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Asian Opportunities Diversification Strategies 1228137644574019 9
1. Asian Opportunities and
Diversification Strategies:
An Outlook for
Latin American Trade
Javier Santiso
Rolando Avendano
OECD Development Centre
WWW.OECD.ORG/DEV
Conference on China and Latin America:
Growing Economic Relations and
Commonalities in Policy Issues 1st December 2008 – Hong Kong, China
2. I Introduction: Recent trends and myths on China‐Latin America
II Trade competition: Evidence of a potential draw
III Export Diversification and Infrastructure
IV Adaptation strategies towards Chinese competition
OECD Development Centre
3. Integration of the Asian Drivers into the world
economy has shaped primary commodity markets
1. Global output growth Commodity prices procyclical with growth
(≈1.5% for each point of growth)
2. Barter terms of trade Rise if industrial world growth > 4%
3. Lower US interest rates Higher output prospects / low storage costs
4. Weakening of US dollar Denomination of raw material prices
OECD Development Centre
4. The combined contribution of China and India
to global growth is substantial
Source: Own calculation based on the IMF World Economic Outlook Database, 2008.
OECD Development Centre
5. Emerging economies have become major
actors in mobilising capital
Note: Emerging countries refer to Latin American and Asian only.
Source: OECD Development Centre 2008, based on Thomson Datastream (Economist Intelligence Unit).
OECD Development Centre
6. Myth I: The main source of China’s competitive
advantage is cheap labour
Fixed Capital Investments in China as % of GDP
and Return to Capital (1980-2006)
Investment in China Return to Capital before and after taxes
60
Investment in Fixed Assets 60 Base case
50 Excluding urban residential housing, including inventories, before taxes
Gross fixed capital formation 50
Excluding urban residential housing, including inventories, after taxes
40
Percent of GDP
40
Percent a year
30
30
20
20
10
10
0 0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Source: Bai, Chong‐En. C. Hsieh and Y. Qian. “The Return to Capital in China”. NBER Working Paper 12775. National Bureau of Economic Research. December
2006. Based on China Statistical Yearbook.
OECD Development Centre
7. Myth II: China has a negative impact on FDI flows
to other emerging markets
Inward FDI Flows Outward FDI Flows
USD Millions USD Millions
China China
60000 Latin America 1400000
Latin America
Africa Africa
50000 Developing countries (right axis) 1200000
100000 Developing countries (right axis) 400000
90000 1000000
350000 40000
80000
300000 800000
70000
250000 30000
60000
600000
50000 200000
20000
40000 150000 400000
30000
100000 10000
20000 200000
10000 50000
0 0 0 0
Avg. 1990‐ 2003 2004 2005 2006 Avg. 1990‐ 2003 2004 2005 2006
2000 2000
Source: J. Santiso (ed.). The Visible Hand of China in Latin America. OECD Development Centre Studies, 2008. Based on UNCTAD data.
OECD Development Centre
8. Myth III: China’s rise benefits commodity exporters
and adversely affects light manufacturing ones
Natural Resources as a percentage
of Latin American Exports Commodities
Oil
100 Agriculture & other
90
80
% of country's exports
70
60
50
40
30
20
10
0
Venezuela Chile Peru Argentina Colombia Brazil Latin Mexico
America
Source: OECD Development Centre, 2008. Based on: National Balance of Payments, 2006.
OECD Development Centre
9. I Introduction: Recent trends and myths on China‐Latin America
II Trade competition: Evidence of a potential draw
III Export Diversification and Infrastructure
IV Adaptation strategies towards Chinese competition
OECD Development Centre
10. The rise of China concerns all the region
Descriptive Statistics on Trade for Selected Countries
Share in Share of
Exports Trade
Latin Exports to
Goods- Restrictiveness
Country America Asian Drivers Main Exports
Services Index
GDP (%) (Avg. 2000-
as % of GDP (WB-OTRI 2005)
2006 in PPP 2006)
Animal feed, fixed veg.
Argentina 12.8 23.6 9.7 22.8 oils/fats, soft, heavy petrol, oil
crude, oil seeds
Iron ore, oil seeds, meat,
Brazil 34.1 14.5 6.8 30.1 passenger cars, petrol/bitum.,
sugar
Copper, metal ore, fish,
Chile 4.0 39.6 11.5 14.2
fruit/nuts, pulp, wood
Petrol, coal, coffee, heavy
Colombia 7.7 21.1 0.9 25.3
petrol, crude materials, iron
Petrol, passenger cars,
Mexico 23.2 29.7 0.7 32.0 telecomms. equipment,
computer equipment
Metal ore, copper, heavy
Peru 3.7 21.4 9.9 21.0
petrol, animal feed, silver
Venezuela 4.0 32.9 0.2 21.8 Petrol, iron, aluminium
Source: Economist Intelligence Unit.
OECD Development Centre
11. Increased Asian exports have been
met with apprehension in Latin America
Latin American tariffs to China and the
rest of the World
Manufactured goods (SITC 6)
World
19.00
China
17.00
15.00
%
13.00
11.00
9.00
7.00
5.00
2000 2001 2002 2003 2004 2005 2006
Note: Does not include NTB data.
Source: Latinobarómetro survey. Santiago de Chile, 2007. Source: TRAINS Database (World Integrated Trade Solution),
Nomenclature STIC Revision 3, 2008.
OECD Development Centre
12. Export competition with China is relatively low,
although Mexico is on the spot
Export Competition with China for selected countries (2000-06)
0.8
High compet.
0.7
0.6
0.5
0.4
0.3
Low compet.
0.2
0.1
0.0
Czech…
Slovak…
Russian…
Thailand
Malaysia
Chile
Hungary
Korea, Rep.
Bolivia
Croatia
Colombia
Honduras
Singapore
Romania
Bulgaria
Spain
Uruguay
Poland
Panama
Mexico
Indonesia
Philippines
Japan
India
Pakistan
Brazil
El Salvador
Guatemala
Argentina
Peru
Venezuela
Paraguay
United States
Turkey
Costa Rica
Note: CS and CC coefficients calculated with exports of country i and exports of country j (China, India).
Source: OECD Development Centre, based on WITS Database, 2008.
OECD Development Centre
13. Regarding competition with India, Latin
America has little to fear
Export Competition with India for selected countries (2000-06)
High compet.
0.8
0.7
0.6
0.5
0.4
0.3
Low compet.
0.2
0.1
0.0
Russian…
Slovak Republic
Bulgaria
Thailand
Colombia
Singapore
Chile
Romania
Poland
Malaysia
Bolivia
Pakistan
Croatia
Spain
Korea, Rep.
Hungary
Panama
Japan
Brazil
Czech Republic
Mexico
Guatemala
Philippines
Turkey
Costa Rica
Peru
Paraguay
Honduras
Indonesia
El Salvador
Argentina
Uruguay
Venezuela
United States
Note: CS and CC coefficients calculated with exports of country i and exports of country j (China, India).
Source: OECD Development Centre, based on WITS Database, 2008.
OECD Development Centre
14. Trade complementarities with China
remain unexplored today…
Trade Opportunities with China for selected countries (2000‐06)
High compet.
0.8
0.7
0.6
0.5
0.4
0.3
Low compet.
0.2
0.1
0.0
Korea, Rep.
Chile
Thailand
China
Romania
Bulgaria
India
Uruguay
Bolivia
Malaysia
Panama
Japan
Philippines
Indonesia
Hungary
Spain
Poland
Croatia
Mexico
Czech Republic
Argentina
Slovak Republic
Turkey
Peru
Pakistan
Brazil
Colombia
Honduras
United States
Singapore
Venezuela
Guatemala
El Salvador
Paraguay
Costa Rica
Russian Federation
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, 2008.
OECD Development Centre
15. Major economies in the region have a lot to
win from increasing trade with Indian partners
Trade Opportunities with India for selected countries (2000‐06)
0.8
High compet.
0.7
0.6
0.5
0.4
0.3
Low compet.
0.2
0.1
0.0
China
Thailand
Chile
Malaysia
Korea, Rep.
Bolivia
Hungary
Croatia
Slovak Republic
Uruguay
Brazil
Colombia
Singapore
Bulgaria
Romania
Honduras
Argentina
Japan
Poland
Spain
Philippines
Venezuela
Indonesia
Mexico
Peru
Guatemala
Czech Republic
Panama
Turkey
Costa Rica
El Salvador
Pakistan
Paraguay
United States
Russian Federation
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, 2008.
OECD Development Centre
16. In which sector is Latin America specialised?
Let’s not forget intra‐industry trade
Vollrath's Relative Comparative Advantage Index Latin America (2005-2006)
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
n.e.s. = not elsewhere specified.
Note: Positive values of the index reveals a comparative advantage, whereas a negative indicates a comparative disadvantage.
Source: OECD Development Centre, based on WITS Database, SITC Revision 3 (three‐digit classification) 2008.
OECD Development Centre
17. I Introduction: Recent trends and myths on China‐Latin America
II Trade competition: Evidence of a potential draw
III Export Diversification and Infrastructure
IV Adaptation strategies towards Chinese competition
OECD Development Centre
18. China and India’s increasing demand can
have adverse effects
Increasing commodities prices Rise in mineral exports from Latin America
(1900‐2005) (1998‐2005)
2000
Aluminium Coffee Petroleum and products (left)
120 000 Copper ores/concentrates (right) 10 000
Copper Petroleum
$ millions .
Price index (1970=100)
1600
Nickel ores/concs/etc (right)
100 000
8 000
$ millions
.
1200 80 000
6 000
60 000
800
4 000
40 000
400 2 000
20 000
0 0 0
1998
1999
2000
2001
2002
2003
2004
2005
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
Source: OECD Development Centre, based on WITS Database, 2008.
OECD Development Centre
19. The rise of China and India is also a challenge
against product specialisation
Export Concentration in Products for Latin America
Herfindahl Hirschman Index
0.9
2001 2006
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
ru
M xico
y
hile
G na
V ne la
E dor
s
na a
bia
ra y
ua m la
Costa ica
olivia
B zil
rugua
ondura
Pa m
Pa gua
e zue
Pe
G te a
ra
uya
olom
R
cua
C
e
B
U
H
C
⎛ n 2 1⎞
⎜∑ p j − ⎟
⎜ n⎟
Note: Herfindahl-Hirschmann index calculated as HH = ⎝ ⎠
j =1
1
1−
n
, where p j = x ij / X irepresents the market share of country j on the exports of country i in its total exports .
Source: Latin American Economic Outlook 2008, OECD Development Centre.
OECD Development Centre
Based on data from Comtrade, World Integrated Trade Database, 2008.
20. A commodity boom without diversification is a
two‐edged sword: the African case
Export Concentration in Products for Africa
Herfindahl Hirschman Index
1.0
0.9
2000 2005
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
o cco
u frica
Ke ya
A g la
C m ro n
hd
ô d ire
Z bb e
o m iq e
o g
lg ria
Gaa
ig r
ig ria
G m ia
m ia
ngl
N m ia
u isia
M li
Se e a
Ne
Cno
im a w
Ca
a e o
M za b u
hn
a
no
a b
Za b
a ib
n
A e
C te 'Ivo
Ne
M ro
Tn
So th A
Source: African Economic Outlook 2008, OECD Development Centre. Based on data from Comtrade, PC‐TAS and World Integrated Trade Database,
2008.
OECD Development Centre
21. Latin America’s performance on trade
infrastructure is poor
Time for exports Cost to exports
2000
40
$ per container
35
1600
30
25 1200
Days
20
800
15
10
400
5
0 0
India
China
Peru
Argentina
Mexico
Venezuela
Colombia
Chile
Brazil
Average LAC
India
China
Venezuela
Peru
Colombia
Chile
Mexico
Argentina
Average LAC
Brazil
Source: Doing Business Report. World Bank, 2007.
OECD Development Centre
22. …and most of its competitors score
better on infrastructure
Source: Avendano, R. Santiso, J. “The Impact of China and India on Latin America”. Global Insights: The Emerging States. Centre d’études et de recherches
Internationales (CERI). 2008.
OECD Development Centre
23. A wake up for reforms:
The proximity to export markets
Mexico benefits from its geographic proximity to its major export markets:
• Lower transport and
communication costs
11,700 Km
• Access to FTA 24 Days 4 Days
160 Km
• Just‐in‐time delivery
Shipping time
OECD Development Centre
24. Mexico: competition in third
markets is more fierce
Share of US imports by region
Mexico China
Three key issues:
25
Japan EU • Infrastructure investment
20
% of total imports
• Private participation
15
• Regulation and transparency
10
5
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: CEPAL (2006) and World Integraded Trade Solution.
OECD Development Centre
25. I Introduction: Recent trends and myths on China‐Latin America
II Trade competition: Evidence of a potential draw
III Export Diversification and Infrastructure
IV Adaptation strategies towards Chinese competition
OECD Development Centre
26. Opportunities have emerged as a result of
Increased trade with China
High value‐added niche to achieve global scale Products with high volatility and customization needs
Source: Alonso, A. Avendano, R. Estrada, J. “Adapting to the Rise of China: How Can Latin American Companies Succeed? ”. OECD/World
Economic Forum Working Paper. April 2008.
OECD Development Centre
27. Latin American companies have started to
adapt to new value chains
Upstream value chain integration
Source: Alonso, A. Avendano, R. Estrada, J. “Adapting to the Rise of China: How Can Latin American Companies Succeed? ”. OECD/World
Economic Forum Working Paper. April 2008.
OECD Development Centre
28. Final Remarks
• Excessive complementarity between Chinese and Latin American goods is a risk,
but there is room for trade opportunities.
• Prospective demand of Asian Drivers From mineral to agricultural A positive
potential effect
• Tumbling raw material prices today may reignite old concerns about resource
curse, but countries have shown higher fiscal responsibility during booms.
• The imperative of product diversification
• Beyond diversification: Adaptation to the Chinese model?
OECD Development Centre
32. Following the Chinese example: can
Latin America count on fiscal leverage?
The Capacity to Generate Fiscal Surpluses…
11
9 1995 2000 2006
7
5
% of GDP
3
1
‐1
‐3
‐5
China Colombia Ecuador Peru Argentina Brazil Chile Mexico Uruguay Venezuela
Source: OECD Development Centre (2008); Based on ECLAC and Statistical Yearbook for Asia and the Pacific 2008.
OECD Development Centre
33. Intra‐regional trade in both Asia and
Latin America is low
Intra regional Exports as a share of Total Exports
By region
30.0% Eastern Europe East Asia and Pacific Africa Latin America
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: COMTRADE .
OECD Development Centre
34. Methodology matters when exploring
export structures
1. CS/CC do not capture importance of each product on world markets
2. Focus on exports overlooks the growing intra‐industry trade
Alternative methods:
1. Relative Comparative Advantage index:
• Balassa
• Vollart’s
2. Herfindahl Hirschmann index
OECD Development Centre