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Pacific Alliances and Opportunities

In 2011 Chile, Colombia, Mexico and Peru began an alliance of countries seeking to further their future growth by working together.

This group represents about 36% of the total GDP of Latin America, their exports together represent some 50% from the region, so this grouping was very big news. The direction taken by this group of countries made others in the region sit up and take notice. With their stated goal to deepen cooperation among members with the explicit purpose of forging closer relations with the Asia-Pacific region, the alliance moved towards more market oriented principals.

The Pacific Alliance, a more market oriented approach contrasted the more traditional closed and protective economies of a lot of Latin America. This made waves because some saw the group as competition to Mercosur, a Trade Group originally formed in 1991 consisting of Paraguay, Uruguay, Brazil, and Argentina. Mercosur started out with economic objectives in mind, seeking to benefit from trade between members (and at the same time protecting their market with generally high import taxes for other countries that wished to trade with them). However the group has stagnated. It really now is a political beast, as divisive goals of different countries have in fact seen trade integration between them go nowhere. Additionally, the heavy weights of South America, Brazil and Argentina tended to be able to sway the direction of members and others in the region, often playing a subtle hand of influence. The development of the Pacific Alliance has certainly placed some pressure on all countries throughout Latin America as to how they see their future. Its formation has created a clear choice on what sort of economic direction a country wishes for, a line in the sand for how future opportunities can be developed.

Recently Mercosur has been joined too by Venezuela. This is nothing short of a debacle of an economy where their populist policies have been completely unsustainable as now the country is close to falling apart. Likewise from that grouping Argentina sits in an extremely precarious position. Its populist and hugely protectionist policies are seeing it head for drastic times while Brazil has continued to maintain its protective nature through many methods to shield its huge economy. To some extent with such a huge economy and incredible resources Brazil can take this stance. However as their protectionism has encouraged inefficiency putting them under pressure, trade becomes increasingly important. Uruguay and Paraguay sit like two corks in an ocean next to their heavyweight neighbours. Their economies have slightly diversified away from such a traditional reliance of trade with others in their group. They continue to chase opportunities for business to Asia and elsewhere and are interested in developing their trade much further. The final country in the Mercosur puzzle is Bolivia, set to join soon, another economy where the Government plays a strong intervening role in all things that go on. Although Bolivia maybe from a low base, Bolivia is currently showing reasonable growth through mining and agricultural opportunities.

Back at the Pacific Alliance the group has had a stream of Latin American countries now signalling that they are interested in joining too. From Mercosur both Paraguay and Uruguay have indicated their interest, Ecuador now too, while the Central American countries are coming to the fore. Costa Rica and Panama, two countries showing a lot of promise, are in the process of becoming full members. Guatemala also wants to join in, and can do so once completing trade deals with the other members. Not many New Zealand businesses have done business in these countries, but they really will hold some good opportunities for certain sectors. Meanwhile while El Salvador and Honduras have shown some interest in the group, the remainder left in Latin America with no interest presently are Belize and Nicaragua from Central America and Guyana and Suriname (which consider themselves as part of the Caribbean Community). [Note, French Guiana is actually part of the European Union.]

And therein lies the rub, as all these countries join The Pacific Alliance, this creates a wave of interest from others to reform, to become more market oriented, and to compete in a global world. I am sure the pressure will ramp up on the left leaning Governments of Latin America, as even the most dominant politicians struggle to survive when their constituents see their neighbours over the fence doing much better relative to themselves. Obviously we’ll have to see what pans out, however those countries involved are currently showing better growth rates because of their policies and are likely to continue to do so. The ramifications abound, for example Ecuador, a strongly socialist country, with a leader that has criticized the alliance is perhaps pragmatic enough to see the writing on the wall, by understanding the benefits of integration for Ecuadorians into a group that surrounds its borders. The alternative is probably political suicide as eventually entering the group will probably be seen as the best option amongst a range of limited choices. From my perspective the reality of a globalised world is either to adapt and compete, or the alternative is to go backwards relative to others. This sort of theory of business evolution is possibly going to initiate substantial change in the region over the next years. This is why the more left leaning interventionist economies of the region are a little threatened and their ability to control may wither. Hopefully the protectionist barriers are likely to come down as countries endeavour to join in as they know they have no other choice. If the cards fall right, a movement towards greater integration could happen relatively quickly.

It is very easy for many Latin American countries to spout ideology, to find reasons (and give blame) as to why their great plans never materialised. This Pacific Alliance is very positive because they are taking responsibility to reform and develop their economies so that they can face the future and compete in the reality of a globalised world. Of course, this is extremely good news for New Zealand as we are in all likeliness going to have increasing opportunities to work with these sorts of countries where we will sit on a more level playing field, with less trade barriers and where the ease of business is much improved. New Zealand has signed up for the observer status to the Pacific Alliance, and we already have a Free Trade Agreement with Chile. The TPP Agreement in progress will include Peru and Mexico, while Colombia has indicated an interest in TPP and a Trade Agreement with New Zealand too. For New Zealand exporters as these countries open up, we must continue to work hard at it (private and public) to go after the opportunities that will present themselves. It seems to me that from a Latin America perspective the lower hanging fruit will be picked off in these Pacific Alliance countries and those who are set to join it also.

There you go I think I have mentioned every country in Latin America (excluding the Caribbean)! Whoops I forgot the Falkland Islands, being a British Overseas Territory with internal self-governance, you can probably trade with them at any time, they are going well!


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