India's trade with Latin America in 2012 - some surprises

The surprises first.

- India's trade with Latin America has gone down in 2012 in comparison to 2011. This is the second time the trade went down in the last decade when it was steadily growing.  The earlier decline was in 2009 at the height of global crisis. The trade with the top seven countries of the region declined by 15% from 25274 million dollars in 2011 to 21302 m in 2012.

- Fall in India's exports to the region was marginal. Exports to the top seven destinations of Latin America were 11169 m as against 11267 m in 2011.

- Imports from the region went down significantly. Imports from the top seven countries of the region decreased by 27% in 2012 ( 21302 m ) from 2011 ( 25274 m )

- Argentina which had been the third largest destination ( corresponding to its position as the third largest market of the region) slipped down to sixth position with just 573 million dollars.

- Exports to Colombia crossed the billion dollar mark for the first time with 1042 million dollars. Colombia is number three for Indian exports after Brazil ( 5043 m ) and Mexico ( 2698 m ).

- Peru was the fourth largest destination with 742 million dollars and Chile climbed to fifth rank with 658 m $.

- The highest increase in exports in 2012 were in the cases of Chile ( 64 % ) and Peru ( 45% ).

- Ecuador overtook Venezuela as the seventh largest destination with 231 m$ as against 182 m for Venezuela.

- Exports to Brasil and Venezuela went down in 2012.  Exports to Brasil were 5043 m $ in 2012 down from 6080 m in 2011. Exports to Venezuela declined to 182 m in 2012 from 196 m in 2011. Exports to Argentina increased only marginally from 560 m in 2011 to 573 m in 2012.

Highlights of India's imports from Latin America in 2012:

- Brasil remained as the top source of imports with 5577 m $, up from 3200 in 2011. Crude oil and raw sugar were the major imports.

- Imports from Venezuela declined to 3989 m from 5167 m in 2011. crude oil was the main import.

- Imports from Mexico increased to 2833 m from 1770 m in 2011. Crude oil was a significant part of the imports.

- Imports from Chile ( copper mostly) increased to 2637 m from 1780 m in 2011 while imports from Argentina ( soya oil) went up marginally to 1264 m from 1210 in 2011.

In terms of total trade, Brasil retained its position as India's largest trading partner with 10620 m $ followed by Mexico ( 5531 m) and Venezuela ( 4171 m )

Some explanations:

-Exports to Argentina and Venezuela suffered from local restrictions, controls and policy uncertainties. These are the only two countries which have gone back to the bad old system of foreign exchange controls. Brazil has become slightly protectionist in trade and its GDP growth in 2012 was around just one percent.


- In contrast, Mexico, Colombia, Chile and Peru ( these four have joined together and formed Pacific Alliance recently) follow open foreign trade policies. Their macroeconomic policies are more stable, predictable and pro-business. Peru is the latest rising star in growth and investment. Colombia's prospects are brightening with their control over the guerillas and drugs and pursuit of pragmatic policies. Mexico has become more optimistic and confident after having regained its manufacturing and exports growth. The new young and dynamic President Enrique Pena Nieto has raised the expectations even more. Chile has, of course, remained as the most stable and best managed economy of the region.

what about Central America?  Foreign trade data of 2012 for some central american countries are not available yet. India's trade with this sub region has been growing steadily in recent years.

Action?
Of course, India needs to analyse the reasons for the unexpected fall in exports to Latin America in 2012 . The region had, after all , shown GDP growth of 3.1 % in 2012 unlike Europe, US and Japan which had been grappling with recession, weak growth and lots of other problems.

Latin America is projected to grow by 3.8% in 2013 and is set on the course of sustaining the growth in the years to come. Indian business needs to intensify its focus and take advantage of the opportunities in this promising region of growth and prosperity. The business from the New Latin America and the New India are discovering new synergies and complementarities as they interact more and more with each other.

Mexican IT company Softtek acquires Indian software firm

This is the first time that a Latin American IT company has acquired an Indian software firm to make entry into India. So far it was the other way. The Indian companies have acquired and established operations in Latin America employing 20,000 Latin Americans.

Softtek, the Mexican IT firm has now acquired an Indian software company Systech Integrators, founded by Indian Americans and headquartered in San Jose, California with centers in India and US. Systech specializes in SAP solutions and services.

Softtek employs 8000 staff and operates in 30 countries including in India and China.

Another point of interest - Gabriel Rozman, the Executive Vice President of TCS and who established TCS in Latin America was the CEO of Softtek in 2000 before joining TCS in 2001.

Boom in mining investment in Peru

There are 52 ongoing mining projects in Peru with 53 billion dollars of investment in the coming ten years.

In 2012, the government gave 4668 mining permits to 582 companies up from 3100 in 2011.

Peru expects to increase its copper production from the current level of 1.3 million tons to 5 m tons by 2025. Peru is currently the third largest coppoer producer. Chile, the number one, produces 5.7 m tons
Mining accounts for 15% of the GDP of Peru.

The big investments include
- Chinalco ( Chinese) - 2.2 bn $ copper mine
-Newmont - 5 bn in gold and copper
-Anglo American - 3 bn
-Xtrata - 6 bn

One of the major challenges for mining is the protests from local communities displaced and affected by the mining operations. There have been more than 200 conflicts some of which turned violent resulting in the death of some protestors. Chinalco is spending 150-200 m $ for resettlement of the affected families but the community leaders demand 300 m. Other companies are also making provision for " social funding" to avoid the social tensions. Fortunately, Ollanta Humala, the leftist president of the country, is able to manage the conflict between the miners and the local communities with his leftist credentials.

Brazilian investment in new hydroelectric power

Brazil is investing in 34 new dams to be completed by 2021 to increase the generation of hydroelectricity by fifty percent.
The two biggest are:
the 7.5 billion dollar Jirau Dam.
and the Belo Monte project, to be completed by 2015 at a cost of 9 billion dollars, will produce 11,000 MW.
90% of power consumed by Brazil comes from the hydroelectric sector.
Itaipu power plant alone accounts for 25% of the Brazilian electricity generation with its 14000 MW capacity.
The biggest challenge is not finance or technology. It is the coalition of motivated western NGOs and the media who use the bogey of Amazon rain forest and environment. They carry out misleading propaganda and try to put obstacles in the way of Brazilian economic development.

Devaluation of Venezuelan currency

The Venezuelan government devalued the currency by 32% to 6.3 Bolivars for a dollar from 13 February. This was not unexpected. It was predicted for some time because of the large fiscal deficit which reached 11% of GDP in 2012. 

This is the fifth devaluation in nine years.

The black market rate is 19.53 Bolivars for a dollar. 

Imports are constrained by the delays and restrictions in releasing foreign exchange by CADIVI, the control agency of the government.

Shortages of food items, empty super markets, chaotic distribution system and the nationalisation and mismanagement of many companies have made a Cuba out of Venezuela.

The economy and secuity situation of the country are as bad as the cancer of Chavez.

The Bolivarian Revolution and the 21st Century Socialism of Chavez which started with good intentions have become nightmares. While the condition of of poor people have become better under Chavez, the economy, the society and the country in general have suffered long term damages.