India in Latin America: a new bric on the block?

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Compared to Chinese supermarkets, it is still almost impossible to find Indian-run grocery stores around the streets of Buenos Aires, Mexico City or São Paulo.

But that could soon change as India steps up its investment in Latin America. From India’s Jindal Steel, which poured over $2bn in iron ore extraction in Bolivia in 2008 to ONGC Videsh, which together with a consortium of other investors acquired a stake in one of Venezuela’s state oil companies for $2bn last year, India is emerging as a major trading partner and investor in the continent.

“While much of the business and policy community has focused on China in the region, another BRIC, India, has dramatically increased its investment and economic activity in Latin America,” Christopher Sabatini, director of policy at the Council of the Americas told beyondbrics.

An in-depth article published in the current issue of the Americas Quarterly highlights the extent (and potential) of this budding relationship between India and Latin America. Over the past ten years, the authors say, trade between the two grew eightfold to about $20bn, “that’s still a long way behind the $140bn in Chinese-Latin American trade, but that gap will likely continue to narrow in the years ahead.” From the article:

India is now a palpable economic presence from the Caribbean to Uruguay, and its interests are remarkably diverse. Since 2000, Indian companies have invested about $12 billion in the region in information technology (IT), pharmaceuticals, agrochemicals, mining, energy, and manufacturing. Among the leading firms operating in the Americas today are the IT firm Tata Consultancy Services, Dr. Reddy’s Laboratories (pharma), United Phosphorus (agrochemicals), Shree Renuka Sugars, Havells Sylvania (lighting equipment), Videocon (television), and ONGC Videsh (oil).

Not surprisingly, given the importance of the Brazilian economy, the country is at the centre of India’s efforts to build up with its relations with the continent. Bilateral trade between India and Brazil, which hit $6bn in 2010 is expected to reach $10bn by 2012. So far this year, Indian companies have already invested some $1.5bn in Brazil, and Brazilian companies $600m in India.

It is a familiar story when it comes to foreign direct investments. According to a survey released last week by the United Nations Conference on Trade and Development, FDI in LatAm hit $159bn last year, a 13 per cent increase from the year before. The increase can be chalked up to Chinese and Indian interest in acquiring assets on the continent. From the report:

Latin America and the Caribbean witnessed a sudden increase in cross-border M&A sales from negative values (because of divestment) in 2009 to $29bn in 2010, the highest level in the region since 2000. This shows a renewed interest by foreign firms in the acquisition of Latin American enterprises after a decade of sluggish cross-border M&A activity in the region. However, most of these acquisitions were undertaken by developing Asian transnational corporations, mainly from China and India, in the oil and gas extractive industry in South America.

Natural resources aside, the region has also become a strategic location for most Indian companies – especially IT – that serve clients in the US because of competitive costs and proximity. According to Sabatini from Council of the Americas:

India’s economic interest in the region is more on high-end and even long-term investment and products, from IT to manufacturing, in contrast to China’s voracious, almost singular focus on raw material exports from Latin America.

That is not say however that India is not interested in Latin America’s vast wealth of natural resources. Last year, when China stopped buying soybean oil from Argentina following a trade spat, India stepped in and tripled its own imports of the oil to $1.8bn.

“There is great potential, but commercial relations between India and Latin America are still small compared to those with China,” explains Mauricio Mesquita, an economist with the Inter-American Development Bank.

“India does not seem so desperate yet about the lack of natural resources. Import tariffs on Latin American goods are still prohibitive and transport costs almost as high,” adds Mesquita who has written an extensive report on India and Latin America. “First, one has to develop proper commercial ties; more trade will generate more investment. Then step-by-step, everything could start to flourish.”

Related Readings:
India: Subcontinent prepares to be next China, FT
Chinese investment surges in LatAm, beyondbrics
The New Trade Routes: Latin America, FT
Latin American global trade, FT interactive graph

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