A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
look beyond the headlines, and, as our special report shows, something remarkable is happening in Latin America. In the five years to 2008 the region’s economies grew at an annual average rate of 5.5%, while inflation was in single digits. The financial crisis briefly interrupted this growth, but it was the first in living memory in which Latin America was an innocent bystander, not a protagonist. This year the region’s economy will again expand by more than 5%. Economic growth is going hand in hand with social progress. Tens of millions of Latin Americans have climbed out of poverty and joined a swelling lower-middle class. Although income distribution remains more unequal than anywhere else in the world, it is at least getting less so in most countries. While Latin American squabbling politicians blather on about integration, the region’s businesses are quietly getting on with the job—witness the emerging cohort of multilatinas.
Brazil, the region’s powerhouse, is the cause of much of the excitement. But Chile, Colombia and Peru are growing as handsomely and even Mexican society is forging ahead, despite the drug violence and the deeper recession visited on it by its ties to the more sickly economy in the United States.
Two things lie behind Latin America’s renaissance. The first is the appetite of China and India for the raw materials with which the continent is richly endowed. But the second is the improvement in economic management that has brought stability to a region long hobbled by inflation and has fostered a rapid, and so far sustainable, expansion of credit from well-regulated banking systems. Between them, these two things have created a virtuous circle in which rising exports are balanced by a growing domestic market.
Latin America Tourism
Latin America, beset in the past by debt defaults, currency devaluations and the need for bailouts from rich countries, is experiencing robust economic growth that is the envy of its northern counterparts.
Strong demand in Asia for commodities like iron ore, tin and gold, combined with policies in several Latin American economies that help control deficits and keep inflation low, are encouraging investment and fueling much of the growth. The World Bank forecasts that the region’s economy will grow 4.5 percent this year.
Recent growth spurts around Latin America have surpassed the expectations of many governments themselves. Brazil, the region’s rising power, is leading the regional recovery from the downturn of 2009, growing 9 percent in the first quarter from the same period last year. Brazil’s central bank said Wednesday that growth for 2010 could reach 7.3 percent, the nation’s fastest expansion in 24 years.
After a sharp contraction last year, Mexico’s economy grew 4.3 percent in the first quarter and may reach 5 percent this year, the Mexican government has said, possibly outpacing the economy in the United States.
Smaller countries are also growing fast. Here in Peru, …, gross domestic product surged 9.3 percent in April from the same month of last year.
I think the India-Latin America trade corridor is one of the last frontiers in business. India does more trade with Africa – 2-way flows about $40 billlion, which has a fraction of the overall GDP($2,5Tn at PPP) compared to Latin America (almost $6Tn at PPP) – 2-way flows about $16billion. So, the future potential is quite rosy.
“We are very upbeat about Latin America and view it as the next frontier of growth,” says Harshul Asnani, head of Latin America and US West operations for BPO company TechMahindra.
The rapid growth in IT and network spending, increased mobile/broadband penetration and large scale consolidation in the telecoms sector in Latin America offers “vast potential” for a specialized telecom-focused systems integrator like Tech Mahindra, he says.
Omar Momin, vice president of strategy and M&A at Godrej Industries, also sees strong Latin America potential. “There are tremendous opportunities in Latin America that fit in with our strategic objectives,” he says. “These emerging markets have characteristics and consumer demographics similar to India with significant middle of the pyramid populations. They also hold tremendous potential in terms of growth in the coming decade and give the Godrej Group an opportunity to serve the needs of Latin American consumers better.”
One of the reasons why India´s trade with Latin America is below potential is the inadequate attention Indian business have paid to this region in the past,” says R. Viswanathan, India’s ambassador to Argentina, Uruguay and Paraguay and his country’s top Latin America expert. “Now this is changing. [Indians] are impressed by the strength and resilience of Latin American markets which have withstood the U.S. crisis and are marching ahead despite the gloom in Europe.”
In terms of sectors, he predicts that Indian investment will grow in IT, agribusiness, mining and petroleum in the coming years.
Meanwhile, lighting products manufacturer Havells Sylvania is also looking at expanding. “We are open to new proposals and are looking at both organic and inorganic growth in Latin America [along the] lines …Havells in India has aggressively grown from year to year,” says Kapil Gulati, the Costa Rica-based general manager and director of the Americas for Havells Sylvania. “We plan to initiate assembly operations in a few countries.”
In the just released, OECD agro outlook report, thru 2019, Latin America is projected to be the fastest growing agro production region.
I spoke about the opportunities for investing in various aspects of agribusiness value chain- encompassing contract farming, logistics, food processing in South America – specifically the Mercosur countries (Brazil, Argentina, Uruguay and Paraguay), at a recent CII Indo-LAC Conclave in New Delhi.
I also emphasized that the entrepreneur-driven, private-sector led agribusiness model, with little to no government subsidies in the the Mercosur countries is a safer long-term bet for Indian investors, who need to follow in the the footsteps of their American and European counterparts.
The FAO estimates that in the next 40 years 120 million additional hectares need to be brought under cultivation to feed the increase in world population to about 9.2 billion by 2050. Much of this will be in the Mercosur countries where currently about 1/3 of potential farmland is being utilized.
Speech in 2 parts below:
I was invited to speak at the CII Partnership Summit held in Chennai at the session on New Trade Routes. I spoke on how Latin/South America is well-positioned as the world’s agriculture outsourcing hub, and can meet India’s needs for food security. See video below:
The recent price rise in food items which has caused heartache and wallet-ache for many Indian households is a phenemenon that will worsen in the years ahead. The near quadrupling in the price of toor dal (split pigeon pea) over the last 3 years is only a trailer in the coming horror movie of spiraling food inflation. With Indian incomes forecast to rise over the next decades, food consumption will skyrocket. On the edible oil front, the annual additional deficit of 350,000 to 450,000 tons projected by the Solvent Extractors Association of India is the equivalent of every Indian eating an additional samosa or bhajji every year; this is an exponential increase in demand. The same is the case with pulses and other commodities.
Forgetting the recent blame game for rapid food price in India – accusing politicians, traders, speculators, hoarders for this recent food increase, the main reason has been prolonged underinvestment on the supply side of food production, because Indian farming has been a sector with terrible incentives. Not surprisingly, 45% of Indian farmers want to quit farming. Add to that rapidly falling water tables in North India – India’s bread basket, and erratic monsoons from climate change you have the recipe for domestic food output falling short of demand, repeatedly in the future.
Latin America can meet India’s food needs, a place where agriculture commands the status of IT in India, with the best brains and fortunes in that sector. Indian companies should join US, European companies who have realized this, and participate in the agri value chain there – investing in contract farming to agroinputs to food processing to logistics.
India was the leading economy of the world for much of the last 2000 years from wealth generated from agricultural surplus. As Jim Rogers says, India should be the greatest agricultural country in the world, not America, with great weather, soils, climate. But, government policies militate against farming as a lucrative profession with antiquated laws on farm holding limits and buying policies for output.
Indian farmers are political cannon fodder; once they are economically empowered politicians are redundant. So, farmers will continue to be kept in economic intensive care by the political class. It can be a long wait for any meaningful changes in farm policies.
Traveling through the farm areas of Latin America in Uruguay, Brazil and Argentina with great soils and weather help me imagine what a paradise, agricultural and otherwise, historic India with 50 million people over its current land area must have been. And farming in these Latin American regions is entirely in private sector hands and they are all export powerhouses. It is in these regions that Indian entrepreneurs should deploy capital for augmenting existing local agribusiness ventures or starting new ones. Priority areas include production of pulses and edible oils.
via The Economic Times.
MS Swaminathan, top farm scientist and one of the architects of India’s green revolution, has warned that the country would face a food crisis if agriculture and farmers were ignored.
“We are on the verge of a disaster. We will be in serious difficulty if food productivity is not increased and farming is neglected,” Mr Swaminathan said on the sidelines of the 97th Indian Science Congress being held here. “The future belongs to nations with grains and not guns. The current food inflation is frightening. If pulses, potatoes and onions are beyond the purchasing capacity of the majority, malnourishment will be a painful result,” he said.
“I want the government to act upon three major recommendations,” the Rajya Sabha member said. “It should change compensation laws as farmers do not have pay commissions like the sixth pay panel; attract youth to farming; and amend the Women Farmers’ Entitlement Act to allow women avail bank loans without their land as a collateral security .”
Key Takeaways from this OECD report:
1) Regarding competition with India in 3rd markets, Latin america has little to fear from India (at the moment). (Ed: Even going forward only some sectors of the Brazilian and Mexican economies would come under direct competition from Indian players. Almost all other economies should benefit from complementarities.)
2) Major economies in the region have a lot to win by trading with Indian partners.