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Ben Harris-Quinney and Brian Cattell were elected Political Officer and Chairman respectively of the Bow Group this week. They are co-authors of the new paper published by the Bow Group and FAES, Latin America: an opportunity for the UK.
The Coalition Government has rightly identified export-led growth as one of the key planks of its plan to reinvigorate theUK economy in the wake of the Comprehensive Spending Review.
As Germany’s experience demonstrates, the export-led model can be an effective way to stimulate the development of small and medium sized private sector businesses, some of which may go on to become the international British “Champions” of the future. It may sound obvious, but for our economic recovery to be sustainable, we simply have to build more companies that produce goods and services the rest of the world wants to buy.
But where are all these companies going to sell their wares?
It is here that Britain’s foreign policy must work hand in glove with the needs of our economy. The Foreign Secretary, William Hague, has grasped this: he has stated that economic power and economic opportunity have shifted to the countries of the East and South, and that we live in a “networked world” where strong relations with the emerging economic powers of these regions are more critical than ever before.
Yet beyond acknowledgement of the new global economy, there is little in terms of a comprehensive strategy to crack new markets. In terms of the breadth of our reach, we are starting from a very low base. The UK currently exports more to Ireland than it does to the entire continent of Latin America.
There are real challenges to promoting trade with emerging economic powers. Hague recently visited Moscow to begin the painstaking process of rebuilding diplomatic and economic relations with Russia from the nadir of recent years, but formidable obstacles remain. China has always promised so much opportunity to outsiders but its protectionist approach makes it markets as hard to penetrate as ever. India, meanwhile, should be a more natural economic partner for the UK but – despite attempts at reform – its domestic business climate remains immensely bureaucratic and unwelcoming to foreign investors.
By contrast, Latin America is a land of opportunities. It has perhaps the greatest political and economic potential of any region in the world. Many Latin American countries feature abundant natural resources, valuable human capital, increasingly solid institutions and macroeconomic discipline.
The region contains 15% of the world’s oil reserves, 25% of the arable land, 30% of all drinking water and significant mineral and farming wealth, but beyond its abundant resources, the key to Latin Americas growth is its human capital.
Between 2003 and 2008, the region enjoyed average growth of 4.9% per annum. True, these are not Chinese or Indian levels. But these are arguably more developed economies, better able to integrate with the kinds of goods and services theUK is able to provide.
Much of Latin America has undergone major democratic consolidation, strengthening its institutions and the Rule of Law while sound economic policies mean it has suffered less from the effects financial crisis than most other parts of the world.
Above all, the region is developing a substantial middle class of increasingly affluent consumers and a critical mass of successful private companies: two key features that make it fertile ground for British businesses.
In 2008, for example, the average per capita GDP of the region reached US$7,450, compared to US$2,950 in Eastern Asiaand the Pacific. This level of income, coupled with sustained growth, has been a key element in the growth of a large middle class and in the long term increase in domestic demand in the countries of the region.
Of course, the region still has its challenges. Democracy and the rule of law are obviously not entrenched everywhere, whilst corruption and organized crime remain threats to the ability of businesses to operate.
We also have to be clear on the challenges the UK faces as a power in the region, and this is why we hope “Latin America – An Opportunity for the UK” will focus the minds of the Coalition Government to both the challenges and the opportunities.
Throughout the first third of the Twentieth Century the United Kingdom was the principle trading partner for Latin American nations, however our global position has of course shifted dramatically. The networked world, suggests partnership for mutual benefit, and in Latin America the United Kingdom can no longer effectively act bilaterally.
Under current European Union trade restrictions we are no longer able to set bilaterally the terms of trade with individual nations outside of the EU. Furthermore, the last decade has seen the effective failure of the Washington Consensus in Latin America, meaning the United States is no longer able to act alone to see its goals realized in the region. Conversely, whilstSpain does not have the necessary economic power to act alone in the region its political and cultural connections in Latin America are second to none.
Therefore, of the world’s major emerging markets, Latin America arguably offers more realistic and realizable short and medium term opportunities for UK plc. The policies of the Coalition Government need to recognize this opportunity, but also the challenge of strategically building networks with other nations for mutual benefit. In Latin America our relationships with the United States, Spain and Chile have the ability to give us an edge. But they will only do so if we act now to create formal exploratory committees that go beyond rhetoric, and begin to push British interests into the world again.