If Latin America is having a ‘moment’ as often described then it has been having that moment for the last decade. And now fast-growing economies of the Pacific Alliance are banding together to capitalise on this long streak of political stability, sizeable investments from China, a commodities supercycle and significant policy reforms.
By Grame Barty, Executive Director, International Operations, Austrade
Growth across the region may have slowed, but in many countries, the fundamentals are strong and clear.
Argentina: regaining market confidence
After almost one year in office, Argentine President Mauricio Macri has made significant progress on his economic reform agenda, which has opened up the Argentine economy and improved business confidence. An agricultural powerhouse, with an abundance of unexploited natural resources and an impressive pipeline of infrastructure projects, Argentina has become a highly prospective destination for Australian investors. Alongside this, the Argentine Government is regularly looking to Australia as a reference for good policy making and best practice across a number of industries, an encouraging sign for business in general.
Colombia: agribusiness, energy and resources
President Juan Manuel Santos estimates that a 'peace dividend' could add two percentage points a year to its GDP by 2018. Even if that proves overly optimistic, the disarming of the FARC (Revolutionary Armed Forces of Colombia) and the ELN (National Liberation Army), which joined the peace talks post-plebiscite, would open vast territories for resource exploration and extraction, agriculture and energy projects. A proposed tax reform would also lift the country's credit rating and significantly improve the terms of business and the general mood and opportunities across the economy should increase.
Peru: improvements to business environments
Still the fastest growing major Latin economy despite the commodities downturn, Peru's new President Pedro Pablo Kuczynski is a resolutely probusiness and pro-trade figure. His ministers are already reaching out to Australian and other foreign business figures to listen to their views on how best to improve the business environment, particularly in sectors like mining or water management where we excel.
Mexico: financial services
Mexico's US$1.14 trillion economy is already the 15th biggest in the world, and it is forecast to be among the world's top 10 within a decade. An extensive reform agenda has opened its energy sector to private investment after a 76-year state monopoly. The pipeline of Australian companies seeking to enter the market has never been so full, and Macquarie Group's US$3 billion portfolio in Mexico suggests there are opportunities in financial services.
Mexico's close relationship with the US's economy is especially attractive to Australian companies looking to nearshore outward investments, and through the Pacific Alliance, enhance access to South America.
Brazil: agribusiness and services
Brazil, the region's biggest economy, is undergoing political challenges and a protracted recession, but it remains a market of ongoing and diverse opportunity for Australian businesses. The big picture of a large middle class, agricultural strength and a dynamic services sector will continue to be attractive to Australian investors seeking long-term growth. Brazil also represents a significant potential source of foreign investment for Australia, particularly in agribusiness.
Chile: low-risk, transparent business environment
Chile continues to offer a low-risk, high-transparency business environment with demonstrated resilience across the economy in spite of a dependency on the price of copper.
Other market triggers
The region is also increasingly a major contributor of international students to Australia's education system. Since 2008 203,600 Latin American students have studied in Australia. In the year to July, Latin American student enrolments grew to 42,300, up 19 per cent on the same period in the previous year. Brazil is Australia's second largest market for English language students on a student visa after China and the fifth largest for vocational education and training students. Overall, Brazil is Australia's seventh largest market for international students – with an 86 per cent increase in enrolments in the past four years – while Colombia is ranked 13th.
Where does Austrade see Latin American opportunities in the year ahead?
While Australia's presence in the region used to be defined by names such as BHP Billiton and Rio Tinto, we have entered a new period of engagement where companies such as SEEK, carsales.com.au, Lorna Jane, Amcor, Latam Autos, Cochlear, Cotton On and Nufarm are seizing a different set of opportunities.
The trend is being driven by the growing wealth of middle class and increasing mobile and internet connectivity in the region. It is especially prevalent in Brazil and Mexico, which boast big demographics on par with some Asian economies, but also in the resurgent economies of Argentina, Colombia, Chile and Peru.
Austrade is also working to exploit niches including:
- Tropical agriculture, where Brazil's expertise is an excellent fit for Australia, given our drive to develop the north.
- Tropical medicine, where scientists are collaborating in the race to cure some of the world's most damaging tropical illnesses including zika virus, dengue virus and leishmaniasis. After a Austrade-organised tropical medicine mission Australian researchers cemented links with peak bodies, while Australian company Implicit Bioscience signed agreements with Colombian and Brazilian partners.
- Rail transport in Chile, where Australian transport infrastructure expertise is finding a receptive audience as the Chilean Government looks to double rail cargo and more than triple passenger numbers by 2020 with a US$7.6 billion reform.
- Mining, education, agribusiness, infrastructure and policy consultation in Argentina, where the country's 'renaissance' is creating opportunities for Australia. This was underscored powerfully when President Macri released Argentina's Productivity Plan, which refers to Australia's experience and models in every chapter.
- Water management engagement covering the full spectrum of policy, research, equipment, technology, services and skills. In Brazil, the city of São Paulo faces crippling urban supply issues. Austrade has put Australian water expertise front-of-mind for local decision makers through an agreement with the state of São Paulo on water and environmental management as well as education, trade, investment and cultural links. In Peru, Austrade has brokered a deal between Australian scientists and Southern Copper to reform its water management
The digital economy
While established opportunities in the region are largely within the 'traditional economy', Australian businesses need to appreciate that the global digital economy is emerging rapidly. Fintech, medtech, agritech, edutech and cyber security are the future of a fully connected global environment with which Australia is already showing leadership.
Every Latin American economy needs to identify its opportunities with the digital economy and find a way to participate.
It is where growth for the next generation of jobs, and where an important part of future innovation and services prosperity and potential collaboration exists and it could represent a new and exciting level of opportunities for ongoing engagement between our regions over the next 20 years.