Uniting Asia and Latin America

Published: May 4, 2012

The writer Haruhiko Kuroda is president of the Asian Development Bank. The writer Luis Alberto Moreno is president of the Inter-American Development Bank

The writer Haruhiko Kuroda is president of the Asian Development Bank. The writer Luis Alberto Moreno is president of the Inter-American Development Bank The writer Haruhiko Kuroda is president of the Asian Development Bank. The writer Luis Alberto Moreno is president of the Inter-American Development Bank

Spanish trading galleons sailed across the Pacific Ocean between Manila and Acapulco, trading spices and silk from India and China for silver from vast mines in Mexico and Peru. The ties between what was known as the East Indies and the West Indies were deep — and profitable.

Today, we are witnessing an intensification of those historic East-West ties. Since 2000, trade between Asia, Latin America and the Caribbean has been growing at an annual average rate of 20 per cent, reaching around $430 billion in 2011. China is now Latin America’s second most important trading partner. Foreign direct investment flows between the two regions have also surged during the last decade, driven largely by firms in China, Japan, Korea, Brazil and Mexico. In just eight years, 18 free-trade agreements have been implemented between economies in the two regions, with four more recently signed and another eight under negotiation.

There are two reasons for this interconnectivity. First, world growth, particularly, in developed economies has remained sluggish, while Asian and Latin American economies have experienced much higher growth. Second, specialisation has occurred according to comparative advantage, with Asia exporting manufactured products in return for commodities such as mineral, energy and agricultural resources from Latin America. This dynamic relationship has helped the Latin American region and Asia post average growths of around five and seven per cent, respectively, over the past decade. Indeed, rapid trade-and investment-led growth in Asia and Latin America have helped reduce acute poverty and will propel large sections of populations to middle class status in the next decade or so.

A groundbreaking study being published this week by the Asian Development Bank (ADB) Institute and the Inter-American Development Bank (IDB) provides a glimpse into this dynamic new partnership. The report, Shaping the Future of the Asia-Latin America and the Caribbean Relationship, not only outlines the vast potential for further deepening of economic ties but, more importantly, describes opportunities to share development knowledge and experiences that could help both regions manage growth in a way that maximises social equity and minimises environmental impact.

Latin America has much to learn from Asia’s sophisticated education systems, science and technology, outward-oriented policies that led to the formation of regional supply chains, public-private sector partnerships and regional financial cooperation initiatives. Similarly, Asia could benefit from studying Latin America’s experiences in poverty reduction and social safety net policies, agricultural productivity practices and the promotion of sustainable cities.

National regulations and standards need to be conducive to greater private sector investment, particularly in higher value-added products, services and technologies. The two regions need to move the current “commodity-for-manufacturing” pattern of trade and investment to the next level. Finally, a combination of outward oriented development strategies, business-friendly climates, and continuous investment in human capital will help sustain the progress that both Asia and Latin America have achieved thus far.

To ensure that cross-regional knowledge sharing has the greatest impact, the ADB and the IDB have established a South-South Cooperation agreement to help members deal with issues such as regional integration, renewable energy, climate change, institutional development and social policy.

As presidents of leading development financing institutions in the two regions, we are attending each other’s annual meetings this year for the first time to drive home the importance of this deepening relationship, which goes far beyond simply boosting trade and investment. Some of us call this the ‘Decade of Latin America and the Caribbean’. Others refer to the times we are living as the ‘Asian Century’. We believe that if we work together, both regions will share an era of progress and prosperity that the captains of those long-ago galleons could only imagine.

Published in The Express Tribune, May 5th, 2012.

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Reader Comments (2)

  • Falcon
    May 5, 2012 - 12:55AM

    The trade pattern can also be looked at the micro-level in terms of core competencies of businesses operating in developed vs. emerging markets. Emerging markets have a certain degree of homogeneity which makes them easily exploitable by other emerging market businesses. That is why it is easy for China to penetrate Latin America vs. that of Americans, Europeans or Japanese. Developed markets have much high entry barriers for high technology products and therefore you need much stronger marketing, technology, and managerial muscles to break-in (a typical weakness of businesses originating from emerging markets).

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  • May 5, 2012 - 8:49PM

    Booming economies of Latin America are a signal of increasing opportunities for international investors and entrepreneurs in the region. From Chile to Brazil to Mexico, investing in Latin America has become a strategic priority for many global players as they seek new and exciting markets. This is particularly true for Asian companies looking to secure commodities in the region. However, making a success of it depends on a variety of factors that come into play, from trust to communication issues to legal compliance. There is substantial risk involved in doing business in Latin America and it has to be managed carefully to ensure success.
    http://www.risk-boutique.com/Doing-Business-in-Latin-America

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