Interactive map Trade flows The New Trade Routes between Latin America and the rest of the world LATIN AMERICA FT.com/ FINANCIAL TIMES SPECIAL REPORT | Tuesday April 26 2011 latin­trade www.ft.com/latin­trade­2011 | twitter.com/ftreports China is now region’s biggest partner

The commodities boom is driving development, writes John Paul Rathbone

n 2006, when Eike Batista opened Rio de Janeiro’s finest Chi- nese restaurant, his Ifortune barely made the Forbes rich list. Now, the Brazilian oil and mining magnate is the world’s eighth richest man. Mr Batista’s estimated $30bn fortune has grown alongside Brazil’s rising trade links with China. It is also a testament to Mr Batista’s business nous that his Rio de Janeiro eatery has become a handy place to entertain his Chinese business partners. Latin America, like Rio de Janeiro’s dining scene, has changed – and it is largely thanks to China. partner of both Brazil and zilian investment bank BTG rising prosperity has its into Peru’s second largest tion has increased and now Bric partners: Dilma A region once known for Chile has added to a sense Pactual raised $1.8bn last downside. gold producing province, accounts for a fifth of the Rousseff, Brazil’s president, instability has sailed of US relative decline. year, chief executive André ‘China is a very Building roads through but it has also tripled mer- $88bn a year market. and Hu Jintao, her through the global financial “China is a very good Esteves looked to the sover- good counterweight the Amazonian interior cury levels in Amazonian The rise of the south Chinese counterpart Reuters crisis. Poverty is falling, the counterweight to the US,” eign wealth funds of Asia can open new markets. waterways. has seen the emerging middle classes booming, says a senior Brazilian dip- and the Middle East for to the US – it But it also razes pristine Then there is drug traf- world adopt many of the and asset markets bubbling. lomat. “It doesn’t take the funding. However, some 90 doesn’t take the forests and brings wildcat ficking. While cocaine use habits of the north – with a This is due to a spectacu- moral high ground. More per cent of the foreign mining. in the developed world has large number of good, but lar expansion of commodi- importantly, it is far away.” direct investment flowing moral high ground’ Illegal mining has turned been falling since 2004, also some unwelcome, con- ty-based trade. Over the This has prompted a US into Mexico and Brazil, the the Madre de Dios region Latin American consump- sequences. past decade, fast-growing charm offensive in a region region’s two biggest econo- emerging countries, be it can no longer afford to mies, still comes from they in Asia, India or ignore. Yet it would be industrialised countries, Africa, have shown a near wrong to overstate China’s according to the IADB. insatiable demand for the growing role. Many in the region also commodities that Latin Bilateral US trade with believe that China’s grow- America has in such abun- the region was $486bn in ing presence comes with a dance, whether Argentine 2009, almost four times cost, as cheap Chinese soya, Brazilian iron ore, China’s total. Apart from imports harm local indus- Chilean copper or Peruvian energy, the two countries try. More Mexican sombre- gold. also still largely seek differ- ros and Brazilian bikinis, The change has been ent goods. China imports for example, are now made rapid: in 1999, trade betwen commodities such as Chil- in China than in either Latin America and China ean copper to make things. Mexico or Brazil. was a mere $8bn. By 2009, The US economy, by con- Although government according to UN figures, it trast, is more dedicated to criticism of China remains had grown 16 times to services. There is the poten- muted in public, diplomatic $130bn. By comparison, tial for a healthy north- tensions over China’s bilateral trade with the US south balance. undervalued currency are rose by just a half over the Nor has the south growing. same period. eclipsed the north as a Indeed, such concerns Less well appreciated is source of capital. When Bra- point to a central question how intra-Latin American for Latin America. Can it trade has grown over the turn the past decade’s com- same period. During the modity-fed boom in “south- colonial years, neighbour- to-south” trade into sus- ing countries were more tained growth? likely to trade with Europe The history of the conti- than each other. Now, nent, after all, is littered growing business and infra- with spectacular commod- structure links are bridging ity booms and busts – as Latin America’s huge geo- displayed so eloquently in graphical obstacles – its Inside the decayed grandeur and vast forests and giant Road and rail New wasted opulence of Guate- mountain ranges – knitting investment is being tied mala’s faded cochineal haci- the region’s economies to improvements in the endas, or Brazilian rubber together. movement of bulk farms. If anything, the pace of goods Page 2 The first requirement is change has increased since for countries to save more the global financial crisis. Ports Rising trade by squirrelling away some Developed markets remain flows with Asia are of their commodity wind- creating new mired in sluggish growth bottlenecks for shipping falls into offshore funds and high debt. Meanwhile, Page 2 such as Chile’s sovereign emerging economies are wealth fund. Encourag- surging ahead; they now Sovereign wealth ingly, Brazil, Colombia and account for three-quarters funds The number of Peru are setting up similar of global economic growth, state­backed investors schemes. according to the Inter- in the region is growing There is also an urgent American Development Page 2 need to increase productiv- Bank (IADB). ity, so that Latin American The rising middle classes Case study CSAV has economies can move up the of the emerging world are developed a strong value chain and beyond the behind this shift. They instinct for survival production of raw goods. aspire to own the same Page 2 Among many things, that homes and cars, and eat the means better education to same foods, as their peers Cocaine Falling create a more skilled work- in the developed world. As demand in the US is force. Finally, although ris- a result, their economies being replaced by rising ing fast, intra-regional trade have a higher propensity to drug use at home still needs to grow. At the consume the commodities Page 3 moment, it accounts for a that Latin America pro- US Increased fifth of total Latin Ameri- duces. competition from can trade; in Asia it The effects of this shift emerging countries for accounts for half. are illustrated by the trade and influence is The hardware of regional emblematic cases of Brazil changing America’s integration – bridges, rail- and Mexico. In 2006, before approach Page 4 ways and roads – is devel- the financial crisis erupted, oping apace. But the soft- 9 per cent of Brazil’s China Investment for ware of regional trade exports went to the other raw materials can be agreements remains bugged Bric countries – Russia, an unequal trade by tariff disagreements, in India and China. By 2009 Page 4 spite of the often high polit- that had almost doubled ical rhetoric that accompa- to 17 per cent. As a result, India Latin America nies them. the Brazilian economy has largely ignored the A case in point is the boomed. subcontinent up until Mercosur trade bloc, which Mexico has had a very dif- now Page 4 groups Argentina, Brazil, ferent experience because Paraguay, Uruguay and – Africa Cultural ties its economy has closer ties have given Brazilian unlikely pending addition – to the industrialised world, companies a headstart Venezuela. In the past dec- especially the US. Indeed, in the continent ade, trade within Mercosur Bric exports still account Page 4 has grown less than among for only 3 per cent of its countries outside it, or even total. Furthermore, manu- Regional trade Internal between individual Merco- factured goods rather than deals help to unite sur members and other commodities play a larger countries Page 5 Latin American countries. role in the Mexican econ- A proposed “deep integra- omy. Mexico The US’s tion” pact between the fast- China, therefore, is more southern neighbour is growing and market-led of an economic competitor once again looking economies of Chile, Peru, than a complement. As a south for new trading Colombia – and perhaps result, suggests an IADB partners Page 5 Mexico – shows more prom- study “One Region; Two ise. With a combined gross Speeds?”, Mexico’s economy domestic product of has grown at half Brazil’s $1,600bn, it would also be a pace. regional counterweight to China’s increasing role in Brazil. a region that the US has The boom in “south- long viewed as its backyard, south” trade has altered the is a geopolitical worry for region’s geopolitical land- Washington. That China is scape. It has also helped lift now the largest trading millions out of poverty. But 2 ★ FINANCIAL TIMES TUESDAY APRIL 26 2011 New Trade Routes | Latin America China demand drives road and rail traffic Foreign cash

pany, expects to invest need to move goods – espe- Colombia’s exports of its with extra traffic from the sufficient capacity to serve Transport outlay $650m (£399m) this year cially bulk goods – from high-quality metallurgical $2.2bn Toromocho copper both growing trade and alone, excluding the sub- countries’ interiors to ports, coal. mine that China’s Chinalco increasing penetration of has its Investment is tied stantial sums going on con- from which they can be “It’s going to be a much is developing next to its private cars,” Mr Castel- to the movement struction of a 260km line taken to Asia. bigger project if it’s coal to line. Production is due to lucci says. between Alto Araguaia and Henry Posner, a Pitts- China than a general rail- start in late 2012. Yet the region is not only of bulk goods, Rondonopolis in Brazil. burgh-based railway inves- way line to serve the local Juan de Dios Olaechea, working on resolving im- says Robert Wright Private-sector investment tor who has a long record of market,” Mr Posner says of Ferrocarril Central’s presi- mediate problems, such as drawbacks is also bringing improve- investment in Latin Amer- the potential privatisation. dent, says local banks have congestion on Brazil’s roads ments that should help the ica, says Chinese demand is “Colombia’s whole strategy financed all the invest- or the growing needs of region’s roads to cope with driving growth in traffic for the railways has ments. Peru’s copper mines. Many ment agency Temasek has The paintshop at General in the demands imposed on ranging from coal to grains. changed.” He says: “Bank finance is in the region would like to Sovereign Wealth taken a similar direction in Erie, Pennsylvania, has them by growing trade “Certainly, the railways, The trade boom has also easily available in Peru, see a true regional rail net- Latin America, buying into recently seen a growing volumes. in select instances, are see- transformed investors’ and when you have a good prod- work, in place of the largely Funds the oilfield services sector variety of work. Alongside The challenge in both ing that growth,” Mr Posner uct. With a good counter- isolated national systems. Samantha Pearson and a biofuels group. the familiar colours of the areas, however, may be to says. party on the other side, The boldest plans would In spite of their vast large US railway compa- spread the benefits beyond a Colombia, where Mr Pos- ‘It’s going to be a financing infrastructure is seek to minimise natural on the growing wealth, Gulf states have rel- nies, are the blue and yel- few favoured pockets, where ner’s Railroad Development much bigger not complicated.” barriers such as the Andes. number of state­ atively small populations. low of MRS Logistica, the investments are especially Corporation applied to par- The challenges for road Some more ambitious As such, they have tradi- red and white of America attractive – particularly ticipate in a projected rail project if it’s coal investments, meanwhile, projects – including the backed investors tionally taken a much more Latina Logistica – both Bra- Brazil, whose large size, privatisation, is one of the to China than a are far more complex, many plans for railways passive approach, relying zilian companies – and the strong growth and plentiful countries most obviously according to Mr Castellucci, and other alternatives to on local management livery of other Latin Ameri- trade flows make it espe- affected by Asian demand. general railway line’ especially in Brazil. the Panama Canal between State-backed investments teams. The Chinese have can train operators. cially lucrative. The privatisation was While the region’s rail- the Pacific and Atlantic – into Latin America are set taken a more active role, as The new locomotives, Giovanni Castellucci, cancelled when the Colom- ways almost exclusively may never prove entirely to increase, as developing they seek to satisfy a much equipped with the latest chief executive of Atlantia, bian government realised lenders’ readiness to serve the relatively predict- viable. countries act to secure nat- larger domestic demand. electronics and fuel-saving an Italian toll road opera- the importance of ensuring involve themselves in the able needs of large mineral But Mr Castellucci ural resources, providing While these new investors technology, are one of the tor, says Brazil and Chile – that rail privatisation pro- region’s infrastructure. and agricultural producers, believes that other projects the region with a vital have come to rely on Latin most obvious symbols of a the two countries where it vided a high-capacity route In Peru, where China has roads see a less predictable – including planned road source of revenue but also America’s natural re- surge of investment in has so far invested – are from the coalfields in the recently become the coun- mix. tunnels through the Andes stirring political tensions. sources, the region itself Latin America’s railways. unusual in their transpar- interior to the Pacific try’s number-one trade part- Atlantia sees heavy truck to give western Argentina For the largely barren has come to depend on this It is helping turn many ency, stability and strong Ocean, to boost exports to ner, the Ferrocarril Central traffic – much of it carrying and Brazil access to Chile’s Gulf states and parts of steady flow of revenue. rail groups from the bat- legal framework. “This does China. The country is the Andino has invested $150m goods such as sugar cane to Pacific ports – will one day Asia, Latin America is both Brazil, for example, tered, inefficient wrecks not apply to Argentina, for world’s fifth-largest coal since its 1999 privatisation ports for export to China – be built. a rich and relatively acces- counts on foreign invest- that limped into privatisa- example,” he says. exporter. in improvements. on its Triangulo do Sol toll “It’s a this century sible source of the commod- ment to finance its gaping tion over the past 20 years The common factor for the The restricted capacity of It plans to spend a further road network in the Brazil- project,” Mr Castellucci ities they need to feed their current account deficit, into slick, modern logistics investments expected to the existing rail links from $50m on track and $35m to ian state of São Paulo. says of the cross-Andes people and a way to trans- which reached 2.31 per cent services providers. earn the best returns is that the coalfields to Cartagena, $40m on rolling stock over “The Brazilian road plan. “But it’s not one for late their wealth into eco- of gross domestic product in ALL, the largest com- they are tied to the growing on the Atlantic, is limiting the next three years to cope network does not have the next five years.” nomic development. the year to February. The However, the fight for country also desperately these resources is likely to needs the funds to invest in become more cut-throat, infrastructure projects, as it with water scarcity limiting prepares to host the World food supplies as the global Cup in 2014 and the Olym- population continues to pics two years later. Container grow. Fearing for their However, investment future food security, Arab comes at a price. There is a and Asian countries have sense of unease about increasingly used sovereign sovereign wealth funds’ wealth funds to secure lack of transparency and resources and land in Latin their exploitation of local traffic America, sometimes funnel- resources. In some cases, it ling money through the pri- is not possible to distin- vate sector to bypass local guish between state-backed regulations. and private investment. Last year alone, Gulf “Saudi Arabia has been states invested about $5.1bn very vocal about food secu- brings new in Brazil, estimates Daniel rity and wants to acquire Melhem, president of the land in Brazil,” explains Mr Gulf Latin America Leaders Council: “This is just the tip of the iceberg,” he says. There is a risk that “This type of ‘south-south’ countries may problems investment is still some- thing very new for the glo- resort to bal economy.” protectionist today,” says Henrik Pedersen, Among the Arab states, Ports vice-president for business devel- Qatar and Abu Dhabi have policies opment in the Americas of APM been the most active in Rising trade flows Terminals, the terminals arm of Latin America so far. This create bottlenecks Denmark’s AP Møller-Maersk year, Al Gharrafa Invest- Melhem. “The first instinct group. ment, a subsidiary of would be to go straight to for shipping, Meanwhile, the rising volumes Qatar’s sovereign wealth the Brazilian government writes Robert Wright of Asian imports through the fund, increased its stake in but they don’t sell land to region’s container ports are Adecoagro, a farmland ven- foreign investors. Instead, persuading container lines to ture backed by billionaire Saudi Arabia gives loans to ntil last year, container bring to Latin America large investor George Soros the private sector that will ships calling at Callao, ships displaced by still larger new which is based in Argen- be used to invest in food Peru’s main port had to vessels on routes elsewhere. tina, Brazil and Uruguay. security overseas.” load and unload by Maersk Line, the Maersk “When we meet the sover- Charging interest is not Uprocesses that would be unthink- group’s container shipping divi- eign wealth funds, they’re permitted under Islamic able in most developed economies. sion, which saw its volumes to mostly looking at commodi- law, so these companies The metal boxes would either be and from Latin America grow 14 ties, either mining or food,” often get away with paying hitched to the hook of a ineffi- per cent between 2009 and 2010, Mr Melhem says. “But very little in return for cient mobile crane and swung has even ordered 16 vessels specif- they’ve also shown interest these loans, he adds. slowly ashore or lifted off by the ically tailored to Latin America’s in the financial sector and As a result, there is a risk ship’s own cranes. needs. real estate.” that Latin American coun- However, since DP World, one The vessels, with a capacity of In fact, Qatar’s first big tries may resort to protec- of the world’s biggest operators, 7,500 twenty-foot equivalent units move into Latin America tionist policies to direct this opened a new terminal in the port (TEUs) of containers, will dwarf was a $2.72bn purchase of a foreign investment to spe- last May, Peru’s main shipping anything previously seen in the stake in the Brazilian arm cific areas of the economy. gateway has boasted six huge, region and will each have plugs of Santander, the Spanish For example, Brazil has modern cranes. Their long booms for 1,700 refrigerated containers to bank. Aabar Investments, been preparing rules to – specifically designed to let oper- carry the region’s growing food Rising tide: tugboat and container ship laden with goods in the Port of Callao Corbis one of Abu Dhabi’s state block foreign governments ators grab containers fast and exports. They are likely to be investment vehicles, also and state-owned companies drop them quickly on the quay- deployed on new services linking put in a dedicated container ter- the ship won’t sit for a long time Cárdenas for the high quality of made a $328m investment from buying agricultural side – mean ship handling takes a Latin America directly to Asia. minal, that unlocked the entire in each port.” its facilities and inland connec- in Santander Brazil in 2009. land, while trying to allow fraction of the time it did before. Both the bulk and container west coast South America market The region’s governments are tions. But challenges remain. Asian sovereign wealth genuine private sector The problem, according to Mat- shipping trends demand signifi- to network changes by the lines,” aware of the problems. APM Mr Leech complains that funds favour energy, some- investors. The unease is thew Leech, managing director cant fresh investments – all the Mr Leech says. Terminals has been awarded a projects take far longer to com- thing the oil-rich Gulf particularly acute when it for DP World’s Americas region, more so since those involved Yet growing ship size is a concession in Callao to modernise plete than in the fastest-moving states do not need. “Sover- comes to China. is that the improved service has know more change is coming. The problem in itself, according to Mr the existing port and supplement emerging markets: “It’s not a eign wealth funds from “Some economies lean so spurred trade that the facility expansion of the Panama Canal, Pedersen. Many ports not only the overstretched DP World facil- European-type problem, where it Asia have been looking for towards being liberal, open is already almost full. due for completion around 2014, ity. DP World is working on a can take 10 years, but it’s five- energy resources to and operating on a commer- Callao’s challenges in coping will allow container lines and new terminal in the Brazilian port year cycles,” he says. “The cycles advance their economic cial basis. Others lean with the fast-changing demands bulk shipowners to introduce far New ports could expose of Santos and the Chilean govern- are still long from an infrastruc- agenda in the medium towards state control,” says of Latin America’s trade sum up larger ships than before on serv- weaknesses in roads ment has advertised concessions ture perspective.” term,” says Enrique Alva- Peter Mandelson, a former the issues facing the ports and ices that need to sail between the to operate new container termi- The longer-term fear, mean- rez, head of Latin American UK business secretary and shipping companies serving the Pacific and Atlantic. and railways that the nals at the ports of San Antonio while, is that work to dredge riv- research at IDEAglobal. EU trade commissioner, on region. Rising demand for the The transformation in efficiency previously modest and Valparaíso. ers, build new cranes and hack Last month, the chairman the sidelines of a policy con- region’s exports – especially from resulting from investment can be In bulk shipping, improvements new ports out of beaches could of the supervisory board of ference in São Paulo. Asia for its plentiful raw materi- remarkable. Mr Leech says the traffic had kept hidden to the Colombian Pacific Port of end up exposing weaknesses in China’s $300bn sovereign “That will produce als – are putting pressure on bulk opening of the new terminal at Buenaventura to let it handle roads and railways that the ports’ wealth fund said he had increasing tension in the ports such as Brazil’s Ponta de Callao has eliminated the worst some of the country’s fast-rising previously modest traffic had kept just returned from a trip to international trading sys- Madeira. bottleneck on South America’s have to install the kind of huge coal exports form a big part of an hidden. Brazil, Argentina and Chile tem, not between developed According to G-Ports, an infor- west coast. As a result, shipping cranes that stand over Callao, but ambitious programme of Chinese- Countries need to have not just and saw great potential for and developing countries mation service, congestion in lines have been able to introduce also to dredge harbour funded infrastructure investments port masterplans but infrastruc- investment. Chinese compa- but between the fast grow- early April at one of Ponta de ships that can carry 6,500 twenty- approaches such as the River planned for the country. ture and logistics plans, according nies have invested in ing countries themselves.” Madeira’s piers was so serious foot equivalent units of contain- Plate leading to the Port of Bue- “Everybody recognises that to Mr Pedersen. resources and energy busi- that ships were forced to wait an ers, which would previously have nos Aires. infrastructure is needed,” Mr “Countries will need to upgrade nesses and analysts expect MORE ON FT.COM average three weeks after arrival taken too long to load and unload “The pressure is not only on Leech says. both the road side and the rail the bulk of state invest- before loading with iron ore. at Callao. The biggest vessels in physical ship size, but also on There are also ports in the side, to make sure that you don’t ments to be in these areas. Itaú Unibanco finds ways to “There are cases where the the region before the new port’s your operational systems,” Mr region that already reach high just move the bottleneck from the Starting with offices in reach new customers existing infrastructures have construction were just 2,800 TEU. Pedersen says. “You have to have standards. Mr Pedersen singles quayside to the landside,” he Brazil and Mexico in 2008, ft.com/latin­trade­2011 already exceeded their limits “When we opened Callao and a big productivity gain, so that out the Mexican port of Lazaro says. Singapore’s state invest- Stormy weather fails to capsize container ship operator

Compañía Sud Americana exporting Latin American world container shipping, As a result, when CSAV rescue package in May The company has leapt Case Study de Vapores, the South food products and bringing operating 150 ships. started struggling to meet 2009, taking equity in up the fleet size tables CSAV American steamship back Asian manufactured “Down the road, we see increasingly onerous return for reduced produced by Paris-based company, was founded in goods. the stakeholders better off obligations to pay for new charter rates. Alphaliner. It currently sits The group has 1872 amid a wave of However, the company than they were before the charter ships in early 2009, Jochen Döhle, Peter at number seven. enthusiasm for investment came close to foundering crisis and the company in it had more container Döhle’s president, has The challenge may be to developed a strong in, and trade with, South in the 2009 crisis in a new competitive position, ships on charter from repeatedly said the repeat such a strong instinct for survival, America. container shipping, when looking at its future in a Hamburg owners than transaction avoided the performance this year. The company – based in worldwide container traffic different way,” Rafael almost any other company, shipping equivalent of the CSAV announced in says Robert Wright Chile and listed from the fell 10 per cent. Moreira, CSAV’s finance even though it operated Lehman Brothers collapse. March that, in light of the start on Santiago’s stock It survived, thanks to an director, told a conference the world’s 16th-largest With its obligations to rising oil price and a exchange – has not only innovative deal with the in Hamburg in February. fleet overall. owners reduced and a slate decline in the rates survived to benefit from shipowners that were some While most container CSAV came close Horrified by the prospect of new ship deliveries, customers pay to ship the most recent surge of of its largest creditors, as shipping lines own directly to foundering in the that CSAV’s 90 chartered CSAV not only returned to containers, it planned a interest in the region but well as a $770m rights between half and three- vessels might return to the profit for 2010 – making $500m capital increase. also to facilitate it. issue. The deals allowed quarters of the ships they 2009 crisis, when ship chartering market and $181m net profits against Chile’s Luksic family, CSAV’s container ships CSAV to carry on with an operate, CSAV has long worldwide force down prices, 2009’s $653m net loss, on which has recently run a number of services ambitious fleet expansion preferred to charter nearly Hamburg owners, led by turnover up 80 per cent to acquired 18 per cent of the direct from both coasts of and modernisation and to all its ships from container traffic Peter Döhle Schiffsfahrt, $5.45bn – but also saw its shares, is proposing that South and Central America emerge from the crisis as independent owners, many one of the market’s leading container traffic rise by 62 the sum involved be raised and Mexico to Asia, an important force in of them based in Hamburg. fell 10 per cent companies, arranged the per cent. to $1bn. FINANCIAL TIMES TUESDAY APRIL 26 2011 ★ 3 New Trade Routes | Latin America Fall in demand brings cocaine back home

ity of drug trafficking is still unequal. As Peru Drugs organisations to absorb takes its place as the increased costs is phenome- regional narcotics power- Central America is nal,” says Ms Felbab- house, more than a third of feeling the effects, Brown. “Hence the difficul- its population live in pov- ties in trying to use supply- erty in spite of its 7 per cent as the trade moves side measures to drive them GDP growth. Mr Linsker to the region, says out of business.” says Peru will be cursed by Mexican cartels have cocaine so long as develop- Peter Barber responded to the crackdown ment fails to reach the at home by forging new rural areas where coca is routes to the US with the grown and cultivated. n the mountains of youth gangs of Honduras, And in spite of their own Honduras last month, El Salvador and Guatemala. predilection for the drug, police uncovered a Some 90 per cent of cocaine Latin Americans still suffer bold new venture by shipments to the US last from violence and corrup- Ione of the world’s most year came through Central tion because of the western innovative businesses. The America, according to the taste for cocaine. cocaine processing lab on a US government. “It’s a matter of con- remote coffee farm was evi- The social impact has science,” says Mr Linsker. dence that Mexican drug been catastrophic. A World “In London, you have peo- cartels were no longer sim- Bank report notes that ple who buy fair trade cof- ply using Central America there were 14,257 murders fee, care about the rain- to smuggle the drug to the in Central America in 2006, forests, always support US: they were refining it compared with 336 in Spain, charities – and then they go there as well. The discovery despite both having a simi- and do cocaine.” Storing up trouble: police in Colombia inspect cocaine, marijuana and guns captured in the rural area of Palmira Getty spoke to a truth about the lar population of about 40m. “war on drugs”: the cartels The homicide rate in Mex- have survived by staying a ico last year was about 18 step ahead of changes in murders per 100,000, but the the marketplace. comparable rate in Hondu- “In the drugs trade, like ras has climbed to 77, any other business, it’s according to the US state about competitive advan- department, making it the tage. The rules change and worst in the region. you adapt,” says Daniel Lin- Mr Linsker notes that, sker, a Latin America ana- despite corruption and inef- lyst from Control Risks, the ficiency, the Mexican state business consultancy. is strong enough to with- While Afghanistan has a stand the drug cartels. But monopoly on the world’s in Central America, traf- heroin supply, cocaine is a fickers exploit weak institu- Latin American curse. tions, corruption and pov- Despite 30 years of efforts to erty. The World Bank esti- stamp it out, coca produc- mates that violence in Cen- tion has remained remarka- tral America costs it 8 per bly constant, at about cent a year in lost gross 200,000 hectares in Colom- domestic product growth. bia, Peru and Bolivia, says It is easy to see the allure Vanda Felbab-Brown, a when one considers the eco- Brookings Institution nomics: a kilo of cocaine is scholar and author of Shoot- worth roughly $1,000 when ing Up: Counterinsurgency it leaves the Caribbean and the War on Drugs. coast of Colombia. As it One reason for this resil- passes through Central America, the price soars to about $100,000 a kilo. ‘In London, people The cartels exploit weak- buy fair trade nesses in global anti- narcotic efforts. More than coffee, care about half of cocaine shipments to the rainforests Europe – the second most important market – come – then they go through Venezuela, the UN believes. Seizures in that and do cocaine’ country fell from 152 tons in 2005 to 60.2 tons in 2009 ience is the “balloon effect” after President Hugo – applying pressure in one Chávez ended counter- place has led only to expan- narcotics co-operation with sion somewhere else. In the the US five years ago, decade to 2008, US-backed according to Control Risks. efforts by the Colombian There is evidence that government shut down as Europe has peaked as a much as 60 per cent of coca market for cocaine and with production there, according North American in decline, to the UN Office on Drugs the cartels have looked and Crime. At the same closer to home. The use of time, production rose by a cocaine by Mexicans dou- third in Peru and more than bled in the six years to 2008, doubled in Bolivia. according to the UNODC, Peru is on course to though it is still lower than replace Colombia as the in the US. But cocaine use world’s largest cocaine pro- per capita in Argentina now ducer, the UNODC says. rivals the US. Alongside Bolivia, it is “I think one aspect of the refining cocaine for the first increase in drug consump- time. tion in Latin America is the The story of cocaine in growth of the middle class – the 21st century is of fierce the improvement of mate- competition. The retail rial conditions for many value of the market has vir- people,” says Ms Felbab- tually halved in real terms Brown. But there are differ- in 13 years to $88bn in 2008, ent markets for cocaine and the UNODC estimates. for crack, its low-rent While coke captured the cousin. There is the young US economic buzz in the middle and upper class rec- late 1980s and 1990s, con- reational user. And then sumers in the drug’s main there is Latin America’s market have lost their taste underclass, including the for it. US demand is worth foot soldiers for the cartels, just a quarter of what it who are often paid in kind. was 20 years ago. “So you have this combi- At the same time, the nation of rising affluence cartels face pressure from and the growth of the mid- military-style campaigns in dle class that generates one Colombia and Mexico. The type of demand, with con- gangs have responded by tinuing poverty and vio- battling over shrinking lence and marginalisation spoils. More than 28,000 peo- driving another,” she says. ple have been killed in Mex- Increasing Latin Ameri- ico alone since President can demand appears also to Felipe Calderón brought in be linked to rising produc- the army and declared war tion in Bolivia and Peru, on the cartels in 2006. which supply the region “But one of the things and Europe. about drugs is that So, the cocaine story has the profit margins are a bleak message about extraordinary and the abil- Latin America’s growth: it

Contributors John Paul Rathbone Robert Wright Latin America Editor Transport Correspondent

Joe Leahy Tom Griggs Brazil Correspondent Commissioning Editor

Naomi Mapstone Steven Bird Andean Correspondent Designer

Jude Webber Andy Mears Buenos Aires Correspondent Picture Editor

Samantha Pearson For advertising details, Brazil Reporter contact: John Moncure on Adam Thomson Mexico Bureau Chief +1 212 641 6362, Fax +1 212 641 6544 Peter Barber email: [email protected] Americas News Editor or your usual representative 4 ★ FINANCIAL TIMES TUESDAY APRIL 26 2011 New Trade Routes | Latin America ‘Backyard’ Customer but also increases competitor

ing down the dollar and its global China making US exports “unfairly” competitive with Activity has surged Brazil’s. But he has since in the past 10 years, changed the focus of his attention. In an FT inter- as Jonathan view in January, he cited importance China as the main cause of Wheatley reports currency concerns, and warned: “This is a currency for the US. Some analysts believe war that is turning into a View from the US the narrowness of the traded About 300 kilometres up the trade war.” goods with the emerging markets coast from Rio de Janeiro, Mr Mantega is not the Matthew Kennard has kept the US more relevant the seemingly endless only one to be worried. examines how trade than is often assumed. stretches of scrubby “Policymakers across Latin “All the hype about Asia is beaches and coconut palms America have turned their relations are changing slightly misplaced,” says Mauricio are interrupted by some- attention to China,” says Moreira Mesquita, a trade special- thing from another world: a Nick Chamie, chief emerg- ist at the IADB. “When you look finger of reinforced con- ing markets economist at here is a lot of plaintive at the composition of exports, it’s crete 26.5 metres wide, RBC Capital Markets in chatter in Washington two or three products – iron ore stretching 2.9km out into Toronto. “But it’s a double these days about Ameri- and raw materials – that’s what the Atlantic. edged-sword, and not only can decline, the perceived interests [China].” Eike Batista, the billion- for Brazil.” Treceding influence of a super- The Chinese have also pro- aire entrepreneur who built For commodities export- power that had stood unrivalled moted mercantilist policies, which it, calls this “a highway to ers, the anticompetitive for two decades. make it hard to export to Asia in China”. When it is ready impact of currency appreci- Nowhere is this more obvious a variety of sectors. next year, it will be the ation has been offset by a than its economic relationship This makes the US strategically main pier for Açu Super- surge in international with Latin America, the place US important, because it gives the port, a port and industrial prices. For manufacturers, planners used to refer to conde- commodity-rich economies of complex taking shape though, there is no such scendingly as “our backyard”, but South America the opportunity to behind it on a piece of land cushion. And they say they which increasingly resembles a export a broader cross-section of one and a half times the are casualties not only of local park – a bigger place for the products. Many in Latin America size of Manhattan Island. the currency war but also US to play in, but one that is now believe this is needed to avoid Açu Superport is emblem- of dumping and other prac- open to all. reliance on high commodity atic of a surge of trade and tices that erode their com- The new players are, primarily, prices. investment between China petitiveness both in world emerging economic powers from “The region is going to have to Colombian president Juan Manuel Santos discusses trade with President Barack Obama Getty and Latin America that has markets and at home. Asia that have penetrated deep live with the fact that it is rich in already delivered transfor- Charles Tang, head of the into the booming economies of commodities that are in high “any trade agreement is a good Pressure from labour groups and trade specialist at St Gallen mational change. Brazil China chamber of the region over the past decade. demand,” says Mr Mesquite. trade agreement” and lamented and unions had given Mr Obama University in Switzerland. But China’s towering sta- commerce, says Brazil’s “What you have is a process of “There are obvious concerns the fact that Nafta “did not have pause, and it was only after Juan A move to regional trading tus in the world economy lack of competitiveness is structural change in the trade about what happens to the manu- enforceable labour agreements Manuel Santos, the president of blocs in Latin America is also has brought problems, too. also caused by a failure to patterns in Latin America, that is facturing sector in that perspec- and environmental agreements”. Colombia, arrived in Washington chipping away at US dominance – Many Latin politicians who enact reforms of outdated very significant and likely to con- tive.” In power, Mr Obama has been to promise progress on labour but only up to a point. embraced China as a wel- labour laws and a complex tinue to go in that direction,” says Even friends – and neighbours – more circumspect, reneging on standards and protections in his The most significant of the come substitute for the US and regressive tax system, Augusto de la Torre, chief econo- appear to be turning away. The his promise to renegotiate the country, that he signed on the groupings has been Mercosur, are finding the relationship and that these and other mist for Latin America and the US’s most important trading bloc, dotted line. which was founded in 1985 and increasingly prickly. elements of the custo Brasil Caribbean at the World Bank. the North American Free Trade The US-Panama accord, mean- includes all South America’s main Açu Superport’s pier is – the plethora of factors “The region is becoming highly Agreement (Nafta), is nearly two Latin American while, which was signed by Pan- economies as full or associate not Latin America’s only from bureaucracy to crum- differentiated, with countries, decades old and is starting to look governments can ama in 2007, has still not been members. highway to China. bling infrastructure that mainly in South America, diversi- its age. ratified. But its progress has not been Vale, the Brazilian min- make it expensive to run a fying their export-destination The share of trade between the choose who to deal Business groups say that the steady and, since the early 1990s, ing company, recently took business in the country – markets significantly,” he adds. three signatories – the US, Mexico with. This lowers the delays have allowed US rivals to it has been stuck over the out a $1.23bn loan from the cannot be blamed on China. A decade ago, Asia accounted and Canada – has fallen by nearly capitalise. removal of barriers, witnessing in Bank of China and the for roughly 5 per cent of the 10 per cent over the past decade: importance of The Doha trade round, mean- some cases reversals and new Export-Import Bank of Charles Tang region’s trade, according the from 55 per cent of the countries’ appeasing US interests while, has the chance to rebal- obstructions. China, to build a fleet of 12 says Brazil Inter-American Development global exports in 1999 to 46 per ance the current “south-south” This has assuaged lingering US of the world’s largest ships must reform Bank (IADB). cent in 2009. growth in trade flows. fears. Although a serious group- to carry its iron ore to its its labour This has ballooned to 20 per President Barack Obama is cau- deal; to some it looks as though But it could also wreck a host of ing, Mercosur accounts for only 11 biggest customer. laws and tax cent. tious, if not hostile, towards bilat- he has chosen to watch it lose its bilateral agreements. per cent of Brazilian trade, for Across much of Latin system Much of the growth is because eral trade agreements. He cam- edge. “Doha would hurt some Latin example. America, exports to China of the region’s commodity riches, paigned for the presidency on his He belatedly approved the trade American countries, in relative However, Latin American are surging. The region’s particularly iron ore, being opposition to the Nafta agreement agreement with Colombia, which terms, as some of them have governments can choose who overall trade with China Brazil is reluctant to sucked in by a booming China. in its current form and com- had been zealously backed by been promiscuous in setting up they deal with. This lowers has grown 16-fold over the address such issues, so it But there are two sides to this plained about former president Republicans and business groups bilateral free trade agreements,” the importance of appeasing US past decade – an extraordi- must use other tactics. One coin in terms of the implications George W Bush’s attitude that in Washington. says Simon Evenett, an economist interests. nary expansion. option is to add value to The boom in trade has commodities at home, been followed by an explo- rather than exporting raw sion in investment. For materials to China – which years, China promised to may then return home in spend billions of dollars on the form of finished goods. Latin America’s infrastruc- The government has leant ture to ensure access to the heavily on Vale, for exam- Subcontinent prepares to be next China commodities it needs to fuel ple, to invest in the domes- its growth. tic steel industry. Petro- thing” for Latin America if ing automation could have bilateral trade soaring”. and building a steel mill. ment flows and some mar- It was a long time coming bras, the state-controlled oil India barriers, including high tar- been relevant, Latin Amer- Mr Jhala sees India’s Vikrant Gujral, president kets are tough. – in 2009, according to the company, invests in oil iffs and transport costs, can ica was setting its macro- growth rate overtaking of Jindal Steel Bolivia, And though Latin Ameri- Brazil China chamber of refineries for reasons of Latin America has be overcome. economic situation in China’s this decade, in part expects the first export of can companies are active in trade and industry, Chinese public policy, not profitabil- largely ignored the The report’s co-ordinator, order,” Mr Jhala says. “In because of a steep decline 400,000 tonnes of iron ore India in sectors as diverse investment in Brazil was ity. Mauricio Moreira Mesquita, India, the opportunities are in Chinese workers. “any time now”. as vaccine manufacture, worth just $386m. In 2010, But persuading China to country, writes says: “India will hit the nat- still there and Latin compa- India is preparing itself. India mainly exports cinema construction and that number ballooned to buy value-added goods Jude Webber ural resources constraint nies are more confident. So, Reliance Industries, which chemicals, pharmaceuticals, bottling, Latin American an estimated $19bn. instead of raw materials is pretty soon...if it keeps we see know-how being owns the world’s biggest engineering products, tex- investment amounted to Most of that – about 85 not easy, as Argentina growing at 8 to 9 per cent a exported from Latin Amer- refining complex, sourced tiles and diesel to Latin $11m, some 0.01 per cent of per cent – was commodity- recently discovered. When Anil Jhala, an Indian busi- year, it is going to have to ica to India.” about a quarter of its America and though total Indian inflows, related. And it is far from it tried to export soya oil nessman newly arrived in start importing amounts A joint venture between imports in the first 10 exports to the region grew between April 1990 and restricted to Brazil. Across rather than raw beans to Brazil, says he feels like a from Latin America.” Tata Motors, India’s largest months last year from Latin 20 per cent to $9bn last March 2009, according to the region, Chinese oil com- China, its shipments sud- modern-day Vasco da It is an upbeat view car company, and Marco- America, while ONGC year, Mr Viswanathan says the IADB. panies invested $15bn last denly fell foul of alleged Gama, only in reverse, shared by Mr Jhala, who in polo, a Brazilian busmaker, Videsh, Indian Oil Corp and that is just a fraction of “Some Indian companies year, and industry execu- sanitary concerns. opening up a trade route February became president to build buses and coaches Oil India have a $2.2bn Latin America’s $700bn have a Latin America strat- tives say more is to come. Argentina backed down from rather than to India. of the Brazilian operations in India is “a harbinger of investment in Venezuela. imports. Brazil’s strong egy. But Latin American Investment goes beyond and soya bean exports Six centuries after the of India’s Aditya Birla things to come”, Mr Jhala In Bolivia, India’s real, which makes imports companies do not yet have commodities. Across the resumed, but the spat is 15th century Portuguese group, a $29bn conglomer- says. Jindal is devel- cheaper, is an opportunity an India strategy,” says Mr region, from car making to still simmering. explorer opened the first ate with interests ranging India, meanwhile, has oping El for Indian exporters, Viswanathan. banking, Chinese groups No Latin government is trade route to India, neither from aluminium to cement, established a foothold in Mutún, one of and he says the export Mr Jhala also thinks are carving out a presence. falling out with the Chinese Brazil nor India is among textiles to telecoms. Latin America, with infor- the world’s goal should be $20bn by Latin Americans are “short- So why would govern- yet. The benefits of trade the other’s top trading part- “India will be the next mation technology and out- largest iron 2013. sighted”. ments be worried? One rea- and investment still out- ners. China in terms of being a sourcing companies employ- ore deposits, Indian companies “In consumer segments son is the impact of capital weigh the disadvantages. Latin America has largely market for Latin commodi- ing 17,000 Latin Americans, have invested some such as cosmetics and beer, inflows – from both trade But there is a strong concentrated on feeding ties,” Mr Jhala says. according to Rengaraj Ambassador $12bn in Latin America, they still look at India’s low and investment – on the sense of what Mr Chamie China’s demand for raw “Indian manufacturing Viswanathan, India’s Rengaraj says Mr Viswanathan. per capita consumption and region’s currencies. calls pushback. As multi- materials and India has tar- exports to the region will ambassador to Argentina, Viswanathan But Indian investment postpone their entry, not The most famous case is nationals from both sides geted Latin America less also grow.” Uruguay and Paraguay. in its top regional part- realising India has a 350m- Brazil, where Guido Man- begin to markets – espe- aggressively than China. But it can be a two-way Latin America’s exports ner, Brazil, makes plus middle-income popula- tega, finance minister, last cially Africa, whose entry But the Inter-American street. to India are chiefly crude, up only 0.05 per tion,” he says. “What they year coined the term “cur- into the Brics club via Development Bank (IADB), “When China was liberal- soya oil and copper, and cent of Bra- fail to realise is in 15 years rency war”. South Africa was so in a report last year, con- ising and Latin know-how the IADB says the “natural zil’s for- India’s middle class will be At the time, he was wor- strongly supported by cluded India had the poten- in areas such as urbanisa- resource pull” should be eign direct 550m, but the brand posi- ried about loose fiscal pol- China – they must prepare tial to become “the next big tion, food processing, bank- strong enough to send i n v e s t - tions will be taken.” icy in the US that was driv- for direct competition. Brazil seeks to triumph in new Great Game for Africa

So important has Africa tion of any country in the cial Advisor on Africa to station and construct rail are used to that of course, in Africa through agricul- only its commercial Africa become for companies such world after Nigeria. the UN. Brazil, meanwhile, and port infrastructure. so the risk assessment is tural co-operation – the onslaught on the continent as Vale that the continent Brazil’s affinity with the imports oil from Nigeria Odebrecht last year much easier for a Brazilian state-owned agribusiness but also its diplomatic Cultural ties give now accounts for half as continent also comes from and Algeria, according to became the largest private company.” research company Embrapa offensive. President Dilma its companies much of Brazil’s interna- its shared Portuguese colo- the 2009 report. sector employer in Angola, Brazil’s courting of Africa is active in Ghana – and Rousseff will have no alter- tional commerce as China. nial history with Luso- It says foreign direct involved in food and etha- has a wider geopolitical other activities, such to native but to follow her a head start, “Brazil-China trade is phone Africa, particularly investment by Brazil is con- nol production, offices, fac- context. It wants to be rec- fighting Aids. predecessor’s footsteps and writes Joe Leahy today worth more than Angola and Mozambique, centrated among a few of tories and supermarkets. Still, in spite of Brazil’s take a flight east, if she $50bn, while Africa as a although the Latin Ameri- its multinational compa- Petrobras is also active in natural affinity with the wants to win the new Great whole is more than $25bn – can giant today does more nies. Petrobras, the state- Angola, deploying its exper- Brazil wants a continent, it faces serious Game under way on the When Vale, the world’s so it’s significant in its own business with Nigeria, Alge- owned oil company, tise in deep water drilling. permanent seat on competition from its deep- African continent. In largest iron ore miner, right,” says Brad Koen, the ria and South Africa. invested $1.9bn in Nigeria Andre Loes, chief econo- pocketed rival China, which Africa, as in all emerging announced its latest foreign São Paulo-based managing According to research by in the coal, oil and natural mist at HSBC for Brazil, the UN Security has systematically targeted markets, face-to-face rela- acquisition this month, no director and global head of Standard Chartered Bank, gas sectors in 2005, and in says the country’s largest Council. Africa is a the continent with infra- tionships are paramount. one was surprised by the business development at Brazilian imports from 2007 made further invest- construction groups were structure investments in “What happens on the location of the target com- South Africa’s Standard Africa increased nearly 21 ments in alternative early movers in Africa. natural vote bank exchange for resources. political side, usually fol- pany: Africa. Bank. per cent to $3.25bn in Janu- energy. The same year, Given Brazil’s history of Indian private-sector lows on the business side The $1.1bn offer for Meto- Brazil’s courting of Africa ary to March, against a year Vale spent about $700m on economic volatility, its com- companies are also fierce right away in Africa,” says rex, a small Johannesburg- is partly the result of tire- earlier, while exports rose the coal, oil and natural gas panies are more comforta- ognised as a world power, competitors, with New Mr Koen. listed miner whose largest less campaigning by the 39.4 per cent to $2.55bn. sector in Mozambique. ble with the high degrees of with positions such as a Delhi-based Bharti Airtel asset is a copper mine in previous president Luiz Iná- “The largest component In Mozambique, Vale is uncertainty prevailing in permanent seat on the UN having snapped up one of ON FT.COM the Democratic Republic of cio Lula da Silva, who made of Brazilian exports [to also working with Ode- many of these countries. Security Council. Africa is a the biggest telecom groups Congo, extends Brazil’s countless trips there. The Africa] has remained brecht, a Brazilian con- “Some of these countries natural vote bank. in Africa last year. Vale’s investment in Metorex influence in a continent former leader pointed to the resource-based commodities struction company, to had unstable, inflationary Aside from Mr Lula’s vis- Against such emerging has raised eyebrows with which it has close his- fact that Brazil has the sec- [49 per cent],” says a report develop coal reserves, as economies for a very long its, Brazil has also sought market juggernauts, Brazil ft.com/latin­trade­2011 toric and cultural ties. ond largest black popula- from the Office of the Spe- well as build a power time,” says Mr Loes. “We to build political influence will need to keep up not FINANCIAL TIMES TUESDAY APRIL 26 2011 ★ 5 New Trade Routes | Latin America Local links improve neighbourly relations Regional growth Internal deals help unite nations, says Naomi Mapstone

rade barriers in Latin America are often politi- cal or structural – but they can also be Tphysical. The crazy zig-zag road from Pasto to Mocoa in south- ern Colombia – built during a 1934 war with Peru over sugar tariffs – is a perfect example. Trucks sometimes need three attempts to turn a corner. “Where the mules went, the engineers followed, with dyna- mite,” says José Hernando Gomez, head of Colombia’s National Planning Department. The road, currently being rebuilt with the benefits of 21st- century technology, is the miss- ing link in a potentially lucra- tive route connecting Colom- bia’s Pacific coast with the mighty Amazonian rivers that run from Peru to Brazil. It it part of an ambitious push to boost connectivity and enhance trade both within Latin America and beyond. While China’s soaring levels of investment in Latin America nomic crisis, perhaps doing bilateral deals have done some According to Unctad, this is region to the world, some of Line in the sand: the are prompting debates about more for the cause of regional of the work of diplomacy in one of the key benefits of those more sophisticated goods Interoceanic highway being Asia’s rising political influence integration than political initia- recent years, helping to improve increasing trade within Latin are still present, but mineral constructed through the in “America’s back yard”, intra- tives such as Mercosur, Alba relations between ideologically America. products become more impor- Amazon jungle Reuters regional trade is also booming. (the Bolivarian alliance for the polarised nations. “Intra-regional trade between tant,” says professor Antonio According to the United Nations People of America) and the But Chris Sabatini, senior developing countries features a Carlos Macedo e Silva, of Conference on Trade and Devel- Union of South American director of policy at the New much higher proportion of Unctad’s economic co-operation opment (Unctad), trade flows Nations. Michael Shifter, presi- York-based Council of the Amer- industrial goods, and especially and integration among develop- within Latin America grew at dent of the Washington based icas, warns against a “warm and of high- and medium-skill and ing countries unit. “If you con- 8.9 per cent a year from 2000 to Inter-American Dialogue, says: fuzzy rhetoric of solidarity”, technology-intensive manufac- sider exports to China, or even, 2009, from $134bn to $290bn. “It’s not a politically unified saying that while economic inte- tures,” it noted in a 2007 report. for that matter, to the European MORE ON FT.COM Brazil, Argentina, Mexico, region; there are tremendous gration has undeniably The top-10 traded products in Union, raw materials take pride Chile and Colombia are the differences and high levels of smoothed over differences, Latin America in 2009 included of place.” Latin Links region’s heavyweights, with the mistrust among governments. many countries remain on medium- or high-tech goods For Brazil and Peru, which Using data from the UN highest volumes in the same “What’s striking is there’s markedly different economic such as passenger vehicles, trac- expect a further boost to bilat- Conference on Trade and period, but Panama, Ecuador, been so much progress despite trajectories. tors, medicines and telecommu- eral trade from the completion Development, this graphic Paraguay, Bolivia and Peru these differences. US “squeamishness” about its nications equipment. of the inter-Oceanic highway examines trade flows for experienced the fastest growth “The original idea in the 1990s commitment to free trade has The region’s big corporations, this year, the benefits are obvi- three sectors – agriculture, in their share of regional trade. was for governments to come acted as a spur for Latin Amer- many near-monopolies in their ous. energy and mining for the Panama’s regional flow of together in a free-trade agree- ica’s deepening and diversifying home markets, have been quick The first paved road to cross seven largest regional trade rose by a factor of 6.2 in ment. Instead, we’ve had a pro- ‘It’s no longer just trade, he says, adding: “There’s to seize the opportunity pre- Latin America east economies: the decade to 2010, in spite of liferation of bilateral agree- primary products or a real differentiation now in sented by growing consumer to west will give Brazil access to Argentina, infrastructure gaps, political ments and trade driven by the these markets in terms of what markets on their doorstep. a Pacific port for the first time, Brazil, Chile, schisms and the global eco- private sector. At this level, the same crappy they produce and what they Among them are Carlos Slim’s enhancing its exposure to lucra- Colombia, integration is stronger than refrigerators and buy. Telmex, Colombia’s energy-utili- tive Asian markets. Mexico, Peru MORE ON FT.COM ever.” “It’s no longer just primary ties group EPM and Avianca air- It will also give the Brazilians and Venezuela José García Belaúnde, foreign appliances’ products or the same crappy line, Brazil’s Banco Itaú, miner greater capacity to sell soya, since 1995 Chilean airline hoping to grab minister of Peru, one of the Chris Sabatini, refrigerators and appliances. Vale and oil company Petrobras, construction and mining equip- www.ft.com/ greater share of global market world’s fastest growing econo- Director of policy, There are truly globally compet- to Chile’s Cencosud retailer and ment, electrical goods and vehi- latin­trade www.ft.com/latin­trade­2011 mies and an avid proponent of Council of the Americas itive products that are diversi- LAN airline. cles to Peru, and the Peruvians free-trade agreements, said fied.” “If you take exports from the a chance to sell to Brazil. Southern neighbours are becoming more attractive

month announced a deepen- which binds the US, Canada Mexico and Latin America Mexico ing of its existing trade and Mexico. has to do with economic agreement with Colombia María Cristina Capelo, an health. Adam Thomson as well as the signing of a investigator at Mexico Luz María de la Mora, a says businesses are trade pact with Peru. City’s Centre of Research visiting professor at Mexico But perhaps the biggest for Development (Cidac), City’s Centre for Economic starting to consider sign of Mexico’s intention says that multinational Research (Cide), says the Latin America as to develop trade links with companies operating in region has emerged from Latin America came in both countries could be the the global economic crisis a viable market November last year, when main beneficiaries of an of 2008 and 2009 much more the government formally eventual accord because strongly than industrialised On the factory floor of began negotiations with they could integrate opera- countries. Industrias H24 in Naucal- Brazil, the region’s largest tions more closely. In contrast to previous pan, a satellite of Mexico economy. “Brazil and Mexico pro- crises, for example, macro- City, workers dressed in Experts say that such a duce many similar prod- economic fundamentals blue overalls pack card- deal could be huge. ucts, but if you look at sec- remain solid; inflation is, by board boxes with household The two countries are the tors such as automobile and large, under control products – bleach, washing largest economies in Latin and the countries’ banking powder, surface cleaners America, together making sectors remain well capital- and bug spray. up 74 per cent of the Labour costs ised. A few years ago, the prod- region’s gross domestic are now only All of that has not only ucts would all have had one product. They are also by created stronger markets in destination: Mexico. Today, far the most populous coun- 13.6 per cent more which to sell products, it more and more of them are tries in Latin America with expensive than has eliminated a lot of the heading south – to other a joint population of about once-endemic risks associ- Latin American countries. 300m – almost the size of those of China ated with doing business in Mark McGuiness, the the US. Latin America. company’s owner and presi- Yet Mexican exports to “Latin American coun- dent, says that sales to his Brazil account for just 1 per parts and aerospace, there tries see themselves as new export destinations are cent of the total, while is potential because a lot of places we can do business growing at about 15 per Brazilian exports to Mexico the commerce is between safely,” she says. “They cent a year, compared with represent 1.8 per cent of companies,” she says. have the conditions that just 1 per cent for domestic that country’s total exports. She also sees an upside in allow business to happen.” sales. He says he expects Experts say that a deal petrochemicals, where Bra- At the same time, Mexico the trend to continue. with Mexico could lift that zilian companies setting up has become more competi- “We have a sophisticated figure but also provide in Mexico could purchase tive as an export market. and volume-driven industry important access for Brazil- primary materials from Sergio Martín, chief Latin base [in Mexico], and that ian products to the US and Pemex to manufacture America economist at volume helps you go into Canadian markets through derivatives. HSBC in Mexico City, says smaller markets that are the North American Free One reason for the deep- that labour costs are now less efficient,” he explains. Trade Agreement (Nafta), ening trade ties between only 13.6 per cent more All over Mexico, produc- expensive than those of ers are starting to look China. south in search of fresh Five years ago, the differ- markets. According to the ence was 260 per cent. country’s economy minis- Of course, some of the try, exports to South Amer- competitive gains are the ica last year were 50.4 per product of forex markets, cent higher than in 2009, with the Mexican peso while overall exports were remaining undervalued 29.8 per cent higher. against the US dollar, That growth has helped compared with other cur- the region assume far rencies such as the Brazil- greater importance for Mex- ian real or the Colombian ico, with Latin America peso – a fact that could shift now accounting for about 7 over time. per cent of total exports In addition, it is impor- compared with roughly half tant to remember that 80 that figure five years ago. per cent of Mexican exports As a sign of the thriving still go to the US, and that new trade, the Mexican gov- country’s importance for ernment announced at the Mexico as an export desti- end of last year that South nation is unlikely to change America had overtaken the in the near future. European Union as a desti- For now, the growth in nation for Mexican exports trade between Mexico and for the first time in more Latin America is one of the than a decade. most dynamic areas. In an effort to diversify As Ms de la Mora of Cide exports and develop puts it: “Latin America is stronger ties with the rest becoming an attractive of the region, Mexico this South facing: Mexican workers at a car factory Bloomberg partner.” 6 ★ FINANCIAL TIMES TUESDAY APRIL 26 2011