Investing in Latin America’s boom: Can its “jaguars” catch up with Asia’s “tigers”?

Gearing up EU-Latin America trade relations

While the world’s attention is focused on events in the Middle East, North Africa and Japan, and the wider trend of strong growth in Asian countries such as China and India, another region is quietly getting on with its own astonishing success story.

Latin America’s “jaguars” were the subject of a recent Policy Summit, organised within the framework of the AL-Invest IV Programme and co-organised by Friends of Europe and EUROCHAMBRES which suggested that rich economic rewards and new businesses opportunities await European businesses that engage in the fast growing Latin American marketplace while similar opportunities exist for Latin American business in Europe.

In a keynote speech, Patricia Espinosa Cantellano, the Mexican Minister of Foreign Affairs, said that the key to the region’s future success is green growth. “The time of economic growth that fails to take account of the environment is over,” she stated. “Only sustainable development will work. Green growth not only enhances health and quality of life, it also strengthens our economies.”

Everyone must realise that green can also mean business and profits, the Minister continued. “It is important that we promote the benefits of sustainable development. Companies that do not adopt sustainable principles most probably won’t survive, but it is up to governments to promote environmental initiatives, stimulate innovation, enhance diversity and increase competition.”

On the back of a decade of political stability and the lessons of its own economic crises in the 1980s and 1900s, Latin America showed remarkable resilience to the financial crisis. The region is growing strongly, pointed out Anabel González, Minister of Foreign Trade for Costa Rica, but there are different realities for commodity-rich countries and those without such resources.

The key for the region is to overcome the “middle-income” trap, she added. “We have to reduce poverty and inequality and improve productivity and competitiveness.” But if the growth trap is avoided, Latin America will really live up to its potential and “Europe should be there to take advantage,” the minister said.

Countries in the region are ideally placed to “promote their growth and turn that growth into development”, said Magdalena Álvarez, Vice-President of the European Investment Bank (EIB).

However, while Latin America is a very effective and sophisticated provider of natural resources, there are still significant challenges, pointed out Alejandro Jara, Deputy Director General of the World Trade Organisation (WTO). These include weak adherence to the rule of law, poor education and the fact that the region is largely absent from the international manufacturing supply chains that are at the heart of globalisation.

“The challenge is to make sure this economic development can become balanced in coming years so everyone can benefit from that growth,” asserted Carlos Daniel Durand Chahud, President of the Lima Chambers of Commerce. Infrastructure is the main priority for investment, he added, and free trade agreements such as the one Peru has signed with the EU (that comes into force in 2012) will be crucial in rebalancing the economy to make it less reliant on commodities.

Trade will be key to this, and the agreements that are being forged with the EU are great examples of this, agreed João Aguiar Machado, Chief Negotiator for EU-Mercosur trade negotiations and European Commission Deputy Director General for Trade. “When we are faced with a new world context and the challenge that China poses, there is no other region in the world with such a close affinity to the EU as Latin America,” he said. “We need to work together.”

Europe should be taking advantage of the opportunities Latin America’s growth creates, but it is doing exactly the opposite, suggested Pablo Zalba Bidegain MEP, Member of the European Parliament Committee on International Trade. “We should be looking at Latin America not only for itself, but also as another route to capitalising on the many opportunities in Asia.”

Boosting the amount of trade between SMEs in Europe and Latin America will be a key foundation of trade ties between the two regions but inequality is a much bigger problem for the region’s countries than in other parts of the world, said Laura Frigenti, Director of Strategy and Operations for the Latin America and Caribbean Region at the World Bank.

The region represents a very interesting market for European SMEs, said Elar Eduardo Paz Vargas, President of the Bolivian Chamber of Industry, Commerce, Services and Tourism of Santa Cruz (CAINCO), while the productivity of European companies holds some useful lessons for their counterparts in Latin America, where productivity is much less. “For SMEs in Latin America, this integration is very logical. Having access to European markets is quite difficult, but also part of the solution for our economies. We need to reinforce the pillars of our co-operation.”

All SMEs are not equal, pointed out Mario Pezzini, Director of the Development Centre of the Organisation for Economic Co-operation and Development (OECD). Traditional SMES in the informal sector, often one-man operations with no formal training, can be knocked back into extreme poverty by any kind of setback. These businesses need improved social coverage to make them more resilient, while more advanced companies need strong competition laws and less red tape.

Those businesses that have carved out specialist niches for themselves need access to innovation so they can develop, Pezzini added. Meanwhile, the whole sector – indeed the whole economy in many Latin American countries – is weighed down by a poorly-functioning public sector which is hampered by the fact that many people do not pay their taxes.

Yet the government can play a big role in making SMEs more successful, said Carlos Guzmán Bofill, Director General and Chief Executive Officer of ProMéxico. “SMEs are not going to export on their own to other SMEs in other countries. They need to be part of a product chain. We can help them with that.”

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