CARIBBEAN-ECLAC predicts a decline in LAC exports of goods

SANTIAGO, Chile, CMC – The Economic Commission for Latin America and the Caribbean (ECLAC) Tuesday predicted that the value of goods exports from Latin America and the Caribbean (LAC)will fall by two percent this year, in a context of significant weakness in global trade.

ECLAC, in its annual report titled “International Trade Outlook for Latin America and the Caribbean 2023. Structural change and trends in global and regional trade: challenges and opportunities,” urged countries to implement productive development policies to diversify their export basket and make it more sophisticated, including by attracting foreign direct investment (FDI) in strategic sectors.

According to the report, the volume exported by the region will increase by three percent, but this will not offset the five percent decline in prices for its export products. About imports, their value is seen falling by six percent.

This figure reflects the weakness in regional economic activity, with gross domestic product (GDP) growth forecast at just 1.7 percent in 2023, according to the latest estimate provided by ECLAC in September.

Exports from South America and the Caribbean will exhibit the most significant declines in terms of value, minus five and minus six percent, respectively. In comparison, shipments from Central America and Mexico are seen growing by two percent due to their reduced dependence on raw materials and their stronger links to the United States market.

The countries that will experience the sharpest drops in exports are mostly net exporters of hydrocarbons or agricultural products. Twelve countries in the region are seen increasing the value of their exports in 2023, while only seven countries are forecast to increase their imports.

Regional service exports will grow again in 2023, with an increase in value estimated at 12%, driven mainly by tourism and “modern services,” which include a broad range of digital services, such as information technology, financial, and business services. Although they will be notching a third straight year of growth, regional service exports are slowing in 2023 as tourism approaches its pre-pandemic levels.

“The challenge remains to diversify the export basket and make it more sophisticated to reduce excessive dependence on raw materials, especially in South America. To that end, implementing productive development policies with a cluster approach in strategic sectors is crucial,” ECLAC’s executive secretary, José Manuel Salazar-Xirinachs, told a news conference at the report’s launch.

According to the recommendations set out in the publication, in the context of the growing regionalization of global trade, it is critical to deepen regional integration since it would allow for reducing vulnerability in a more uncertain global trade environment and generating efficient scales of production for the region’s industries.

The report indicates that the weakness in global trade results from a deceleration in the worldwide economy in the context of high-interest rates in the United States and Europe, a crisis in the real estate sector in China, and growing geopolitical tensions.

The most recent projections by the World Trade Organization (WTO) point to the volume of global trade in goods growing by just 0.8 percent in 2023. The WTO estimates a 3.3 percent expansion in 2024, which, if it occurs, should invigorate the region’s exports.

The report also addresses the trade relationship between Latin America, the Caribbean, and China.

In the 2000-2022 period, goods trade between the region and China expanded 35 times over, while the region’s total trade with the world only increased fourfold. Bilateral trade, which scarcely exceeded 14 billion dollars in 2000, totaled nearly 500 billion in 2022. Hence, in 2010, China displaced the European Union as the region’s second-biggest trading partner and became South America’s top trading partner.

Exports to China almost exclusively consist of raw and processed natural resources, and imports are nearly all manufactured goods. Six products, namely soybeans, copper and iron ore, crude oil, copper cathodes, and beef, represent 72 percent of the region’s exports to China, and they are concentrated in a handful of countries, mainly in South America.

Meanwhile, the growing penetration of Chinese manufactured goods in the region has expanded access for households and businesses and displaced regional production. The net result is that this has deepened the commodities export specialization, especially in South America.

From ECLAC’s perspective, the food sector offers the best prospects for diversifying exports to China and making them more sophisticated in the short term. To achieve this, the Commission recommends tackling existing non-tariff barriers and strengthening market intelligence to meet Chinese consumers’ needs and tastes better.

Furthermore, the report urges the region’s countries to attract FFI to activities for processing strategic natural resources, lithium, for example, generating upward linkages with manufacturing activities such as batteries and electric vehicles).

The report also gives an overview of Latin American and Caribbean countries’ progress and challenges in trade facilitation. This issue has acquired growing relevance throughout the world in recent years.

The report presents the results of a survey carried out by ECLAC during the first half of 2023 in 26 of the region’s countries, measuring their degree of progress on issues such as the publication of trade regulations on the Internet, the establishment of Electronic Single Windows for International Trade, Authorized Economic Operator mechanisms, and the selective inspection of merchandise using risk management, among others.

The 26 countries attained an average implementation rate of 71 percent of the leading trade facilitation measures. However, the region still needs more room to improve its performance in digitalizing trade procedures and paperwork. To do so, the implementation and interoperability of Electronic Single Window systems must be accelerated.

The document stresses that making progress on trade facilitation is critical since it promotes the internationalization of Small and Medium-sized Enterprises (SMEs), which are disproportionately affected by cumbersome trade procedures; it attracts new investments in the context of nearshoring processes; it promotes regional economic integration; and it improves the State’s efficiency and serves to fight corruption.

The report also underlines the need to close the regional gap in transport infrastructure and logistics gradually.

It said to achieve this, and given the current context of limited fiscal space, it is essential to explore innovative financing options such as funds for green infrastructure and institutional investors.

The report recommends moving towards multimodality, reducing excess dependency on road transport, and giving more space to railways and waterways.