Canada's exports to South America are booming thanks to commodity growth and strong local economies.
BY STEPHEN S. POLOZ
Canada's exports have been stuck in low gear for some time, and the strong dollar and U.S. slowdown point to more weakness ahead. But our exports to South America are booming.
It has only been seven years since much of South America was in the throes of financial crisis. For Argentina, which avoided devaluation back in 1999, only to succumb three years later, the recovery has been even more recent.
It is heartening, therefore, to see these big and diverse economies pulling themselves up by their bootstraps. The region saw average economic growth of 5.5 percent in 2006, and this is forecast to slip only slightly in 2007 and 2008, to 5.2 percent and 4.5 percent, respectively. Government books are in their best shape in years, foreign investors are willingly putting their money into the economies, and their currencies are generally strong. This is making importing easier, which is very important for economies that need high levels of investment to pave the way for future growth.
Indeed, a common characteristic in the region is a shortfall in infrastructure as economic growth puts a strain on various parts of the system. With fiscal finances now under much better control, many governments are actively engaged in infrastructure investment, whether in energy, transportation or telecommunications.
All this is positive for Canadian exporters, who have long had a presence in the region. Canada's exports to South America are up 26 percent in the first five months of 2007, compared to the same period last year. This compares with only 6 percent for Canada's global exports, calculated in the same way, and this is mostly due to higher prices for oil, metals, minerals and fertilizers - the actual volume of export shipments is expected to rise by only 1 percent in 2007.
Some of this spectacular growth in sales to South America is also attributable to high prices for commodities, but much of it is real. The gains in merchandise exports have been mostly in machinery and equipment, building materials, consumer goods and food products. Canada's exports are up 14 percent in Brazil, 59 percent in Chile, 19 percent in Venezuela, 28 percent in Colombia, 3 percent in Peru, 79 percent in Ecuador and 43 percent in Argentina - listed in order of export market size.
PLENTY OF POTENTIAL
Although South America represents about 5 percent of the global economy (Canada constitutes only 1.8 percent) less than 1 percent of Canada's annual exports are destined there. This is still about CA$3.5 billion in sales per year (closer to CA$5 billion including services), which is not small. Nonetheless, the figures suggest - and our experience under the Canada-Chile Free Trade Agreement, now 10 years of age, demonstrates - that there is plenty of room for future growth in Canadian trade in the region.
The bottom line? Conditions in South America are as good as they have been for a long time, which is boosting Canadian trade. That makes this a particularly good time to invest in deepening our trading relationships in the region.
Stephen S. Poloz is Senior Vice-President Corporate Affairs and Chief Economist at Export Development Canada (EDC). This column originally appereared in FOCALPoint, the publication of the Canadian Foundation for the Americas (FOCAL). Republished with permission from FOCAL.