“Latin America has important faces headwinds at a global level which will affect the economic outlook for 2023. Domestic politics will also hold back growth, amid a still tight monetary policy and imminent fiscal consolidation”, indicates the opening report of the intelligence unit The Economist.
The document – prepared before the riots experienced in Brazil on Sunday, even before the inauguration of Luiz Inácio “Lula” da Silva – indicates that among the most important aspects to monitor there is How will the region’s new governments balance the demands of voters? that brought them to power and the serious macroeconomic dilemmas they will have to face, with legislatures divided.
According to the British magazine’s intelligence unit, there will be opportunities, particularly in agriculture, mining and nearshoring (a term that refers to the redistribution of foreign direct investment to trusted locations close to the country of origin) amid the geopolitical reconfiguration forced by tension between the United States and China and the Russian invasion and war in Ukraine. But to be considered potential when it comes to hedging that investment stream, according to the EIU, governments will have to implement reforms and solve domestic problems without damaging the “investment climate”.
“Compared to the large Asian economies, our business environment rankings suggest this Mexico, Costa Rica, Chile and Brazil are the best placed to compete and benefit from nearshoring”, indicates the report, strengthened by a table listing 13 countries in Asia and Latin America, and ranking them according to 6 variables, resulting in the Argentina, although it does not have too low ratings in anyone (as well as Peru in “political effectiveness” and Ecuador in “technological readiness”) it is the second least competitive for attracting investment nearshore, behind Ecuador.
On a scale of 0 to 10, Argentina scores very low in foreign exchange and foreign trade., functioning of the labor market and infrastructure. It is rated a little better on the policy front and foreign investment regulations and obtains its best qualification in technological capacity or availability.
In general terms, according to the EIU, an effect of the crisis in the region over the past 3 years is the growing demand for “a large state that spends and regulates more”. Which played in favor of centre-left candidates, Gabriel Boric in Chile, Gustavo Petro in Colombia and Lula in Brazil, which must now give results in terms of the fight against crime and corruption and in economic matters. It is no coincidence, says the report, that tax reforms ensure the financing of social spending it is among the priorities of the Chilean and Colombian governments.
Against this background, according to the publication, it is also likely increased regulation and tax burden on the supposed “winners” of recent commodity price shocks, such as mining and agriculture. Divided legislatures will slow that down and act as a moderating force, which in turn will test the patience of the electorate and make it difficult for governments to deliver on their promises. Honeymoons will be short, and disappointment can set in quickly.with the risk of re-recording the wave of large-scale protests that several countries experienced in 2019, warns the document.
The basic geostrategic assumption is this the US-China rivalry will generate pressure. Governments will seek to preserve and capitalize on relations with Washington and Beijing, but if forced to “pick sides” on geostrategic issues such as technological development, “We think the United States will prevail”states the report.
Indeed, according to the document, most Latin American countries have ‘strong diplomatic ties’ with the northern country, “including those – especially the large South American producers of raw materials – for which China has become an important trading partner”, reference covering Argentina, Brazil and Chile.
“China is likely to continue its advance in Latin America in 2023 in strategic areas such as lithium mining and in countries like El Salvador. In this regard, he continues, a country to keep an eye on in 2023 is Brazil, where Lula, despite having intensified relations with China in his first governments, will probably try to find a balance between the two superpowers”, specifies the report .
In any case, according to the EIU, the bifurcation of the world economy will be at “enormous opportunity” for Latin American countries to attract “nearshoring”, that is, those investments of production relocation to nearby places, which in principle would favor Mexico, due to its proximity to the United States.
According to the analysis, Latin American countries are increasingly competitive with Asia in terms of labor costs and have the advantage of proximity. However, he clarifies, many of them did “too many disadvantages in too many areas”such as poor infrastructure, low-skilled workforce and technological development, as well as doubts about its predictability, stability and safety.
“Mexico, Costa Rica, Chile and Brazil are the best positioned countries to compete and benefit from nearshoring,” states one of the key takeaways of the report. In the case of Argentina, even if he doesn’t get too low marks in anyone, It is the second least competitive in attracting nearshoring investment, surpassing only Ecuador.
Other aspects include mining, for example, agricultural production and water availability or drought risks in different countries.
NS
Source: Clarin
