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Emerging economies are increasingly present on the global scene. But Latin America’s share of the world output is small when compared to Asia.
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Latin American Economic Outlook 2008
China and India: Angel or il f i iDevils for Latin America?
Based on Chapter 4 of the Latin American Economic Outlook 2008
M i f ti d /d /l
Javier Santiso
More information on www.oecd.org/dev/leo
China, March 2008
Director & Chief EconomistOECD Development Centre
The OECD and Latin America: An emerging commitment
• Latin American market democracies matter for the OECD and its member countries
• The Latin American dimension at the OECD:
Mexico: Member since 1994; Chile: candidate since May 2007; Mexico: Member since 1994; Chile: candidate since May 2007; Brazil: enhanced cooperation, May 2007
Economic Surveys:1992 1995 1997 1998 19991992, 1995, 1997, 1998, 19992000, 2002, 2003, 2005, 2007
2003, 2005, 2007
2000, 2005, 2006
Latin American Economic Outlook 2008
The Development Centre: A bridge between the OECD d i iOECD and emerging regions
• Membership of the Development CentreWith a Governing Board open to emerging countries, theD l t C t id f k f di lDevelopment Centre provides a framework for dialogueand experience sharing with regions all over the world.
Th L ti A i t i b f• Three Latin American countries are members ofthe Centre:
– Mexico Chil– Chile
– Brazil
The Center is less and less the Center and theP i h l d l th P i hPeriphery less and less the Periphery
0% 10% 20% 30% 40% 50% 60% 70% 80%
Share of World GDP
1952
1978
USA
Europe
Japan
USSR1978
2003
USSR
China
India
Source: OECD Development Centre, 2008; based on OECD Statistics.
For the first time, Major Outward FDI is coming from Emerging Countriesfrom Emerging Countries
20%
Share of Outward FDI• Major share of FDI by
14%
16%
18%
20%j byemerging multinationals from emerging Asia, Latin America and the Middle East.
8%
10%
12%
4
Developing economies
Latin America and the Caribbean
China incl Hong
• New global players with headquarters in emerging countries
2%
4%
6%Kong
India
countries.
• OECD-based companies increasingly targeted.
0%
1970
1973
1976
1979
198
219
85
198
819
91
199
419
97
200
020
03
200
6
increasingly targeted.
• In 2007 Outward FDI from Russia peaked to USD 48 bn.
Source: UNCTAD, World Investment Report 2007p 4
For the first time, Major Outward FDI is coming from Emerging Countries
Share of Outward
from Emerging Countries
World Investment
95%
100%
Share of Outward FDI
50%
60%
World Investment Shares
85%
90%
95
30%
40%
5
70%
75%
80%
0%
10%
20%
70%
1970
1973
1976
1979
198
2
198
5
198
8
199
1
199
4
199
7
200
0
200
3
200
6
Developed economies
-10%
0%
1970
1972
1974
1976
1978
198
019
82
198
419
86
198
819
90
199
219
94
199
619
98
200
020
02
200
420
06
France Germany
United Kingdom United States
Source: UNCTAD, World Investment Report 2007Japan
China: A Leading example of emerging marketslti ti lmultinationals
Figure 1. China’s Outward Foreign Direct Investment (1979-2006)
15
18
9
12
$ Bi
llion
3
6
US$
01979 1982 1985 1988 1991 1994 1997 2000 2003 2006
Data sources: Ministry of Commerce and China Statistics Bureau
11 Trade Competition: An echo of the Asian boomTrade Competition: An echo of the Asian boom
22 SpecialisationSpecialisation: Evidence of a potential draw: Evidence of a potential draw
33 Infrastructure: A key for competitivenessInfrastructure: A key for competitiveness
Emerging economies are increasingly present th l b l b t t thi ion the global scene but not everything is new
2.50E+07
lars
)
Comparative Levels of GDP, China, United States and Latin America
1 00E+07
1.50E+07
2.00E+07
Inte
rna
tio
na
l d
oll
USA
China
0.00E+00
5.00E+06
1.00E+07
(mil
lio
n 1
99
0 I
Latin America
190
0
1930
196
0
199
0
2020
Source: OECD Development Centre, 2008; based on Maddison (2003) “The World Economy Historical Statistics”.
China as a leading Asian Driver of world growth: E t di b k t l?Extraordinary or back to normal?
GDP in U$ (% of World GDP, 2005)
China GDP (% of world total)005)
Germany
USA
20
25
30
35
Italy
France
5
10
15
20
0 10 20 30
Canada0
15
00
16
00
17
00
18
20
18
70
19
00
19
50
20
01
20
45
According to IMF estimates Chinese gross domestic product based on purchasing-power-parity(PPP) amounts to 13.6% of 2005 world GDP (20.7% in the case of USA).
Source: OECD Development Centre, 2008; Based on: International Financial Statistics and Angus Maddison, 2007.
China has doubled its GDP in 8 years…without the help of Money Doctors!help of Money Doctors!
GDP in constant prices
10000
12000Brazil China Korea
Japan Mexico
China
4000
6000
8000
10000
$ M
illio
ns
Japan Mexico
0
2000
4000
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
U$
Chi th t h b hi h th th b d i B il d M i
Source: OECD Development Centre, 2008; based on Datastream (Economist Intelligence Unit)
19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20
Chinese growth rates has been higher than those observed in Brazil and Mexico during their take-offs glorious years.
Latin America’s share of the world output is small when compared to Asia
GDP share of world output (WEO, 2005)
small when compared to Asia
p ( )
Emerging Asia EU
30 3%US
28 0%Korea/Japan
12 0%9.1% 30.3%28.0%12.0%
China5.0%5 0%
Latam4 7%4.7%
The rise of the Asian Giants impacts all Latin America Economies: For the best or the worstEconomies: For the best or the worst
Descriptive Statistics on Trade for Selected Countries
Sh i Sh f
Country
Share in Latin
America GDP (%) 2006 in
PPP
Exports Goods-
Servicesas % of GDP
Share of Exports to
Asian Drivers
(Avg. 2000-2006)
Trade Restrictiveness
Index(WB-OTRI 2005)
Main Exports
Argentina 12.8 23.6 9.7 22.8Animal feed, fixed veg. oils/fats, soft, heavy petrol, oil crude, oil seeds
Brazil 34.1 14.5 6.8 30.1Iron ore, oil seeds, meat, passenger cars, petrol/bitum sugarpetrol/bitum., sugar
Chile 4.0 39.6 11.5 14.2Copper, metal ore, fish, fruit/nuts, pulp, wood
Colombia 7.7 21.1 0.9 25.3Petrol, coal, coffee, heavy petrol, crude materials, iron
Mexico 23.2 29.7 0.7 32.0Petrol, passenger cars, telecomms. equipment, computer equipment
Peru 3.7 21.4 9.9 21.0Metal ore, copper, heavy petrol, animal feed, silver
Source: Economist Intelligence Unit.
Venezuela 4.0 32.9 0.2 21.8 Petrol, iron, aluminum
Increased Asian exports have nurtured fears in Latin AmericaLatin America
Latin American tariffs to China and the
19 00
Latin American tariffs to China and the rest of the World
Manufactured goods (SITC 6)
World
11 0013.0015.0017.0019.00
%
China
5.007.009.00
11.00
2000 2001 2002 2003 2004 2005 2006
Note: Does not include NTB data.
2000 2001 2002 2003 2004 2005 2006
Source: TRAINS Database (World Integrated TradeSolution), Nomenclature STIC Revision 3, 2007.
Source: Latinobarómetro survey. Santiago de Chile,2007.
However FDI flows to China have not diverted inward flows for other emerging marketsinward flows for other emerging markets
Inward FDI Flows USD Millions
ChinaLatin America 140000060000
Outward FDI Flows USD Millions
China
L ti A i
300000
350000
400000
70000
80000
90000
100000
AfricaDeveloping countries (right axis)
800000
1000000
1200000
40000
50000
Latin America
Africa
Developing countries (right axis)
100000
150000
200000
250000
20000
30000
40000
50000
60000
70000
400000
600000
800000
10000
20000
30000
0
50000
0
10000
20000
Avg. 1990‐2000
2003 2004 2005 20060
200000
0
10000
Avg. 1990‐2000
2003 2004 2005 2006
Source: OECD Development Centre, 2008; based on UNCTAD.
Latin America is endowed with natural resources and dependent on the commodities’ cycleand dependent on the commodities cycle
N t l R tNatural Resources as a percentage of Latin American Exports
100
Commodities
Oil
5060708090
100
ntry
's e
xpor
ts Agriculture & other
010203040
Venezuela Chile Peru Argentina Colombia Brazil Latin Mexico
% o
f cou
n
Source: OECD Development Centre 2008; Based on: National Balance of Payment
Venezuela Chile Peru Argentina Colombia Brazil LatinAmerica
Mexico
Source: OECD Development Centre, 2008; Based on: National Balance of Payment.
Direct export competition in third markets with China is relatively low, although Mexico is on the spotrelatively low, although Mexico is on the spot
Export Competition with China for selected countries (2000-05)
0 5
0.6
0.7
0.8
Hig
h co
mpe
t.
0.2
0.3
0.4
0.5
mpe
t.
H
0.0
0.1
Thai
land
Hun
gary
ea, R
ep.
Mex
ico
Mal
aysi
aed
Sta
tes
Czec
h …ng
apor
eRom
ania
ndon
esia
Turk
eyPo
land
hilip
pine
sBu
lgar
iaCr
oatia
Japa
nIn
dia
Slov
ak …
Spai
nos
ta R
ica
Paki
stan
Braz
ilSa
lvad
orCo
lom
bia
uate
mal
arg
entin
aPe
ruU
rugu
ayH
ondu
ras
Rus
sian
…Pa
nam
aCh
ileBo
livia
enez
uela
Para
guay
Low
co
T HKo
re MU
nite Si R In Ph Co El S C
Gu A U H Ve P
Note: CS and CC coefficients calculated with exports of country i and exports of country j (China, India).
Source: OECD Development Centre, 2008; based on WITS Database, 2007.
Regarding competition with India in third markets, Latin America has little to fear (for the moment).America has little to fear (for the moment).
Export Competition with India for selected countries (2000-05)
0.5
0.6
0.7
0.8
Hig
h co
mpe
t.
0.1
0.2
0.3
0.4
com
pet.
0.0
Turk
eyBu
lgar
iaRom
ania
Paki
stan
Thai
land
El S
alva
dor
Croa
tiaIn
done
sia
ak R
epub
licPo
land
Spai
nBr
azil
ch R
epub
licKo
rea,
Rep
.Ar
gent
ina
nite
d St
ates
Hun
gary
Colo
mbi
aPa
nam
aU
rugu
ayM
exic
oCo
sta
Ric
aPe
ruG
uate
mal
aSi
ngap
ore
Japa
nM
alay
sia
Rus
sian
…Ph
ilipp
ines
Boliv
iaH
ondu
ras
Vene
zuel
aCh
ilePa
ragu
ayLow
c
Slov
a
Czec K
Un
Note: CS and CC coefficients calculated with exports of country i and exports of country j (China, India).
Source: OECD Development Centre, 2008; based on WITS Database, 2007.
Trade complementarities and potentialities with China remain unexplored today…
t.
p y
Trade Opportunities with China for selected countries (2000-05)
0.5
0.6
0.7
0.8
H
igh
com
pet
0.1
0.2
0.3
0.4
w c
ompe
t.
0.0
nite
d St
ates
Kore
a, R
ep.
Mal
aysi
aSi
ngap
ore
Thai
land
Japa
nM
exic
oPh
ilipp
ines
Indo
nesi
aCh
ina
Hun
gary
ech
Rep
ublic
n Fe
dera
tion
Arge
ntin
aBr
azil
Colo
mbi
aSp
ain
Pola
ndVe
nezu
ela
vak
Rep
ublic
Rom
ania
Bulg
aria
Croa
tiaEl
Sal
vado
rIn
dia
Turk
eyCo
sta
Ric
aG
uate
mal
aCh
ilePe
ruU
rugu
ayBo
livia
Paki
stan
Pana
ma
Hon
dura
sPa
ragu
ay
Low
U
Cze
Rus
sian
Slov
Note: Modified CS and CC coefficients calculated with exports of country i and imports of country j (China India)Note: Modified CS and CC coefficients calculated with exports of country i and imports of country j (China, India).
Source: OECD Development Centre, 2008; based on WITS Database, 2007.
Major economies in the region have a lot to win from increasing trade with Indian partnersg p
Trade Opportunities with India for selected countries (2000-05)
0.5
0.6
0.7
0.8
H
igh
com
pet.
0 1
0.2
0.3
0.4
com
pet.
0.0
0.1
Colo
mbi
aVe
nezu
ela
Fede
ratio
nIn
done
sia
Arge
ntin
aM
exic
oM
alay
sia
ted
Stat
esPe
ruCh
ina
orea
, Rep
.Th
aila
ndG
uate
mal
aSi
ngap
ore
Japa
nSp
ain
Braz
ilh
Rep
ublic
Boliv
iaPo
land
Bulg
aria
Hun
gary
Croa
tiak
Rep
ublic
Rom
ania
Phili
ppin
esTu
rkey
Cost
a Ri
caCh
ileU
rugu
ayl S
alva
dor
Hon
dura
sPa
kist
anPa
nam
aPa
ragu
ay
Low
c
VRus
sian
FI A
Uni
t
Ko G S
Czec
h
Slov
ak P C El
Note: Modified CS and CC coefficients calculated with exports of country i and imports of country j (China, India).
Source: OECD Development Centre, based on WITS Database, 2007.
11 Trade Competition: An echo of the Asian boomTrade Competition: An echo of the Asian boom
22 SpecialisationSpecialisation: Evidence of a potential draw: Evidence of a potential draw
33 Infrastructure: A key for competitivenessInfrastructure: A key for competitiveness
In which sector is Latin America specialised? Let’s not forget intra-industry tradeg y
Vollrath's Relative Comparative Advantage Index Latin America 2005 - Selected countries
Good Product Name Argentina Brazil Chile Colombia Mexico Peru Venezuela Average LAC
0 Food & live animals 3.12 1.80 1.24 0.92 -0.16 0.61 -3.32 0.98
1 Beverages and tobacco 1.93 1.73 2.40 0.03 1.69 -1.48 -2.03 1.16e e ages a d tobacco 93 3 0 0 03 69 8 03 6
2 Crude mater.ex food/fuel 0.96 1.92 2.53 0.85 -0.63 2.65 -1.01 1.40
3 Mineral fuel/lubricants 1.57 -1.02 -2.30 3.43 1.36 -0.63 7.15 1.21
4 Animal/veg oil/fat/wax 4.28 1.40 -1.08 -0.34 -2.32 -0.51 -5.40 0.904 Animal/veg oil/fat/wax 4.28 1.40 1.08 0.34 2.32 0.51 5.40 0.90
5 Chemicals/products n.e.s -0.98 -1.33 -0.81 -1.04 -1.19 -2.04 -2.14 -1.17
6 Manufactured goods -0.41 0.61 1.38 -0.40 -0.81 0.27 -0.90 -0.22
7 Machinery/transp equipmt -2.06 -0.64 -3.57 -2.44 0.13 -3.93 -4.34 -0.71
n e s = not elsewhere specified
7 Machinery/transp equipmt 2.06 0.64 3.57 2.44 0.13 3.93 4.34 0.71
8 Miscellaneous manuf arts -1.27 -0.40 -2.52 0.07 0.27 0.21 -4.00 -0.21
9 Commodities nes 0.63 8.91 1.74 1.26 -1.21 9.78 2.04 0.81
Source: OECD Development Centre, based on WITS Database, SITC Revision 3 (three-digit classification) 2007.
n.e.s. not elsewhere specified.
Note: Positive values of the index reveals a comparative advantage, whereas a negative indicates a comparative disadvantage.
India and China’s increasing demand can have adverse effectshave adverse effects
1 200
China’s and India’s rising demand for Latin American commodities (1998-2005)
Agricultural Raw Materials 2000=10
0)
Increasing commodities prices(1900-2005)
Aluminium Coffee
Copper Petroleum
400
600
800
1 000
1 200
$ m
illio
ns
Food
Ores & Metals
400
800
1200
1600
2000
Pric
e in
dex
(197
0=
Copper Petroleum
0
200
1998 2001 2003 2005
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Ri i i l t f L ti A i
800
1000
s
Rise in Indian imports from Latin America (1997-2005)
Sugar/mollasses/honey
Copper ores/concentrates
Fixed veg oil/fat, soft 8 000
10 000
100 000
120 000
ons
.
ns
Rise in mineral exports from Latin America (1998-2005)
Petroleum and products (left)Copper ores/concentrates (right)Nickel ores/concs/etc (right)
0
200
400
600
$ m
illio
ns d g o / a , o
0
2 000
4 000
6 000
0
20 000
40 000
60 000
80 000
$ m
illio
$ m
illio .
Source: OECD Development Centre, based on WITS Database, 2007.
0
1997 1998 1999 2000 2001 2002 2003 2004 2005
00
1998 1999 2000 2001 2002 2003 2004 2005
Product specialisation has increased in the region in the last five yearsin the region in the last five years
Source: OECD Development Centre, 2008; Based on ECLAC and World Trade Integrated Statistics.
Latin America’s is increasingly looking towards Asia for exportstowards Asia for exports…
LATIN AMERICA: EXPORTS TO CHINA AS PERCENTAGE OF TOTAL EXPORTSPERCENTAGE OF TOTAL EXPORTS
Chile
1999 2005
Brazil
Argentina
Peru
Chile
Ecuador
Venezuela
Colombia
0 2 4 6 8 10 12 14
Mexico
Percentage
Source: OECD Development Centre 2008; and UNCTAD, 2007.
…which has made the region more resilient and diversified geographicallydiversified geographically
0 90
0.60
0.70
0.80
0.90
igh
conc
en.
2000 2005
0.30
0.40
0.50
w c
once
n.
H
i
0.00
0.10
0.20
co ela
ras
ala
dor
ma
age
ica
bia
via ua uay
eru
ana
uay ile na zil
Low
Mex
i
Ven
ezue
Hon
dur
Gua
tem
a
Ecua
d
Pana
m
LAC
ave
ra
Cos
ta R
i
Col
omb
Bol
iv
Nic
arag
Para
gu Pe
Guy
a
Uru
gu Chi
Arg
enti
Bra
z
Source: OECD Development Centre, 2008; Based on CEPAL (2006) and World Trade Integrated Statistics.
11 Trade Competition: An echo of the Asian boomTrade Competition: An echo of the Asian boom
22 SpecialisationSpecialisation: Evidence of a potential draw: Evidence of a potential draw
33 Infrastructure: A key for competitivenessInfrastructure: A key for competitiveness
Latin America’s performance on trade infrastructure is poorp
40
Time for exports 2000
r
Cost to exports
5101520253035
Day
s
0
400
800
1200
1600
$ pe
r co
ntai
ne
0
Col
ombi
a
Ven
ezue
la
Indi
a
Peru
Ave
rage
LA
C
Chi
le
Chi
na
Bra
zil
Mex
ico
Arg
entin
a
0
Col
ombi
a
Arg
entin
a
Ave
rage
LA
C
Mex
ico
Bra
zil
Indi
a
Peru
Ven
ezue
la
Chi
le
Chi
na
4
5
6
7
ure
Indi
cato
r
Regional performance in the infrastructure pillar
0
1
2
3
Latin America and C.
India China Eastern Europe East Asian NIC's
Infr
astr
uct
Source: Based on Doing Business Report. World Bank, 2007.
…and most of its competitors score better on infrastructurebetter on infrastructure
I f t t t
6
7
vel
Infrastructure assesment
Ports Railways
3
4
5
Hig
h le
v
0
1
2
Low
leve
l
USA
Chi
na
Pana
ma
Arg
entin
a
Mex
ico
Ecua
dor
Col
ombi
a
Bra
zil
Cos
ta R
ica
Source: OECD Development Centre, 2008; based on CG/LA database. 2007.
A wake up call for reforms: The proximity to export markets
• Lower transport and communication costs
Mexico benefits from its geographic proximity to its major export markets:
The proximity to export markets
• Lower transport and communication costs • Access to FTA
• Just-in-time delivery
11,700 Km
24 Days
160 Km
4 Days
11,700 Km
Shipping time
Mexico is more competitive in manufacturing more sophisticated products which require frequent communication with the client or supplier and short reaction times.pp
Conclusion: For the first time ever the key question for the region is China (Commodity Prices)
• The impact of China on the World Economy is increasing. Market participants do not anticipate a considerable slowdown of this participants do not anticipate a considerable slowdown of this economy.
• This is good news for Latin America given its growth trade connexion with China.
Real GDP growth Outlook Investment banks' forecast changes
10%
12%Forecast end-2007
China's and India's trade with Latin America(US$ millions)
25000
Chinese Exports to LAC
4%
6%
8%
10%Revised forecasts, feb-2008
10000
15000
20000p
Chinese Imports from LAC
Indian Exports to LAC
Indian Imports from LAC
0%
2%
US Eurozone Japan ChinaSource: JP M organ, 2008
0
5000
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: OECD Development Centre, Latin American Economic Outlook, 2008
Conclusion: For the first time ever the key question for the region is China (Commodity Prices)
• Chinese demand for Latin American commodities as well as commodity prices are increasing commodity prices are increasing.
• Good news in the short term. It could be a bad news in the long run.
China’s and India’s rising demand for Latin American commodities (US$ millions, 1998-2005)
1 200
Commodity Prices (100 Basis Index = 1975)
160018002000
Al i i
600
800
1 000 Agricultural Raw Materials
Food
Ores & Metals
600800
1000120014001600 Aluminium
Copper
Petroleum
0
200
400
1998 2001 2003 2005
0200400600
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
1998 2001 2003 2005Source: OECD Development Centre, Latin American Economic Outlook, 2008
Source: OECD Development Centre, Latin American Economic Outlook, 2008
Latin American Economic Outlook 2008
www oecd org/dev/leowww.oecd.org/dev/leo
Thank youMerciObrigadoObrigadoGracias