For many years in my technology company HarvestRoad I was lucky enough to seek out and win business in Mexico - not a market not well appreciated at that time - and later at Austrade I was even luckier to discover a wider Latin America and the drivers and will for countries like Colombia in particular to change.
I quickly became a long-term believer in those Latin American countries that were doing everything in their power to move their economies and societies forward because I also experienced great commonality in ideas and values that made for very ‘easy’ relationships – ones fostered on good will and mutual respect.
Given the welcome and impressive recently announced engagement between our Governments and business communities I pose the question:
“Is Latin America is having a “moment” in history that Australia can be a part of? In this the era of 'south-south engagement?”
Well if Latin America is then it has been having a moment for about a decade now - with the fast-growing economies of the Pacific Alliance banding together to capitalise on a long streak of political stability, sizeable investments from China in particular, a commodities supercycle and significant policy reforms. The strategic importance of Mexico joining this Alliance cannot be overstated. It is a game changer for the economic unions potential being realised.
Growth across the region may have slowed, but as in Australia in the leading Latin American countries the economic and society fundamentals are strong and clear.
Latin America has declared itself open for business and with the recent activities by the Australian government to open FTA negotiations with the Pacific Alliance countries[i], the visit of the Vice President of Argentina to Australia, post TPP engagement with Mexico and the opening of an embassy in Colombia[ii] are clear signs that we are keen to be a part of that.
In the past year alone, Argentina’s President Mauricio Macri has moved quickly to end debt disputes that have locked the country out of international financing, as well as reducing restrictions to international trade and lifting currency controls.
Colombia signed a peace agreement[iii] to end more than a half century of war, a deal which President Manuel Santos estimates the ‘peace dividend’ could add two percentage points a year to its GDP by 2018. Even if that forecast proves overly optimistic, the disarming of the FARC – and if the local community agrees - may open up vast territories for resource exploration and extraction, agriculture and energy projects.
In Peru, still the fastest growing major Latin economy despite the commodities downturn, the new president, Pedro Pablo Kuczynski, presents his government pro-business and pro-trade figure whose ministers – especially in mining - are reaching out to Australian and other foreign business figures to listen to their views on how best to improve the business environment.
Mexico’s US$1.26 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 and Australian company BHP Billiton was the first beneficiary of this reform by executing a contract with PEMEX Exploration & Production Mexico (Pemex) to complete work on the significant Trion discovery in Mexico[iv]. This is a highly significant outcome for both Australia and Mexico and the future of our interactions and it is worth quoting the sentiments expressed recently by both parties:
BHP Billiton CEO, Andrew Mackenzie, said the partnership was an historic moment for Mexico and the beginning of a new chapter in business relations between BHP Billiton and Pemex.
“It is an honour to be the first foreign company to partner with the people of Mexico in developing their significant petroleum resources for mutual benefit,” Mr Mackenzie said.
President of Mexico Enrique Peña Nieto thanked BHP Billiton for believing and trusting in Mexico.
“I want to thank BHP Billiton for being Mexico’s partner in this journey that, I am certain, will yield greater development for our country,” Mr. Peña Nieto added.
Beyond oil and gas the pipeline of Australian companies seeking to enter the market has never been so full, and Macquarie’s US$3bn portfolio in Mexico suggests there is opportunity for Australia’s financial services sector to strengthen its presence.
Mexico’s close relationship with the US economy is especially attractive to Australian companies looking to nearshore outward investments as Mexico could be described as a ‘three for’ market ie three markets for the price of one – Mexico, North American and Latam.
And Chile continues to offer a low-risk, high transparency business environment with demonstrated resilience in the face of a low copper price.
Brazil, the region’s biggest economy, is undergoing some political and societal challenges which it must – and is – address 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 and there is a lot of interest in helping to open up Australia’s north – after all their own history is forged from such similar requirement.
And kudos to the Brazilian people for the successful conduct of the Rio Olympics – a great sporting, administration, logistics and security outcome and one that deserves our international recognition and thanks.
The region is also increasingly a major contributor of international students to Australia’s education system – a trend which serves to strengthen the business, cultural and social ties across the Pacific. Since 2002 almost 140,000 Latin American students have studied in Australia. In the year to July, Latin American international student enrolments and commencements grew more than any other region in the world – up 20% on the same period in the previous year, bringing the total number of Latin American enrolments to almost 42,500.
Brazil is Australia’s second largest market for English language students on a student visa after China and the fifth largest for VET students. Overall, Brazil is Australia’s seventh largest market for international students – with an 87% increase in enrolments in the past four years - and Colombia is not far behind at number 13.
Australia’s VET expertise is also proving valuable to a region that’s increasingly focused on improving productivity. Our world class model has driven a spate of high level visitors from the region to Australia.
Other market triggers that should not be overlooked are the post USA exit 'TPP 11' opportunities which if passed would tip the scales on tariffs on a number of important lines and facilitate greater services penetration; and the rapidly improving ease of doing business in the region.
Target markets in Latin America are comfortable with foreign participation in trade and investment, have relatively low regulatory barriers, attractive risk profiles, improving transparency and a more ‘western’ or familiar business culture than many other international markets Australians try to enter.
So where is the opportunity in Latin America in the year ahead?
Whereas our 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 not driven by mineral wealth but by the growing wealth of middle classes and increasing connectivity in the region. It is especially prevalent in Brazil and Mexico, which boast the big demographics that are a feature of some of Asia’s economies, but we fully expect that it will play out more and more in the resurgent Argentina and the go-ahead Andean economies of Colombia, Chile, and Peru.
Other niches Austrade could exploit include:
- Tropical agriculture, where Brazil’s expertise is an excellent fit for Australia, given our drive to develop the north. No other farmers in the world are as well-equipped as the Brazilians to help Australia in this regard.
- Tropical medicine is also proving to be a fruitful area for collaboration between top Australian and Latin American talent, in the race to cure some of the world’s most damaging tropical illnesses, including Zika virus and Dengue Fever. After a tropical medicine mission to Colombia and Brazil organised by Austrade last year, Australian researchers have cemented links with peak bodies in both countries. Australian biotech company Implicit Bioscience has now signed agreements with Colombian and Brazilian partners for work on Dengue fever as a direct result of that mission.
- In Chile, Australian transport infrastructure expertise is finding a receptive audience as the government looks to double rail cargo and more than triple passenger numbers by 2020 with a US$7.6bn reform. It has already identified Australia as a compatible partner given similarities in the two country’s rail systems and Austrade secured a keynote address slot for an Australian expert in rail communications systems at a major seminar for stakeholders this year.
- Argentina’s ‘renaissance’ is throwing up opportunities across mining( one of the worlds largest reserves of Lithium) , education, agribusiness, infrastructure and policy consultation for Australia. This was underscored powerfully just last month when President Macri released Argentina’s Productivity Plan, which referred to the Australian experience and models in every chapter( and this is reflected in Austrade’s concept of PRETSS ie where governance itself has a value).
- Water management is proving an important area for cooperation across the full policy, research, equipment, technology, services and skills spectrum. In Brazil, where the city of Sao Paulo had faced crippling urban supply issues – something they were totally unprepared for – DFAT put Australian water expertise front of mind for Brazilian decision makers.
- Australians are also set to expand their presence in Mexican manufacturing – building on our stakes in the automotive, chemicals, electrical, aerospace and footwear & apparel sector.
- Given that commodity prices appear to have bottomed and the ‘end of the fall in mining investment is coming into view’ (according to Christopher Kent, assistant governor of the RBA, speech 16 Sept), one of the biggest drivers of economic activity in Australia and Latin America is coming back. That bodes well for the METS sector, where Australian capability will continue to develop significant relationships in Chile and Peru and break new ground in Argentina, Ecuador and provide advice in Colombia. The lithium market especially in Australia, Chile and Argentina – the world’s top three producers – is providing openings for suppliers and investors.
Most of this engagement refers to activity in the ‘traditional economy’ of energy, water, food security and discretionary consumption of goods and services – all important – but all regions need to appreciate that the ‘global digital economy tsunami’ is coming towards all markets at hyper speed. Fintech, medtech, agritech, edtech, cyber security, and or artificial intelligence are the future of a fully connected global digital economic environment - because it where the new jobs are and where our countries future prosperity exists and there is a lot of scope for our regions to participate and cooperate in this regard.
In conclusion if there is a single thread to the Latin America story it is a story of continued economic growth, growing middle classes, youthful demographics and demand for quality services and products. Sounds like Australia to me!
Australia gains from the new generation of Latin American students who have studied in our institutions and who are cementing and expanding the cross-cultural ties.
And now the Australian Government through the very positive actions of our Foreign Minister Bishop and Trade and Investment Minister Ciobo – along with DFAT and Austrade officials, combined with the Council of Australian and Latin America Relations chaired by Chris Gale and business associations such as the Australian Latin American Business Council led by Jose Blanco - are asking us to do the same.
In response to protectionist rhetoric, Peru’s new president, PPK, recently urged the US to ‘look to Latin America’.
Richard Haas, president of the US-based Council on Foreign Relations, did, saying “I never thought I’d live to see the day where populism would be rising in the United States and declining in Latin America… I would actually describe Latin America as the most promising part of the world right now.”
So in answer to my own question – its affirmative.
Engaging with Latin America - leading 'south to south' regions - will create for Australian business and government a long term era of ‘mutually assured benefit’.
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