Trade Booms Amid Uncertainty

[dropcap]L[/dropcap]atin American and Caribbean economies are set to grow this year following a welcome rise in foreign trade, but the region will have to evolve if it wants to sustain growth in a rapidly-shifting landscape.

After four years of poor performance, foreign trade from Latin America and the Caribbean finally showed an upswing in 2017 – and looks set to continue that trajectory through 2018. However, the Economic Commission for Latin America and the Caribbean (ECLAC) caution that this growth will only be sustainable if the region is prepared to collaborate, innovate and remain agile in the face of global uncertainty.

World trade has been weak since the global financial crisis of 2008/2009, hampered by reduced trade liberalisation, faltering demand and stifled global value chains. However, increased growth in the United States, the Eurozone and China had a positive impact in 2017, boosting global trade by 3.6 per cent in comparison to a pre-financial crisis growth rate of 2.2 per cent.

Latin America and the Caribbean is expected to grow by 2.2 per cent in 2018, according to the ECLAC report, International Trade Outlook: Recovery in an Uncertain Context. Both imports and exports performed well in the region over the past year, with the former predicted to rise by 7 per cent, and the latter 10 per cent.

THE DIGITAL REVOLUTION

Although signs are positive, ECLAC still predicts global uncertainty in the medium-term. The growing emergence of populist political movements combined with the digital revolution overtaking more traditional trade will create a challenging environment, forcing the Caribbean region to be more agile and resourceful.

Thanks to an increasingly digital world, trade now encompasses not only physical goods and services delivered by traditional means, but also physical goods and services delivered through digital platforms, as well as those goods and services that are entirely digital and intangible. This shift has sometimes left regulators scrambling to keep up, with tardy policymakers contributing to market uncertainty.

Despite the uncertainty, digital is the fastest growing segment of global trade, with huge potential. According to figures from ECLAC, ‘modern’ services i.e. those traded over the internet (telecommunications, computer and information services, financial services, insurance and other business services) show the most activity, growing by 6.7 per cent per year between 2005 and 2016. In contrast, traditional services such as transport, travel and construction services grew by 4.5 per cent annually in the same period.

Unsurprisingly, Latin America and the Caribbean lag in the provision of modern services, accounting for just 2 per cent of exports in this category. The countries that have made successful inroads into these markets are those with developed digital ecosystems with, for example, digital platforms used by governments, producers and consumers. The creation of e-platforms, along with legislation on data protection and cyber-security, are necessary to encourage thriving modern services exports.

TARGETING AGRICULTURE

Another profitable area is agriculture, worth US$ 1.69 tn annually. In 2015, Latin America and the Caribbean contributed 13 per cent to the world’s agricultural exports, with most going to Asia, closely followed by the US. Over the past decade, staples such as shrimp, orange juice and wheat fell out of favour and were replaced by more in-demand products such as maize, poultry and soybeans.

To increase trade in this crucial area, ECLAC suggests that the Caribbean pursue niche markets. Gaining organic certification, acquiring international standards certificates and using trademarks can all help producers charge a higher price and build demand. In addition, targeting the market for ‘functional foods’ i.e. those with a health benefit, can reap rich rewards.

As the world’s population steadily continues to rise, and developing regions like Africa build up their middle class, there is huge potential in agricultural exports, according to ECLAC. Seizing this opportunity will require a concerted effort in the Caribbean to move away from traditional farming into practices that are less devastating to the environment, and deliver a more specialised product. Export diversification, supported by proactive and considerate public policy can help the region make inroads into this profitable niche.

SHORING UP GROWTH

While predictions and forecasts can help economists determine the likely path of the world’s economy in 2018, it is still a fluctuating and volatile market. Small, developed nations such as those in the Caribbean must take steps to ensure they aren’t upended by the ripples from a global seismic shift.

ECLAC warns that positive numbers from the region so far are less to do with domestic growth, and more a result of rising commodity prices. To help the region underpin this recovery, the Commission suggests the Caribbean increase its focus on intraregional trade, fostering greater regional links and removing barriers to market for SMEs. Deeper regional integration through regional trade agreements would help remove non-tariff barriers and level the playing field for Caribbean SMEs. The commission also highlights the need to strengthen production chains and capacity, allowing the region to diversify its exports.