India-Latin America and Caribbean Economic Relations A Brief Note July 2009
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INTRODUCTION
India and the Latin American and Caribbean (LAC) region stand at opposite ends of the globe, yet view each other with friendship and warmth. India shares a common history of colonialism and struggle for independence with the region. In modern times, the two sides have articulated common positions on global issues such as global trade, climate change, and energy. With some of the Caribbean nations, India shares a special bond of people of Indian origin, who form a valuable link of friendship and understanding between the two regions. Given these factors, economic relations could have been closer, especially in the context of the rapid globalization process since the turn of the Millennium. Although mutual interest has deepened considerably, this has not translated into higher trajectory of trade and investment. Despite being separated by long distances, there is significant potential in stepping up economic relations on the foundation of large markets, complementary economic strengths and common status as rapidly-emerging economies. Recognising this, both sides have displayed keen interest at the political level to facilitate expansion of trade and investment. There is need for far greater interaction of private sectors in order to alleviate lack of information, low mutual interest, and the challenges of distance. Key recommendations for boosting economic cooperation include: x Building on operational preferential trade agreements to negotiate comprehensive economic partnership agreements x Focusing on investment-led trade as entry points to regional markets x Greater emphasis on services trade across sectors such as software, education and skill development, tourism, etc x Higher business-to-business interaction through dedicated sectoral and regional dialogue platforms x Incentivising new sea lines of communication With committed and dedicated measures from both sides, India and LAC regions can develop a paradigm of cooperation for developing economies, building on each other’s strengths and
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helping each other develop strengths in new areas. A target of tripling merchandise trade to $36 billion by 2013 from the level of $12 billion in 2007-08 can be envisaged, implying a modest CAGR of 25%. OVERVIEW The Latin American and Caribbean region consists of 44 countries encompassing Central and South America and the Caribbean. The LAC region has a population of around 567 million, one of the most diverse in the world with a composite mix of ancestries, ethnic groups, and races. Spanish and Portuguese are the predominant languages. The major trade blocs in the region are the Union of South American Nations comprising of the Mercosur (Argentina, Paraguay, Uruguay and Brazil) and the Andean Community of Nations (Bolivia, Ecuador, Colombia, Peru and Chile). The minor blocs or trade agreements are the G3 Free Trade Agreement, the Dominican Republic – Central America Free Trade Agreement (DS-CAFTA), the Caribbean Community (CARICOM), Central American Common Market (CACM), Enterprise for the American Initiative (EAI), Latin American Integration Association (LAIA) and the Central American Integration System (SICA). Mexico is also a member of the NAFTA. Many of the LAC countries are resource based economies, endowed with notable reserves of ores, and oil and gas. The region also has half of the world’s ten most economically unequal countries. At the same time, according to the Goldman Sach’s BRIMC report, by 2050 two of the world’s top economies would be from Latin America. ECONOMY The total GDP in terms of purchasing power parity of 32 LAC countries amounted to USD 5.9 trillion in 2008. According to the IMF, GDP (PPP) is expected to grow to more than USD 7.5 trillion by 2014. The growth is expected to come from domestic sources, notably consumption and investment. The GDP in the region grew by 4.2% in 2008. The LAC economy, which is heavily dependent on markets in the US and Europe, was affected by the global financial turmoil. According to IMF’s April 2009 World Economic Outlook,
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the Latin American region is expected to suffer a contraction of 1.5% in 2009. Mexico is expected to be the worst hit with a contraction of 3.7%, while Brazil’s GDP is expected to reduce by 1.3% and that of Argentina and Venezuela by 1.5% and 2.2% respectively. The IMF predicts the region’s economy to rebound in 2010, expanding 1.6%. LAC’s GDP (PPP): USD Billions
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5983.5
Total 358.6
Venezuela Uruguay
42.5
Trinidad and Tobago
27.0
Suriname St. Vincent
4.4 1.1
St. Lucia
1.8
St. Kitts and Nevis
0.8 245.9
Peru Paraguay
29.4
Panama
38.6
Nicaragua
16.6 1548.0
Mexico Jamaica
21.0
Honduras
32.7
Haiti
11.6
Guyana Guatemala Grenada El Salvador Ecuador Dominican Republic Dominica Costa Rica
3.1 67.0 1.2 43.7 107.0 76.3 0.7 48.7 396.6
Colombia
243.0
Chile
1981.2
Brazil Bolivia
43.4
Belize
2.5
Barbados
5.2
Bahamas, The
9.2 572.9
Argentina Antigua
1.6
Source: www.imf.org (Countries not included: Montserrat, Bermudas, British Virgin Islands, Cayman Islands, Cuba, French Guiana, Falkland Islands, Guadeloupe, Netherland Antilles, Martinique, Turks and Caicos Islands and US Virgin Islands)
LAC’s GDP (PPP) Growth:
5
8000.0 7500.0 7000.0
USD Billions
6500.0 6000.0 5500.0 5000.0 4500.0 4000.0 2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Year
Source: www.imf.org (Note: Estimate starts from 2008)
Main economic indicators – LAC: Population (million) GDP (PPP) (USD Trillion) GDP Growth (%) Inflation (%) Unemployment (%) ** Current A/C Balance (% of GDP) FDI Inflow (USD Billion) * Source: IMF, ECLAC* and www.latin-focus.com**
2008 567 5.98 4.2 7.9 6.4 0.75 128.3
2009 -1.5 6.6 7.8 - 8.1 2.2 -
INTERNATIONAL TRADE RELATIONS The LAC region is the third largest exporter and importer of merchandise among all developing regions. About 46% of the region’s merchandise is directed to the US, making it the region’s largest trading partner. An additional 25% was directed to other high income economies. According to the Latin Business Chronicle estimate, exports of the region in 2008 grew by 18% to USD 902 billion while imports increased by 23% to USD 857 billion. Service exports went up by 18% to USD 116 billion and service imports increased by 20% to USD 145 billion. LAC’s top 5 trade partners (2008):
USD Billions
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Rank
Exporter
Value
Importer
Value
1
US
349.9
US
313.1
2
China
63.9
China
82.8
3
Canada
29.4
Japan
42.5
4
The Netherlands
26.7
Germany
37.4
Japan
23.7
Italy
19.1
5 Source: IMF
In the Latin America and the Caribbean regions, exports are dominated by either agricultural or mining commodities. For some Central American countries and Mexico, due to the significance of “maquila” activities [import of items duty-free for value-addition and re-export], manufacturing is also an important sector. Important export commodities include food, animals, beverage and tobacco; crude materials; mineral fuels; chemicals; machinery and transport; and manufactured articles. Major import commodities include food, petroleum products, capital goods, consumer goods, equipments and machinery, articles of iron and steel, plastic resins and polymer, etc. LAC region is an important exporter of primary products and enjoys strong comparative advantage in commodity exports. Brazil and Argentina are major suppliers of soybean, while Chile and Peru are leading copper producers in the region. However, due to the financial and economic crisis, high-income economies are importing less and the region’s export revenues are on the decline. In February 2009, merchandise exports from Brazil and Mexico declined by 29% and 25% respectively, compared to February 2008.
LAC External Trade:
USD Billions 2004
2005
2006
2007
LATIN AMERICA Exports Imports
472.7 414.7
568.7 491.4
676.7 585.3
762.6 696.9
Total Trade Growth %age of Total Trade Trade Balance
887.4 58
1060.1 19.5% 77.3
1262 19.0% 91.4
1459.5 15.6% 65.7
CARIBBEAN
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Exports Imports Total Trade Growth %age of Total Trade Trade Balance
10.8 14.8 25.6 -4
14.7 17.9 32.6 27.3% -3.2
17.9 20.6 38.5 18.1% -2.7
18.3 22.7 41 6.5% -4.4
TOTAL TRADE
913
1092.7
1300.5
1500.5
TOTAL TRADE BALANCE 54 74.1 88.7 Source: ECLAC, Statistical yearbook for Latin America and the Caribbean, 2008
61.3
USD Billions
LAC’s top exporters (2008) 269.3 199.6
115.9 71.3
69.6
a
16.2
Tri nid
ad & T
obag o
17.9
Cos t a Ric
19.7
Ec ua dor
29.5
Per u
Col o mbia
Arge nti na
Chi le
Ven e zuel a
Braz il
Mex ic o
38.4
Source: IMF, Direction of Trade Statistics
LAC’s top importers (2008)
USD Billions
8
304.7
184.7
17.0
16.6
Ec ua dor
27.6
Neth erl an ds A ntil le s
39.5
Peru
41.4
Pan a ma
Arge nti na
52.8
Col o mbia
55.9
Chi le
Ven e zuel a
Braz il
Mex ic o
56.6
Source: IMF, Direction of Trade Statistics
FDI AND INVESTMENT CLIMATE According to the Economic Commission for Latin America and the Caribbean (ECLAC), FDI flows to the LAC region in 2008 amounted to USD 128.3 billion which was a 13% increase over that of the previous year (USD 113 billion). This is in contrast to the decline in global FDI by 15%. However the FDI flows to the region are expected to fall between 35% – 40% during 2009. Argentina, Brazil, Chile, Colombia and Mexico were the main recipients of FDI in the region. South America received 24% more FDI in 2008 amounting to USD 89.8 billion. This was primarily due to high prices of basic commodities (metals and hydrocarbon) and sub-regional economic growth. The increase of FDI flows to South America was strongly driven by the rise in natural resource seeking FDI, especially in the mining industry in Chile and Colombia. FDI flows to Mexico and the Caribbean Basin however decreased due to their close ties with the US. Chile stands out in terms of volume of FDI it received as well as the proportion of FDI to GDP.
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LAC’s FDI inflow 1999-2008
Total FDI inflow
USD Billions
19992003
20042008
2007
2008
Difference 2007-2008
Relative Difference 2007-2008
68.9
91.6
113.2
128.3
15.1
13.4%
Source: ECLAC
LAC’s top ten FDI recipients
USD Billions
Source: 2008: www.businesswithlatinamerica.com 2007: UNCTAD, FDI Database
LAC’s top ten FDI investors (2007)
USD Billions
10
22.6
7.1
a
0.4
Berm ud
0.8
Peru
1.2
Arge nti na
2.2
Ven e zuel a
2.6
Cay m an Is lands
Chi le
Braz il
Mex ic o
2.7
Brit is h
Virgi n
Isl an ds
3.8
Pan a ma
8.3
Source: UNCTAD, FDI Database
The main sources of FDI in the region in 2008 were the United States (24%) and Spain (7%). Canada (8%) and Japan (6%) increased their presence in the region by way of natural resource projects.
The upward trend in outward FDI by the LAC region continued in 2008 amounting to USD 34.6 billion which was 42% above the 2007 level. This was largely due to the major investment plans of trans–Latin corporations and the fact that these companies’ investments in the natural-resources sector are less sensitive to the current situation because they correspond to long term projects. Brazil is the region’s leading foreign investor with investments of USD 20.5 billion followed by Chile and Venezuela. INDIA LAC BILATERAL RELATIONS India has always had a very amicable relationship with the LAC region enjoying close bilateral as well as multilateral interaction. This has been further cemented by high level visits complemented by a number of official and exchange visits. A concentrated effort has been made to enhance bilateral cooperation in the economic field. India has trade and economic agreements with a number of LAC countries and has also set up joint business councils with
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various countries of the region. Exhibitions and joint seminars are organized to discuss and explore the potential of mutual interactions through India’s ‘Focus LAC’ programme. At the institutional level, there are cultural, educational and scientific exchange programmes that provide the framework for meaningful cooperation and interaction between academicians, scholars and scientists. The Latin American and Caribbean countries are becoming increasingly important to a globalizing India. In the backdrop of the emerging global economic architecture, India and LAC countries are expected to benefit in trade and investment terms by entering into well-defined business partnerships. Today, India and the LAC countries are ambitious, outward-looking economies. India’s commercial trade with the LAC countries is on the upsurge. The two regions are also already aligned on a number of issues that figure in the WTO negotiations. India and the LAC region share some special relations with each other. For instance, Nicaragua authorizes its Honorary Consulate in Mumbai to issue visas. From April 2009 the new Argentine Consulate in Mumbai has also started issuing visas. Ecuador has abolished visa for entry of foreigners including Indians into the country for stay upto 90 days. Focus LAC India has had a Focus LAC program in place since 1997 to catalyse greater economic interaction with the 44 countries of South America, Central America and Caribbean. Special stress is laid on eight major trading partners in the region, viz. Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela and Panama. Products identified for added promotional efforts are textiles, carpets and handicrafts, chemicals and pharmaceuticals, engineering products and software. Mechanisms for increasing trade missions, setting up business councils and trade commissions, incentivizing exports, extending lines of credit through EXIM Bank, and others are taken under this program. A Preferential Trade Agreement was signed between India and Mercosur in 2004. Tariff concessions of 10% to 100% have been offered by India on 450 tariff lines and on 452 tariff lines by Mercosur. The major product groups covered in the offer of Mercosur are food preparations, organic chemicals, pharmaceuticals, essential oils, plastics & articles thereof,
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rubber and rubber products, tools and implements, machinery items, electrical machinery and equipments. The major products covered in India’s offer list are meat and meat products, inorganic chemicals, organic chemicals, dyes & pigments, raw hides and skins, leather articles, wool, cotton yarn, glass and glassware, articles of iron and steel, machinery items, electrical machinery and equipments, optical, photographic & cinematographic apparatus. The agreement includes annexes on rules of origin, safeguard mechanisms, and dispute resolution mechanisms. The PTA is operational from 1 June 2009. PTA has also been signed with Chile in 2006 and is in operation. TRADE WITH INDIA The LAC region accounts for 5% of the world’s trade. However, India and the region have still not been able to enjoy a significant trade partnership. The region comprises of 3.47% of India’s total global exports while imports constitute 2.61% of India’s global imports. Trade has been showing a continuously rising trend over the last decade. India’s exports to the region increased from USD 699.9 million in 1997-98 to USD 5.67 billion in 2007-08 registering a growth of around 709% over the decade. During the same period, imports increased from USD 572 million to USD 6.56 billion. Following the implementation of the PTA between India and the Mercosur, it is estimated that trade can double to $10 billion in the next five years.
India’s trade with LAC
USD Billions 2007-08
% Share
2008-09 (Apr-Dec)
% Share
India's Export to Latin America
5.67
3.47
5.12
3.9
India's Import from Latin America
6.56
2.61
8.14
3.46
Total Trade
12.23
13.26
Source: www.commerce.nic.in
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India’s total trade with Latin America amounted to USD 13.26 billion in 2008-09 (AprilDecember). India’s exports increased by 33% in 2007-08 from USD 4.27 billion in 2006-07. Imports also went up in 2007-08 but by a smaller level of 7% from USD 6.1 billion in 2006-07. This increase in trade comes despite the global recessionary conditions that hit global trade since September 2008. Brazil, Colombia and Mexico are the top three importers of Indian products. Brazilian imports amounted to USD 2.52 billion in 2007-08. The important goods exported to Brazil are mineral fuels, organic chemicals, electrical equipment, man-made filaments and machinery. About 40% of exports to Brazil was diesel oil exported by Reliance Petrochemicals. Chile was the top exporter to India in 2007-08 with exports amounting to USD 1.84 billion. The major products imported from Chile were primarily copper ore and some inorganic chemicals, edible fruits and nuts, paper and iron and steel. Mexico and Brazil are other major exporters to India from the region. India’s Exports to LAC (2007-08)
USD Billions
5.66
2.52
0.59 0.14
0.07
S GU AT EM AL A
0.1
ND UR A
TR IN ID AD
VE N
EZ U
ILE
EL A
0.14
HO
0.25
CH
0.29
U
IN A EN T AR G
ME XIC O
A LO MB I CO
ZIL BR A
To tal
0.3
PE R
0.76
Source: www.commerce.nic.in
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India’s Imports from LAC (2007-08)
USD Billions
6.56
1.84 0.95
0.91 0.16
U
0.16
CA YM AN
PE R
IS
0.17
IN ID AD
AD OR
0.22
TR
AM AR
EP UB LIC
0.25
PA N
VE N
EZ U
EL A
IN A EN T AR G
ZIL BR A
ME XIC O
ILE CH
To tal
0.4
EC U
1.18
Source: www.commerce.nic.in USD Millions
Top ten commodities traded between India and LAC S. No.
India's Export Commodity
1
Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes
2
Vehicles other than railway or tramway; rolling stock and parts and accessories thereof
2007-08
2008-09 (AprDec)
1967.9
1476.9
415.9
2007-08
2008-09 (AprDec)
Ores. slag and ash
2189.3
1675.4
407.3
Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes
1515.4
4550.9
705.8
334.1
India's Import Commodity
3
Organic chemicals
405.3
375.3
Animal or vegetable fats and oils and their cleavage products; pre edible fats; animal or vegetable wax
4
Pharmaceutical products
295.6
263.5
Ships, boats and floating structures
440.0
41.3
5
Cotton
232.3
235.6
Iron and steel
246.5
358.7
15
6
Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers and parts
212.9
7
Nuclear reactors, boilers, machinery and mechanical appliances and parts thereof
208.7
8
Iron and steel
193.6
240.9
Nuclear reactors, boilers, machinery and mechanical appliances and parts thereof
232.3
167.8
198.6
Cereals
205.6
3.5
212.6
Natural and cultured pearls, precious or semi precious stones, pre metals, clad with pre metals and articles thereof; imitation jewellery and coins
144.0
86.8
114.6
80.8
86.1
75.0
9
Miscellaneous chemical products
188.7
191.7
Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers and parts
10
Articles of iron and steel
156.0
187.0
Organic chemicals
Source: www.commerce.nic.in
Although exports from India are dominated by the category of mineral fuels, manufactured products also constitute a significant share of LAC’s purchases. India’s non-fuel exports are diversified and reflect its strengths in key industries such as automotives, chemicals and pharmaceuticals. This points to India’s potential as a significant supplier of these goods to LAC in the future. Regarding LAC exports to India, as can be expected, primary commodities such as ores and petroleum predominate. As these are the main exports from the region, India’s increasing access to natural resources in LAC is a positive feature of the globalization of both sides.
BILATERAL INVESTMENTS Indian investment in the Latin American and Caribbean region is relatively small but is growing quickly. In 2008 the cumulative total of Indian investments in the region was USD 9 billion.
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Latin America is becoming a stable and an increasingly growing and prosperous market offering many opportunities. The interest of Indian businesses in investing in LAC signifies long-term commitment to the development of the region and a partnership approach as opposed to a resource-grab approach. With a total investment of around USD 3 billion, Mexico has received the largest investment from India. A Bilateral Investment Promotion and Protection Agreement was signed on 21st May, 2007. Indian pharmaceutical companies have invested in production units in Brazil. Indian agrochemical companies have manufacturing plants in Argentina. The total volume of the Indian pharma business in the LAC region amounted to USD 500 million in 2008. Prominent Indian companies like Ranbaxy, Dr. Reddy’s Labs, Sun Pharma, Claris Life Sciences and Glenmark have made their presence felt in the region and other pharma companies are planning investments or joint ventures. In terms of agribusiness, Bajaj Hindustan has set up a subsidiary in Brazil and also earmarked USD 500 million for investment. There is also scope for investment and joint ventures in Argentina, Chile, Uruguay and the Caribbean. Indian IT companies have established software development centers, BPOs and KPO’s in the region employing 8000 people locally. There is a huge Spanish-language market that is waiting to be tapped. Prominent Indian IT players like TCS, Iflex and Sasken Communications have already started operations. BPOs and joint ventures in the LAC region and other IT companies such as Infosys, WIPRO and HCL are in the process of establishing their presence. Reliance Industries acquired the Bojoro off-shore oil bloc in the Tumaco basin on the Pacific coast of Colombia. OVL acquired oil fields in Brazil, Trinidad and Tobago and Colombia and is expected to invest over a billion dollars in projects in Cuba and Venezuela. There is also scope to acquire oil acreage in Ecuador and Argentina. The region is endowed with large reserves of minerals, which India needs. The Jindal Group invested USD 2.3 billion in the El Mutun iron ore project in Bolivia, being the first Indian company to invest in this sector. There is scope for mining ventures in Argentina, Brazil, Chile, Peru, Bolivia, Mexico and the Caribbean. 17
INDIA LAC BUSINESS RELATIONS- ISSUES The primary reason for low trade is cited as long distances and complicated sea routes, resulting in high transportation cost and allied costs such as insurance, etc. There are no direct sea trade routes and shipments have to go through different ports. Business travelers have to undergo several transits in reaching each other. Apart from this, several other deterrents to trade are present: x Lack of information on how to do business in LAC and India adds to business risks and deters businesses from exploring opportunities. Mutual mistrust and low confidence arise from insufficient knowledge and understanding. x Opaque regulations and long delays in dealing with administrative issues is a hurdle. Both sides have fairly strong governmental intervention in business, with a high level of controls and clearances. x There are misinformed apprehensions about law and order and security on each side. Wide economic fluctuations and instability in some LAC countries during certain periods has also led Indian businesses to be wary of doing business in LAC. x Banking and trade credit issues are also a problem. Exim Bank has established Lines of Credit with many banks in the region, but these may not be sufficient. x Problems of counterfeiting and piracy aggravated by lax in enforcement mechanisms act as a barrier to trade and investment. This is especially a concern in key sectors of opportunity such as pharmaceuticals, biotechnology, IT, etc. x Trade facilitation infrastructure is inadequate on both sides due to lack of infrastructure development, insufficient connectivity with the hinterland, rugged terrain, lack of common standards, customs regulations, etc. x India has high tariffs in place for agricultural goods, which are major exports from the LAC region. x Existence of various preferential trade agreements within the region as well as with other countries and regions leads to lower mutual attention.
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KEY RECOMMENDATIONS In the era of globalization, it is necessary for India and LAC to forge closer economic relationships. India and LAC nations should strategise to use their complementarities in a mutually advantageous manner. There is high political interest on both sides, which has been giving a fillip to business interaction. India’s Focus LAC scheme has helped uncover the lowhanging fruits in the relationship, and to build greater understanding between the business communities; yet, vast unexplored areas of cooperation are still to be tapped.
While all countries are grappling to contain the impact of the global economic slowdown, the lull in trade could help businesses look beyond their traditional markets and to examine new opportunities to restructure their operations. In this context, India and LAC can forge ahead on new partnerships which would serve well once global trade is revitalized. They should perceive each other as partners in accessing regional markets. LAC companies can consider India as a stepping stone for the larger Asian market, while India can view LAC region as a continental market and a low-cost base for North American markets. The web of free trade agreements of both sides needs to be examined for emerging areas of cooperation. This would need a thorough academic study.
The two sides can envisage a target of tripling trade from current $12 billion to $36 billion by 2013. This would involve a CAGR of 25%, a relatively modest pace. At the same time, they must step up engagement in services sectors and mutual investments.
x In view of increasing India-LAC trade and investment relations, it is imperative that the participating governments expand engagement through new cooperation arrangements building upon those already agreed. With the PTAs with Mercosur and Chile in operation, these can now be expanded into larger agreements covering all areas of interest such as trade in goods, trade in services, movement of people, investments,
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mutual recognition of standards, harmonization of customs procedures, etc. Comprehensive Economic Cooperation Agreements, with regional blocs as well as bilaterally, should be set in motion. x Private sectors of both sides are increasingly showing interest in business opportunities on each side. There is need to build greater trust and confidence so that mutual understanding is strengthened. Governments can help by translating their desire for greater economic cooperation into concrete measures such as incentives in transport, air travel agreements, better access to trade finance, and other trade facilitation measures. Steps by the governments of both sides would demonstrate commitment and reinforce private sector confidence. x The pace of business momentum must be accelerated through greater interaction on dedicated forums. Industry associations, with the help of governments, can take the lead in organizing sectoral and regional interaction platforms in the major trading partners of India. There is good scope for diversification of traded goods and expanding on the major items of trade through focused intervention. Some possible sectors of trade cooperation are mentioned below. x In this regard, the Focus LAC program has helped create more opportunities for interaction and enlarged the space for private sector to step in. Funds available under Focus LAC could be enhanced to cover trade offices/representation from industry associations with strong presence in the region such as CII. Professional offices dedicated to trade promotion could reduce the information gap and provide assistance in negotiating markets and regulations. x Many Indian and LAC region companies with finance, logistics, supply chain, local connections and distribution expertise are capable of participating in joint ventures in processing, seeds development, equipments and infrastructure. There is need to bring such companies together through structured dialogue platforms on specific sectors. x Given the distance between the two sides and the current challenges to rapid movement of goods, there is a good case for investment-led trading. Companies could
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set up their own manufacturing centers to access domestic and regional markets, adding value to local and imported intermediate goods for ultimate delivery to either India or to other markets. This would expand opportunities beyond just trading on available goods. x Distance challenges can also be overcome with greater exchange of services. The services sectors of both sides are growing rapidly; at the same time, both sides have large youth populations eager to engage in the workforce. For India, the service sector has become a growth driver, and it is the largest exporter of software services in the world. With this capability, it can drive engagement with LAC region. The areas that can be examined are telecommunications, IT and software services, business and professional services, healthcare, education and skill development, tourism, etc. While each of the LAC countries would have its own strengths, there are several sectors in common that match with Indian strengths. Agriculture, agri-business, and food processing- The Latin American region has succeeded in leveraging its agro-climatic diversity and seasonal differences with the northern hemisphere into a vibrant and progressive trade in cereal, fruits and vegetables, dairy and meat products, sugar, etc. LAC countries, apart from Mexico, Venezuela and Caribbean countries, are net food exporters, with many of the smaller nations dependent on single-food exports. Chile has restructured its fruits, vegetables and wine production to become a significant global player, while Argentina beef and Brazil corn are large exports. The LAC region has efficiently functioning logistics and cold chains as well as a quality certification regime that can match the stringent regulations of markets in developed countries. It would be instructive for Indian agriculture to form partnerships with agronomists and agriproducers in LAC region for the purpose of raising productivity and building the missing cold chain in India. As per the PTA with Mercosur, India will reduce tariffs on certain products such as wool, leather, and meat. Telecommunications- India is the world’s fastest growing telecommunications market and Indian companies have strengths in providing services for economically weaker sections of the
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population. The LAC region has a teledensity above the global norm, with some countries at 100% penetration. At the same time, rural telephony, internet connectivity and broadband services are challenges in both regions. There is synergy in moving to the next level of broadband, convergence, 3G and services. Indian companies such as Bharti Airtel and Tata Comm are partnering global companies for services provision, reverse outsourcing, or mergers. Productive ventures could be examined by both sides. Renewable energy- While conventional energy has been a growing sector of cooperation, especially in trade with Venezuela, there is also scope in renewable energy sources. South American countries have used oil revenues to expand their renewable energy programs with biogas being a significant policy focus. Wind farms are under construction in Chile, Mexico and Argentina, while ethanol is a major industry in Brazil. Given India’s dependence on imported oil and its aspiration to expand renewable energy sources, there is potential for cooperation on technology, services, grids, equipment manufacture and upstream and downstream activities. India has the potential to generate 85,000 mw of renewable energy and has a policy package of incentives for biofuels and waste-to-energy projects. It is estimated that the market for energy efficiency in India stands at $3 billion. Both sides can explore synergies and co-develop innovative ways of partnering, with the assistance of governments. Software services- Software services are rapidly growing in the LAC region and India is the world’s largest supplier of such services. In Argentina, software accounted for half the growth in the IT industry, estimated at over $3 billion. Mexico has seen slow growth in IT although many Indian companies are active. Infosys and TCS have seen rapid revenue growth in Latin American markets and have subsidiaries in Mexico. Indian IT companies are employing local people for accessing Latin American markets as well as providing services to North America which is within the same time zone. Small and medium-sized software services and software education providers can follow in the footsteps of the larger Indian companies to set up business in Latin America. Drugs and pharmaceutical products- Currently, the Indian pharmaceutical industry is one of the world's largest and most developed, ranking 4th in volume terms and 13th in value terms. The country accounted for 8 per cent of global production and 2 per cent of world markets in
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pharmaceuticals. India exported drugs worth US$ 7.2 billion in 2007-08 to the US and Europe, followed by Central and Eastern Europe, Latin America and Africa. Given the large population in LAC and healthcare challenges of affordable care and drugs, Indian companies have a good chance to expand operations in the region. LARGE LAC COUNTRIES Mexico India and Mexico share a warm and close friendship based on a common commitment to democracy and free markets. Both countries have enjoyed robust economic growth and have built a large and diversified base of industries, with strong and sound macroeconomic fundamentals. Bilateral political and cultural ties have been expanding, particularly with the visit of His Excellency Mr. Felipe Calderon Hinojosa to India in September 2007. However, the economic relationship is far below potential. Although total trade has increased from US$ 0.33 billion in 2003-04 to US$ 1.77 billion in 2007-08, this is not commensurate with the economic strength enjoyed by both countries. It is also necessary to diversify exports. Automotive sector- According to the UNIDO International Yearbook of Industrial Statistics 2008, India features among the top 15 auto-makers. India is becoming a source for automotives for the world, and Mexico is well-placed to synergize its strengths in this sector with India’s. Mexico’s automotive sector is closely linked to that of the US and is in trouble following the problems faced by the Big Three car companies in USA. However, it is expected to recover in 2009 as US companies take advantage of lower costs in Mexico. Indian companies could examine OEM, and tier 1 and 2 supplies as well as aftermarket parts. The market is still under-penetrated by Indian exports and there exist opportunities for stepping up export levels in this sector. Chemicals, textiles, and other manufacturing sectors offer good potential for investments by Indian companies. Mexico is a member of NAFTA and a major supplier to US markets. Services- In the services area, tourism is of special interest to both countries, and there is need to enhance people-to-people linkages through greater travel and tourism. India also has
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strengths in the information technology sector and education area. Indian companies would be happy to examine the potential of training and capacity-building in Mexico. Argentina Automotives- Demand for automotive items in Argentina has been increasing over the last 5 years, with most of its needs satisfied by its Latin American neighbor, Brazil. Reports however suggest that, with the growth in Argentine imports, the market is still under-penetrated by Indian exports and there exist opportunities for stepping up export levels in this sector. Agriculture- Argentina is one of the world’s top producers of agricultural products, mainly edible oils, cereals, and maize. India, though a big agri-exporter by itself, still has needs in the sector that it meets through imports from resource-rich, agricultural export-intensive communities such as Argentina. India’s consumption levels are increasing steadily and are expected to increase faster than the growth in domestic production. Argentina could be a solid trade partner to fall back upon in case of temporary demand-supply mismatches in the domestic market due to the vagaries of the monsoon, etc. Argentina also encourages foreign investment in productive activities, including agriculture. Indian investment in this area makes business sense, particularly in view of Argentina’s lowcost, highly cultivable land area. Apart from hard-core production, there is also scope for strategic alliances between the two countries leading to sharing of know-how, modernization of cultivation techniques and overall development of the agricultural sectors of both economies. Energy- Argentina is not only self-sufficient in energy, but also generates substantial surpluses for export, especially in petroleum products. India, being a producer itself, is a net importer in this sector and a significant portion of its energy requirements are satisfied through petroleum, in its various forms. Importantly, India is threatened by a forecasted depletion of natural resources in this area within the next ten years. Therefore, the time has now come for India to consolidate its ties with an energy-rich nation like Argentina to guarantee the future generations a sustainable and assured supply of energy.
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Forestry- Commercial Forestry in Argentina is a very lucrative business proposition today. The growth rates in this sector are very promising and the industry is focusing on high-value added products. However, the lack of infrastructure inhibits exploitation of the entire potential this sector offers. This challenge could translate into an opportunity for Indian investors to bridge the infrastructural gap. The investment climate is all the more attractive because of the availability of significant portions of high quality land at affordable prices and the incentives/support offered by the Argentine Government mostly in the form of tax benefits including tax stability for over 30 years, accelerated depreciation on capital goods etc., which are available to both local and foreign investors. Mining- Argentina has a strong potential in the mining field, creating opportunities for mining services companies to establish a presence and participate in growth. India could take part in some of these new international mining projects. Both exploration and exploitation of minerals are permitted and investors enjoy tax incentives. Biofuels- With growing environmental consciousness and the search for eco-friendly energy alternatives, the bio fuels industry is assuming significance the world over. The Argentine Government has proactively adopted policies to encourage use of environmentally favourable alternatives such as bio-diesel and bio ethanol, which incidentally offer an investor-friendly atmosphere in Argentina. The Government also offers tax incentives in the form of deductions and exemptions. One particular area where Argentina is looking for investment is R&D in this sector and this could be an opportunity for Indian companies to provide the necessary financial and intellectual capital to meet Argentina’s knowledge-based requirements Brazil The bilateral trade between India and Brazil has almost trebled over the last three years to $ 3.12 billion in 2007-08 and has already reached $ 3.5 billion within the first nine months of this year (2008-09). Many Indian pharma companies and IT firms have already opened up their offices or production facilities in Brazil. Similarly Aviation Company and other companies from Brazil also have already invested in India.
It is expected that the India-Brazil total trade
between the two countries in 2010 may be in the vicinity of $ 5.5-6 billion.
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Brazil’s highly diversified and industrialized economy is the largest in Latin America. It has extensive natural resources and is the world leader in agro-industry. Brazil has a huge population with a young, highly educated middle class and an innovative and entrepreneurial private sector. The following are the recommendations for co-operation between India and Brazil. Natural resources- Brazil and Latin America’s enormous resource advantages could be exploited by India to serve its growing economy and large population. Specific opportunities include wood pulp and timber, iron ore, pig iron, agricultural commodities, precious stones, agriculture, movies and tourism. Specific challenges include infrastructure, lack of freight efficiency due to lack of direct shipping lines. Technology- Unique factors have given rise to specific technology leads for Latin America and India. Business could be built around these technology leads which are applicable for a similar profiled consumer. Synthetic raw material- India/Asia have large domestic markets and therefore larger sized production facilities. As growth ensures and logistics becomes efficient, increasing free trade will make synthetic raw material made in India competitive in Brazil. Specific opportunities include synthetic fiber, viscose fiber. Acrylic yarn, bulk drugs, petrochemicals. Companies in India that could benefit from this opportunity are Reliance, Aurobindo Pharma, Ion Exchange, etc. Biofuels- Brazil’s success in ethanol fuel is well-known. It is the second largest producer of ethanol fuels and the largest exporter. It has had major success in engineering cars that use flexible mixes of ethanol and petroleum. As the world grapples with energy deficiency and climate change, Brazil’s large land mass suitable for cane cultivation and advanced R&D will be an advantage for its industry. India too is trying to capitalize on biofuel production through the National Biofuel Policy of 2008 using jatropha rather than cane, aiming at deriving 20% of its diesel needs through biofuels. It has much to share with Brazil in innovative uses of plants and technology for conversion to usable fuels. The two countries need to study each other’s processes and conduct joint studies.
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Colombia Although Colombia is the fourth largest economy in LAC region, its trade with India is low. Exports to the country stood at less than $800 million in 2007-08, while imports were less than $100 million. At the same time, Colombia is rich in natural resources such as coal, petroleum, natural gas, iron, etc. and a producer of agricultural goods such as coffee and bananas. India’s exports to Colombia consist of automotives, chemicals and drugs, and cotton and man-made yarns. It imports mineral fuels, teak and iron and steel products, but of very low volumes. Given the size of the Colombian market at 46 million, there is scope to increase exports from India in already traded goods, particularly pharma products and chemicals. India must also strategise to increase and diversify its import basket from Colombia. Chile Software services - Chile should look at providing access to the Indian services sector including IT. This might involve mutual recognition of professional degrees, facilitation of travel and work permits, access to higher education, and greater movement of personnel. Chile is particularly interested in positioning itself as an outsourcing hub with the help of Indian companies. While TCS, Evaluserve, NIIT and other companies already have operations in the country, these can be substantially stepped up. In addition, IT education and training as well as language training could be an area of opportunity for Indian companies. Agriculture and agricultural logistics - India needs to learn about raising agricultural productivity from Chile. Best practices in commercial agriculture management, supply chain linkages including cold storage, warehousing and transport, setting up a robust infrastructure for meeting international quality and sanitary and phytosanitary norms, and strengthening the link between agriculture and industry can be focus areas. Experts from Chile could provide consultation, advice and handholding to Indian corporates as well as government in these areas. For Chile also, this would be a profitable area to consider as India’s natural advantages in climate and other conditions are very different from those of Chile. India is the world’s second
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largest producer of fruits and vegetables, but has high wastage in the supply chain. With the help of Chile, India can expand its international agricultural activities. The two countries need to actively explore newer areas of cooperation in areas such as Mining, Manufacturing, Railways, and Textiles. India’s engineering goods, machinery, equipment and machine tools may find a good market in Chile. Defense production and trade is also an area of high potential. The two countries need to expedite the proposed Comprehensive Economic Cooperation Agreement that can cover protection of bilateral investments, services, and education.
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Intercontinental Connectivity A key initiative of India, Brazil and South Africa (IBSA) has been to start a dialogue on transcontinental cooperation. Given the challenges of transport linkages between the three continents, it is useful to go deeper into the issue. Following are excerpts pertaining to facilitating transport linkages from ‘IBSA: Redefining South-South Co-operation: Issues and Strategies towards Creating a Trilateral Multi-Sectoral Partnership of Global Consequence’ by Dr. Jayanta Roy, Principal Adviser, Confederation of Indian Industry, and Pritam Banerjee, School of Public Policy, George Mason University, October 2008: “Two crucial elements of such an agreement [on transport facilitation] would have to be the identification of specific routes and targets, and a clause that binds all three parties to implementation by certain time-frame. Such an agreement would include the following elements: x Encouraging private sector participation in IBSA routes x Promotion of long-term arrangements between shippers and carriers using incentives such as reduced port and berthing fees for parties with such agreements and tax-holidays for companies that take part in the initiative x Direct services and trans-shipment arrangements, especially the development of a India-Brazil route via a South African trans-shipment point. The development of direct India-South Africa and South-Africa-Brazil routes with a dedicated IBSA trans-shipment facility in South Africa (to connect India and Brazil) would be a tangible example of IBSA commitment to trilateral co-operation x Complementary integrated transport services through strategic partnerships between the large domestic logistics operators such as CONCOR (India), Transnet Limited (South Africa), and Companhia Vale do Rio Doce (Brazil). x Coordination between feeder services and mainline services could be ensured through a common feeder structure similar to Mediterranean markets where mainline carriers agree to use regional feeders operating as a pool. Private sector stakeholder can be made responsible for developing the strategic relationships necessary to ensure such an arrangement as a part of the proposed Business Facilitation agreement protocol discussed in the next section. x Development of a Common Container Electronic Identification (CCEI) facility. This would include an electronic identification (barcode) for every container and a electronic locking system that prevents tampering with containers that have already been inspected (by pre-shipment inspection facilities). The details of the container’s cargo, cargo-valuation, rules of origin documentation, health and safety certification, bill of lading and all other relevant documents will be fed into a central database corresponding with the container identification. Once the container reaches its destination, scanning the barcode will provide all relevant information to the authorities. This would allow seamless movement (including trans-shipment) of cargo between IBSA countries and would serve as an example to rest of the world. For this purpose, India’s IT and ITES (back-office support to documentation and logistics) could be leveraged to create a world-class trading environment.
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CII ACTIVITIES WITH LAC: 2008 x
Organized India LAC Project Partnerships - AUTOMETERING Seminar on Opportunities in the Automotive Sector in the LAC Region inh January in New Delhi.
x
Seminar on “India and Latin America & Caribbean: Great Opportunities for Trade and Investment” was organized on 13th March in New Delhi.
x
Visit of Minister Miguel Jorge, Minister for Development, Industry & Foreign Trade, Brazil on 25-26th March in New Delhi.
x
A VVIP CII Delegation accompanied the President of India to Brazil, Mexico and Chile on 13-22 April.
x
Organized the seminar on India-Colombia: Opportunities in Trade and Investments which was attended by Mr. Luis Guillermo Plata, Minister for Trade, Industry and Tourism, Colombia on 28th April in New Delhi.
x
CII led the Indian delegation for the IBSA Inter Ministerial meeting held in Capetown, South Africa on 911th May.
x
Organized visit of H E Mr. Eduardo Escandell, Deputy Minister, Cuba along with the trade delegation members from Cuba in New Delhi on 20th May.
x
CII Delegation with the Commerce Secretary to Argentina on 8-10th June.
x
Organized interaction with the Foreign Affairs Ministers of SICA (Central American Integration System) in New Delhi on 11th June.
x
Visit of the High-level Delegation from Chile and visits to CII and its member companies in New Delhi and Mumbai on 2-5th July.
x
Organized CII’s Latin America & Caribbean Committee Meeting and India-Brazil: Interaction with the Brazilian Minister of Health and his delegation on 28th July in New Delhi.
x
CII delegation to the Amazon International Fair and CII Seminar on “Doing Business with India” in Brazil on 10-13th September.
x
Organized India-LAC- Opportunities for Trade and Investments; Interaction with the LAC Head of Missions in India in Hyderabad on 30th September.
x
Third IBSA Business Summit held on 13-15th October in New Delhi.
x
Hosted Luncheon Meeting on "Doing Business with Latin America and Caribbean" on 23rd October in New Delhi.
x
CII Delegation to Havana, Cuba and onward delegation to Brazil between 2 - 8th November.
2009
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x
Organized the Second Meeting of the CII-LAC Committee in New Delhi on 20th January.
x
Third CII India Latin America and Caribbean Conclave held in Bangalore on 24-25th February.
x
Organized a meeting on India-LAC- Opportunities for Trade and Investments; Interaction with the LAC Head of Missions in India on 27th February in Ahmadabad.
x
A high profile visit of the President of Chile, followed by a seminar on “Chile-India: Growing Business Opportunities and Cooperation” on 16th March in New Delhi.
x
Organized a workshop on Business Opportunities with Brazil in New Delhi on 21st May.
x
CII delegation and India-Caribbean Conclave on 22-24th June in Trinidad and Tobago.
x
CII delegation and India-Latin America Conclave on 29th June to 3rd July in Uruguay and Argentina.
x
IBSA Summit/Delegation to Brazil to be held in New Delhi on 7th October.
LIST OF CII’s MOU PARTNERS IN LAC x
Union Industrial Argentina (UIA) – Argentina
x
Brazil India Chambers of Commerce – Brazil
x
Confederation of National Industries (CNI) – Brazil
x
Federation of the Industries of the State of Sao Paulo (FIESP) – Brazil
x
Federation of Industries for the State of Rio Grande Do Sul (FIERGS) – Brazil
x
National Industrial Apprenticeship Service (SENAI-DN) – Brazil
x
Federacao das Industrias do Estado do Rio de Janeiro (FIRJAN) (Federation of Industries of the State of Rio de Janeiro) – Brazil
x
Federação das Indústrias do Estado do Amazonas (FIEAM) (Federation of Industries of the State of Amazon) – Brazil
x
National Association of Industries (ANDI) – Colombia
x
Sociedad De Fomento Fabril FG (SOFOFA) – Chile
x
Foundation Pais Digital – Chile
x
The Export and Investment Corporation of Ecuador (CORPEI) – Ecuador
x
Comision Nacional De Promocion De Exportaciones E Inversiones of El Salvador (CONADEI) – El Salvador
x
The Confederation of Industrial Chambers of the United Mexican States (CONCAMIN) – Mexico
x
India-México Business Chamber – Mexico
x
Mexican Business Council for Foreign Trade, Investment, and Technology (COMCE) – Mexico
x
Paraguay Oilseeds Crushers Association (CAPPRO) – Paraguay
x
Sociedad Nacional de Industries (SNI) – Peru
x
Camara de Comercio Peru-India (Peru-India Chamber of Commerce) – Peru
x
Trinidad & Tobago Chamber of Industry and Commerce - Trinidad & Tobago
x
Trinidad and Tobago Tourism Development Company (TIDCO) - Trinidad & Tobago
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x
Trinidad & Tobago Manufacturers Association - Trinidad & Tobago
x
Chamber of Industries of Uruguay (CIU) – Uruguay
x
Federacion Venezolana De Camaras Y asociaciones De Comercio Y Produccion (FEDECAMARAS) – Venezuela
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