China’s huge investment in Latin America has been well-documented, but the region’s export and foreign investment growth also has been bolstered quietly by another source: the Middle East. Trade between Latin America and the Middle East hit nearly $19B in 2008, a threefold increase since 2000. Approximately $12B of the $19B is composed of imports by Middle Eastern nations such as Iran, the United Arab Emirates (UAE), Syria and Kuwait. Trade between Brazil and Middle East alone is expected to reach $6.6B in 2010.
Although some Middle Eastern investment in Latin America is driven by a need for arable land and food to support a growing population, some is speculative. Arab real estate investors are seeking new havens for cash, after the recent economic downturn left numerous construction projects either unfinished or cancelled. Most of the investment is in Brazil, but other areas including Guatamala and the Caribbean coast have seen money from the Middle East.
It is true that Latin America has experienced an economic recovery as a result of its deepening ties with China and the Middle East and expected 40% to 50% increase in direct foreign investment, but concerns that the long-term benefits will be limited are discussed in the report "Latin America and the Caribbean in the World Economy 2009-2010: A crisis generated in the center and a recovery driven by the emerging economies”, published by ECLAC (Economic Commission for Latin America and the Caribbean).
According to the report, “Natural resources have been the region’s most dynamic exports over the past decade, especially in South America. This pattern of growth has created the conditions for a recommodification of the regional export structure. After falling from some 52% of total exports in the early 1980s to a low of 26.7% in the late 1990s, the share of raw materials has risen over the past decade to reach almost 40% of the total in the last two-year period (2008-2009).” This recommodification is being driven by the growing influence of emerging markets such as China and the Middle East, who seek to purchase land, raw materials and food versus manufactured goods, particularly those with a high added value. The figure below from the report shows the decreasing proportion of high and medium tech manufactured exports.
Mikio Kuwayama, in his paper, “Quality of Latin American and Caribbean industrialization and integration into the global economy”, points out that “Irrespective of growing manufactured exports, the Latin American economies have not experienced the kind of dynamic restructuring of domestic production and export patterns that would allow investment to become an engine of growth.” This is true for many Latin American countries, but there are exceptions. Costa Rica provides an example of how economic policy can create a basis for increasing manufacturing value added.
Two important steps that Costa Rica took to become a manufacturing leader in Latin America were to invest in education and develop free trade zones that provide substantial tax breaks to foreign investors. Since the 1970’s, Costa Rica has invested more than 28% of its national budget on elementary and secondary education. As a result Costa Rica, has one of Latin America’s highest literacy rates.
Costa Rica’s free trade zones have attracted many high tech and medical device manufacturers who know they will enjoy long-term economic benefits while having access to a skilled and trainable workforce. Businesses that have leveraged Costa Rica’s educated population and business friendly policies include Intel, Boston Scientific and Baxter Healthcare.
Costa Rica’s neighbors would be well-advised to look for ways to invest their current influx of foreign money on their best source of long-term economic growth, their populous. If they take the additional step of emulating the economic policies that have made Costa Rica one of Latin America’s leaders in manufacturing value added, then the region overall can reduce its dependence on commodity exports and increase its chances for sustained economic growth.
Although some Middle Eastern investment in Latin America is driven by a need for arable land and food to support a growing population, some is speculative. Arab real estate investors are seeking new havens for cash, after the recent economic downturn left numerous construction projects either unfinished or cancelled. Most of the investment is in Brazil, but other areas including Guatamala and the Caribbean coast have seen money from the Middle East.
It is true that Latin America has experienced an economic recovery as a result of its deepening ties with China and the Middle East and expected 40% to 50% increase in direct foreign investment, but concerns that the long-term benefits will be limited are discussed in the report "Latin America and the Caribbean in the World Economy 2009-2010: A crisis generated in the center and a recovery driven by the emerging economies”, published by ECLAC (Economic Commission for Latin America and the Caribbean).
According to the report, “Natural resources have been the region’s most dynamic exports over the past decade, especially in South America. This pattern of growth has created the conditions for a recommodification of the regional export structure. After falling from some 52% of total exports in the early 1980s to a low of 26.7% in the late 1990s, the share of raw materials has risen over the past decade to reach almost 40% of the total in the last two-year period (2008-2009).” This recommodification is being driven by the growing influence of emerging markets such as China and the Middle East, who seek to purchase land, raw materials and food versus manufactured goods, particularly those with a high added value. The figure below from the report shows the decreasing proportion of high and medium tech manufactured exports.
Mikio Kuwayama, in his paper, “Quality of Latin American and Caribbean industrialization and integration into the global economy”, points out that “Irrespective of growing manufactured exports, the Latin American economies have not experienced the kind of dynamic restructuring of domestic production and export patterns that would allow investment to become an engine of growth.” This is true for many Latin American countries, but there are exceptions. Costa Rica provides an example of how economic policy can create a basis for increasing manufacturing value added.
Two important steps that Costa Rica took to become a manufacturing leader in Latin America were to invest in education and develop free trade zones that provide substantial tax breaks to foreign investors. Since the 1970’s, Costa Rica has invested more than 28% of its national budget on elementary and secondary education. As a result Costa Rica, has one of Latin America’s highest literacy rates.
Costa Rica’s free trade zones have attracted many high tech and medical device manufacturers who know they will enjoy long-term economic benefits while having access to a skilled and trainable workforce. Businesses that have leveraged Costa Rica’s educated population and business friendly policies include Intel, Boston Scientific and Baxter Healthcare.
Costa Rica’s neighbors would be well-advised to look for ways to invest their current influx of foreign money on their best source of long-term economic growth, their populous. If they take the additional step of emulating the economic policies that have made Costa Rica one of Latin America’s leaders in manufacturing value added, then the region overall can reduce its dependence on commodity exports and increase its chances for sustained economic growth.
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