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Some Views on How the Coronavirus Outbreak Will Impact Trade with Latin America
In recent weeks, the COVID-19 outbreak has made headlines worldwide. If the measures taken by the authorities are effective, the epidemic is expected to be contained by mid-March. This will affect the economic results for the first quarter of the year but will allow the recovery to begin during the second quarter. In this article, we share some views on how the epidemic will impact trade with Latin America during 2020.
The first case of the new coronavirus was detected in the city of Wuhan, in central China, in mid-December. The virus has since spread throughout China and 24 more countries, mainly in Asia. As of today, authorities report more than 45,100 infected and more than 1,100 deaths due to complications derived from the contraction of the virus.
More than 80 cities in China have implemented measures to contain the spread of the virus, including some in the coastal area, with an expected economic impact. Here are some points of view on how the current situation can affect trade between China and Latin American countries:
- Drop in consumption. Due to the epidemic outbreak, a large part of the population has remained at home, with many public places such as restaurants and entertainment centers, gyms, and shopping centers witnessing a drastic drop in the number of customers. This situation will definitely impact the consumption of products such as wines and spirits, as well as high-priced foods, which form a significant percentage of exports from Latin American countries, including wines, fruits, and meats.
- Delays in production. 15 days after the end of the Chinese New Year holiday period, many companies in the manufacturing sector have not yet restarted operations. Economies such as Mexico and Brazil import significant quantities of intermediate products, capital goods, and machinery from China, necessary inputs for the electronics, machinery, and automotive export industries. This situation will undoubtedly affect not only the Chinese companies that will have to delay the orders and the Latin American companies that will have to adapt to the current situation but also the main end customers of these export industries.
- Interruptions in foreign trade. China is currently the second largest trading partner in Latin America, with a registered trade in 2018 of 307.4 billion, and commodities as main imports such as copper, iron ore, and energy, as well as products from the agricultural sector like soybeans, fruits, vegetables, and meats. Therefore, the results of Latin American exports to China during the first semester will be closely linked to the reactivation of the Chinese economy. However, the epidemic outbreak will also increase the awareness of the Chinese population on the importance of consuming foods of high nutritional value, promoting a greater focus on the consumption of products such as fruits, grains, and food supplements, and offering an opportunity to increase participation in the China market for Latin American products.
The Chinese Ministry of Commerce announces measures to facilitate the imports of technology, medical supplies, daily necessities, and raw materials to ensure domestic supply during the coronavirus outbreak. These measures include the reduction of import tariffs for medical equipment and supplies, support and assistance to foreign-invested companies, giving priority to technology enterprises for the import and export of technology and equipment, and strengthening market protection by stabilizing prices of daily products and food. The main objective of the measures is to give priority to effectively support enterprises to carry out normal productions and operations and help enterprises overcome difficulties.
Mexico and Hong Kong Sign Bilateral Investment Promotion and Protection Agreement
Last month, Mexico and Hong Kong signed in Davos, Switzerland, the reciprocal investment promotion and protection agreement. This agreement will allow investors from both economies to enjoy the protection corresponding to their investments in host economies, and as a consequence, increasing investor confidence. Among the commitments agreed in the document, the two governments undertake to provide investors with a fair, equitable, and non-discriminatory treatment of their investments, compensation in case of expropriation of investments, and the right to free transfers abroad of investments and returns. The agreement also provides for the solution of investment disputes under internationally accepted rules.
Being China mainland the main investor in Hong Kong, this agreement will allow Mexico not only to increase trust among investors in this special administrative region but also to expand investment flows and strengthen trade with the Asian country. Mexico offers important opportunities for Hong Kong and Chinese companies in the logistics, manufacturing, tourism, and services sectors. As of June 2019, the Ministry of Economy reported in Mexico 1,203.8 million dollars of investment from mainland China and 991.2 million dollars of Hong Kong investment since 1999. Once approved by both parties, this will be the investment agreement number 22 for Hong Kong, while for Mexico this document adds to the 29 previously signed.
Business Opportunities for Latin America Companies in the GBA Region
Learn more about the GBA initiative and opportunities for Latin America companies in the region in our featured report. Among the main opportunities for companies in the region:
- Trade to and from the GBA region and mainland China. Taking advantage not only of the cultural dimensions and similarities of the market but also the first quality infrastructure in transport and logistics.
- Professional services. Legal, accounting, and tax services. Architecture, engineering, quality control, manufacturing firms, among others.
- Start-ups in technology and applications. Taking advantage of the entrepreneurial ecosystem and the various incubation and acceleration programs.
- Tourism and recreation. Participating in the development of the industry in southern China. Recreation consulting and services. Services for hotels and restaurants. Wine and gourmet food trade.
If you are interested in learning more about business opportunities in the GBA region, please contact us by email: contact@gbalatamtradeandinvestment.
