By Ed Attwood
Trade ties between South America and the Gulf are growing. Peru’s consul general in Dubai, Romulo Acurio, explains why
If you thought that the links between Latin America and the Gulf were limited by distance, think again. Geography and politics may have played a part in turgid levels of trade growth over the last few decades, but there now seems to be more that links the two regions than divides them.
Two weeks ago, Etihad CEO James Hogan talked up the growing trade ties between Latin America and the UAE, as the Abu Dhabi-based airline will launch flights to the Brazilian city of Sao Paulo in June next year.
“Brazil is one of the fastest growing economies in the world, now ranking as the sixth largest since overtaking the UK in 2011,” Hogan said. “Bilateral trade between Brazil and the UAE is valued at nearly $3bn annually, with authorities aiming to lift this to $10bn within five years.”
Of course, Etihad is not the only airline bridging the continents. Emirates is already operating to Brazil and Argentina, and Qatar Airways has also launched flights to the largest South American economy. This newfound connectivity will be highlighted in a high-level meeting that will take place this week in the Peruvian capital, Lima.
The third Arab-South America Summit (better-known by its Portuguese/Spanish acronym ASPA) will gather together representatives of all 22 member states of the Arab League, plus the twelve countries of Latin America.
“The summit highlights some interesting things going on in Latin America, and the potential prospects for two regions who don’t really look at each other that much,” says Romulo Acurio, Peru’s consul general in Dubai. “But these happen to be two of the regions that are not suffering that much from the global financial crisis. The Arab Spring is creating a lot of governance and inclusion issues that the Latin American countries have had to face after the military dictatorships, so there are some convergencies in terms of policies and social development.
“And if you add to that how the ease of communication has helped the spread of culture in the world, the influence of Latin American pop culture and football is creating so many links, mentally and symbolically, between young people that it seems that we are much closer than ever before.”
The agenda for the ASPA meeting — at which most Latin American heads of state will be present — is pretty broad. Among the topics of discussion will be support for international law, disarmament, non-proliferation and so on, as well as better links between global markets. Peru itself will sign a cooperation agreement with the GCC nations. But perhaps the most interesting aspect of the summit, from a trade point of view, will be the business delegations that will have an opportunity to network at the event.
In the specific case of Peru, UAE-based companies have already invested heavily in the country. DP World, the third-biggest ports operator, runs the Callao terminal — the largest container facility on South America’s western coast — which Acurio says has reached its throughput target of over a million TEUs (twenty-foot equivalent units) in 2012 three months ahead of time. DP World’s Peruvian investment didn’t come cheap — the company invested $600m — but Acurio says that he hopes that the firm, and others like it, will continue to expand its operations in Latin America. It is already investing in Brazil’s largest multi-modal terminal in Santos, which will open next year, and opened Argentina’s largest container port in 2011.
“IPIC [the Abu Dhabi-government owned investment vehicle] is present through its Spanish 100-percent subsidiary CEPSA,” adds Acurio. “Abraaj has been present in recent times through Aureos Capital. On this same note, in the next few months, three UAE-based companies will establish bases in Peru for an initial regional expansion in South America, contributing with an initial investment of $1.5m.”
Altogether, Acurio reckons that DP World, IPIC and Abraaj’s total investment into the Peruvian economy has amounted to $1.35bn. He also says that three unnamed UAE-based firms have expressed interest in the new Chinchero airport project in Cusco, which handles tourist traffic heading to the world-famous Machu Picchu site. Investment in that project will cost an estimated $450m. Abu Dhabi’s Mubadala has also invested $2bn in EBX Group, the conglomerate run by Brazil’s richest man, Eike Batista.
The diplomat points out that there are other sectors in which Gulf companies can gain synergies in Latin America.
“Food security seems to be attracting more interest — either via the acquisition of land, or by importing the new output that is coming from the agro industry in Peru, Chile and Colombia — specifically coffee, cacao and fruit,” Acurio says.
“There’s also interest in the traditional oil and gas and mining sectors, and we’ll probably see in the future more investment in tourism as conglomerates grow in the region and become more international. And then there’s real estate in some capitals which are a little more stable, like Santiago and Buenos Aires.”
And in terms of even greater connectivity between the two regions via the Gulf airlines, Acurio believes that this is also on the agenda, adding that his government would certainly welcome Emirates to Jorge Chavez International Airport in Lima.
But are the ties growing in both directions? Certainly, although it is clearly early days. Roughly 30 Brazilian firms now operate in the UAE, many of whom are seeking to exploit Dubai’s position has a hub for re-exporting goods to the Middle East, North Africa and Southern Asia regions. Brazil sent almost $1bn worth of goods the UAE’s way in the first five months of this year, up by not far off half over the same period last year.
The rest of the Latin American countries are now scrambling to keep up with Brazil.
“I think this is a path that other South American companies will follow,” says Acurio. “In terms of Peru, we’ve really only just begun to explore this part of the world — our diplomatic office in Dubai opened only eleven months ago. But in terms of hospitality, we have been exporting in recent years restaurant franchises, chefs and hospitality human resources, because there has been a gastronomic boom in Peru for the last few years. We expect the opening of a top-end Peruvian restaurant in Dubai next year, and franchises will also be launched.”
Trade between Peru and the UAE is negligible at the moment, but part of the consul-general’s job is to “double, triple, quadruple” the $25m or so worth of goods that each country trades with the other. With the Latin American nation now attracting an impressive $9.6bn in 2011 — largely from regional neighbours, Spain, the US and China — Peru will be hoping that Gulf nations can become major donors.
Challenges in both regions remain, but Acurio is adamant that the positives outweigh the negatives.
“These are very complex societies; there are difficulties and injustices that still need to resolved,” he points out. “But I do think it would be totally impartial to say that, compared to 50 years ago, a big part of South America is a bit less unfair, a bit less unequal, and a bit more prosperity for more people.
“These countries have not lost this culture of celebration that has become such a cliché about Latin America. What is happening is that we haven’t lost this, but in some parts there are areas of competitiveness, prosperity and economic discipline that are producing healthy societies.”
Trade ties grow
Arab countries imported more than $3.6bn worth of goods from Brazil during the first half of 2012, while Arab exports to Brazil reached nearly $4bn during the same period, latest figures have showed.
Brazilian exports to Arab countries mainly consisted of sugars, meat, ores, slag, ash and cereals, while Arab exports to Brazil included mineral fuel, oil and fertilisers.
According to the Arab-Brazilian Chamber of Commerce, Saudi Arabia remains the leading trade partner of Brazil in the Arab world. The Gulf kingdom received more than $720m in imports and over $1.4bn in exports to Brazil during the first half of 2012.
The UAE was also a major trade partner of Brazil with more than $489m in imports and over $65.6m in exports. Egypt ranked second among top Arab importers of Brazilian products with more than $674m in imports in the first half of 2012, while Egyptian exports to Brazil totalled over $40m.
Other top Arab trade partners of Brazil included Qatar and Kuwait, which exported products to Brazil worth in excess of $362m and $337m, respectively.
Michel Alaby, CEO, Arab-Brazilian Chamber of Commerce, said: “Trade activities between Brazil and the Arab world will continue to expand as Brazilian traders and their Arab counterparts are actively exploring new opportunities for mutual growth.
“Moreover, the Arab world will continue to be a major source of mineral fuel, oil and even aluminium products that are vital in sustaining the growth of the Brazilian economy.”
Great article but the picture is not according with the message of new business and investments from Arab countries in Latin America.
Maybe, it could be better a more real image of South America, with their modern cities and not an old picture of a little town in the jungle of Peru (Aguas Calientes).