Growing demand for oil and other natural resources in Asia is fueling an export boom in Latin America where even Venezuela, otherwise hostile to freer trade, is witnessing economic expansion thanks to globalization.
The region’s foremost oil exporter has averaged 4.6 percent economic growth since 2005 compared to 4 percent in Chile, the world’s leader in copper and economically the freest nation in South America.
Even in Argentina, where business confidence is fading and enterprise increasingly squeezed between regulations and populist spending measures, growth averaged 7 percent during the same period as record soy and other farm exports helped offset Buenos Aires’ inflationary monetary policy and persecution of international energy companies and investors.
Commodity demand will likely slacken in 2012 as a result of economic woes elsewhere, meaning countries as Chile, Colombia, Peru and Uruguay, which are generally open to foreign business and investment, will do better than Venezuela and even Brazil which is struggling to escape the legacy of decades of corruption and nepotism.
The overall pace of Brazil’s regulatory reform has slowed but President Dilma Rousseff is leading an effort to root out corruption at great political peril to her ruling Workers’ Party. In her battle for transparency, political allies have abandoned Rousseff’s administration and her aloof leadership style threatens to alienate local machines and left-wing voters.
2012 may be Rousseff’s test year. If she manages to ramrod her transparency agenda through Congress and continues the free-trade policies of her predecessor, Brazil could eventually outperform the region in economic growth.
In the long-term, the largest and most powerful country in South America is well positioned for a future of enduring prosperity. Commodity exports, despite their expected downturn this year, are critical to Brazil’s success.
Asian demand for corn is expected to increase by roughly 25 percent this decade which will be a huge boon to exporters in the Americas, including Argentina, Brazil and the United States which between them constitute almost a third of global corn production.
International beef, pork and soybean trade will probably expand by similar factors, again benefiting Latin American producers. Brazil currently provides 40 percent of global beef and 15 percent of pork exports and it dominates the sugar market, accounting for 60 percent of the market. With the elimination of sugar tariffs in the United States earlier this year, which were designed to protect the ethanol industry there, Brazil will be able to export north as well.
The country’s ability to turn this export advantage into a broader economic success that sees industries and services flourish hinges on Rousseff’s willingness to reform.
Brazil has seen some progress but starting or closing a business remains costly and time consuming while organizing new investment is inhibited by regulations that make it especially difficult for foreign companies to compete. Tariffs and anti-dumping measures are barriers to trade and excessive labor laws stifle employment and expansion. There’s a risk of “Dutch disease” if growth is taken for granted and politicians refuse to challenge vested interests to improve market conditions. The president appears committed to the task but is her party?