In 2017, Latin America and the Caribbean will leave behind half a decade of declines in the prices of its export basket and a weak increase in exported volume, achieving 10% growth in the value of its shipments abroad, according to new estimates released today by ECLAC in Santiago, Chile.
The Economic Commission for Latin America and the Caribbean (ECLAC) unveiled today its annual report International Trade Outlook for Latin America and the Caribbean, 2017 (previously known as Latin America and the Caribbean in the World Economy), in which it indicates that the region’s imports will also recover after four years of declining values, since they are projected to grow 7% in 2017.
Although there is great uncertainty in macroeconomic, technological and geopolitical arenas at an international level, various factors have contributed to the trade recovery in Latin America and the Caribbean: greater dynamism in aggregate demand in some of its main trading partners; a return to economic growth in the region itself, which is expected to grow 1.2% in 2017 and 2.2% in 2018, after two years of recession; higher prices for several of its basic export products; and the dismantling of tariff and non-tariff barriers in some of its countries, the report indicates.
According to the document, the recovery in regional exports in 2017 will be led by shipments to China and the rest of Asia (23% and 17% value increase, respectively) while exports to the United States and within the region will expand at a rate near the average (9% and 10%, respectively). Meanwhile, sales to the European Union will be less dynamic (with a 6% increase).
With regard to trade within the region, a rebound is expected in all its subregions, especially in South America. For the year as a whole, growth in the value of intraregional exports is forecast at 10%. Their weight as a percentage of the region’s total shipments abroad is seen at 16.8%, below the maximum level of nearly 22% reached in 1994, the report states.
The study adds that intraregional trade offers great potential for the export of manufactured goods and more elaborated products generally. “This highlights the urgent need to deepen regional integration, even more so considering the recent shift in U.S. trade policy and the uncertainty associated with the renegotiation of the North American Free Trade Agreement (NAFTA),” it indicates.
In the current edition of the International Trade Outlook for Latin America and the Caribbean, ECLAC also analyzes the performance of the region’s trade in modern services, meaning those that have high value-added and are intensive in the use of Information and Communications Technology (ICT). This category includes telecommunications and IT services, financial services, insurance and pension services, royalties for the use of intellectual property, and diverse business services. Several of these activities offer the region’s countries interesting opportunities to attract foreign investment, linked to outsourcing processes, for example.
According to the document, in this area Latin America and the Caribbean continues to be a marginal actor. Its participation in total global service exports in 2016 was just 3.1%, compared with 5.6% of global goods exports. More specifically, its share of the export of modern services was just 1.8%.
“The region’s exporting dynamism depends on implementing active, long-term public policies. Also needed are public-private strategies with clear objectives for promoting human capital and the digital ecosystem, incentivizing exports and attracting foreign direct investment, as well as for deepening regional integration in services,” Alicia Bárcena, ECLAC’s Executive Secretary, said during the press conference where the report was unveiled.
In its third section, the document addresses the challenges of Latin America and the Caribbean with regard to global agricultural trade. It verifies that the region as a whole is a net exporter of agricultural products. The weight of the farm sector in regional exports has increased sharply in this century, rising from 17% in 2000 to 26% in 2016. Meanwhile, the region’s participation in global agricultural exports has also grown, although to a lesser extent: from 10% in 2000 to 13% in 2016.
In this sense, the United Nations regional organization emphasizes that Latin America and the Caribbean’s agricultural exports showed greater resilience than its total shipments in the 2012-2016 period, which marked the region’s worst export performance since the 1930s. While the value of regional agricultural exports fell just 1% during that period, the contraction in total exports was 21%, as a result of four consecutive years of declines.
The figures included in the study reveal a great heterogeneity within the region. In the last decade, South America has accounted on average for 80% of the value of the region’s agricultural exports, Mexico 11%, Central America 7% and the Caribbean just 1%. The regional export basket is dominated by basic products such as raw cane sugar, coffee (not roasted or decaffeinated), soybeans, soymeal, maize and frozen beef. In contrast, the region shows a poor export performance in processed products.
According to ECLAC, the current high concentration in raw materials imposes the urgent challenge of “decommoditizing” the export basket, which is also true of other sectors related to natural resources. For this to occur, it is necessary to develop attributes that differentiate products, such as quality, brand, traceability, safety and international certifications (for organic production, fair trade or reduced environmental footprint, among others), which allow for fetching higher prices in global markets, the organization indicates. Furthermore, officials must generate conditions that are more favorable to processing those products that today the region exports almost exclusively in their raw form. To achieve all this, more active industrial policies – implemented in the context of public-private alliances – are essential.