Aug 02, 2010
India Could Become the "New China" For Latin American Exports
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
According to a study released by the Interamerican Development Bank (BID), India is now poised to become the new destination of Latin American exports similar to what happened with China during the past decade. With more than a billion people and a growth rate of 6.5 to 8% over the last decade, Latin American businesses feel that India will become the new area of growth for their exports.
Up until 1999, the amount of commerce between Latin America and China and India was about equal. Since 2000 though, the trade with China has exploded while the amount of trade with India has remained static. The BID study revealed that in 2007 China accounted for 6.3% of Latin America's commerce while India accounted for just 0.6%. The study's authors indicated that for each 1% increase in China's Grosso Domestic Product, Latin America's exports could increase by 2.4%. In the case of India, each 1% growth in its Gross Domestic Product would correspond to a 1.3% increase in Latin American exports.
Brazil is India's largest Latin American trading partner, but one of the obstacles to increased trade between Brazil and India is the fact that Brazil exports huge amounts of agricultural products and India still maintains high import tariffs on such products. Officials from both countries have been trying to reach an accord on this issue, but progress remains slow.
Between 1990 and 2008, the two countries have signed 23 memorandums of understanding concerning trade, but action on these memorandums has remained limited. Probably the biggest advance in increased trade has been joint ventures between companies from both countries. Petrobras from Brazil has signed a joint venture with the Indian ONGC to increase exploration for natural gas in India and the Brazilian company Marcopolo has joined with Tata Motors in India to manufacture buses.
The huge increase in trade between Brazil and China over the last decade was not necessarily due to increased efforts on the part of the Brazilians to ramp up exports, but rather due to the fact that Brazil had the raw materials that China was not capable of producing itself. China needed soybeans and other agricultural raw commodities and Brazil had ample land resources to increase agricultural production. China needed iron ore for its steel industry and Brazil had the largest iron ore deposits in the world. It was a win-win for both countries.
BID's authors feel the same synergies could occur between Latin America and India especially in the area of manufacturing, but in order to accomplish this, Latin American countries need to improve education, increase access to credit, and expand investments in science, technology, and infrastructure.