The Latin American Economic Outlook 2016 published by the OECD has provided an updated status of the trade relations between China and Latin America. The slowdown of the Chinese economy, combined with the recession in Latin America, has led some media to spread alarmist opinions. At Gedeth, we prefer to approach this situation from a positive viewpoint and by analysing the report data we can identify the significant opportunities that have arisen.
New opportunities in China for Latin America
Latin American companies have been affected by changes in the China, with an economic slowdown and changes in the production model: the drop in the price of raw materials represents a short-term loss of potential in this market. Nevertheless, as the report notes, it is estimated that China will increase its per capita consumption of products such as processed meat, fish and fruit, which means new business opportunities and a demand for this area that is expected to rise. It is in the hands of Latin American agricultural businesses to take this opportunity by promoting the value of their products over other countries’.
The same applies to the mining sector. It needs to define its strategies and incorporate better logistics; it will be interesting to watch the outcome of the Chine projects in the state of Minas Gerais, which attracts a third of Chinese investment in Brazil; or Mirador in Ecuador, where the Chinese company Ecuacorriente has invested billions of dollars.
The number of Chinese tourists visiting Latin America is dramatically increasing. For the burgeoning Chinese middle class eager to travel, Latin America is an affordable market that can accommodate this growing demand.
According to the OECD, the structural transformation of the Chinese economy also creates opportunities in a wide range of services, such as management and transnational services for the global networks of Chinese multinationals, or knowledge-intensive services, such as information technology and telecommunications.
Challenges for Latin America
In education, the data shown in the report are devastating. While in China only 22% of companies have difficulty filling vacancies, in Latin America this percentage is over 50% Therefore, the promotion of education must be one of the main objectives for Latin American governments: this opens potential investment opportunities in technical and vocational education in order to create high-quality jobs, which today are in high demand.
Latin America is poised to compete industrially in the global market, through the modernization of its infrastructure and by applying political and economic reforms. However, “Governments must rebuild the financial shield by expanding fiscal space and enhancing the credibility of central Banks to apply countercyclical management strategies for monetary policy”, the report advises, recommending that they should also encourage investment attraction and allying with local partners. On the other hand, it points out that China is expected to continue to invest in traditional sectors. The presence of Chinese commercial banks is helping to diversify the portfolio of China.
Correct multilateral governance, with a development strategy that is in line with the transformation of China, is necessary to maintain the successful alliance between China and Latin America.
At Gedeth, we’re confident about Latin America’s potential. Its wealth of natural resources and the growth of consumer markets across the region are very attractive elements to international investors. For companies looking to take advantage of growing and changing international markets every situation presents its challenges, but with the challenges, there are even better opportunities that can be exploited.
However, itss important to be aware of the shifting political and economic environments of each Latin American country and to understand first-hand the challenges and opportunities that these create. Gedeth, through its international network of partners, has has affiliates across Latin American and China, guaranteeing direct knowledge of the field.