A second gold rush is under way in Latin America, officials from Asia and Latin America said. The selling of soybeans, iron and copper ore, as well as other commodities to Asian countries has transformed Latin America over the past decade, stabilizing economies despite worldwide crises and lifting tens of millions of people into the middle class.
Asian investors flush with hundreds of billions of dollars in cash now see Latin America as a top business opportunity, and they are pouring into manufacturing, construction and other industries, particularly in up-and--coming countries such as Brazil, Peru and Mexico. This is transforming the lucrative trade relationship that was based primarily on exporting raw materials to Asia, an arrangement that frustrated Latin governments eager to stimulate their own manufacturing.
Government and business officials meeting this week at the World Economic Forum in Mexico said the investment surge means Asia is poised to overtake the US and the EU as Latin America’s top trading partner over the next decade. Asian representatives have been an unmistakable presence at the forum, with South Korean, Chinese and Japanese investors making the rounds in the convention hall.
“We’re talking about tens of billions of dollars in just Korean banks looking for a destination,” said Kevin Lu, Asia-Pacific regional director of a World Bank Group agency that insures foreign investments against political risk.
“When I meet with investors, Latin America is in every conversation,” Lu said.
Already, Chinese investment in Latin America has jumped from a few million dollars a couple of years ago to about US$15 billion in 2010, with most of the money going into mining and other extractive industries in Brazil, Peru and other nations, said Alicia Barcena, executive secretary for the Chile-based UN Economic Commission for Latin America and the Caribbean. Chinese investment in the region jumped again last year to about US$23 billion, Barcena said.
Meanwhile, Japan surpassed that figure last year and displaced China as the region’s top Asian investment and trade partner, Barcena said. She did not provide a precise number for Japan’s total.
China already ranks among the top three trading partners of Peru, Brazil, Chile and Argentina, while Asian investment in auto and other manufacturing in Mexican industrial cities has greatly expanded the middle class.
“I don’t have any doubt that Asia will soon become the region’s top trading partner,” Mexican Secretary of Economy Bruno Ferrari Garcia de Alba said.
“In Mexico, we believe we need to get closer and closer to Asia,” he added.
According to the UN Economic Commission, 17 percent of Latin America’s exports went to Asian-Pacific countries in 2010, more than tripling from 5 percent in 2000. Over the same span, the share of the region’s total exports that went to the US dropped from 60 percent to 40 percent.
Asia-Pacific countries buy 31 percent of Mexico’s total exports, Ferrari said, amounting to US$110 billion, with that number growing by an average of 20 percent annually in the past five years.
Lu said raw material industries in Latin America are getting only between 40 percent and 50 percent of total Asian investment in the region, while the rest goes to manufacturing, construction and other businesses.
Foreign money flowing into a new region often first goes into buying natural resources because it is a simpler business than making things, which requires dealing with labor, setting up supply chains and complying with various government rules, he said.
Hanwha, a South Korean petrochemicals company, is considering manufacturing in Latin America rather than continuing to concentrate its production in China, said Sang M. Lee, chief executive officer of the company’s US operations.
At the same time, the company is eyeing the Latin American market, especially as it moves into solar energy, Lee said after a Wednesday morning at the World Economic Forum dedicated to the future of Asian-Latin American relations.
“We need that new production because there are a lot of resources in Latin America, and we need more markets,” Lee said. “We’re just at a beginning stage with this.”
Yet to be seen is whether the rising Asian investment will quiet concerns in Latin America that exporting commodities while importing manufactured Asian goods will ruin domestic companies and leave the region vulnerable. Brazil, in particular, has raised import tariffs on manufactured goods to protect its own industries.