Distinguished Lectures Distinguished Lectures

Doing business with Latin America

  • Distinguished Lectures Detail

    By: Amb (Retd) R Viswanathan
    Venue: GITAM, Andhra Pradesh
    Date: July 27, 2019

Many students of the Gitam School of international business might think that Latin America, being remote and unfamiliar, should be less important for India’s exports than some neighbours and traditional trade partners. The students of global logistics and supply chain might assume that India’s exports to the region might not be competitive on the ground that the freight should be high. Here are some facts and figures to open their eyes:

India exported more to the distant (15000 km) Guatemala ( 305 million dollars) than to the neighbouring (3400 km) Cambodia ( 196 million $) in 2018-19,.

India’s export of 181 million dollars to the remote and small Uruguay (15000 km away; population 3.4 million) is more than to Kazhakstan ( 143 million dollars) which is 1600 km from Delhi and has more than five times population with 18 million.

India exported more (216 m $) to Dominican Republic (DR) than to the near by Uzbekistan ( 201 m) which has double the population of DR.

India’s exports to Central America ( 968 million dollars) are more than to the Central Asian Republics ( 442 m $) although the latter is close by and has more population (72 million) than Central America’s 42 million.

India’s exports to Mexico ( 3.84 billion $) are more than the exports to Myanmar ( 1.2 bn), Russia (2.4 bn), Canada (2.9 bn) or Egypt (2.9 bn) or Nigeria ( 3 bn).

Mexico is the second largest destination for India’s vehicle exports with 1.61 billion dollars. This is more than the exports to neighbouring Bangladesh – 1146 million, Nepal -738 m, Srilanka – 473 m.

India’s vehicle export to Colombia ( 360 m) is four times the export to neighbouring Myanmar -72 m.

India’s motorcycle exports to Colombia ( 216 m) are more than the exports to Srilanka ( 215 m) and Nepal ( 186 m). Colombia is the third largest export destination in the world for Indian motorcycles. In 2014-15 it was the top destination, now overtaken by Bangladesh (261 m) and Nigeria (240 m).

2018-19 is not the first year that Latin American countries have overtaken neighbours and traditional partners as more important for India’s exports. This trend has started since 2010 when the Indian exporters started exploring the Latin American market more seriously. Even with longer shipping time and heavier freight cost, Indian goods have become competitive in Latin America. Some brands such as Bajaj, Hero, Mahindra and Tata have become popular in the region. Indian motor cycles have become the leaders with the highest market share in a few countries.

The growing importance of Latin America to Indian companies is best illustrated by the success story of UPL. This largest Indian agrochemical firm, has more business in Brazil (1.2 billion dollars) than in India. Brazil's share is 25% of the global business of UPL. Latin America accounts for 1.6 billion dollars (34% ) of the total global revenue of 4.7 bn of UPL. The region’s share is more than that of Europe, US or Asia.

Trade

According to the figures of the Ministry of Commerce, India’s exports to Latin America increased by 9.6% in 2018-19 ( April to March) reaching 13.16 billion dollars from 12 billion in 2017-18. The Imports from the region went up by 5.3% to 25.73 billion from 24.44 bn in 2017-18. Total trade with the region has gone up by 6.7% to 38.89 bn from 36.45 bn last year.

Mexico has overtaken Brazil as the top trading partner of India in Latin America for the first time in 2018-19.

Trade with the 19 countries of Latin America is given in the table below:

Figures in millions of dollars

Country

exports

imports

Total trade

Mexico

3841

5577

9418

Brazil

3800

4406

8206

Argentina

563

1955

2518

Colombia

1117

1055

2172

Chile

990

1238

2228

Peru

721

2405

3126

Venezuela

165

7259

7424

Ecuador

298

219

517

Bolivia

105

852

957

Uruguay

181

43

224

Paraguay

161

21

182

Guatemala

305

16

321

Panama

227

39

266

Honduras

167

18

185

Costa Rica

136

51

187

El Salvador

79

4

83

Nicaragua

54

4

58

Dominican Republic

216

567

783

Cuba

35

4

39

Total

13161

25733

38894

 

Exports

Mexico is the top destination in the region, having overtaken Brazil in the last two years.

Vehicles are the leading item of exports to Latin America which accounts for 18% of India’s global vehicle exports. India’s exports of 460 m % of motor cycles to Latin America are 22% of India’s global exports ( 2127 m). Major destination of vehicle exports in the region are: Mexico -1.62 billion dollars, Colombia-360 million, Brazil -319 m, Chile -305 m and Guatemala -90 m.

The region has emerged as a significant destination for pharmaceutical exports. Major importersof Indian pharmaceuticals: Brazil – 270 million dollars, Chile -91 m, Peru -70 m, Colombia- 62 m, Mexico – 49 m and Guatemala -43 m.

The main export items of India to the region are given in the table below

Figures in million US Dollars

vehicles

3296

Organic chemicals

1219

Equipments and machinery

1167

pharmaceuticals

920

Chemical products

861

Iron and steel products

813

Synthetic fibres

619

textiles

613

Plastic products

540

Diesel

417

cotton

390

dyestuff

382

Aluminium products

302

Rubber products

253

 


Imports

Latin America contributes to India’s strategic energy and food security by supplying 12% of India’s global imports of 117 billion dollars of crude and 22% of India’s vegetable oil.

The competition of Latin American crude and edible oil have put pressure on the monopoly suppliers of these items from the Middleast and South East Asia ( Indonesia and Malaysia supply palm oil) to offer to India lower prices and better terms.

The suppliers of crude were: Venezuela – 7.25 billion dollars, Mexico – 4.27 billion, Brazil – 1.6 bn, Colombia – 571 m, Ecuador -128 m and Argentina – 47 m.

The region has abundant reserves and the potential to meet India’s needs of Lithium ( for electric vehicles) and pulses in the long term.

India has started importing raw gold from Latin America in the last five years. Peru is the top supplier at 2.2 billion dollars, followed by Bolivia 849 million, Brazil -541 m, Dominican Republic – 537 m and Colombia -380 m. The direct imports from the region have helped India to cut costs by saving from the margins paid to gold sellers in Switzerland and UAE.

Venezuela continued as the main source of imports in the region with its crude oil supply. But this will go down drastically this year since India has been forced to stop import of Venezuelan oil by the US sanctions. But India can source more crude from other Latin American suppliers.

Figures in million US Dollars

Petrolum crude

14080

gold

4556

Vegetable oil

2194

copper

1364

Equipments and machinery

1054

Wood and pulp

454

Raw sugar

437

chemicals

290

Iron and steel products

281

Fruits and vegetables

154

Plastic products

145

 


Investment and joint ventures

Indian companies have invested around ten billion dollars in Latin America in sectors such as energy, agrochemicals, pharmaceuticals and IT. The Latin American companies have invested about a billion dollars in India in areas such as cola drinks, multiplexes, theme parks and autoparts.

The Market

Latin America is a large market of 600 million people with a combined GDP of 6 trillion US dollars. The regions’ imports are around a trillion dollars.

The economies of the region are doing relatively well. The GDP of the region is projected to grow by a modest 1.3% in 2019 and continue its growth trajectory in the medium and long term. The average inflation and external indebtedness are in manageable figures. Democracy has become stronger in the region with more political stability.

The only exceptions are Venezuela and Argentina.

Venezuela’s GDP is forecast to shrink by 10%. The country suffers from hyperinflation of several hundred thousand percent, devaluation of the currency by 99%, shortages of essential consumer items and energy shortage. The economic misery is compounded by the political crisis, break down of instituitions and social instability. The US sanctions have made the economic situation worse.

Argentina’s GDP is expected to contract by 1.2% in 2019. The inflation is over 40% and the country has contracted a debt of 57 billion dollars from IMF. The country is preparing for elections in October. It is hoped that 2020 will see recovery of the economy.

Brazil and Mexico, the two largest markets are set to grow in the coming years with the new Presidential terms starting from the beginning of 2019.

China-Latin America

Chinese trade with Latin America reached 305 billion dollars in 2018. Of this their exports were 148 billion and imports 157 bn. The Chinese have a target of 50 billion dollars by 2025.

They have given credit of 150 billion dollars to promote and facilitate exports and investment.

Moving forward

India’s exports can be increased to 25 billion dollars in the next five years if the exporters, the export promotion councils, the government and the embassies coordinate with a plan of action seriously and systematically. India should get inspiration from the Chinese who have set a target of 500 billion dollars of trade with Latin America by 2025 taking it up from their 2018 figures of 148 billion exports and 157 billion imports.

The Commerce Ministry of India should revive its Focus LAC programme which had helped in the past in encouraging and supporting Indian exporters to explore the business opportunities in Latin America. There could be a 10 year plan to take our exports to 30 billion dollars. Annual plans and reviews should be instituitionalised. China has 10 year plan to take trade to 500 billion and investment 250 bn in the period 2015-25.

The Export Promotion Councils should also have their own sectoral 10 year plans. They should take delegations atleast once a year to the region and should participate in Latin American trade fairs regularly. Both the councils and embassies should be asked to prepare professional market studies.

India should expedite conclusion of trade agreements with Mexico, Colombia and Peru which are major destinations for exports.

India should extend large lines of credit to Latin American countries as it is doing in the case of Asia and Africa. While China has extended about 150 billion dollars of credit to Latin America, India’s credit is just under two hundred million dollars. A one billion dollar LOC for the region could be announced during the proposed visit of President to Latin America later this year. China has given credit of 150 billion.

India could become a member of the Inter American Development Bank in whose projects Indian companies can participate. China and South Korea are already members.

The annual India-Latin America Business Conclave needs to be scaled up and organised regularly by pooling and coordinating the efforts of CII and FICCI and other trade bodies and export promotion councils with substantive financial support by the government. ECLAC, IADB, CAF ( Latin American Bevelopment Bank), BCIE ( Central American Dev Bank) CDB ( Caribbean Dev Bank) and such regional organisations and banks should be coopted as permanent participants/sponsors in the Business Conclaves.

Indian universities need to be encouraged to open Latin America study centres and Spanish and Portuguese language courses. China has 65 Latin America study Centres. India has only three centres: one in JNU, another in Jindal University and the third in Goa University.

Latin America business events should be organised in second tier manufacturing centres such as Tiruppur, Coimbatore, Jullundur, Ludhiana, Kanpur, Ahmedabad etc in collaboration with Export Promotion Councils, CII, FICCI and other trade bodies as well as Latin American embassies in Delhi.

Heads of pharma regulatory agencies and Health Ministers from the region could be invited to visit India to see for themselves India’s manufacturing and quality control, so that they loosen the restrictions on registration of Indian pharma in their countries.

Eximbank should transfer its Latin America office from Washington DC to Sao Paulo/Buenos Aires to focus exclusively on the region.

This is a good time to accelerate the economic push into Latin America which has started attaching importance to India, the third largest export destination for the region’s exports after US and China. Disenchanted with the protectionist US and Europe and determined to reduce the overdependence on China, the Latin Americans see India as a large and growing market as well as a benign economic partner for win-win in the long term.

Andhra connection to Latin America

Allu Arjun, the famous Telugu actor sang and danced " Telusa…Telusa” at the Salar de Uyuni salt fields in Bolivia in 2016 for his film " Sorrainadu”.

There are tens of thousands of Saibaba followers in Latin America. Some of them are top business leaders and there are even some political leaders such as President Maduro of Venezuela.

Ongole bulls and Nellore cows have been imported into Brazil to cross breed with European cattle to help them withstand the tropical heat of Brazil.

The pharma city in Visakhapatnam can focus on the opportunity for export of pharmaceuticals to Latin America which already imports a billion dollar worth pharma products from India.

The IT companies in the city could explore the Latin American market where there are already over thirty Indian companies are operating.

The Vizag steel plant can export iron and steel products to Latin America which imported 813 million dollars from India last year.

Andhra business should get inspiration from the Hyderabad-based Vijay Electricals which is doing well in Latin America with its production of electric transformers in Brazil and Mexico.