Courting the Latin Jaguar: Brazil as the world’s 6th largest economy and what this means for CARICOM
One of the biggest news headlines to grab my attention this past week is that Brazil, the roaring king of the Latin America jaguar economies, has overtaken the United Kingdom to become the world’s sixth largest economy according to the Center for Economics and Business Research (CEBR). Brazil’s increased economic prowess is part of a general tectonic shift in the global economic configuration in which emerging economies are becoming more powerful political and economic players on the world stage. This phenomenon has led to increased discussion of what this global reconfiguring means for the enhancing of south-south trade, particularly as many developed countries, traditionally the main export markets for developing countries, continue to reel under the global recession. On this occasion, it is worth reflecting on what Brazil’s growing economic prowess means for the countries of the Caribbean Community (CARICOM) and what potential opportunities our relationship with Brazil presents for our region, particularly from a trade perspective.
Brazil and the countries of CARICOM have long enjoyed a healthy political relationship. In recent years there has been increased commitment by Georgetown (seat of the CARICOM Secretariat) and Brasilia towards deepening political, economic and cultural ties and collaboration. The year 2010 was a pivotal year for the CARICOM-Brazil relationship as it saw the hosting of the inaugural CARICOM-Brazil Summit which was held in Brasilia in April of that year. The summit, hailed as a success by all, led to the signing of the Brasilia Declaration, which was bolstered by several bilateral technical cooperation agreements and Memoranda of Understanding which focused on visa exemptions and technical cooperation in several areas of critical importance to the region, including agriculture, health, tourism, energy and civil defence. Brazil has also called for a CARICOM-Mercosur free trade agreement, which would help to foment greater trade and investment links between the two regions.
Similar to CARICOM’s relationship with China, Brazil’s growing international presence presents opportunities for international collaboration on key issues of importance to the region, such as climate change. However, it also presents opportunities for trade. If there is one thing that can be said about the havoc that the global economic and financial crisis has wrecked on Caribbean economies is that it has reinforced to us the region’s entrenched vulnerability to external shocks, exacerbated by our reliance on too few goods and too few markets for our exports and tourist arrivals. CARICOM countries have been forced to accelerate their efforts at export and market diversification. South-south trade has long been mooted as a way of weaning our dependence on our traditional developed country export partners. Brazil, now the world’s 6th largest economy, presents an attractive alternative market for CARICOM. It represents a potential export and tourist market of nearly 200 million people and is Latin America’s largest source country for outward FDI.
CARICOM-Brazil Trade and Investment
CARICOM-Brazil trade has been on the increase. Despite a drop in 2009, it picked up in 2010. However, while Brazil’s imports from CARICOM tripled between 2009 and 2010, the region still registers a large deficit in its trade with Brazil. Moreover, despite the Guyana-Brazil Partial Scope Agreement (2001) which grants tariff preferences on selected items between the two countries, and the completion in 2009 of the Takutu Bridge linking the state of Roraima in Brazil to the town of Lethem in Guyana, trade flows between Brazil and Guyana remain low and highly skewed in Brazil’s favour. Besides the obvious disparities in economic size and export capacity between Brazil and CARICOM, several other factors most likely account for CARICOM’s low penetration of the Brazilian market, including limited private sector capacity and/or will to tap into new markets, language barriers and high shipping and transportation costs.
This huge trade in-balance was one of the issues raised in the inaugural CARICOM-Brazil Summit and several initiatives were proposed to improve it, including agreements on facilitating trade missions. There have been steps taken to address some of these issues. Barbados has sought to tap into the Brazilian tourism market and now receives weekly direct flights between Barbados and São Paulo on GOL Airlines. In July 2011, there was the official launch of the Guyana/Brazil Private Sector Integration Project which seeks to improve trade and investment between the two countries in a more mutually beneficial way.
As Latin America’s largest outward investor, Brazil brings the prospect of investment in our capital scarce economies, with the potential of bringing much needed capital, technology and know-how. According to the UNCTAD World Investment Report (2011), Brazilian companies have invested in African LDCs, primarily in the extractive industries, but also increasingly in manufacturing and agriculture. However, Brazilian investment in the region is low and there are currently no bilateral investment treaties between Brazil and any CARICOM country.
Increasing trade and economic engagement with Brazil is not the panacea for our economic problems, nor will it completely solve our vulnerability. However, it is submitted that as emerging economies like Brazil become greater actors on the world stage, CARICOM countries should court these economies or risk being left even further behind. Brazil represents a key potential export market which should be and is being targeted by the region. Courting this Latin jaguar should be part of our export diversification strategies, with the ultimate goal of parlaying the gains from trade into national and regional development.
Developed countries are jostling with each other to tap into the Mercosur market via free trade agreements. A potential free trade agreement (FTA) between CARICOM and Mercosur could create greater market access for regional goods and services exporters into the Brazilian and Mercosur markets, while also helping to facilitate inward investment. Regional governments, through their investment promotion agencies (IPAs), should take a targeted approach to the promotion of inward Brazilian investment, by seeking to attract and channel investments to strategic growth sectors in their economies. In addition to the standard investment liberalisation and protection provisions, the investment chapter of any potential CARICOM-Mercosur FTA could perhaps contain strong investment promotion provisions, including commitments by the parties to promote cooperation between their respective IPAs.
Regional business support organizations (BSOs) play a key role in developing the export capacity of the region’s firms and in helping export-ready producers to tap into the Brazilian market and convert any market access into market penetration. Part of this export capacity building should involve language training and cultural awareness. Although a growing number of Brazilians, particularly in large cities, speak English, the learning of the Portuguese language (Brazilian Portuguese) should be encouraged in the region. Fortunately, Portuguese is now offered as a course at several academic institutions, and several local hotels in Barbados have provided language training in Portuguese for their staff.