US’ Projects in Latin America

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    In News

    • The US is planning projects in Latin America countering China’s Belt and Road Initiative.

    About

    • A delegation of diplomatic officials is tasked with turning Build Back Better World (B3W), the international infrastructure investment initiative announced by the Group of Seven richest democracies in June, into reality.
    • The trip will allow US officials to speak with the private sector, civil society and traditionally marginalized groups.

    Build Back Better Program

    • Focus areas: 
      • The program is focused on areas including climate, health, digital technology and gender equality.
    • Launch: 
      • A formal US B3W launch event is planned for early next year that will include details of some initial projects aimed at narrowing the $40 trillion needed by developing nations by 2035.
    • Budget (Approx): 
      • The Infrastructure Bill is estimated to cost $1.2 trillion over five years and the Reconciliation Bill, $3.5 trillion over ten years. 
      • Together, both bills form the foundation for President Biden’s economic agenda and are part of his Build Back Better plan. 

    US Way of Working in Latin America

    • Focus: 
      • Encouraging job creation, strengthening small- and medium-sized businesses, and promoting agricultural advances;
      • Creating safe urban spaces, supporting community policing, educating vulnerable youth, and strengthening justice systems; 
      • Supporting the efforts of civil society groups and political leaders to protect and defend universal rights such as freedom of expression; and
      • Helping countries to protect natural resources and adapt to changing climate patterns.
    • USAID’s targeted initiatives have brought results, including
      • Improvements in security, governance, and prosperity in Central America, particularly the Northern Triangle countries of Honduras, Guatemala, and El Salvador; 
      • Programming that helps the people and government of Colombia to promote economic prosperity, improve the living conditions of victims of violence and vulnerable groups, and promote respect for human rights; and 
      • Advances in long-term reconstruction and development, economic growth and job creation, health care and education services, and municipal governance in Haiti in the wake of the devastating 2010 earthquake.

     

    (Image Courtesy: worldatlas )

    Why Invest in Latin America?

    • Lot of opportunities to work on: 
      • Sustained economic recovery is not coming to Latin America until government leaders can get COVID under control. 
      • Precisely because Latin America has lagged other emerging market regions in the economic recovery, with good credit and market risks due diligence, investors can find good opportunities in Latin American fixed income, equity, and foreign exchange markets.
    • Improved Credit Rating: 
      • Earlier in the year, S&P Global revised its 2021 growth forecast for the six major Latin American economies to 4.9%, from 4.1%; this would be a significant improvement after an almost 7% decrease in 2020. 
    • Low Interest Rates:
      • As long as the Federal Reserve does not raise interest rates, foreign exchange investors can find good opportunities in Latin American foreign exchange markets especially in Mexico and Brazil. 
      • Rising oil prices are also helping commodity-rich countries like Mexico and Peru.
    • Construction Industry to Rise:
      • It is likely to have the highest construction industry real growth rate of any region in 2021, 13.1% year-on-year; this is primarily due to the scale of its contraction during 2020 amid the Covid-19 pandemic.
    • Wide Scope in Pharma and Healthcare Sector:
      • In comparison to continental Europe and the U.S., healthcare spending across the Latin American region remains low. 
      • Local pressure continues to mount for increased levels of public expenditure on healthcare services. 
    • Energy Sector:
      • Fossil fuels are not the only energy investment opportunity in Latin America, so is the renewable energy sector. 
      • Plenty of sun, hydro and wind resources means that long-term investors should look at this part of the energy sector. 
      • Importantly, renewables have multilateral development banks’ support.
    • Internet and Technology:
      • Unlike internet penetration levels in the United States, Canada, Mexico, Panama, and Brazil, the rest of the Americas lag. 
      • Investments in Latin American tech and internet stocks would add good diversity to an emerging market portfolio. 

    Conclusion

    • It is inevitable that the United States will continue to focus on regional issues that have a strong domestic political component. 
    • However, the door is open to a broader policy focus which can begin with the preparation for the Summit of the Americas
    • The US administration could emphasize responding to the changing global economic landscape, improving social inclusion and people-to-people connectivity, and developing a new dialogue on governance that embraces the diversity of the region. 

    China’s Belt and Road Initiative

    • China’s Belt and Road Initiative (BRI), which was launched in 2013 by President Xi Jinping, involves development and investment initiatives stretching worldwide. 
    • More than 100 countries have signed agreements with China to cooperate in BRI projects like railways, ports and highways.
    • It is a transcontinental long-term policy and investment program which aims at infrastructure development and acceleration of the economic integration of countries along the route of the historic Silk Road.
    • BRI aims to “promote the connectivity of Asian, European and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the Belt and Road, set up all-dimensional, multi-tiered and composite connectivity networks, and realize diversified, independent, balanced and sustainable development in these countries.”
    • Belt and Road Initiative combines two initiatives
      • The (land-based) Silk Road Economic Belt (SREB), comprising six development corridors
      • (Ocean-going ) The 21st Century Maritime Silk Road (MSR)

    (Image Courtesy: Forbes )

    Source: IE