India-LAC Business Conclave in November 2022

The Confederation of Indian Industry (CII) is planning to organize the next edition of India-LAC ( Latin America and Caribbean) in November 2022. 
 
This a good opportunity to build on the  momentum generated by the recent visit of External Affairs Minister Jaishankar to South America where he highlighted the huge potential for growth of business and the complementarities and synergies between India and LAC region. 

The trade in 2021-22 was 45 billion dollars. This could be increased to 100 billion dollars in the next five years. Latin America contributes to India’s energy and food security with supply of crude oil, Lithium, edible oil and pulses. Indian companies have invested over 12 billion dollars in Latin America. 
 
In holding the Conclave, India could learn from the large scale and impressive China-LAC Business Summits.
 
The China-LAC Business Summit, started in 2007, has been held regularly every year and the 15^thedition is going to be held in December this year in Guayaquil, the main port city of Ecuador. 
 
The 14^th edition was held in 2021 in Chongqing, China  in November 2021. 
 
The summit is held alternately in China and LAC region in different cities. Hundreds of companies, besides government departments and organizations from both sides participate in the summit. The annual summit has become a  blockbuster event for promoting trade and investment. The Chinese government and their regional authorities at provincial and city levels invest significant resources to the make the summits successful. Big ticket investments and trade deals are announced at these summits. For example, in the 2021 summit it was announced that the China-Tibet Summit Resources company signed a 700 million dollar contract for a Lithium project in Argentina. 
 
One of the highlights expected in the 2022 summit might be the signing of a China-Ecuador Free Trade Agreement (FTA). China has already signed FTAs with Chile, Peru and Costa Rica. China has roped in 21 countries of LAC region in its Silk Road programme.
 
There is need for raising the profile of India-LAC business conclave and institutionalize its organization with adequate resources. The event should be held in different cities in India and LAC region alternately. 
 
At present this event is held in an ad hoc manner and in small scale by CII and FICCI alternately in India. Only once CII had organized it in Latin America. 
 
The Latin Americans are even more keen for economic engagement with India, which is the seventh largest destination for their exports. In 2014, India was #3. They exported more to India than to their traditional trade partners such as Germany, France, Spain, Italy or UK. India was the #1 destination of Latin American exports of vegetable oil, #3 for gold, #4 for crude oil and #8 for copper. The Latin Americans want to reduce their overdependence on China and attach importance to India as part of their policy of strategic diversification. This is the right time for India to intensify its win-win economic engagement with LAC region.
 
Some suggestions for the Nov 2022 Conclave and for promotion of business with LAC region:
 
-Both the Commerce and External Affairs ministries should extend large financial support to the conclave to make the annual event successful and important.

-The Conclave should be raised to a larger national level, beyond the membership of CII or FICCI. All the export promotions councils, chambers of commerce, trade and industry bodies of India should be invited and involved to make the conclave as a Mega event

-Similiarly there should be involvement of Latin American regional organisations and banks such as InterAmerican Bank for Development, Development Bank of Latin America, Central American Integration Bank, Caribbean Development Bank, ECLAC, Mercosur, SICA and Pacific Alliance, besides chambers of commerce.

 
-The government of India could consider announcing a billion dollar credit to LAC region at the Conclave. The Chinese have extended 160 billion dollars to the region. India’s credit is just a few hundred million dollars
 
-India should join the InterAmerican development Bank as member. This would help Indian companies to get contracts financed by the Bank. China and South Korea are members already.
 
-Expedite the conclusion of expansion of India-Mercosur PTA and open negotiations for FTAs with Mexico, Colombia and Peru.
 
-EximBank should open an office in Latin America
 
-Indian Banks should open branches in Sao Paulo, Mexico City and Buenos Aires
 
 
 

Venezuela’s GDP will grow by an incredible 10% in 2022

 Venezuela’s GDP will grow by an incredible 10% in 2022

This is the biggest and most pleasant surprise in the 23 August report of Economic Commission for Latin America and Caribbean (ECLAC).

 

Venezuela’s growth rate will be the highest in the whole of Latin America in 2022. 

 

This is the first time that the country is seeing a positive GDP growth since 2014. In the period 2014 to 2021, the GDP had shrunk every year consecutively. The GDP contraction was 30% in 2020.

 

The second surprise is the news that Venezuela’s inflation will come down to 157% from four to six digits in recent years. In 2018, the inflation was 130060%.

 

The Ukrainian crisis has come as a saviour for Venezuela. The US has loosened the sanctions on Venezuela since the Americans want Venezuela to produce and export more oil to make up for the loss of oil in the global market due to their sanctions on Russia.

 

The Maduro government can now feel safer since the US attempts of regime change in Venezuela have completely failed. The US and its allies have quietly ditched Juan Guaido, whom they had propped up as the interim president of Venezuela, derecognizing Maduro as President. Some Latin American countries (Peru, Argentina and Colombia) under centre-right governments had gone along with the American charade. But the new left-wing governments in these countries have now recognised Maduro as president. The new leftist President of Colombia has given up the role of the country as the front line for the destabilization of Venezuela by the US. 

 

So Venezuela has clearly come out of the abyss. My Venezuelan amigos can look forward to better times in the coming years. I hope that the government of President Maduro will take advantage of these positive developments to move the country towards a proper democracy with free and fair elections and also improve the economic management. 

 

The third surprise in the ECLAC report is that Chile has overtaken Colombia as the fourth largest economy of the region after Brazil, Mexico and Argentina. Chile’s GDP in 2021 was 317 billion dollars as against $314 bn of Colombia whose population is 51 million while that of Chile is 19 million.

 

Other highlights of the report:

-Latin America’s GDP is projected to grow at 2.6% in 2022 after growth of 6.5% in 2021,

-growth rate of major economies of the region: -Brazil-1.6%, Mexico-1.9%, Argentina-3.5%, Chile-1.9%, Colombia-6.6% and  Peru-2.5%,

-Central America will grow by 4.1%. Dominican Republic- 5.3%

-Average inflation of the region was 8.4% in June 2022. Argentine inflation expected to be 65%, up from 48% in 2021. 

-In the first half of 2022, twelve of the region’s economies reported currency depreciation against the dollar as compared to late 2021. Average depreciation in the region’s currencies in the first half of 2022, excluding the economies with chronic inflation, was 3.3%

 

More in the ECLAC report

https://repositorio.cepal.org/bitstream/handle/11362/48078/4/S2200606_en.pdf

 

The positive turn of Venezuelan market has already shown promises for India. Exports of India to Venezuela reached a decade-high 334 million dollars in 2021-22. There is scope for significantly increasing the exports in the coming years. India could also hope to resume imports of oil from Venezuela in the near future. India had imported over 10 billion dollars of oil from Venezuela before the US sanctions. India has also made large investments in the Venezuelan oil sector. Venezuela has the largest oil reserves in the world surpassing even Saudi Arabia. 

 

 

Indian tycoon takes on South America’s “Switzerland"

Indian tycoon takes on South America’s “Switzerland” is the title of a report of Financial Times dated 23 August 
 
Pramod Agarwal, an Indian businessman living in London, has sued the Uruguayan government for 3.5 billion dollars compensation for scrapping his iron ore project in Uruguay. He claims to have invested 365 million dollars in the Valentines iron ore mine. His company Zamin Resources started the project in 2006 after some initial preliminary acceptance by the government of Uruguay. It was to be the largest investment in Uruguay with 3 billion dollars. The plan was to export upto 36 million tons of iron ore a year. 

 

But later the Uruguayans became wary of the project for two reasons. Firstly, they feared that the large iron ore production and transportation activities might spoil the quiet and beautiful environment of the country. Unlike countries such as Brazil, Peru and Chile, Uruguay has no mining tradition, nor are there any other significant mining ventures in the country. Agriculture and tourism are the mainstay of the economy. Justifiably, the Uruguayans were concerned that the huge mining project of Agarwal would affect tourism and agriculture. Secondly, they knew that Agarwal’s aim was not to run the project in the long term but to develop it and sell it to the highest bidder. He has done this in other countries. In Brazil, he developed an iron ore project and sold it for 735 million dollars to ENRC of Kazakhstan. So the Uruguayans were skeptical about Agarwal’s long term commitment and did not buy his promises of ecological management. So eventually the Uruguayan government revoked the mining license of Agarwal.

 
Agarwal has claimed that Uruguay’s reputation as an investor-friendly country is just an ‘eyewash’. He has blamed the left wing elements of the Uruguayan government for stopping the project.

Agarwal was a commodity trader who ventured into iron ore mining after his trip to Brazil in 2004. He bought some mining concessions, developed them and sold the assets at high profit margins. He rode on the wave of high global iron ore prices and became a billionaire with his Latin American mining ventures.

Agarwal had a legal dispute earlier over the sale of stake in a Brazilian iron project in 2010 to ENRC of Kazakhstan. The dispute ended with a settlement. 
 
I had met Agarwal in Uruguay  and visited his office as well as the mining site when I was Ambassador to Uruguay, based in Buenos Aires. I was impressed by his entrepreneurial spirit. But I was not at all sure about the success of the project and shared the same reservations as my Uruguayan amigos. In fact, one of my amigos Ruben Azar was trying to facilitate the communication between Agarwal and the Uruguayan authorities. But he too had shared his doubts with me. So I am not surprised that the project ended up as a failure. I doubt the figure of 365 million dollars claimed to be already invested by Agarwal. The actual figure might be one tenth of that. I also think that the claim of compensation of 3.5 billion dollars is preposterous.
 
It is a pity that the name of India is caught up in this business dispute. Agarwal might be holding an Indian passport like Lakshmi Mittal. But his  claim for compensation is based on the British-UK investment protection Treaty. His children hold British passports and hold shares in the mining company. He had got Colombian singer Shakira to sing at the wedding of one of his two daughters in San Clemente Palace, Venice.
 
This is the second failure of a large mining investment project by Indian entrepreneurs in Latin America. Earlier Jindal group had announced a project to invest 2 billion dollars in iron ore mining and in a steel plant in Bolivia. But the Indian company had no intention of building a steel plant and lost interest in mining when the international iron ore prices had crashed. So the Bolivian government cancelled the license and encashed the Jindal guarantee of about 20 million dollars. My blog on this 

There have also been a few more failures of Indian ventures in Latin America including Reddy Labs joint venture in Sao Paulo and Renuka Sugars's acquisition of Brazilian sugar mills. The IIM-A educated promoter CEO of Renuka was described as the "Mittal of sugar business" by Forbes Asia for revolutionizing the sugar production and business in India. Heady with this Indian success Murkumbi had invested around 500 million dollars in Brazil. Renuka became one of the top ten sugar and ethanol producers in the country. But the Brazilian venture ended up in bankruptcy and had sunk the parent company in India too. Renuka has now been bought over by Adanis. Murkumbi has lost his fortune and fame in India due to the failure of his Brazilian venture. 

The main reason for these failures was the lack of understanding of Latin American politics and business culture by the Indian businessmen. The Indian investors knew their business well and were competent in their core business. But they had no idea of the Latin American culture. They plunged into ventures in Latin America without proper study of and adjustment to the local business ecosystem.

These failures have lessons for the other Indian companies planning to invest in Latin America. But the Indians should not be discouraged by these few failures. They should get inspiration from the many success stories such as those of UPL, Mothersons, Aditya Birla Group and TCS who are flourishing in the region with large annual turnovers. UPL, the largest Indian agrochemical firm does more business in Latin America (around 1.5 billion dollars) than in India. The other three have annual turnover of close to a billion dollars each. The Indian investment in Latin America is more than ten billion dollars. There is scope for more Indian investment and business in Latin America in the long term. 

A number of Indian executives, who have lived in Latin America for many years managing Indian business, have become experts on the local business practices. In fact, some of them have been recruited by Latin American companies themselves for expanding their business with India and for their global business. When I asked some of these executives they told me that it took some time for them to understand and adjust to Latin American culture. But afterwards they found it easier to manage business in Latin America than in India. The Indians have told me that they had learnt from the Latin Americans to have work-life balance, have some fun without guilt and enjoy the weekend beach parties and and salsa as much as week day business success. 
 

“Second chance for Colombia” under President Petro

Gustavo Petro, the first leftist president of Colombia, who took over on 7 August, started off his inaugural address with a quote from the ending lines of “One Hundred Years of Solitude” by Gabriel García Márquez, "Everything written there was, and has and always will be, unrepeatable because the lineages condemned to one hundred years of solitude did not have a second chance on earth".  Petro said, “our second chance begins today”

How does he propose to go about it? He said. “ I will dialogue with everyone, without exceptions or exclusions.  Whatever their name is, wherever they come from. The important thing is not where we come from, but where we are going. Dialogue will be my method, agreements my goal”. This is in contrast to his oligarchic predecessors who polarized the country with ideology and privilege. The conservative rulers of the country had systematically persecuted and stigmatized the left which had reacted by unleashing violence. Of course, the leftist guerrillas also contributed their share of excessive violence and bloodshed. Colombia has shed too much blood in the past in ideological and narcotics civil wars. It was the only Latin American country which had the largest war by guerrillas who controlled almost half the territory at one time.  The country is crying out for peace and reconciliation.

 
The Gringos have spoiled the image of Colombia in the name of their so-called war on drugs and portrayed Colombians as villains in the Netflix serial “ Narcos”. This is pure bullshit. The villains are the millions of Gringo consumers who spend billions of dollars to consume the narcotics. Drug is simply and clearly a demand-driven and consumer- driven business originating from the US. It is also a multi- billion dollar business for DEA and the US corporations which have a vested interest in “one hundred years of drug war business”. 
 
Under Petro, Colombia will no longer be a sucker for the American drug war business. He has made it clear that the ending the drug war will be an administrative priority. He said, “ It is time for a new international convention that accepts that the war on drugs has failed—and failed resoundingly. The war on drugs has led states to commit crimes”. 
 
Petro will legalise cannabis by allowing cultivation. He wants Colombia to become a competitive cannabis market, like Canada’s legal industry. He is also interested in exploring the idea of exporting cannabis to other countries where the plant is legal.
 
Petro has proposed reforms in taxation, health, education, pension, labour laws and land distribution. He has prioritised investment in education, health, drinking water, irrigation districts and local road infrastructure. He has clarified that taxes will not be confiscatory but be fair taking into account the enormous social inequality of the country. 
 
Petro is creating a Ministry of Equality under  Vice President Francia Márquez, the first black woman to reach such a high position in Colombian government, for the first time. 

There is concern about Petro's plan to stop new concessions for oil drilling, given the fact that oil is a major export earning foreign exchange. But Petro is pragmatic and will allow ongoing oil production and exports. He is, of course, committed to climate change mitigation and reduction of fossil fuels.

Some conservative critics have called him as a dogmatic radical and Colombian Chavez. But the Colombian conservatives are too strong to let Petro run away with any radical disruptions. So Petro knows that he has to be moderate and realistic to survive his term and achieve some of his goals.
 
Petro has normalised bilateral relations with Venezuela by appointing an ambassador to the government of President Maduro. This is a huge set back for US which was using Colombia as the frontline for its regime change operation in Venezuela
 
Petro has called for Latin American integration, moving away from the pro-US policies of his predecessors. This will certainly give a second chance to the process of integration of Latin America which was started in the first decade of this century. This process got derailed by the pro-US centre-right presidents of Colombia, Mexico and Brazil in the last four years. With the expected victory of Lula in the elections to be held in October in Brazil, the region is set to restart its integration efforts and assert it s autonomy in international affairs, free from the hegemony of US.

I agree with President Petro… Colombia has certainly got a second chance... to become politically more stable and economically more prosperous in the coming years. 
 
 

Gold, Oil and Avocados: A recent history of Latin America in sixteen commodities

This is the title of a book by Andy Robinson, published in August 2021. Robinson is a fan of the Uruguayan writer Eduardo Galeano who wrote “ Open veins of Latin America”, a legendary book (published in 1971) which was a bible for the Latin American leftists and nationalists. Galeano wrote about how the export of Latin America’s natural resources generated wealth for Europe and US while exacerbating poverty for Latin Americans.  One of his famous quotes was, “We Latin Americans are poor because the ground on which we tread is rich.”. Galeano had given illustrations to the Dependency Theory of Latin American development economists which was about the flow of resources from the periphery of poor and underdeveloped countries going to enrich the core of wealthy nations at the expense of the former.
 
Robinson is an ardent fan of Galeano. He says, “ I felt inspired once again, as I had been in my youth, by the young Galeano’s desire to write about political economy in the style of a novel about love or pirates”.
 

In this book, Robinson has written about the contemporary “Neoextractivism” practiced even by the Pink Tide governments of the twenty-first century besides the multinational corporations and their local counterparts. After all, the success of the pink tide governments was partly due to the high international prices and demand (especially from China) for Latin American commodities. Robinson says, “ I witnessed fierce debates between those appalled by the pink-tide governments’ embrace of “neoextractivism” and those who dismissed the anti-extractivists as romantic. 
 
Robinson’s choice of the sixteen commodities are: gold, diamond, silver, copper, lithium, niobium, iron, coltan, beef, oil, soy, avocado, potatoes, banana, quinoa and hydropower. He has travelled extensively in the remote areas of mining, cattle ranches, plantations and indigenous areas. He has undertaken arduous and courageous journeys through the Amazon forests, Atacama desert and dangerous territories controlled by drug cartels and illegal mining mafias. He has revisited some of Galeano’s iconic destinations of colonial plunder and pillage such as Potosí, Minas Gerais, and Zacatecas. Robinson has met local activists, farmers and miners and given a graphic image of the situation on the ground. So his impressions, analysis and comments are valuable to understand the issues at both micro and macro levels. He has brought out the links between the extractive interests and the coups, protests, assassinations and overthrow of democratic governments by the US. He has given examples of the American regime change operation in Brazil for iron ore, Chile for copper, Guatemala for bananas and the attempts to overthrow the government in Venezuela for oil. He has pointed out the hypocrisy of Canadians who pose as one of the global champions of sustainable development while their mining companies exploit the gold and other resources of Latin America unscrupulously with the least concern for environment or for local inhabitants.
 
Robinson has juxtaposed the miserable conditions of the places of extraction with the end use of those raw materials in a world of conspicuous consumption and excesses. The diamonds extracted by the Brazilian garimpeiros in an inferno of mud and violence, processed in Surat, India, and bought in swanky Swarovski stores in Dubai. The prototypes of hypersonic missiles assembled in California or Shenzhen with the niobium extracted in the primitive areas of amazon. The conversion of potato, the sustenance to the great pre-Columbian civilizations in the Andean highlands, into addictive potato chips of Frito-Lay (PepsiCo), and its contribution to an epidemic of obesity in Latin America. Mexico and Central America, with the highest obesity rates in the world, are the worst hit by the cross-border invasion of salty and crispy snacks. A global fashion of guacamole that has turned the Mexican region of Michoacan, cradle of the Purepecha Empire, a more complex society than the Aztec’s, into a monoculture of avocado run by organized crime.
 
Robinson has brought out the dilemma which confronts the region and its second Pink Tide: how to generate equitable growth and reduce poverty  and inequality while avoiding the curse of dependence on export of raw materials which affect the environment. He calls for a new development model in Latin America with a radical change of philosophy, beyond the simple extraction of raw materials. But it is a tough call and a long road for some of the Latin American countries to get over the easy and short term gain from extraction and export of raw materials. This is evident from the case of Bolivia which has one of the largest reserves of lithium but unable to get it off the ground since the government has stuck to its policy of not allowing export of raw lithium and insistence that factories should be set up in the country to produce batteries. The multinational companies, who have the bargaining strength with their capital and technology have avoided entry into Bolivian lithium sector and focused on other business-friendly countries with lithium such as Chile, Australia and Argentina. Bolivia’s large iron ore deposit in El Mutun is stuck in the ground for the same reason. The Bolivian government’s condition that the iron should be used to make steel within the country is not acceptable to the companies. So the Latin American governments need to be realistic and pragmatic in their policies of ‘resource nationalism’