Europe’s industry urgently needs a strategy for Latin America

The region is increasingly orienting itself towards the Far East – not only China is becoming more and more important, but the other Asian growth countries are also rapidly gaining weight in trade and investment. Europe is losing importance.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

70 kilometers north of Lima, the Chinese port operator Cosco Shipping Ports is just starting to build a new port. Investment volume: 3 billion dollars. Operations are scheduled to start in Chancay in 2023. With its capacity, it should then catch up in the future with the port of San Antonio in Chile, currently the most important Pacific port in South America.

Chancay is expected to play a key role in South America’s “natural extension” of China’s Belt and Road Initiative. It was only in 2017 that China designated Latin America as a strategic partner of the initiative. Meanwhile, 19 countries have signed an agreement with Beijing.

In Europe, it is easy to overlook the fact that it is not only trade between China and South America that will grow. The infrastructure of the new Silk Road will also accelerate South America’s exchange with the whole of Asia.

Marcos Troyjo, the Brazilian president of the New Development Bank (NDB), founded in 2015 by the BRICS countries (Brazil, Russia, India, China and South Africa) and based in Shanghai, has just pointed out in the Brazilian newspaper Estado de São Paulo that Asia is currently outstripping Europe in foreign trade with South America. According to Troyjo, Brazil alone has exported more to Asia in the last 12 months (even if China and Japan are not taken into account) than to the European Union. Troyjo compares the volumes impressively: Brazil now exports more to Singapore than to Germany. More to South Korea than to Spain. More to Malaysia than to Italy, more to India than to Great Britain. More to Thailand than to France. More to Bangladesh than to Australia, Denmark, Finland, Austria and Israel combined.

In 2001, Brazil and China exchanged a billion dollars worth of goods a year. Today, it’s a billion dollars every 60 hours, Troyjo says. It is foreseeable that the fast-growing Asian emerging markets will trigger an export boom in South America similar to what China did 20 years ago. That’s because South America’s mining and agribusiness companies provide the industrial commodities for infrastructure, metropolitan and industrial expansion in the Far East. But they also provide the commodities to feed the rising middle classes in these countries.

With exports, Asian investment in South America’s infrastructure will also increase massively. Raw materials only have value if they can be transported. The Chancay port in Peru is the latest example of this.

The loans and financing for the investments will also increasingly come from the Far East. The New Development Bank, for example, has just begun expanding its membership. As of this week, the United Arab Emirates, Uruguay and Bangladesh are new member countries in the NDB.

Europe’s industry urgently needs to develop a strategy for responding to the huge shift in global economic axes in South America.

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