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Deal With It

According to the Economic Commission for Latin America and the Caribbean (ECLAC), FDI to the Latin American region exceeded USD189 billion in 2015, compared to just USD40 billion in 2003. The main actors supporting FDI are Asian firms: historically, Japan has been one of the pioneers leading investment in Latin America, but today Tokyo has to face the rivalry of its neighbours that are beginning to take notice of the appeal of the emerging economies in the Latin world. Companies from China, South Korea, Singapore, and India have consolidated operations throughout the region.

As a consequence of the collapse of the European and US economies in 2008, the Dragon switched its interest toward new regions: Japan is the main Asian investor in Mexico, and invested USD1.5 billion between 2000 and 2009. For Colombia, Japan reconfirmed itself as the leading Asian investor: between 2000 and 2014, of the total USD649 million invested by Asia, Japan contributed USD298 million, followed by South Korea at USD158 million.

Over the last decade the size of Chinese investment in Latin America has been growing dramatically: Chinese FDI in the region is estimated at USD9-10 billion per year. The majority of the investment is focused on the extractive industry, with commodities such as minerals, iron, and food being key targets for Beijing.
Chinese companies are consolidating their operations in the region. Brands such as Huawei, Foxconn, Liugong, Changan IntCorp, and ICBC are widening their operations within the region.

In Peru, the Chinese investment is mainly focused on the mining segment, at USD22.66 billion in 2014, or 36% of total investment. Chinese investments in mining are geared toward the extraction of copper, underscoring the country’s position as the world’s second largest producer of copper.

Despite the current global slowdown, Peru’s copper production witnessed a remarkable growth of 9% in March 2015 according to the Ministry of Mining. In 2009, the Chinese and Peruvian governments signed the China-Peru Free Trade Agreement in Beijing, the first comprehensive FTA China has signed with a Latin American country.

The free trade agreement is a landmark in the bilateral relations between the two countries, and particularly represents an opportunity for the Peruvian agroindustry: Ulises Quevedo, the CEO of Grupo Rocio—the leading exporter of blueberries in the country—explained the potential of the FTA to TBY, saying, “The FTA has been signed but we do not have sanitary protocol and regulation in place yet. We are discussing this issue with the authorities in Peru. There are many import destinations that China is considering, but they only allow negotiations of one product per year per country, and blueberries are currently being negotiated. We expect that the market will be opened by the second half of next year or early 2017. It is still unclear what role China will play in our exports, but it could easily reach at least 30% of the market—as big as Europe, or possibly as large as the US in 10 years.“

Peru has worked hard to deepen the ties not only with China but with South Korea: the Peruvian president had an official meeting with South Korean president, Park Geun-hye, in April 2015. The two countries are in the process of signing agreements that involve e-government, electrical industry, health, science and technology, and customs support. These agreements have been steadily increasing since the establishment of the Peru-Korea FTA that was signed in 2011.

During a meeting with TBY, Keu Ho Jang, Ambassador of South Korea in Peru, shared some interesting data related to the growing trade between the two nations. Between January and August of 2015, Peruvian exports to South Korea reached USD87 million, 13% more than in 2014. The textile industry reported a 63% YoY growth, while fisheries and agroindustry led Peruvian export witnessed 130% growth, USD49 million and USD18 million respectively. In light of the dramatic growth in this data, Peru expects to become one of South Korea’s 20 main trade partners.

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