domingo, 21 de septiembre de 2008

Latin American nations trading close to home

Latin American nations trading close to home
KNOWLEDGE@WHARTON • September 21, 2008

According to a new report by Aladi, the Latin American Integration
Association -- an organization of 12 Latin American countries, including
Mexico and Cuba -- there has been a significant increase in the volume
of intraregional trade. "Exports have increased by 31.5 percent, and
imports have grown by 28.1 percent" during the first quarter of 2008
alone, when intraregional trade grew to about $6 billion.
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Several factors are responsible for this new trade dynamic, says the
report, which uses data supplied by the trade and investment agencies in
each country. On the one hand, the devaluation of the dollar has pushed
up most Latin American currencies, inspiring companies to look for new
alternatives when it comes to pricing and logistics. Add to this the
increase in the global price of petroleum and many basic commodities
produced in the region. This trend has provided an opportunity for
producers of those commodities to boost their revenues, and it has
raised the region's Gross Domestic Product. During the first quarter of
2008, the average GDP growth rate in Latin America was 5.2 percent,
according to Aladi.

Javier Díaz Molina, president of the National Association of Foreign
Trade in Colombia, says Latin America has become an attractive market
for the region's importers and exporters. "Traditionally, Colombia's
foreign trade has been focused on the United States and Venezuela, two
countries that collectively represent about 50 percent of our total
sales today. But beyond those destinations, other nations in South
America, Central America and the Caribbean now offer a range of business
possibilities."

Most Latin American countries have increased purchasing power, creating
opportunities for trade. In Colombia, business people, unions and some
state-owned institutions have begun to look more thoroughly at their
neighboring markets to identify new sales opportunities in the region.
"In the case of Colombia, two key factors are the dynamics of
international demand and foreign exchange rates. When it comes to
exchange rates, things are not going well: The Colombian peso has been
significantly revalued. However, demand is positive, and it is always
good to have buyers in your own neighborhood," notes Díaz Molina.
A Great Waste

Jorge Alberto Velásquez, professor of international trade at the
Bolivarian Pontifical University of Medellín (Colombia), believes that
the slow pace at which countries like Colombia have forged links with
their neighbors can be described as an "enormous waste" of an
opportunity. Velásquez notes that Colombia's failure to participate in
Latin American markets "demonstrates, to some extent, insufficient
action and energy when it comes to [doing business with] the rest of the
neighborhood before jumping into other markets further away."

When it comes to the seven leading countries of the region, Colombia's
share of intraregional trade varies from 12.4 percent of Venezuela's
bilateral trade to a mere 0.2 percent in the case of Mexico. In 2007,
trade with Colombia represented 10.3 percent of Ecuador's entire
imports. In Peru, that figure was 4 percent; in Chile, 0.9 percent; in
Brazil, 0.4 percent; and in Argentina, only 0.2 percent. Velásquez
believes these figures are very low if you take into account the fact
that these countries have trade agreements that lower tariff duties and
reduce non-tariff barriers to market access.

"Chile provides a striking case; we [Colombians] have a treaty [with
Chile] that permits 97 percent of all Colombian products to enter duty
free. And yet, our share of that country's total imports isn't even 1
percent,"he says. He believes that the best opportunities for Latin
American companies are in other markets in the region, where cultural
and linguistic affinities as well as geographical proximity can make it
easier to sell.

Velásquez says that this opportunity has been wasted, because "there is
a shortage of trade intelligence, confidence and knowledge of
neighboring markets." In addition, the mass media in Latin America have
focused on the region's trade agreements with the United States and Europe.
Moving ahead

Germán Umaña, a professor of economics at the National University of
Colombia, says it is a mistake to assert that there isn't enough
intraregional trade in Latin America. "Yes, there is some trade;
however, there is not enough trade in commodities and raw materials.
Those sorts of products go to developed countries. Remove petroleum and
basic materials [from the figures], and you'll see that exports are
mainly manufactured goods and other products that have higher added
value." Umaña is the director of the National University of Colombia's
Research Center for Development.

"Almost every Colombian business person recognizes today that the
Venezuelan market [for Colombian exports] is much more significant than
the United States, because it involves mostly value-added manufactured
goods and products that generate more jobs and development," he says.
However, he regrets the limited impact that Colombian trade has had on
its neighbors in Mercosur -- especially in Brazil and Argentina, the
largest members of the trading bloc, which also includes Uruguay and
Paraguay.

Confronted with the crisis of a multilateral trading system, the
countries of Latin America need to align themselves with alternatives
that are sustainable and comprehensive. One of them is Unasur, the Union
of South American Nations, which is backed by the governments of
Venezuela, Argentina and Brazil. Unasur's goal is to promote more
opportunities for integration and development among the nations of South
America. "There is a political will in these countries," Umaña says.
"Brazil, for example, has a position of leadership in South America, and
it is important to move in [the same] direction."

However, there are a wide range of political viewpoints in Latin America
today. That is the main barrier that needs to be overcome to achieve a
higher level of regional integration, says Francisco Giraldo, a
professor of international finance at Colombia's Externado University.

Giraldo believes that when it comes to strengthening these markets, the
main problem is "the political variations and changes in these
countries, which lead to too many changes in trade flows." For example,
Giraldo notes, two countries may have a good political relationship with
each other, under which trade prospers, but when that relationship
deteriorates, the first thing that suffers is trade. This has been the
case recently when tensions grew between Colombia and Venezuela, between
Bolivia and Peru, and between Chile and Bolivia -- all because of verbal
confrontations between those countries' presidents. "Politics has a
great deal of influence on trade in Latin America, unlike the situation
in Europe. There, given the high level of integration, no matter who
governs those countries the economic dynamics remain the same. This
problem reflects the immaturity of many Latin American countries," notes
Giraldo.
An Investment Streak

Some months ago, José Angel Gurría, secretary general of the
Organization for Economic Development, unveiled the OECD's Global
Investment Report. Gurria emphasized that "Latin America plays an
increasingly important role in the global economy. Latin America is one
of the main engines of globalization, with annual foreign trade of $1.2
trillion -- the equivalent of 71 percent of China's foreign trade;
foreign direct investment of $72 billion; and annual remittances of at
least $48 billion."

Investors in Latin America have awakened to the importance of increasing
their presence in their neighboring countries. If the 1990s were
characterized by the inflow of European and U.S. investment into Latin
America, the last five years will be remembered for the movement of
capital among Latin American countries, experts say. Imports, exports
and mergers that were unthinkable a decade ago have begun to play a key
role in the business environment.

Brazil and Mexico are two of the biggest players in that regard. For
example, Petrobras, the Brazilian oil company, has either invested in or
moved into most other South American markets. Camargo Correa, the
Brazilian cement company, has acquired Loma Negra of Argentina.
Votorantim and Belgo Mineira, both mining companies, have acquired
Colombia's Acerias Paz del Rio and Argentina's Acindar, thus
strengthening their presence in the region.

When it comes to Mexico, the investments of Cementos de Mexico (Cemex)
stand out. Cemex is one of the three largest cement makers in the world,
with plants in Central America, the Caribbean, Colombia, Argentina, and
Venezuela. Another Mexican company following this approach is América
Móvil, which has 147 million customers in the region and is the leading
provider of cellular phone service, with a 65 percent market share in
Brazil. Meanwhile Mexichem, the largest chemical and petrochemical
company in Mexico, has acquired Brazil's Amanco, Latin America's leading
producer of plastic tubing. Mexichem now operates plants in 13 Latin
American countries.

For its part, Colombia's Compañía Nacional de Chocolates has expanded
into Central America, through its Cordialsa division, and Colombia's
Casa Luker has acquired Panama's Galletas Pascual. Peru's Alicorp, which
belongs to the Grupo Romero, one of that country's largest makers of
personal care products, as well as Peru's Grupo Gloria, an industrial
conglomerate active in food, pharmaceutical and transportation markets,
have been acquiring shares of companies in Argentina, Ecuador and Colombia.

Knowledge@Wharton is the online journal of the Wharton school of
Business at the University of Pennsylvania.

http://www.delawareonline.com/apps/pbcs.dll/article?AID=/20080921/BUSINESS/809210330

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