Latin America: Policymakers, Industry Seek To Boost Competition

Economic growth in Latin America slowed in 2012 as Asian demand for commodities abated. More braking came as government measures—such as the Brazilian central bank’s earlier effort to tighten the money supply to prevent economic overheating—took hold.

Brazil’s economy posted only 1.5% growth in 2012, the International Monetary Fund (IMF) reports, a decline from 2011’s already modest 2.7% expansion. The country’s chemical industry saw shipments decline by 2.7% in 2012 to $153 billion, according to the Brazilian industry association Abiquim.

Argentina, which registered a China-like 8.9% surge in economic activity in 2011, had only moderate 2.6% growth in 2012. Mexico, which is tethered to the relatively strong U.S. economy, posted 3.8% growth in 2012, consistent with its 2011 performance.

IMF expects economic performance to improve in Latin America as governments ease monetary policy and engage in fiscal stimulus. Economists warn, however, about potential downsides that are beyond the control of Latin American policymakers. “The main near-term risks are related to an escalation of the euro area crisis and the U.S. fiscal cliff,” IMF reported in its most recent economic outlook.

The biggest problem facing chemical makers in Brazil, Latin America’s largest economy, is a lack of international competitiveness. Rina Quijada, CEO of the Houston-based consulting group IntelliChem, says the country suffers from high manufacturing costs. For example, natural gas costs three times more in Brazil than it does in the U.S. The strong Brazilian currency and high tax levels don’t help matters.

The lack of competitiveness is evident in Brazil’s long-standing chemical trade deficit, which grew last year to $28.1 billion, fueled by a 1.9% increase in imports and a 4.4% export decline, according to Abiquim.

“Net trade of the country is going in the wrong direction,” Quijada says.But she praises the government for identifying major problems and trying to come up with solutions, such as encouraging more production of oil and natural gas.

The Brazilian government also has dusted off a time-honored method of aiding local manufacturers: raising tariffs on imports. In the fall, the government substantially increased duties on 100 imported products. The list included chemicals such as ethylene glycol, polyethylene, and polycarbonate.