latin american economic outlook 2008 - oecd.org - oecd · oils/fats, soft, heavy petrol, oil crude,...

Latin American Economic Outlook 2008

China, March 2008

Javier Santiso

Director & Chief EconomistOECD Development Centre

China and India: Angel or Devils for Latin America?

Based on Chapter 4 of the Report

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; Brazil: enhanced cooperation, May 2007

Economic Surveys:


1992, 1995, 1997, 1998, 19992000, 2002, 2003, 2005, 2007

2003, 2005, 2007

2000, 2005, 2006

The Development Centre: A bridge between the OECD and emerging regions

• Membership of the Development CentreWith a Governing Board open to emerging countries, theDevelopment Centre provides a framework for dialogueand experience sharing with regions all over the world.

• Three Latin American countries are members ofthe Centre:

– Mexico – Chile– Brazil

The Center is less and less the Center and thePeriphery less and less the Periphery

0% 10% 20% 30% 40% 50% 60% 70% 80%

1952

1978

2003

Share of World GDP

USA

Europe

Japan

USSR

China

India

Source: OECD Development Centre, 2008; based on OECD Statistics.

For the first time, Major Outward FDI is coming from Emerging Countries

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1970

1973

1976

1979

198

219

85

198

819

91

199

419

97

200

020

03

200

6

Share of Outward FDI

Developing economies

Latin America and the Caribbean

China incl Hong Kong

India

Source: UNCTAD, World Investment Report 2007

• Major share of FDI by emerging multinationals from emerging Asia, Latin America and the Middle East.

• New global players with headquarters in emerging countries.

• OECD-based companies increasingly targeted.

• In 2007 Outward FDI from Russia peaked to USD 48 bn.

70%

75%

80%

85%

90%

95%

100%

1970

1973

1976

1979

198

2

198

5

198

8

199

1

199

4

199

7

200

0

200

3

200

6

Share of Outward FDI

Developed economies

For the first time, Major Outward FDI is coming from Emerging Countries

Source: UNCTAD, World Investment Report 2007

-10%

0%

10%

20%

30%

40%

50%

60%

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

World Investment Shares

France Germany

United Kingdom United States

Japan

China: A Leading example of emerging marketsmultinationals

1 Trade Competition: An echo of the Asian boom

3 Infrastructure: A key for competitiveness

2 Specialisation: Evidence of a potential draw

Emerging economies are increasingly present on the global scene but not everything is new

Source: OECD Development Centre, 2008; based on Maddison (2003) “The World Economy Historical Statistics”.

0.00E+00

5.00E+06

1.00E+07

1.50E+07

2.00E+07

2.50E+07

190

0

1930

196

0

199

0

2020

(mil

lio

n 1

99

0 I

nte

rna

tio

na

l d

oll

ars

)

Comparative Levels of GDP, China, United States and Latin America

USA

China

Latin America

China as a leading Asian Driver of world growth: Extraordinary or back to normal?

GDP in U$ (% of World GDP, 2005)

0 10 20 30

Canada

Italy

France

Germany

USA

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).

China GDP (% of world total)

0

5

10

15

20

25

30

35

15

00

16

00

17

00

18

20

18

70

19

00

19

50

20

01

20

45

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!

Chinese growth rates has been higher than those observed in Brazil and Mexico during their take-offs glorious years.

Source: OECD Development Centre, 2008; based on Datastream (Economist Intelligence Unit)

GDP in constant prices

0

2000

4000

6000

8000

10000

12000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

U$

Mill

ions

Brazil China Korea

Japan Mexico

China

Emerging Asia9.1%

GDP share of world output (WEO, 2005)

EU30.3%

US28.0%

Korea/Japan12.0%

China5.0%

Latin America’s share of the world output is small when compared to Asia

Latam4.7%

The rise of the Asian Giants impacts all Latin America Economies: For the best or the worst

Source: Economist Intelligence Unit.

Descriptive Statistics on Trade for Selected Countries

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., sugar

Chile 4.0 39.6 11.5 14.2 Copper, metal ore, fish, fruit/nuts, pulp, wood

Colombia 7.7 21.1 0.9 25.3 Petrol, 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 21.0 Metal ore, copper, heavy petrol, animal feed, silver

Venezuela 4.0 32.9 0.2 21.8 Petrol, iron, aluminum

Increased Asian exports have nurtured fears in Latin America

Source: TRAINS Database (World Integrated TradeSolution), Nomenclature STIC Revision 3, 2007.

Note: Does not include NTB data.

5.007.009.00

11.0013.0015.0017.0019.00

2000 2001 2002 2003 2004 2005 2006

%

Latin American tariffs to China and the rest of the World

Manufactured goods (SITC 6)

World

China

Source: Latinobarómetro survey. Santiago de Chile,2007.

However FDI flows to China have not diverted inward flows for other emerging markets

0

50000

100000

150000

200000

250000

300000

350000

400000

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

Avg. 1990‐2000

2003 2004 2005 2006

Inward FDI Flows USD Millions

ChinaLatin AmericaAfricaDeveloping countries (right axis)

0

200000

400000

600000

800000

1000000

1200000

1400000

0

10000

20000

30000

40000

50000

60000

Avg. 1990‐2000

2003 2004 2005 2006

Outward FDI Flows USD Millions

China

Latin America

Africa

Developing countries (right axis)

Source: OECD Development Centre, 2008; based on UNCTAD.

Latin America is endowed with natural resources and dependent on the commodities’ cycle

Source: OECD Development Centre, 2008; Based on: National Balance of Payment.

Natural Resources as a percentage of Latin American Exports

0102030405060708090

100

Venezuela Chile Peru Argentina Colombia Brazil LatinAmerica

Mexico

% o

f cou

ntry

's e

xpor

ts

Commodities

Oil

Agriculture & other

Direct export competition in third markets with China is relatively low, although Mexico is on the spot

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Thai

land

Hun

gary

Kore

a, R

ep.

Mex

ico

Mal

aysi

aU

nite

d St

ates

Czec

h …Si

ngap

ore

Rom

ania

Indo

nesi

aTu

rkey

Pola

ndPh

ilipp

ines

Bulg

aria

Croa

tiaJa

pan

Indi

aSl

ovak

…Sp

ain

Cost

a Ric

aPa

kist

anBr

azil

El S

alva

dor

Colo

mbi

aG

uate

mal

aAr

gent

ina

Peru

Uru

guay

Hon

dura

sRus

sian

…Pa

nam

aCh

ileBo

livia

Vene

zuel

aPa

ragu

ay

Low

com

pet.

H

igh

com

pet.

Export Competition with China for selected countries (2000-05)

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).

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Turk

eyBu

lgar

iaRom

ania

Paki

stan

Thai

land

El S

alva

dor

Croa

tiaIn

done

sia

Slov

ak R

epub

licPo

land

Spai

nBr

azil

Czec

h Rep

ublic

Kore

a, R

ep.

Arge

ntin

aU

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

com

pet.

H

igh

com

pet.

Export Competition with India for selected countries (2000-05)

Note: CS and CC coefficients calculated with exports of country i and exports of country j (China, India).


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Uni

ted

Stat

esKo

rea,

Rep

.M

alay

sia

Sing

apor

eTh

aila

ndJa

pan

Mex

ico

Phili

ppin

esIn

done

sia

Chin

aH

unga

ryCz

ech

Rep

ublic

Rus

sian

Fed

erat

ion

Arge

ntin

aBr

azil

Colo

mbi

aSp

ain

Pola

ndVe

nezu

ela

Slov

ak R

epub

licRom

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

com

pet.

H

igh

com

pet.

Note: Modified CS and CC coefficients calculated with exports of country i and imports of country j (China, India).


Trade complementarities and potentialities with China remain unexplored today…

Trade Opportunities with China for selected countries (2000-05)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Colo

mbi

aVe

nezu

ela

Rus

sian

Fed

erat

ion

Indo

nesi

aAr

gent

ina

Mex

ico

Mal

aysi

aU

nite

d St

ates

Peru

Chin

aKo

rea,

Rep

.Th

aila

ndG

uate

mal

aSi

ngap

ore

Japa

nSp

ain

Braz

ilCz

ech

Rep

ublic

Boliv

iaPo

land

Bulg

aria

Hun

gary

Croa

tiaSl

ovak

Rep

ublic

Rom

ania

Phili

ppin

esTu

rkey

Cost

a Ric

aCh

ileU

rugu

ayEl

Sal

vado

rH

ondu

ras

Paki

stan

Pana

ma

Para

guay

Low

com

pet.

H

igh

com

pet.

Major economies in the region have a lot to win from increasing trade with Indian partners

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.

Trade Opportunities with India for selected countries (2000-05)

In which sector is Latin America specialised? Let’s not forget intra-industry trade

Source: OECD Development Centre, based on WITS Database, SITC Revision 3 (three-digit classification) 2007.

n.e.s. = not elsewhere specified.

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 1.16

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 0.90

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

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

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 effects

Source: OECD Development Centre, based on WITS Database, 2007.

0

200

400

600

800

1 000

1 200

1998 2001 2003 2005

$ m

illio

ns

China’s and India’s rising demand for Latin American commodities (1998-2005)

Agricultural Raw Materials

Food

Ores & Metals

0

400

800

1200

1600

2000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Pric

e in

dex

(197

0=10

0)

Increasing commodities prices(1900-2005)

Aluminium Coffee

Copper Petroleum

0

200

400

600

800

1000

1997 1998 1999 2000 2001 2002 2003 2004 2005

$ m

illio

ns

Rise in Indian imports from Latin America (1997-2005)

Sugar/mollasses/honey

Copper ores/concentrates

Fixed veg oil/fat, soft

0

2 000

4 000

6 000

8 000

10 000

0

20 000

40 000

60 000

80 000

100 000

120 000

1998 1999 2000 2001 2002 2003 2004 2005

$ m

illio

ns

.

$ m

illio

ns .

Rise in mineral exports from Latin America (1998-2005)

Petroleum and products (left)Copper ores/concentrates (right)Nickel ores/concs/etc (right)

Product specialisation has increased in 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 exports…

Source: OECD Development Centre 2008; and UNCTAD, 2007.

LATIN AMERICA: EXPORTS TO CHINA AS PERCENTAGE OF TOTAL EXPORTS

0 2 4 6 8 10 12 14

Mexico

Ecuador

Venezuela

Colombia

Brazil

Argentina

Peru

Chile

Percentage

1999 2005

…which has made the region more resilient and diversified geographically

Source: OECD Development Centre, 2008; Based on CEPAL (2006) and World Trade Integrated Statistics.

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90M

exic

o

Ven

ezue

la

Hon

dura

s

Gua

tem

ala

Ecua

dor

Pana

ma

LAC

ave

rage

Cos

ta R

ica

Col

ombi

a

Bol

ivia

Nic

arag

ua

Para

guay

Peru

Guy

ana

Uru

guay

Chi

le

Arg

entin

a

Bra

zil

Low

con

cen.

Hig

h co

ncen

.

2000 2005

Latin America’s performance on trade infrastructure is poor

Source: Based on Doing Business Report. World Bank, 2007.

05

10152025303540

Col

ombi

a

Ven

ezue

la

Indi

a

Peru

Ave

rage

LA

C

Chi

le

Chi

na

Bra

zil

Mex

ico

Arg

entin

a

Day

s

Time for exports

0

400

800

1200

1600

2000

Col

ombi

a

Arg

entin

a

Ave

rage

LA

C

Mex

ico

Bra

zil

Indi

a

Peru

Ven

ezue

la

Chi

le

Chi

na

$ pe

r co

ntai

ner

Cost to exports

0

1

2

3

4

5

6

7

Latin America and C.

India China Eastern Europe East Asian NIC's

Infr

astr

uctu

re In

dica

tor

Regional performance in the infrastructure pillar

…and most of its competitors score better on infrastructure

Source: OECD Development Centre, 2008; based on CG/LA database. 2007.

0

1

2

3

4

5

6

7U

SA

Chi

na

Pana

ma

Arg

entin

a

Mex

ico

Ecua

dor

Col

ombi

a

Bra

zil

Cos

ta R

ica

Low

leve

l

H

igh

leve

l

Infrastructure assesment

Ports Railways

11,700 Km

• Lower transport and communication costs • Access to FTA

• Just-in-time delivery

Mexico is more competitive in manufacturing more sophisticated products which require frequent communication with the client or supplier and short reaction times.

Shipping time

24 Days

160 Km

4 Days

Mexico benefits from its geographic proximity to its major export markets:

A wake up call for reforms: The proximity to export markets

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 economy.

• This is good news for Latin America given its growth trade connexion with China.

China's and India's trade with Latin America(US$ millions)

0

5000

10000

15000

20000

25000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Source: OECD Development Centre, Latin American Economic Outlook, 2008

Chinese Exports to LAC

Chinese Imports from LAC

Indian Exports to LAC

Indian Imports from LAC

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.

• 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)

0

200

400

600

800

1 000

1 200

1998 2001 2003 2005

Agricultural Raw Materials

Food

Ores & Metals


Commodity Prices (100 Basis Index = 1975)

0200400600800

100012001400160018002000

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006


Aluminium

Copper

Petroleum


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