Economic Relations between the European Union, Latin America and the Caribbean

 By Luis Fierro Carrion (*)

Twitter: @Luis_Fierro_C

The economic and political relations between the European Union (EU) and the countries of Latin America and the Caribbean (LAC) have been strengthening in recent decades, although with less momentum in recent years (given the increase in trade between LAC and China).

I wrote a Policy Brief on the “Economic Relations between the European Union and Latin America and the Caribbean” for the EU-LAC Foundation and the Institut des Amériques, published at the end of April, and available at: https:/ /eulacfoundation.org/ 

The signing of association agreements between the EU and most LAC countries has led to an increase in foreign trade between the two regions, while the EU has remained the main source of foreign direct investment in LAC. Investment by LAC companies in EU countries has also increased. The trade agreement between the EU and Mercosur, the largest market in LAC, is however still pending ratification.

The COVID-19 pandemic and the growing impacts of climate change have given renewed impetus to the need for close collaboration between the two regions. The EU and its Member States have provided €3 billion in health aid to LAC. The EU exported more than 130 million doses of vaccines to LAC countries, and is one of the main contributors to the COVAX facility, which delivered more than 50 million additional doses to the region. EU Member States have donated 10 million doses.

Regarding climate change, the two regions have been closely aligned since the negotiation of the Paris Climate Change Agreement at COP21 (December 2015). Europe has prioritized the ecological transition, digital transformation and sustainable development in its regional and bilateral cooperation programs, and LAC countries are receptive to the means of implementation (climate finance, technology transfer and capacity building) to promote mitigation and adaptation to climate change. The two regions are perhaps the ones that have given the greatest support to the implementation of the Paris Agreement, together with groups of countries such as the small island states (SIDS) and the least developed countries (LDC).

€3.4 billion will be made available to LAC under the multi-year programme (2021-27) of NDICI-Global Europe, to support a sustainable and green recovery. In addition, the EU will mobilize more than €12 billion of public and private investment in the region through the European Fund for Sustainable Development Plus (EFSD+).

The EU Regional Multiannual Indicative Program for LAC (2021-27) will support the green transition, digital transformation, sustainable and inclusive economy, democratic governance, security and migration, as well as social cohesion and the fight against inequalities. Human development and education will likewise feature prominently.

Achieving greater growth, stability and security in LAC countries makes them more attractive markets for EU companies, both for commercial and investment purposes, which is why it is a mutually beneficial relationship.

(*) Column published on May 21 by the newspaper "El Universo" in Ecuador.

https://www.eluniverso.com/opinion/columnistas/relaciones-con-la-union-europea-nota/

Policy Brief: Relaciones Económicas entre la Unión Europea y América Latina y el Caribe (ENG, SPA, FRE)

"Relaciones Económicas entre la Unión Europea y América Latina y el Caribe"

(Below in English and French)

Policy Brief que escribí para la Fundación EU-LAC / EU-LAC Foundation y el Institut des Amériques.

La integración comercial entre las dos regiones ha avanzado, pero está pendiente de ratificación el acuerdo UE-Mercosur.

La pandemia de COVID-19 y los impactos crecientes del cambio climático han dado renovado ímpetu a la necesidad de colaboración estrecha entre las dos regiones.

En cuanto al cambio climático, las dos regiones han estado muy alineadas desde la negociación del Acuerdo de París de Cambio Climático en la COP21 (diciembre 2015). Europa ha dado prioridad a la transición ecológica, la transformación digital y el desarrollo sostenible en sus programas de cooperación regionales y bilaterales, y los países de ALC son receptivos a los medios de implementación (financiamiento climático, transferencia de tecnología y desarrollo de capacidades) para impulsar la mitigación y adaptación al cambio climático.

El Programa Indicativo Multianual (MIP) Regional de la UE para ALC (2021-27) apoyará la transición verde, la transformación digital, la economía sostenible e incluyente, la gobernanza democrática, la seguridad y la migración, así como la cohesión social y la lucha contra las desigualdades. El desarrollo humano y la educación ocuparán un lugar destacado dentro de estas áreas.

Alcanzar mayor crecimiento, estabilidad y seguridad en los países de ALC los vuelve mercados más atractivos para las empresas de la UE, tanto para fines comerciales como de inversión.

https://eulacfoundation.org/es/relaciones-economicas-entre-la-union-europea-y-america-latina-y-el-caribe

"Economic Relations between the European Union and Latin America and the Caribbean"

Policy brief I wrote for the EU-LAC Foundation / Fundación EU-LAC and Institut des Amériques

While economic integration between the two regions has advanced, the EU-Mercosur agreement is still awaiting ratification.

The COVID-19 pandemic and the growing impacts of climate change have renewed the momentum behind the need for close cooperation between both regions.

As for climate change, the two regions have been closely aligned since the Paris Agreement on Climate Change was negotiated at COP21 (December 2015). Europe has prioritised the ecological transition, the digital transformation and sustainable development in its regional and bilateral cooperation programmes, and the LAC countries are receptive to the means of implementation (climate finance, technology transfer and capacity development) to stimulate climate change mitigation and adaptation.

The Regional Multi-Annual Indicative Programme (MIP) of the EU for LAC (2021-27) will support the green transition, the digital transformation, the sustainable and inclusive economy, democratic government, security and migration, as well as social cohesion and the fight against inequality. Human development and education will play a leading role in these areas.

Achieving greater growth, stability and security in the LAC countries makes their markets more attractive to EU companies, both for trade and for investment.

https://eulacfoundation.org/en/economic-relations-between-european-union-and-latin-america-and-caribbean

Relations économiques entre l’Union européenne et l’Amérique latine et les Caraïbes

Policy brief issu du partenariat entre la Fondation EU-LAC et l’Institut des Amériques

Écrit par Luis Fierro, expert en politiques économiques vertes au sein du dispositif de soutien de l’UE pour contributions déterminées au niveau national

Malgré un certain degré de mécontentement des deux côtés de l’Atlantique, les relations économiques et politiques entre l’Union européenne (UE) et les pays d’Amérique latine et des Caraïbes (ALC) se sont renforcées au cours des dernières décennies, quoique de manière moins dynamique ces dernières années (compte tenu de l’augmentation des échanges entre l’ALC et la Chine). La signature d’accords d’association entre l’UE et la plupart des pays de l’ALC a entraîné une augmentation du commerce extérieur entre les deux régions, les pays de l’UE restant la principale source d’investissements directs étrangers dans l’ALC. Les investissements des entreprises de l’ALC dans les pays de l’UE ont également augmenté. Cependant, l’accord entre l’UE et le Mercosur, le plus grand marché de l’ALC, est en attente de ratification.

Fundación EU-LAC / EU-LAC Foundation

Institut des Amériques

https://www.institutdesameriques.fr/agenda/relations-economiques-entre-lunion-europeenne-et-lamerique-latine-et-les-caraibes

How to generate employment in Ecuador

By Luis Fierro Carrión (*)

Twitter: @Luis_Fierro_Eco 

Ecuador faces the most serious economic crisis in its recent history. Added to this is an almost complete absence of leadership, a deterioration of its institutions, institutionalized corruption, and the loss of public faith and trust.

A collapse of the economy of around 10% is anticipated in 2020. Adequate employment, according to the INEC, has fallen to an all-time low of 16.7%; while unemployment has increased to more than one million people, 13.3%. It is urgent to achieve a sustainable and equitable economic reactivation and promote job creation.

High levels of unemployment and underemployment will lead to increased poverty, inequality and malnutrition, and probably also lead to increased insecurity.

The most effective and sustainable way to reduce poverty and inequality is through the creation of quality employment. 

Do you remember that President Moreno offered to create a million jobs in four years? Instead a million jobs have been lost.

Despite electoral offers and rhetoric, there is little a President can do to create jobs. It is true that inadequate economic policies can lead to a drop in private investment and, consequently, to job losses. It is also clear that improper handling of a pandemic can lead to massive job losses. And a pro-cyclical fiscal management, such as the one implemented by the “Alianza PAIS” governments in the last 13 years, can lead to massive reductions in personnel in the public sector in contractionary phases, such as the current one.

But creating productive employment in the private sector is more difficult. It is necessary to generate an environment conducive to attracting national and foreign private investment, in order to increase productivity, generate added value, and, if possible, increase exports.

Legal security must be sought, and an adequate tax framework must be established, to avoid shocks and uncertainty. It was counterproductive that the Correa government eliminated the Bilateral Investment Treaties, and made no progress in signing Free Trade Agreements with our main trading partners.

It is also necessary to improve the quality of the educational system (the same one that has collapsed as a collateral damage of the pandemic), and in particular to establish vocational training systems linked to the demands of the labor market.

In the short term, you can:

•  Provide professional protective equipment (masks, goggles, gloves) to the personnel, and try to operate with the required social distance. As far as possible, implement telework, which is more feasible for intellectual work.

• Channel the resources of multilateral organizations to offer credits and guarantees to micro, small and medium enterprises (MSMEs), in order to preserve and expand labor contracts.

• Make employment contracts more flexible, especially for new workers and young people. Extend the trial period for new employment contracts to two years. Allow part-time and temporary employment contracts.

• Strengthen the protection system for the unemployed.

• Create mechanisms to put job applicants and bidders in contact.

• Allow agreements between the parties to renegotiate working conditions in companies.

• Allow agreements between the debtor companies and the financial system, to extend terms, without incurring default interest.

• Promote the development of the capacity of micro, small and medium-sized enterprises for electronic commerce; the digitization of services; and provide professional training in these areas.

• A profound reform of the social security system is required, changing the governance and administration model of the IESS.

• Channel resources from multilateral organizations to face climate change, increasing the energy efficiency of small and medium-sized companies; and facilitate investment in renewable energy (solar, wind, biomass, hydro).

In the medium term, it is necessary to establish a productive, sustainable economy inserted in the world, regulated by the State, based on the initiative of the private, social and solidarity sector, and oriented towards the generation of quality jobs.

Some policies in this direction:

• Promotion of an economic model based on private initiative, that will generate links with the social and solidarity economy.

• Incentive for the creation of new companies through the streamlining of procedures, reducing the time and cost it takes to create a company.

• Government support for exports in accordance with parameters of sustainability and quality of employment, incorporation of technology into the national human capital and increasing the national added value.

• Provide technical assistance, infrastructure, logistics, services, public funds to support the management of MSMEs.

• Establishment and development of free zones to facilitate the importation of raw materials, intermediate goods and equipment, and then export the final products.

• Incentive to national and foreign investment that helps to promote the creation of productive employment, technology transfer, promotion of renewable energy, energy efficiency.

• Promotion of clusters and development of productive networks between companies-universities-government, and between large, medium and small companies.

• Promotion of financial inclusion by simplifying the regulatory framework for microcredits so that they are less expensive. 

• Promotion of microfinance entities and credit cooperatives.

• Promote access to information and communication technologies. Boosting companies that invest in research and development, either independently or in partnership with universities, ensuring mechanisms for the protection of intellectual property.

• Promote corporate social responsibility actions: including integration in value chains and clusters of MSMEs.

(*) This is an English translation of a column published in the “El Universo” newspaper of Ecuador on October 2, 2020.

https://www.eluniverso.com/opinion/2020/10/02/nota/7997974/como-generar-empleo

 

The slowdown of the Chinese economy

A version of this article was published in Spanish in "Revista Gestión" (http://www.revistagestion.ec/).

The slowdown of the Chinese economy

By Luis Fierro Carrión

In recent months, alarm bells have been going off about the likely slowdown of the Chinese economy, which could have negative effects for the world economy, and in particular for commodity exporters such as Ecuador and other Latin American countries.

During 33 years (1979-2012), the average annual growth rate of China was close to 10 %, and it became the second largest economy in the world.  The GDP per capita increased from $250 in 1980 (measured in purchasing power parity) to $9,185 in 2012 - that is, it had a 36-fold increase!

This extraordinary growth reflected diverse trends:  the reincorporation of China into the world market; the capitalist development (within a Communist political regime); urbanization; industrialization; opening towards foreign direct investment and joint ventures, etc.  There were some particular characteristics of the hybrid Chinese model, such as the expansion of state-owned enterprises (SOE), financed by the equally state-owned development banks.

But in part this accelerated growth simply reflected starting off at such a low base, after many decades of economic stagnation, "cultural revolution", state ownership of the means of production, and military conflicts.

The official growth rate target for 2013 is 7.5 %, but it is likely that this figure will not be met.  The longer term prospects for the future are even less auspicious, as economists believe that China is entering into what is know as the "middle income growth trap".

The rapid urbanization process seems to have reached excessive levels, with high urban rates of pollution:  16 of the 20 most contaminated cities of the world are located in China, and the life expectancy in Northeastern China has started to decrease as a consequence of respiratory and other illnesses associated with pollution.

Workers are starting to demand higher salaries and better working conditions, which will make a model based on cheap labor untenable.  Investment - that is as high as 50 % of GDP - is facing decreasing returns, as the labor surplus is falling.  The Chinese stock market index (SSEA) has fallen by 8 % since December 2012.  The state-owned financial system is facing increasing disequilibrium   And the population is ageing, and growing at a slower rate (with the added problem of having more males than females).

The slowdown in China has already had a negative effect on the prices of commodities.  The price of metal products, for example, has fallen by 6.5 % thus far in 2013, and the price of gold by 26.2 %.  This has affected commodity producing countries, such as Australia, Brazil, Peru and Chile; and it could also affect oil exporters, if the same trend starts to be felt in the oil market (the price of the West Texas Intermediate benchmark has fallen by 7.9 % in the month to November 12, although it is still up for the year).

What can countries such as Ecuador do to confront the Chinese slowdown?  Diversify its productive matrix and its commercial partners; depend less on commodities, and more on the increase of productivity of manufacture and services; depend less, as well, on Chinese financing, which will probably become less available and more expensive as China experiences growing economic and financial difficulties.

Worst performing decade for large-cap stocks

Incredible - the worst performing decade for large-capitalization stocks in the United States since 1926 was ... the last decade!

"From 1999-2008, U.S. large-cap stocks "returned" a compound annual average of negative 1.38%."

from:

It's Already Worse Than the Depression
By Robert Brokamp

Buy low, sell high, and other basic investment advise

Given the collapse of the stock markets, now is the time to buy (buy low, sell high, remember?).

However, it is also important to keep in mind basic investment advise, such as the need to diversify risks (between types of assets, sectors, geographically, etc.).

1) Don't invest any cash you will need in the next 3-4 years (keep that money in a high-yield savings acct. or Certificate of Deposit, in an institution guaranteed by the FDIC; for example, INGDirect.com). Certainly don't borrow money to invest!

2) Of the difference, invest one third in broad sector or geographic stock indices (not individual companies). You can do so through Exchange-Traded Funds (ETFs) at sharebuilder.com

3) Another third you can invest in broad bond indices (I particularly like TIPS, Treasury Inflation Protected Securities, which are protected for inflation, as the name suggests). Also available as ETFs.

4) The rest you can invest in commodity-linked ETFs (such as gold, energy, minerals, etc.), sustainable energy and sustainable development ETFs, or in "social lending" sites such as prosper.com and upstart.com (but lend only to low-risk borrowers, classified AA, A or at minimum B).

5) If you have kids that will go to college, start a College Savings Plan account (preferably a pre-paid tuition program like Virginia's VPEP; or a 529 Plan).

6) If you are elegible, start a Roth Individual Retirement Account (IRA) (you can also do so through sharebuilder.com), which has tax advantages (direct contributions can be withdrawn tax free at any time).