Latin America key for Asia resources

It seemed to take many by surprise during the recent fracas over iron ore pricing that China was negotiating directly with Brazilian iron ore giant Vale to build alternative supply. It shouldn't have. For a country like Australia which rightly sees itself as a part of the Asian century, the lack of insight around Latin America's role is a critical oversight.

Latin America may not be new, innovative or technology driven in the way Airbnb or Uber are but the region has the potential to be a major disruptive force in Australia's plan to prosper from the economic growth of China and the wider Asian region.

" Latin America is a region bestowed with abundant natural resources and with the capacity to supply Asia with many of the raw materials it requires."
Jose Blanco, Chairman, Australia-Latin America Business Council and former chief executive Banco Santander Australia

I'm constantly surprised such an assertion is so readily dismissed by a nation with only a modest understanding of Latin America while accustomed to being constantly reassured our prosperity will be underwritten by our northern neighbours. A reassurance further enhanced by FTAs with those global engines of growth China, Korea, Japan and India. Not to mention the long desired Trans-Pacific Partnership.

The road ahead may not be as smooth as some would like us here in Australia to believe.

I don't disagree we are in an Asian Century. Australia, blessed with ample natural resources, geographic proximity and growing links with the region, may well be ideally positioned to benefit from Asia's growth.

But there is no guarantee the strategy outlined in the 2012 Asian Century White Paper will go according to plan or deliver the future economic wellbeing Australia seeks.

We live in an increasingly interconnected world, where distance is no longer the barrier it once was and where change is constant. Competition for export markets and capital flows is fierce. There is no room for complacency.

This much should be clear from the recent announcement China will underwrite a significant iron ore expansion project by Vale, thereby piling even greater pressure on Australia's beleaguered iron ore producers.

Although this is just one deal, the announcement should be ringing alarm bells in Australia because of its ramifications. It reaffirms the global nature of trade and investment and sends the clear message Australia does not have a monopoly on being China or Asia's supplier of choice for iron ore. Or any commodity for that matter.

This has always been so but I suspect in the euphoria of the decade-long commodities boom and in the anxiety following the boom's ending, the fact has been overlooked as Australia has sought reassurances that 'she'll be right' in the long term. Thanks to Asia.

Yet like Australia, Latin America is a region bestowed with abundant natural resources and with the capacity to supply Asia with many of the raw materials it requires. It can produce much of the food needed to feed Asia's growing population.

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Photo credit: T photography /

It is estimated Latin America has 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 and 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.

Although the region's growth has not matched that of the Asian nations, Latin America is on the move. It has witnessed a sea change towards democratic rule, established strong nation states and made progress towards increased integration – albeit with some volatility. Most countries in the region have adopted open market policies and strengthened their fiscal position.

It also has a growing population and an urgent need for inward investment to fund a plethora of infrastructure projects which, when built, will further enhance the region's productivity and competitiveness.

These developments, plus China and Asia's growing relationship with Latin America, deserve Australia's attention, respect and response. Both for the opportunities on offer and the competitive threat they represent.

Latin America is firmly on the economic radar of Asia and trade between the regions has been marked by a clear commodities-for-manufacturing pattern. There should be no doubt 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.

Both Asia and Latin America have grown faster than the world economy post the financial crisis. Between 2009 and 2013, annual average growth was 4.6 per cent in Asia, 2.4 per cent in Latin America and 1.9 per cent for the world economy.

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.

Australia cannot afford to ignore this trend or to merely classify Latin America as a competitor and therefore shun investment in and engagement with the region. Nor can Australia console itself by assuming Latin America's ongoing economic, political and social challenges mean the region does not pose a credible threat to Australia's Asian strategy.

Chinese Premier Li Keqiang's visit to the region at the end of May highlights China's growing influence and its willingness to bankroll Latin America's growth in order to unlock increased trade and investment flows – and diversify supply of key resources.

With China's support, the plan to build a trans-continental railway connecting Brazil and Peru looks anything but a pipedream and could, if realised, have major repercussions for Australia given its potential to significantly reduce the cost of South American exports reaching the Asian markets.

The growing links extend to cooperation on science and technology, environmental protection and beyond.

Australia's response to these developments should be to focus on using its strong links with Asia and its proven capabilities in the sectors where Latin America has to grow to secure for itself a seat at the Asia-Latin America table.

Australia should be investing in Latin America to profit from its growth, to access its 600 million consumers and to diversify our own risk. Not factoring Latin America into our international strategy is not an option we can afford.

Jose Blanco is the chairman of the Australia-Latin America Business Council and former chief executive Banco Santander Australia.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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