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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