Japan-Latin America and the Caribbean Economic Relations
Trade
To Latin America, Japan is its second largest trading partner
after the United States. To Japan, Latin America accounts for
some 4% of its total trade today and may well account for a much
larger share in the years to come. The Latin American countries
to which Japan represents a major trading partner include Mexico,
Brazil, Chile, Argentina, and Panama.
At the start of the 1990s business conditions in Latin American
economies turned in a favorable direction, and today this region
is attracting international attention as the world's second
largest growth center after East Asia. Latin American countries
have been steadily promoting economic reforms based on the
principles of the market economy. The result has been a
remarkable economic rejuvenation over recent years, one to which
people around the world have been paying attention.
Latin America's strong economic growth has been powering a steady
expansion in Japan's exports to it. Starting at roughly $9.7
billion in 1990, these exports rose to some $19.7 billion in
1995. (In 1995 Latin America absorbed a 4.45% share of Japan's
exports. The leading export items are machinery, metal products,
and chemical products.) Japan's imports from Latin America
contracted for a while in the early 1990s as a result of several
factors, notably the Japanese economy's prolonged slump, which
reduced demand for raw materials, and a downtrend in primary
product prices caused by sluggishness in the world economy. The
value of these imports dropped from around $9.4 billion in 1990
to around $7.9 billion in 1993. But then a swift expansion took
hold, and imports from Latin America rebounded to roughly $9.1
billion in 1994 and climbed on to about $11.9 billion in 1995.
(In 1995 Latin America had a 3.55% share of Japan's imports. The
leading import items are foods, materials for the textile
industry, and materials for the metal industry.)
While it must be acknowledged that Japan in 1995 registered a
surplus on the order of $7.8 billion in its trade with Latin
America, it needs to be borne in mind that some 70% of Japan's
exports to the region are capital goods. They will help Latin
American countries upgrade and expand their industrial bases and
should contribute to long-term economic growth.
When Japan's 1995 imports from Latin America are broken down, we
find that there were sizable increases of roughly 33% in
processed products, 24% in foods, and 23% in raw materials. The
brisk growth in imports of processed products is thought to be
the result of the progress Latin American countries have already
achieved in upgrading and expanding their industrial bases and
acquiring competitive power in exports. With respect to the large
jump in food imports, it may be observed that some Latin American
countries have been working hard to sell more food to Japan. A
case in point is Chile, which saw its Japanese-bound food exports
surge from roughly $569 million in 1994 to some $915 million in
1995, an increase of about 60%. Among the Latin American food
exports that have earned a good reputation on the Japanese market
are Chilean grapes, kiwi fruit, and wine, Mexican mangoes, and
Brazilian orange juice.
Investment
The share of Japan's foreign direct investment that went to
Latin America was 12.7% in fiscal 1994 (year starting April
1994). This was an increase of 3.4 percentage points over the
previous year. The problem of external debt has been dealt with
for now, and improvement is taking place in other factors that
have hindered direct investment in the region.
By type of business, 15% of the cumulative total of Japanese
direct investment in Latin America through fiscal 1994 was in
manufacturing and about 85% was in non-manufacturing industries,
including 33% in finance and insurance and 32% in transport. The
non-manufacturing share is higher than for other regions. Panama
ranks first in Latin America as a target country for this
investment; the bulk of it is from the transport industry in
connection with flags of convenience. Almost all the investment
in the British territories of the Cayman Islands and Bermuda and
in the Bahamas, an independent commonwealth, is by financial and
insurance industry institutions aiming to take advantage of these
places' special features as tax havens.
While Japanese direct investment in such non-manufacturing fields
as finance and transport is increasing, fiscal 1994 brought an
even more dramatic rise in investment in manufacturing in Latin
America, which came to $1,159 million, more than triple the
previous year's figure of $364 million. Since the start of the
1990s Latin American economic rebuilding has progressed and firm
growth has been maintained; under these conditions the
environment for investment has been improving. Private-sector
businesses in Japan have recently been turning their attention
once again in the direction of this region. Current examples of
activity in this area include the recent decisions by Japanese
automobile manufacturers to set up operations in Argentina and
Brazil, capital investment in a pulp factory in Brazil,
investment in construction of an oil refinery also in Brazil,
participation in a telecommunications enterprise in Columbia, and
investment in construction of a steel-making plant in Venezuela.
It is the policy of the Japanese Government to encourage such
investment in Latin America through ancillary support.
When considering direct investment in other countries, Japanese
corporations take an overall view of such factors as
infrastructure, wage levels, market size, and stability of
economic policies. They have become quite cautious in making
their decisions in the context of the domestic economic
sluggishness that has followed the collapse of the speculative
bubbles that formed in Japan in the late 1980s. Under these
conditions it is necessary to indicate the advantages of
investment in Latin America clearly and concretely. For most
Japanese businesses this region still seems very distant; the
Japanese Government is doing its part through zealous public
relations, and it is hoped that Latin American countries
themselves will actively campaign to improve their image in the
Japanese business community.
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