Why Should Australia & Latin America Trade With Each Other?
Australia & International Trade
Australia & Latin America are two very different countries. Located on opposite sides of the world, these polar regions speak different languages and have distinct business cultures. Latin America´s chequered history has in some way, shaped the Australian publics view on the region. The current views (whether justified or unjustified) held by Australians in regards to Latin America, combined with the allure of the Asian markets (proximity, cost-effectiveness, historical ties etc.) have made Latin America an overlooked region for Australian investors.
Although the connections between Australian and Latin America are not as strong as those of Europe or Asia, there are historical ties between the two regions. Unknown to most, Brazil has ties to the first fleet arriving in Australia in the 18th century and Mexico fought together with Australia in WW2.
Trade between the two regions has substantially grown over the past years which has supported economic growth and development but more importantly, international relations. Between 2015-2016, Australians total trade with Latin America was valued at AUS$11.2 billion. Looking ahead, Mexico is predicted to be the 7th largest economy by 2050 and emerging economies Argentina, Chile, Colombia and Peru are expected to continue growing. With the USA adopting a more protectionists approach to international trade, Latin America will have to accept that relations are changing with its northern neighbour. The region will need to start looking to improve their relationships with business partners around the globe; and who better to collaborate with than Australia.
5 Attractive Latin American Economies for Australian Investment
Times are changing in the world of international investment. Some of the best business opportunities for Australian investors are now available in Latin America. As the economies in Latin America develop, so do exciting opportunities for Australian investors. The collaboration between the two regions has never been stronger, which is an exciting prospect given the predicted growth in store for Latin America over the coming years. This increase in collaboration has resulted in an increase in trade, in addition to improved diplomatic relations. Below you will find some brief points regarding promising economies for Australian investment.
Australian exported AUS$337 million in 2015 to Argentina, approximately three times the 2014 figure. Some of the major Australian exports to Argentina include coal, fertilizers, crude vegetable matter and power-generating machines and parts.
Australia and Mexico have a comprehensive framework of bi-lateral agreements including ‘Memorandum of Understand´ (MOU) on Cooperation in Agriculture (2010) and an MOU on Energy (2005) amongst others. Mexico was Australia’s largest merchandise trading partner in Latin America in 2015 with two-way trade worth over AUS$3 billion.
In 2015, Australian exports to Chile reached AUS$561 million. The trade relationship between Australia and Chile has traditionally been dominated by the Mining and METS (mining equipment, technology and services) sectors. While the mining sector continues to remain strong, trade in sectors such as agriculture, genetics trade, food, infrastructure development, health, transport and logistics have increased significantly.
In 2015, Australia and Colombia signed an MOU in mining. This has strengthened the relationships between the Colombian and Australian mining sectors. Australian innovation and expertise in mining sectors such as exploration, education and training, land rehabilitation etc. are highly valued in Colombia. This presents great business opportunities for investors in the Australian mining industry.
As of 31 December 2015, there were 66 active oil contracts in Peru which include 41 contracts for the exploration phase and 25 for the operation phase. In September 2010, Australia re-opened its Embassy in Lima, reflecting a commitment to increasing investment and trade with Peru.
Doing Business in Latin America: Not Always Easy
Despite governments all over Latin America changing policies and framework to make international investment easier, there are still complexities in doing business in Latin America. Some common problems that Australians have when investing in Latin America include:
- Language barriers
- Cultural differences in regards to business culture and practices
- Legal and financial differences
- Lack of reliable knowledge into the local market
Countries such as Argentina are still recovering from former protectionism policies that have hindered the opportunities for foreign investment. Colombia and Mexico are still trying to shake their connections with the all too well known history of drug-trafficking and violence.
Luckily for Australian investors, the region on a whole has seen substantial improvements over the past years in the form of economic growth resulting in decreased poverty, formation of economic alliances and a shift away from the acceptance of corruption. In addition, the region is home to professional local companies who are able to provide security services for companies entering the region such as security checks, due diligence reports, risk mitigation etc. All of these factors give greater confidence to Australians looking to invest in the region.
What is the Future for Australian Trade with Latin America?
You only have to look at the recent statistics to see the increases in international trade between Latin America and Australia. As the region continues to grow and develop, so do the opportunities for Australian investors. The sheer scale of Latin America opens doors for investors in a broad range of sectors ranging from mining, agriculture to infrastructure. In fact, many of these are primary industries in both Australia and Latin America, giving Australia a competitive advantage over other nations.Latin America is not without its problems, however, governments all around the region have seen the benefits that international trade has provided their people and economy. Due to this, they are doing everything in their power to make the process of investment easier in their respective countries.
With strong government support through policy changes and bi-lateral agreements, it is no surprise that many Australian investors are jumping at the chance to trade with Latin America. There is no doubt that Latin America has plenty to offer Australia, and vice versa.
This article is the first article in a 4 part series investigating the economic and social relationships between Australia and Latin America. Each article will explore a different aspect of the collaboration between the two regions. We will highlight and analyse the business opportunities available for investors and how they can leverage their existing business operations on the other side of the globe.
Should you require more information please contact Craig, CEO of Biz Latin Hub and former Latin America mining executive at [email protected]. Furthermore, check out the Biz Latin Hub website to see how our services can add value to your business. We wish you the best of luck with your future investments in Latin America.