions have become nightmares. While the condition of of poor people have become better under Chavez, the economy, the society and the country in general have suffered long term damages.

Brazil development bank plans to invest almost a trillion dollars in next three years

Brazil’s Social and Economic Development Bank (BNDES) has plans to invest 1.858 trillion Reais (approx 906bn dollars) between 2013 and 2016, according to the statement by its President Mr Luciano Coutinho.

 In 2012, total investments amounted to approximately 156 billion Reais, up 12% compared to 2011, and a total of 2.394 trillion Reais was invested between 2008 and 2012.

The figures do not include the housing sector.

Manufacturing sector received the highest investment in 2012, totaling 847 billion Reais, and it will be the largest recipient of loans in the next three years too.

Infrastructure absorbed 359 billion Reais in 2012, with a further 498 billion Reais expected to be invested between now and 2016. BNDES supplied the service sector with 159 billion Reais last year and future investments are expected in the order of 219 billion Reais.

The remaining sectors together received 1.858 billion Reais and should receive a little over another billion in the next three years.

The volume of funds released to micro, small and medium enterprises was the largest in the bank's history, totaling 50.1 billion Reais.

Besides lending to companies, BNDES also takes equity participation in some cases.

The financial support of BNDES has helped many Brazilian companies, both public and private, to go global and be leaders in their areas of operations.

Praj gets a 20 million dollar contract to build ethanol plant in Colombia

This is the seventh project of Praj Industries, Pune in Colombia. Riopaila Castilal is the client this time. The project is to build a 400,000 litre a day ethanol plant at La Paila in Valle de Cauca region of Colombia.

Praj has recently commissioned a 150,000 liters per day corn-to-ethanol plant for Vicentin SAIC in the Santa Fe province of Argentina.

Praj, a leader in ethanol technology, has also done projects in Central America.

Zamin plans to produce 27 million tons of iron ore in Brasil

Zamin proposes to buy the Amapá mine ( current production 4.8 m tons) , 70% owned by Anglo American and 30% by Cliffs Natural Resources. The deal is said to be around $300 million. 

Zamin already has ongoing iron ore projects which include

- Susa mine, in Rio Grande do Norte

- Zamapa mine in the Amapá state) 

- mine  at Bahia

Pramod Agarwal, the company’s founder, based in London, is betting on iron-ore production of 27 million tons by 2017 in Brasil

Zamin has a iron ore project in Uruguay, which is undergoing the process of governmental regulatory evaluation for clearance. 

In 2010 Zamin had sold a mine in Brasil at an attractive price.

Zamin plans to export  60% to 70% of the total to China and the rest to the Middle East.