Strategic Studies

How far does the East Act policy reach?

By Carlos Cruz Infante

In 2019 Latin American countries experienced the most profound social crisis since the reestablishment of the region’s democracies in the ’90s. Dictatorships prevailed in Venezuela, Nicaragua, and Cuba. In Brazil, Argentina, and Mexico -the three biggest economies of the region- populist leaders conquered the ballot-boxes. Peru suffered its worst political crisis in decades, and upheaval took the streets in Colombia, Bolivia, Ecuador, and Chile. On top of that, the Covid-19 has struck the region severely. Latin American governments’ low state capacities and high rates of labor informality worsened the pandemic impact. In just two years, the latter events’ combination drove to political, public health, and poverty crises.

Why would this region be of any interest to an enormous economy like India? Firstly, both have a similar share of the world’s GDP: according to the IMF, in 2019, India’s was 8%; Latin America’s, about 7%. Secondly, Latin America is a market of 652 million people, which is larger than the European Union’s, almost 448 million in 2020, and the US’s, of 331. Lastly, total trade between India and Latin America represents a little over US$40 billion.

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Cover Image Credit: Pinterest

Since the 2000s, India and Latin American have strengthened their relations. After some trading treaties agreed with Mexico and Chile, in 2009, India signed a trade agreement with the MERCOSUR, one of the region’s principal commercial blocs, composed of Argentina, Brazil, Paraguay, and Uruguay. Concerning the other main bloc, the Pacific Alliance -Chile, Colombia, Mexico, and Peru-, India has become its observer.

Consequently, both regions have deepened their trading relationships. As the former Indian diplomat Mr. R. Viswanathan explains, since 2010, India’s exports to Latin America have increased around 10%, and the latter contributes to the former’s energy and food security. Latin American exports, equivalent to 12% of Indian imports, include considerable amounts of crude oil and vegetable oil.

It is crucial, though, to understand how complementary these exchanges are. According to one report of the Inter-American Development Bank (IADB) and the Export-Import Bank of India, two-thirds of the exported items from Latin America to India are extractive products. Conversely, India’s most relevant sales to Latin America are motorized vehicles and medicaments, and Mr. Viswanathan claims that India’s need for lithium could be fulfilled by the significant Latin American reserves, which account for three-quarters of the global stocks.

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Nonetheless, India is far from being the most important commercial partner for Latin America. ECLAC shows that the US is by far the largest one, with 45% of trading, followed by China, with 11%, and the European Union, with 10%. Moreover, the EU is the leading investor in Latin America, with 55% of Foreign Direct Investment (FDI) in 2019, followed by the US (27%) and Canada (6%). China, whose FDI seems to be low in the region, is actually significant. It invests through third countries, such as the Netherlands and Luxemburg. Furthermore, it has participated in over one-third of Latin America’s cross-border mergers and acquisitions. 

What does this have to do with India? China seems to be particularly relevant for India, both in economic and political-strategic terms, considering how bluntly the Chinese entered Latin American countries. First of all, the region’s governments weak state capacities, and the gap of investment in infrastructure is around 2.5% of the region’s GDP, according to the IADB. That matches China’s Belt and Road Initiative (BRI), which means investing in developing and underdeveloped countries’ hardware to palliate their insufficiencies. Secondly, China has also been increasing its influence in the region. As Otaviano Canuto claims, China is an essential lender for some of the biggest Latin American economies, such as Brazil and Argentina.

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Moreover, in 2021 the Chinese government plans to intensify its investments in Chile, Colombia, and Peru, given their relative stability in a very volatile regional context. Thirdly, China is powerful in the recent worldwide needed technology, the 5G, which will be crucial for Latin American countries in the mid and long term. Lastly, China has susbtantial shares in two of the six most significant lithium mining projects globally, a mineral that will be fundamental for India’s battery development and global positioning in the coming years.

The opportunities for India in Latin America are abundant. The region holds vast lithium reserves and represents a more than 600 million people underdeveloped market and a strategic field to compete with China. According to The Economist, China and the United States will probably compete in South-East Asia, where the main Chinese supply routes of raw materials are.

So, who is going to play in Latin America now? With whom of its countries? How it might do it? Answering those key questions could be an immense opportunity for Indian expansion in the short and middle term. 

(The opinions and views expressed are those of the author)

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Author’s Profile

Carlos Cruz Infante, is a Chilean sociologist, MBA and PhD student. He is the former Chief of Strategic Content of the General Secretariat of the Presidency of the Chilean Government and a Content Strategy advisor of the Vice-Ministry of Housing of the Chilean Government.

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