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Country’s balance with South America grows amid decline of total balance of trade

08/15/2022


José Augusto de Castro — Foto: Leo Pinheiro/Valor

José Augusto de Castro — Foto: Leo Pinheiro/Valor

After recovering in 2021 the pre-pandemic level, Brazilian exports to South American countries have advanced this year at a faster pace than the total average and also in relation to imports, in contrast to what happens in the country’s trade balance. As a consequence, the trade surplus in exchanges with neighboring countries reached $7.97 billion from January to July this year, more than double the $3.68 billion seen in the same period in 2021. The country’s total balance of trade fell 10% over the same period.

As a result, the surplus with South American countries from January to July this year equals to 20% of the total, compared with 8.3% in the same months last year, according to data from the Foreign Trade Secretariat (Secex/ME). The sales of Brazilian products to the region totaled $24.85 billion this year and grew by 39.4%. The country’s total shipments increased by 20.1%. The difference was also clear in how fast imports increased – trade with neighbors is up 19.4%, while total foreign purchases climbed 31.6% between January and July.

Brazilian exports to South America fell in 2020 with the outbreak of the Covid-19 pandemic. That year, from January to July, the country exported to neighboring countries $12.02 billion, down 27.2% from $16.5 billion in 2019. In 2021, with the economic recovery in the region, exports totaled $17.82 billion between January and July. The performance of shipments contributed to a surplus slightly above the $7.92 billion of the same period of 2018, which used to be the peak since 1997 (considering the period of the first seven months of the year).

José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB), said that the recovery of foreign sales to the South American market is key because the region is typically a consumer of Brazilian manufactured goods, although oil exports to countries like Chile have also driven shipments and the trade surplus in regional trade. A third of the $5.18 billion that Chile absorbed from January to July in Brazilian products was oil, followed by automobiles, which had a 7% share. As for Brazilian imports of South American products, says Mr. Castro, commodities or products with little processing predominate.

Secex data show that of the five main items shipped to neighbors from January to July four were manufactured, all linked to automotive or transportation. Oil led the list, with $9.4 billion, practically tied with the $9.03 billion in cars. The two items were followed by car parts and accessories, vehicles for transporting goods, and tractors. The five products accounted for 28% of Brazil’s exports to other South American countries.

Lia Valls, a researcher at the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV/Ibre), says that the increase in the value of Brazilian exports has been accompanied by an increase in the quantities shipped. According to data collected in the Foreign Trade Indicator (Icomex), the volume exported to Argentina rose 14% from January to July this year compared with the same period last year. Imports dropped 0.7% in volume. Exports to other South American countries increased by 14.3% in volume, while the total imported fell 7.5%, Ms. Valls said.

The main explanation for the increase in exports, said Mr. Castro, with AEB, is that most countries in this region are exporters of commodities, items that saw strong price rises, which generates additional foreign exchange. This, he says, provided these countries with new opportunities to import Brazilian manufactured goods.

At a time of logistical hurdles in global trade, he points out, Brazil’s geographical proximity, the logistical cost adapted to the region, the availability of containers, and the viability of land transport are among the main reasons why trade in the region has been favored.

Mr. Castro says that this is not something homogeneous. According to Secex data, considering trade with all the other countries in the region, Brazil had a deficit with three countries from January to July. The negative balance is explained mainly by the supply of energy-related products. There was a deficit with Bolivia, from which Brazil imports gas, with Paraguay, which supplies electricity, and with Guyana, because of oil. The Guyanese practically appeared on the Brazilian import map this year. Brazil imported $313 million from them from January to July, almost all of it in oil.

Argentina also has a different and specific situation, said Welber Barral, a partner at BMJ Consultoria. Exports of $8.89 billion from January to July this year to Argentina represent a recovery, with an increase of 34% against the same period last year. With a still difficult external situation, however, says Mr. Barral, the country does not have enough available hard currency to allow a very unfavorable trade balance, which may again impact Brazil. Recently, Argentina’s central bank issued new measures that have already been felt by some sectors in which the exporters are smaller and more pulverized, says Mr. Barral.

Abicalçados, which gathers Brazilian manufacturers of the footwear sector, has already spoken about difficulties faced by companies in shipments to Argentina, but the effect of this has not yet appeared clearly in the figures of the two-way trade, the organization says.

The restrictions imposed by the Mercosur partner on Brazilian exports are not something new in the two-way trade, Mr. Barral said. They grew with the import licenses put in place while Cristina Kirchner was the president (2007-2015). And even before the pandemic, he says, Brazilian shipments to Argentina also fell due to the economic crisis in the neighboring country, which still faces high inflation this year.

For Mr. Castro, the more positive scenario of trade with neighbors is likely to provide a surplus with South Americans of $41 billion in 2022. Last year, the positive balance was $34.1 billion. The expected expansion with this group of countries compared with what AEB projects for the total Brazilian balance. After the record surplus of $61.22 billion last year, Mr. Castro estimates a surplus of $54.13 billion at the end of this year.

There is uncertainty, however, about the sustainability of trade performance with the neighborhood in the longer term, he points out. The data and scenarios show that Brazil can occupy more space in the markets of different South American countries. “That depends more on whether Brazil wants to increase its exports and less on whether companies in these countries want to expand their imports.” Despite the good results achieved, one cannot consider this neighboring market as captive, he recalled, because China, to mention the main example, is occupying spaces and displacing Brazil as the main supplier in some countries.

Ms. Valls points out that, in 2022, the positive performance of Brazilian exports to South American neighbors is due to the economic recovery in most countries. Future trade depends on this and other factors, such as the role of trade agreements with some partners and political alignment. The result of the elections in Brazil, she said, can also impact regional foreign policy. In the shorter term, says Ms. Valls, the concern is with the possible economic slowdown ahead.

According to the consensus projections of the August report of the FocusEconomics consulting firm, Colombia’s GDP is estimated to grow 5.8% in 2022 after expanding 10.7% last year. In 2023, a 2.6% increase is projected. Chile’s economy is expected to grow 2% this year after expanding 11.7% in 2021. Next year, it is seen as growing 0.2%.

Mr. Barral recalled that the disruption of international trade, under the impact of the pandemic and then the Russia-Ukraine war, brought common challenges to all Latin American countries, such as price pressure. In the medium term, however, the international context may favor trade with Argentina and the other South American countries. The region, he points out, is one of the few in the world where there is no arms race, which makes it a supplier considered reliable from a political point of view. The movement of reallocation of productive resources in the largest economies is an opportunity for the region in attracting industries, Mr. Barral said.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/