Asia's trade with Latin America is expected to grow by double digits this year after another strong year.
BY NATAN RODEGUERO
Latin America and Asia… cultural differences, geographical distance, diverse languages… Do these factors deter trade and economic relations between the two regions? This is not what the world has seen in the last couple of years, and certainly not what will happen in the future. Total trade volume has grown steadily between the two regions, reaching $226 billion in 2006, increasing 25 percent over 2005. The expectation is that 2007 has seen another year of double-digit growth, and 2008 is likely to continue the trend.
Both Latin America and Asia are seeing stable economic growth. Latin America is expected to grow almost 5 percent in 2007. In the last decade, the region has showed increasing economic and political stability, and macroeconomic indicators are pointing towards a promising future. Foreign direct investment into Latin America reached $72.4 billion in 2006, while local firms—especially from Brazil, Argentina and Mexico—have invested more than $40 billion in other continents. Asia, in turn, has kept inflation under control for the last three years at an average of 4 percent, and grew 7.9 percent last year—with China and India leading the trend with 10.7 percent and 9.1 percent GDP growth respectively—becoming the world’s growth leader in 2006.
The consequence of such stability and growth is, on the one hand, improved purchasing power in Latin America, fuelled by the expansion of a consumerist middle class and increased access to credit among the lower income segments. This hunger for new products fits well into Asia’s capabilities to provide competitively-priced consumer goods of all types, from furniture to electronics. On the other hand is Asia’s voracious appetite—spearheaded by China and India—for commodity products such as energy and raw material to feed their ever-growing industries. This is where Latin America steps in as a competitive and diversified supplier. Binding both sides is the need of both Asia and Latin America to open new doors in global markets, while maintaining active the traditional channels already established with US and Europe.
Latin America export opportunities with Asia should not be restricted to commodities and raw-material. Growing domestic markets in Asia can also be tapped by Latin American exports, including Mexican electrical circuit and telecommunications equipment, currently traded in very small volumes with high-volume buyers China and India, and the high-quality, varied agricultural industries in Brazil, Chile and Argentina.
Likewise, opportunities for Asian companies in Latin America go beyond the export of consumer goods. With stagnant economies and low investments in infrastructure for a good part of the 90s — culminating with global financial turmoil severely impacting countries like Brazil and Argentina — Latin America today presents investment opportunities in a number of areas such as oil and gas, mining, ports and road building, energy generation, and in some countries even mobile communications and internet.
One Asian country taking the lead in building bonds with Latin America is Singapore. In the last three years, trade between Latin America and Singapore grew c. 30 percent per annum, almost twice Singapore’s average trade growth rate of 16.3 percent with the world in the same period. Trade between Singapore and Latin America surpassed $7.5 billion in 2006, and the potential for growth is enormous, since this constitutes only 1.5 percent of Singapore’s total trade. With a memorandum of understanding on trade signed this year with Mercosur (comprising Brazil, Argentina, Paraguay and Uruguay, and associate members Bolivia, Chile, Colombia, Ecuador and Peru), trade flows between Singapore and Latin America is set to increase significantly in the coming years. These efforts are headed by International Enterprise Singapore (IE Singapore), an agency under the Ministry of Trade and Industry spearheading Singapore’s efforts to develop external economic links. Such efforts include extending the International Business Fellowship (IBF) program — which is already in place for other emerging markets — to cover Latin America. The IBF will enable Singapore-based companies to send their employees to Latin America to undergo executive management training and market immersion programs. In addition, IE Singapore will work with the three local universities to jointly fund student exchanges with higher education institutions in Latin America.
With companies needing to expand businesses to new markets, governments doing their best to facilitate engagement and partnerships, and complementary portfolios to supply each other’s demands, Latin America and Asia don’t have time to think about cultural differences. There’s too much business to be done!
This article is republished with permission from Tendencias, the magazine of the InfoAmericas.