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Boosting the Australia-Latin America Relationship

07 Aug 2015
José Blanco
Winter in Santiago, Chile. Photo Credit: Flickr (alobos Life) Creative Commons.

In an increasingly interconnected world, Australia’s prosperity is more dependent than ever on developments in the global economy. Latin America has a wealth of possibilities for Australian businesses, but they need to step on the accelerator to benefit.

The Latin America region – with its substantial and growing consumer base, wealth of natural resources, proven food production capability and demand for capital inflows – deserves to figure more prominently than it currently does in Australia’s strategic planning and economic diplomacy.

The geographic, historical and cultural separation that kept Australia and Latin America on the periphery of each other’s world view for so long is narrowing, replaced by growing interaction at the multilateral institutional level and increasing connectivity across areas such as commerce, tourism, education, science, sport, the arts and more.

That the relationship is heading in the right direction is evident. However, a closer analysis suggests that the depth and pace of engagement is insufficient, and that by not giving Latin America the priority that it warrants, Australia risks relinquishing the opportunities on offer to more committed rivals.

To ensure that this does not happen, Australia needs to change how it views Latin America and to give the region greater recognition, with all stakeholders, from government and the private sector, needing to accelerate their engagement efforts.

The global marketplace is changing, distance is no longer the barrier it once was and competition for export markets and capital flows is fierce. In such an environment, Australia should not assume that its proximity to and relationship with the powerhouse Asian markets will automatically guarantee the nation’s economic prosperity.

Latin America has what it takes to compete with Australia as a provider of Asia’s mineral and food requirements, and as a destination for investment flows. Trade between the two regions has grown significantly – at an annual average rate of 20 per cent since 2000 – reaching an historic high of over $US500 billion dollars in 2014, and projected to increase to $US750 billion by 2020.

That said, it would be wrong for Australia to merely classify Latin America as a competitor and to therefore shun investment and engagement with the region. On the contrary, the underlying similarities between Australia and Latin America, and their shared common interests, mean that there is considerable scope for Australia to contribute to and benefit from development and growth that Latin America will undergo.

There are compelling reasons for Australia to give greater priority to its engagement with Latin America, not as a substitute for what Asia has to offer, but as a strategically important component of Australia’s international policy and economic mix. This will lessen Australia’s risk profile by limiting our dependence on the fortunes of the Asia region. It maximises the strengths that Australia has in services, technology and other areas.

Whether as a competitor or partner, Latin America has the capacity to influence Australia’s economic wellbeing. The region has a population of over 500 million, including a growing middle class with typical consumer aspirations. The region also comprises some 25 per cent of the world’s arable land (including 32 per cent of the unused land suitable for farming), 20 per cent of the world’s fresh water, 10 per cent plus of the world’s oil reserves. It generates 10 per cent of global agricultural exports, producing over 50 per cent of the world’s soybean exports, over 33 per cent of the world’s corn and 44 per cent of the world’s beef.

Latin America’s growth may not match that of the Asian region, but the region is on the move. It has witnessed a sea change towards democratic rule, established strong nation states and made progress towards increased integration. Most countries in the region have adopted open market policies and strengthened their fiscal position.

The region faces ongoing challenges, but its growth potential is undeniable and Australia must ensure that it contributes to and benefits from that growth. To do this, Australia needs to change its perspective on Latin America and to afford it greater priority.

Through involvement in diverse international forums such as the G20, APEC and the proposed TPP, amongst others, as well as regional integration initiatives such as the Pacific Alliance, the Latin American nations are exercising increasing influence in the world economy.

Australia needs to acknowledge the region’s collective political weight and to develop the capacity to harness that weight in order to influence the direction of commonly shared issues such as trade liberalisation, climate change, food security and overall global economic management.

The broad common interests that Australia shares with Latin America makes us ideal allies. The joint participation in the Cairns Group is an example of how we can work together and is an approach that needs to be expanded across many other forums.

On the commercial front, action is needed to expand the bilateral trade and investment relationship beyond the current emphasis on the mining sector. Australian companies, institutions and investors alike need to deepen their understanding of Latin America so as to overcome their apprehension about doing business in the region.

The presence of close to 200 Australian companies in the region is positive news, but, given the range and depth of opportunities on offer, that number should be far greater. Seeing companies as diverse as Amcor, Goodman, QBE, Lend Lease, SEEK, Origin Energy, Transfield Services, and Pacific Hydro in the region is welcome, but knowing how many more companies would find good opportunities in the region and are not present is disappointing.

The strong growth in tourism flows and student exchanges – with over 40,000 Latin American students studying in Australia each year – will eventually break down the barriers to doing business in the region, but the issue remains the time that this will take.

The progress being made in growing the trade and investment flows, in expanding air services and education links is heartening, but there needs to be greater urgency in building Australia’s links with Latin America. Our delay is to our competitors’ advantage.

Foreign Affairs Minister Julie Bishop and Trade and Investment Minister Andrew Robb are strong advocates for Latin America within government and are sending the right messages to the market. They are not alone, but the collective voice of those who see the value of closer engagement with Latin America is not yet loud enough to make the required difference to government policy.

If support for Latin America has yet to make the required impact across all areas of government – not just federal, but also state – much the same can be said of the situation within the business sector.

Here too progress has been and continues to be made. New companies, from a widening range of sectors, are continuing to enter the Latin American markets and are making their mark. 

Whilst heartening, the trend should not overshadow the fact that the number of companies is short of the potential on offer, that too many of Australia’s large corporates are yet to make a move and that some of the companies entering the region are not doing so with the degree of commitment required to maximise their prospects of success.

Companies also need to look beyond the very short term, to plan and invest for the longer term and to contribute to changing the Australian mindset towards Latin America.

They need to join forces and to lend their weight to ensuring that doing business in Latin America is perceived in the same way as doing business in Europe, North America or Asia. Only then will investors give full support to companies that choose to pursue the opportunities on offer in Latin America and will more company boards and chief executives be comfortable with approving investments into the region.

In overall terms, Australia’s effort to connect with Latin America is making headway, but when measured in the context of what other nations are doing on this front, it is evident that we need to put our foot on the accelerator.

José Blanco is the Chairman of the Australia-Latin America Business Council. This article can be republished with attribution under a Creative Commons Licence.