Welcome to our weekly roundup of news from South America.
Mosoj ESG provides information, data and analyses relating to South America integrating Environmental, Social and Governance topics to promote sustainable development.
No longer crouching the Tiger is awake and hungry
There were extraordinary scenes at Shanghai airport this week as authorities were reportedly putting thousands of people in immediate quarantine because of new cases of Covid-19. More cities also had outbreaks and were put in immediate lockdown with millions of people being tested.
A few days later, China decided to impose new tariffs of up to 212% on Australian wine imports, allegedly as a tit-for-tat retaliation against Australia. Earlier this year, China had also suspended beef imports from Australia, and more recently coal, barley, copper ore, sugar, timber, wine and lobster.
For South America, the covid outbreak is concerning given potential negative impact on China demand for goods, while the latter is a boon, as China will seek to replace imports from Australia. Certainly, Brazil and Argentina have benefitted previously from the ban of Australian beef, and indeed all countries were net benefactors during the so-called China-led commodity boom between 2002-2012.
Primary deficit % GDP
Source: IMF, WEO October 2020 and Mosoj ESG
In fact, the sudden stop of the commodity boom had a dramatic impact on South American governments finances as seen above. More perniciously, during the boom, there was a natural move towards resource-based primary products at the expense perhaps of its own industries.
That being said, China’s imports from South America continue to be substantial and grew from $64bn in 2008 to $146 bn in 2019, or 4% of South-America’s GDP. Of note, the biggest beneficiaries over that period of time were Brazil, Chile, and Peru, together representing ca. 80% of all South American imports to China.
Source: IMF
What’s more, in terms of trade in the opposite direction, it is noteworthy that South America held a trade surplus with China of around $62 billion in 2019. Yet, many countries - in fact 4 out of 10 - held a negative trade balance with China that year.
Certainly, the China trade appears to be most important (see chart below) for Chile, Venezuela and Peru, even though Brazil is the most beneficiary with imports representing ca. $79 bn in 2019, compared to Chile’s $26.2 bn, and Peru $15 bn.
Source: IMF
In 2018, global demand from China reached ca. $1.6 trillion, most of which being energy-related to fuel its growth, high-tech, and some other commodities. In terms of demand for South American products, the main purchases were agri-products, fossil fuel and minerals. From Brazil and Argentina mostly soybean; crude petroleum, from Brazil, Colombia, Argentina and Ecuador; copper ore, from Chile, Peru and Brazil; and, raw and refined copper, from Chile and Peru.
Top Chinese global imports (left) and top Chinese imports from South America (right) (in USD billion)
Source: OEC
Going forward, as China continues its growth trajectory, expecting to double its GDP by 2035 (!) according to President Xi, we can anticipate significant increase in demand for goods as China’s domestic production will not suffice to provide all that it needs to its population. This is both a risk and an opportunity for its trading partners, as can be seen in the case of Australia.
An opportunity, as China’s energy demand will continue to increase in the foreseeable future to fuel its growth, and a wealthier population is also likely to demand more food, and in particular protein. In addition, China’s intention to become carbon neutral by 2060 and growing EV market means that it will be hungry for lithium, a commodity that is mostly found in Chile, Bolivia and Argentina.
A risk, as China will need to secure favourable access to a lot of primary resources to sustain its growing economy. This will often lead to potential clashes as with the Australia examples, and potential attempts to direct outcomes in the countries it trades with, by closing or opening its market seemingly at will, or possibly by taking control of some industries via direct investments or dumping. Many South American governments or industry players will be tempted to succumb to the short-term boon rather than thinking of long-term socio-environmental and economic consequences.
However, it is also important to remember that as China grows, it will also become more and more dependent to outside resources and products. Thus, although closing its market can work for a limited period of time, China cannot really close its market in the long-run for many strategic goods or where it falls short.
In the Australia example, China did not impose tariffs to strategic goods it needed for instance and the meat industry will not do too badly in 2020. For South American economies, diversification, increasing competitiveness and dealing patiently with China , will be key to resist becoming China’s meal.
Brazil’s foreign trade shrinks by $14 bn
Biomass generation drops 6.8% in October
Cost for Braskem of Alagoas geological problem rises to $2.2 bn
Pandemic causes sharp reduction of foreign investment to $1.7bn
Naturgy gas distributor plans to invest $184 mm in Rio de Janeiro by 2023
Suzano sells land and forests to Bracell for $189 mm
Natura invested $6.4 mn to renovate innovation center
German bank donates $30mn for conservation project in Amazonia
Enel plans to invest $6 bn in Brazil in three years
Embraer and EDP Brazil enter into a partnership for an electric airplane
Due to the pandemic, unemployment in the city of Buenos Aires jumped to 13.4%
Textile companies plan to invest $250 million in 2021
Latest diesel price increase will generate an extra expense of $98.9 mn to the farm industry
Fires in Corrientes: the fire devastated more than 20,000 hectares of forestation
Makro opened new premises with a $10.5 mn investment
Trade surplus decreased by 65% compared to October 2019
The government launched an auction for the Gas.Ar Plan for 70 million m3/d
Local wine sales recover by 8.3% and exports by 35.7%
Harvest of soy and corn revalued at $24.3bn, thanks to rise in prices
Second withdrawal approved by Chile’s Senate would cost $15bn
Airlines estimate to end the year operating over 50% of its capacity
Cochilco projects Chile’s copper production will rise by 0.6% by the end of 2020
BHP to ramp up work at $2.5 mn Spence copper mine expansion
Chile produced 28.1% of power from renewables in October
Chile’s Nova Austral expects to harvest 13,000 metric tons of salmon in 2021
Chile to launch auction for 2.31 TWh of renewables and storage in May 2021
60 thousand health workers in Chile gone on strike
HIF’s 1st green hydrogen plant enters environmental process with a plan to invest $38mn
Short interest in Banco Santander Chile increases 24.1%
The IDB forecasts -6.8% GDP for Colombia in 2020
Colombia bets on $20bn infrastructure plan to boost economy
Sura, Credicorp to launch $550 mn infrastructure debt fund
Colombian central national government debt reached 61% of GDP in October
Assets managed in trust operations increased to $139 bn as of August
The Colombian financial sector has approved credits for ca $58 bn
$23.6 mn to fund digital transformation of media companies in Colombia
$1.09 bn public investment in infrastructure announced for northern Colombia
GeoPark announces $27 mn agreement to sell 10% working interest in the Manati gas field in Brazil
Ecopetrol to sign the first fracking pilot contract for $ 76 mn
The third day without VAT reached $1.6 bn in total sales
Reserves fell to $5.15 bn as of 13 November 2020
Industry sector drops by 12.8% in 1H-2020
Bolivia’s exports are 27% less than in 2019, with a value of $5.44 billion
Bolivian imports total $5.61 bn until October
Mining, manufacturing and natural gas exports reached $5.3 bn as of October
Urea plant in Cochabamba forecasts a loss of $364mn
INE reports urban unemployment rate of 8.7% as of October
The Ministry of Public Works announces the disbursement of $17.93 million to expand Entel’s coverage
The BDP Board of Directors approves the issuance of Subordinated Notes for $24.3 million
At end-September, the BDP had provided $233.4 mn of loans to the agri-sector
Beni received over $2.8 mn for a post-Covid phase
Underemployment grows 16.6% and affects 597 thousand people in the country