SOUTH AMERICA: Leap in Mercosur Bloc Exports 'Not Just Commodities'

• by Marcela Valente (buenos aires)
• Monday, August 29, 2011
• Inter Press Service

This is one of the conclusions reached by a study titled 'Salto exportador del Mercosur en 2003-2008. Más allá del boom de las materias primas' (Mercosur's Export Leap 2003-2008: Beyond the Commodities Boom), by Romina Gayá and Kathia Michalczewsky of the Institute for the Integration of Latin America and the Caribbean (INTAL), a unit of the Inter-American Development Bank.

The study investigates less well-known aspects of the growth in exports, characterised overall by large volumes of primary products exported to emerging economies like China, India and Russia.

'Contrary to general belief, the success of Mercosur's exports - measured at constant prices - was more than a commodity boom,' the report emphasises. 'In fact, medium technology products also contributed to the export leap.'

The authors added that the internal market within the Mercosur bloc, made up of Argentina, Brazil, Paraguay and Uruguay, as well as the rest of the region, was key to understanding the dynamic growth of exports.

'The Latin American market made medium technology products the stars of the bloc's recent export surge,' the study says, although it points out that there were differences between the Mercosur countries.

Over the period studied, Argentina was the Mercosur country with the highest proportion of industrial exports, while Paraguay had the lowest proportion. In an interview with IPS, Gayá and Michalczewsky said that commodity exports from the bloc were 'highly dynamic,' but some manufactured goods had also driven foreign sales, and had contributed significant export volumes.

Gayá said, 'the medium technology products sector made the highest proportional contribution to the increase in export volume in Argentina and Brazil, accounting for 55.3 and 35.5 percent, respectively, of export expansion in those countries.'

That sector in Brazil and Argentina, the largest Mercosur member countries, includes mainly the automobile industry, including vehicles and parts, as well as other products like piping, plastics, synthetic fibres, paint and fertilisers.

As for Uruguay, one-fifth of the small country's total exports between 2003 and 2008 were contributed by rising production of technological goods, especially plastics and fibres, Gayá said.

In the authors' view, the growth of export goods with higher added value and technological content reflected increased demand within Mercosur itself and from other countries in the region.

'Latin America and the Caribbean account for over 40 percent of the growth in export volume originating from Argentina, Brazil and Uruguay, while for Paraguay the regional market accounted for nearly two-thirds of export growth,' the report says.

According to the study, exports from the Mercosur bloc grew by an annual average of 21 percent between 2003 and 2008, a much higher rate than the 8.7 percent annual growth posted between 1960 and 2002.

The INTAL researchers attributed this robust growth to increased global demand and rising prices, as well as export buoyancy.

The expansion has not been limited to soybeans or crude oil. 'The spectacular rise in prices led to the surge in exports being attributed to the commodity boom, but in fact there are other aspects of interest than are implied by the commodities sector alone,' Michalczewsky said.

She emphasised that exports of manufactured goods also increased, 'and the point to note here, aside from prices, was the growth in volume' of this category, which was one of the most dynamic sectors.

The experts pointed out that, in the case of Brazil, export performance varied over the period studied. The surge in exports for the industrial sector in Latin America's giant was most marked between 2003 and 2005, and growth has slowed since.

Michalczewsky said that among other factors, since 2006 the appreciation of the Brazilian real, the national currency, against the dollar has had a negative impact on exports of manufactured goods.

Appreciation of the real diminished the competitiveness abroad of labour-intensive Brazilian industrial products, particularly in competition with China and other countries with lower wages in dollar terms.

The growth in Brazil's commodity exports was accompanied by major productive investments in agriculture, oil and fuels, and by expansion of the domestic market, Michalczewsky said.

Increased internal demand, due to the higher buying power of the population, absorbed a large proportion of manufactured goods, and led to a reduction of goods available for export, the authors said.

On this point, Gayá and Michalczewsky concurred that the new 'Plano Brasil Maior' (Bigger Brazil Plan), recently launched by the leftwing government of President Dilma Rousseff, could correct the lack of stimulus for exports and create new foreign trade opportunities for the country's industrial sector.

Finally, the researchers outlined challenges and risks for Mercosur's export trade. While they applauded the way the region overcame the impact of the global financial crisis originated in the United States in 2008, and the fall in prices that followed, they pointed to potential future problems.

China's import substitution policy may lead it to reduce foreign purchases, and the free trade agreements entered into by countries of the region might also affect markets for the Mercosur bloc's industrial goods.

© Inter Press Service (2011) — All Rights ReservedOriginal source: Inter Press Service

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