Why should Latin America bet on exports to get out of the crisis?

The Principal Economist of the IDB Integration and Trade Sector, Paolo Giordano, wrote an article where he explains why Latin America should bet on exports to get out of the crisis. Next, the informative detail of Giordano.

“Since the middle of last year, the IDB In the midst of the first wave of COVID-19 infections, he argued that the economic impact of the pandemic in Latin America and the Caribbean was particularly devastating because it implied the sudden and simultaneous paralysis of three fundamental flows for development: finance, people and goods. It is what economists call a sudden triple stop either sudden-stop.  

What signs does 2021 start with on these three planes?

Although in each of them there are reasons for optimism and caution, the region cannot afford to bet on a way out of the crisis that does not place export development at the center of the strategy. 

In the financial area, there are signs that worldwide the restrictions are softening. According to the analysis of Financial Times using data from Institute of International FinanceIn the first weeks of the year, investors in search of high returns would be quickly returning to the markets of emerging economies, following the massive injections of liquidity from the central banks. However, growing inflationary risks in advanced economies, the possibility of normalization of their monetary policies and an overreaction of the markets call for caution. In addition, it is worth asking to what extent Latin America will benefit from the commitment to emerging economies and how investors will assess the macroeconomic risks in the region in the coming months.   

In the real economy, the mobility of people is increasing both within the region and abroad, even without reaching pre-pandemic levels. Greater internal mobility could enable a rebound in economic activity, but it will also generate greater risks of contagion. A recent analysis suggests that to date countries in the region have been less effective than others in implementing closure and reopening strategies that simultaneously minimize health and economic costs. Furthermore, the region has been slow to launch vaccination campaigns and could face the consequences of a worrying mutation of the virus. In this way, in the coming months the boost to economic growth in the region will probably come more from the normalization of mobility in trading partners than from the increase in internal mobility. 

Exports, the key to recovery 

All of the above invites us to carefully consider the prospects for importing growth from the rest of the world through the commercial channel. They were recently published Estimates of Trade Trends for Latin America and the Caribbean, which present data observed until September and projected until the end of the year, report that the contraction of exports for 2020 would be located in a range between -11.3% and -13.0%. More specifically, they confirm that the rebound in exports lost momentum in the third quarter. In this sense: What signals emerge from the most recent data?  

The prices of the commodities They are sustaining export performance and the boom is expected to continue, for both temporary and structural reasons. With the notable exception of oil, commodity prices withstood the crisis relatively well and started to rebound in the last quarter of 2020. Supply and demand factors are aligned to fuel a rise this year and experts are even debating if we are on the eve of another structural super cycle, driven by massive, synchronized infrastructure investment programs around the world, the transition to a greener economy, and a downward trend in the dollar.    

The impact of these nominal variables has already been reflected in the values exported by the region. According to the last reading of the world trade monitor, the growth of the prices of Latin American exports in the last quarter of 2020 (+8.41TP3Q) eclipsed the world average performance (+4.01TP3Q) and that of emerging economies (+4.61TP3Q). 

However, in real flows the signs are less encouraging. In October, the volume of world trade grew at a month-on-month rate of only 0.4%, a fraction of that observed in September (+2.4%), in November it picked up again, although at a lower rate (+1.6%) , and in December it continued in a stagnation trend (+0.6%). In this global context, both in October (-2.61TP3Q) and in November (-0.91TP3Q) and in December (-0.51TP3Q) the month-on-month variation of the volumes exported by Latin America was negative. What's more: the region is among the few in which real export performance deteriorated continuously, and the only one that fell firmly into negative territory in the last quarter (-3.9%).  

Looking ahead, purchasing managers' indices (Purchasing Managers Index either PMI), some high-frequency indicators that anticipate the commercial performance of the region, confirm a global slowdown trend. But they also give an indication of which will be the most dynamic trading partners. The best news comes from the global leading indicator of the United States, which increased strongly in February (58.8). The acceleration was greater than in January, which reflects that confidence in the private sector is clearly on the rise. China's manufacturing index in February reflected the lowest level in the last nine months (50.9) although, with a level above the critical threshold of 50, it remained in expansionary territory. In contrast, in Europe the new containment measures kept the global indicator for the month of February (48.8) in the recession zone.  

Betting on trade, investment and integration 

Decision makers should, therefore, promote the strategy of international insertion and integration of the region. This includes: better articulating the economies of the region with that of the United States, where an expansion phase is beginning, taking advantage of the new opportunities that arise from the strengthening of the regional value chains of the private sector; consolidate and diversify the commercial relationship with Asia, which is leading world growth; and to identify new business opportunities in Europe and in the markets of Latin American partners, to take advantage of the potential of these regions when the ongoing recessions are overcome.  

However, the region's history indicates that the boom in commodity prices commodities it can undermine the incentives for a change of gear in reforms and investments aimed at promoting integration and trade competitiveness. It is to be hoped that this will not be the case on this occasion in which the boom in commodities coincides with a deep economic, health and social crisis. 

While it is appropriate that the efforts of decision-makers in the region focus on saving lives in the short term, it is also essential to lay the foundations for post-pandemic economic growth, employment, and poverty reduction. If there is a time to promote integration and export development, that time has come now," concluded the Principal Economist of the Integration and Trade Sector of the IDB.

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New companies under the free zone regime will invest more than $2.3 million

The National Commission of Free Zones approved this Friday to grant companies Verdan Switzerland Corp. and VG Logistics, Inc., their licenses to operate within the free zones of Chilibre and panapark, respectively; which will inject into the country investments that reach $2,355,585.00, coming from Switzerland and Argentina, informed the General Director of Free Zones of the Ministry of Commerce and Industries (MICI), Amber Ruiz Chaperon.

With the incorporation of these two companies into the regime, there are already 127 companies established in the 21 free zones that remain approved at the national level.

"It is positive that new companies see in Panama, but especially in our Free Zone Regime Law 32, an opportunity for growth and generate not only investments but stable and better-paid jobs in highly vulnerable areas, such as Chilibre and Felipillo, while we are spreading awareness about inclusion, since both companies have shown themselves willing to hire to people with disabilities, if we as a Government give them the support for the proper insertion”, he said.

Verdan Switzerland Corp., will be dedicated to the processing of finished or semi-finished products, as well as the creation of artistic works, sculptures, ornaments and other carvings; and the sale of powdered minerals for cosmetic use, based on elements such as alum, which will be exported to Arab countries, Switzerland and the United States.

For his part, VG Logistics, Inc., is part of an international business group that distributes oleo-hydraulic equipment, spare parts and accessories, components for precision agriculture and agricultural implements, with the mining, agricultural and maritime sector as its main market.

The entry of both companies implies transfer of knowledge and incorporation of new technologies and goods from free zones.

The transit trend of large ships through the Panama Canal continues

The Panama Canal Authority reported increases in income from tolls and transit of deep-draft vessels (neopanamax) during the month of January 2021 compared to the same month of 2020.

He National Institute of Statistics and Census of the Comptroller General of the Republic details that by toll, the Panama Canal had revenues of $256,920 dollars during the month of January 2021, registering an increase of 4.5% compared to $245,749 dollars during January 2020.

Through the interoceanic route, 1,160 ships transited in the month of January 2021, while in the same period of 2020 they made the journey 1,283, to mark a decrease of 9.6%.

This movement of ships was mainly affected by a lower traffic of Panamax vessels. For the first month of 2021, 814 Panamax transited, less than the 975 of January 2020, to reflect a drop of 16.5%.

The growth trend in the transit of large ships continues, after 346 ships neopanamax they crossed the road in the first month of this year, registering a growth of 12.3% when compared to the 308 that traveled in 2020.

The different cargo market segments also grew. In the month of January 2021, a transit of 24,726 long tons was registered, while in the same month of 2020 there were 22,527 resulting in an increase of 9.8%.

In this first month of 2021, 4,288,002 MT of bulk cargo was registered vs. 4,612,718 MT in January 2020. The general cargo of January 2021 was 55,803 MT, slightly less than the 60,138 MT of January 2020. For its part, the cargo Containerized grew by 14% after 5,119,287 MT was registered in January 2021 and 4,488,541 MT was recorded for January 2020.

The movement of TEU containers reached a total of 725,230 TEUs, higher than the 681,564 TEUs of January 2020, with a growth of 6.4%.

Meanwhile, the cumulative traffic of the Panama Canal by Market Segment and Type of Lock until the month of February (Fiscal Year 2021) shows that a total of 3,720 vessels transited Panamax (69,82%) and 1,608 neopanamax (30.18%).

A total of 1,395 bulk carriers made the journey, 1,133(30.5%) Panamax and 262(16.3%) neopanamax. Some 1,080 were container ships, 434 (11.7%) Panamax and 646 (40.2%) neopanamax. 

While the chemical tankers totaled 838, some 830 (22.3%) were Panamax and the remaining 8 (0.5%) neopanamax. The segment of LNG transporters were a total of 240 that made the route through the route, 239 of them neopanamax which represents a (14.9%) of cargo and 1 of them was a Panamax. 

Similarly, 237 tankers have passed the Channel, 175 (4.7%) of them Panamax and 62 (3.9%) neopanamax.

According to forecasts, for fiscal year 2021 (October 1, 2020 to September 30, 2021), 429 million tons of cargo will pass through the Panamanian route.

That figure represents 46 million tons less than the 475 million that passed through the canal during fiscal year 2020. This would be approximately 100 to 125 million dollars in revenue per tonnage, according to the administrator of the channel. ACP, Ricaurte Vasquez.

For fiscal year 2021, the channel expects revenues of 3.3 billion dollars (100 million less than in 2020) in tolls and other services, such as the sale of energy.

"We have a projection that for next year both the tonnage and the number of transits through the Panama Canal“, has considered vasquez in past statements. By the route of the Channel of 80 kilometers, transits 3.5% of world trade, according to the PCAIts main clients are from the United States, China and Japan, and its routes go from Asia to the North American east coast.