As the global economy begins to recover, the outlook for Asia and Latin America is promising.
BY S ISWARAN
About this time last year, the world plunged into one of the most severe economic downturns in history. We are now beginning to see some tentative but encouraging signs of a recovery. The global economy is expanding again and financial conditions have improved markedly.
The challenge now is to ensure that this recovery is sustained. In this regard, Latin America and Asia are two regions that are not only making a steady recovery, but also showing strong potential for long term growth.
Like the rest of the world, Latin America has been affected by the global economic downturn. Nevertheless, strong domestic demand from a rising middle-class and vibrant intra-regional trade has aided the region’s relatively speedy recovery. And it remains one of the fastest growing economic areas in the world today. The IMF predicts a 2.9 percent growth rate for Latin America as a whole for 2010, higher than other developing regions like Russia and emerging Europe. Most of the major Latin American economies are expected to register positive growth in 2010. For instance, Peru and Chile are projected to have a GDP growth of 5.8 percent and 4 percent respectively.
Indeed, Latin America’s growth potential has not gone unnoticed by the global business community. In 2008, Latin America attracted a record FDI inflow of $128.3 billion, 13.4 percent higher than the previous year. This was 39 percent of the global FDI. This year, the economic downturn is expected to have a dampening effect on the FDI flow into Latin America. Nevertheless, the region’s medium-term macroeconomic stability and investment outlook remain positive. Brazil and Peru are the latest countries to have been awarded Investment Grade ratings by Standard & Poor’s and Moody’s, joining their Latin American neighbors Chile, Costa Rica, Mexico, Panama.
Asia has similarly begun the painstaking process of recovery. Based on the IMF’s most recent forecasts, Asia is expected to grow about 3 percent this year and close to 6 percent in 2010. In contrast, the global economy is expected to contract by about 1 percent this year, and expand by around 3 percent in 2010. Inflation levels in Asia are benign and employment losses are lower for this downturn compared to previous recessions.
PARTNERS FOR GROWTH
As both regions emerge from this global economic downturn, there is much to gain from a further deepening of bilateral economic exchanges. Asia’s increasing demand for resources and commodities has natural synergies with Latin America’s energy and commodity producers.
Asian economies are also increasingly seeking to expand beyond regional markets, while Latin America is looking to Asia for new sources of demand, inbound investment and expertise for its own development. There is now a growing convergence of Asian-Latin American business interests, particularly in areas such as infrastructure, energy and agro-commodities.
These growing economic engagements have boosted trade flows between the two regions. In 2008, total trade between Latin America and Asia rose to reach $221.7 billion, an increase of 21 percent over 2007. And these direct trade flows between the two regions are projected to grow even further in the years ahead.
THE SINGAPORE CONNECTION
Singapore has also benefited from increased economic ties with Latin America. In 2008, our trade with Latin America reached a record high of $18.9 billion (S$ 26.8 billion). This is a 35.6 percent increase from the previous year. Over the past five years, total bilateral trade has been growing at a CAGR of 24.3 percent, exceeding even the 17 percent CAGR of Asia’s total trade with Latin America. These figures are indicative of the vast potential for further expansion of trade and investment between Singapore and Latin America.
For Latin American companies who are keen to expand into Asia, Singapore is well placed to serve as a gateway to South-east Asia, North Asia, and South Asia. We are already home to some 7,000 top MNCs, 60 percent of whom have chosen to base their regional operations out of Singapore. Apart from our well-acknowledged air and sea links and strong banking and insurance sector, Singapore is also valued for our conducive business environment, and our well-educated multi-lingual workforce. Our strong economic ties with ASEAN, China and India also serve as an added advantage for companies which base their trading activities in Singapore. Our companies have much experience operating in the region and this makes them ideal partners for Latin American companies focused on our neighboring markets.
Singapore based exporters also benefit from the strong network of 16 Free Trade Agreements (FTAs) that Singapore has signed with key trading partners such as China, India, Japan, Korea and ASEAN. Three of these FTAs are with Chile, Panama and Peru. Latin American businesses can also tap on Singapore’s expanding network of Air Services Agreements (ASAs). We currently have eight ASAs with Latin America, three of which were recently concluded in August 2009 with Ecuador, Colombia and Peru. These ASAs will pave the way for increased air cargo and passenger flows between Latin America and Singapore, greatly increasing the ease of doing business.
Many Singapore companies are also viewing Latin America as a market that holds great potential. In recent years, there have been a growing number of Singapore-based companies substantially investing in Latin America. There are now almost 120 Singapore-based companies with more than 400 points of presence across Latin America, from Brazil and Mexico, to Panama and Chile. These companies are engaged in sectors ranging from port logistics, shipping and commodities, to hospitality and infocomms technology.
They are also significant employers in the respective local economies in which they operate. Between oil rig leader Keppel FELS Brazil and global agro-commodities company Olam International, they contribute more than 8,000 jobs across five different Latin American countries. Some Singapore companies are also helping to germinate and catalyse entirely new business sectors. For example, when ST Aerospace moved into the Howard Airbase facility in Panama three years ago, it helped pioneer the development of Panama’s Maintenance Repair and Operations (MRO) industry. Today, a significant portion of Copa Airlines’ fleet is serviced out of ST Aerospace’s Howard facility instead of being sent to the United States.
Underpinning these robust economic ties has been strong governmental support on both sides. Late last year, our Prime Minister accompanied by senior political and business leaders visited Peru, Brazil and Chile. This year, Singapore has had the privilege of hosting high-level ministerial delegations from Brazil, Colombia, Costa Rica, Peru and Panama. The Brazil- Singapore Joint Committee on Promoting Trade and Investment also held its inaugural meeting yesterday. Key discussions points included cooperation in areas such as biotechnology, agribusiness and infrastructure.
As another sign of deepening relations, our Economic Development Board established its first office in Latin America, in Sao Paulo, Brazil, last month. This will complement the efforts of our existing offices, under IE Singapore, based in Brazil and Mexico. I am also pleased to note that IE Singapore and the Inter-American Development Bank (IDB) will be signing a Memorandum of Understanding today at this Forum. This MOU will pave the way for Singapore-based companies to share with their Latin American counterparts, their experience in areas such as infrastructure development, urban planning, logistics, transportation systems, and education. It will also help encourage the development of mechanisms to further promote international trade and foreign direct investment between Singapore and Latin America.
As the global economy begins to recover, the outlook for Asia and Latin America is promising. Governments, business leaders and companies from both regions should seize this opportunity and leverage on our strong economic linkages and mutual strengths to expand trade links and invest strategically.
S Iswaran is Singapore’s senior minister of state for trade and industry and education. This column is based on an excerpt of his remarks at the Latin Asia Business Forum in Singapore last week.