Some states in the Middle East have shown a great deal of interest in reinforcing their economic ties with Latin American states for a number of reasons; most importantly, diversifying their export markets and increasing the possibility of investments in the region. For these two reasons, Middle Eastern states have doubled their diplomatic and political efforts with the Latin American continent in the past few years in order to create new trade and investment deals on a bilateral front or a regional bloc such as the Mercosur Alliance that includes Brazil, Argentina, Paraguay and Uruguay. These are deals that open up new avenues of cooperation in terms of trade and investment and a number of other potential future partners.
It seems however, that the region’s aspirations to reinforce trade and investment relations with the Latin American continent will face a great deal of difficulties due to the ongoing pressures that the continent is facing both politically and economically. This is primarily related to the retreat of oil prices as well as the increased instabilities both politically and socially. Brazil and Venezuela are the prime examples of this as their economic and political hardships have led to a slow exchange of trade and investment on the short run. Even with these ongoing issues, economic cooperation with the Latin American continent will most likely increase with countries such as Columbia that signed in September 2016 a peace treaty with the FARC terrorist group, this measure alone will surely push for economic growth in the country.
New Horizons
The increased interest by some Middle Eastern states to reinforce their economic relations with the Latin American continent comes in light of a number of factors: represented in the following:
1. Market Diversity: Middle Eastern states have sought to slowly but surely change their trade policies that is being built upon trust with new partners that include the Latin American continent. To highlight these changes some Middle Eastern countries have drafted new agreements with the “Mercosur Countries” such as Lebanon in 2014, followed by Egypt in 2016. The economic relations between the GCC and the Latin American countries has also progressed as the geographic outlook as well as the economic foundations for both sides are strong and allow for good cooperation in fields such oil, food and tourism among others.
The amount of trade between both sides has reached its peak in 2013 and recorded 23.6 billion dollars and has decreased steadily to 15 billion dollars in 2015 due to the retreat in oil prices. It can be said that aspirations to settle the negotiations on the free trade zone between the GCC and the Mercosur Countries is still fumbling, which could possibly represent in the future a major shift in the size of trade between both parties.
Turkey has also signed an agreement with Chile in 2009 and entered into effect in the year 2011 and is in the status of a political trade move, has opened up the world markets to each other more. The former Turkish economic minister Mostafa El Yatash, on the eve of the visit by the Turkish President Recip Tayyib Erdogan to the Latin American continent which included three states Ecuador, Peru and Chile in February 2016, stated that Turkey seeks to increase the volume of trade between them to reach 20 billion dollars by 2023 as opposed to the current figure of 8 billion dollars in 2014.
As for other states in the Middle East such as Iran, it seems that it is more willing to trade with new partners in the world especially after the lifting of economic sanctions off of it with the start of 2016. This will allow it to restore its trade with various markets freely as well as allowing these states to benefit from new deals with Iran to restore its infrastructure such as the negotiations that Iran has been undertaking for months, specifically February 2016, with Brazil to buy over 50 Embraer planes.
Seeing that both parties have crossed the basic constructs for understanding to have each benefit from the economic point of view, as well as the building of trust and engaging in executive decisions in order to build on the basics of trade. it can be said that the volumes of trade between the Middle East and Latin America will increase as each has a strong desire to exchange food and oil and other industrial products. In the end of all of this the level of trade will most likely double from the 34.4 billion dollars in 2015, which is a much less level of trade than with their main trading partners at the moment.
2. Taking Advantage of Investment Opportunities: since the start of 2016 a number of Middle Eastern states, namely Turkey and Iran, have increased their diplomatic efforts to deepen their investment relations with Latin American states. Iran have sent their Foreign Minister Mohamed Gawad Zareef on a tour of some Latin American states in August 2016 with an agenda that prioritizes the deepening of investment relations with these nations. This included the fields of infrastructure, oil, logistics and others. The visit included 6 states which were Cuba, Nicaragua, Ecuador, Chile, Bolivia and Venezuela.
The investment policies of Iran previously in the continent had a limited presence in some states such as Venezuela and Bolivia. For instance, Iran owned Group for Tractor Building owned 51% of the company “Venran” for the manufacturing of tractors as well as some shares in Iran Khoodro in the group Veneer Auto. This also included some joint projects to exploit the oil in Venezuela that was worth four billion dollars and should be implemented in the future.
To highlight the Turkish diplomatic efforts, the Turkish President Erdogan conducted an official visit to Chile, Peru and Ecuador in February 2016 and was an attempt by him to deepen economic relations between the three countries. However, to translate these visits into better economic returns requires more effort on the diplomatic and political fronts to achieve the bare minimum of what is expected as returns.
With its expansive experience in dealing with state building projects, Turkish general contractors have had the lion’s share of infrastructure projects in the Latin American Continent as compared with other European, US or even Chinese General Contracting companies. Indeed, these Turkish General Contracting companies have had a number of projects ongoing, for instance there is a big project in Venezuela to build over 1488 residential complexes.
To compensate for the lack of funds for the residential quarters in Venezuela, Turkey entered into negotiations to have investments in the oil and housing sectors in Venezuela worth 2.7 billion dollars in return for oil. This deal has floundered a couple of times since the start of the negotiations since 2011, and it aims to achieve an increase in the expertise in the Latin American market for all the Turkish General Contracting companies. This includes the Turkish oil company that is in charge of exploration and drilling for oil in both of Columbia and Ecuador.
3. Combatting Terrorist Finances: Hezbollah of Lebanon has taken refuge for its finances in Latin America for its money laundering and drug smuggling operations, specifically, the border region of Argentina, Paraguay and Brazil. Western assessments also note that a number of groups that belong to Hezbollah are in cooperation, including FARC, in the drug trade operations to Europe. In light of this, US security apparatuses have increased their cooperation with local law enforcement agencies in their monitoring of Hezbollah activities inside of the Latin American continent in order to find out the activities that they are involved in. In July 2016 the Brazilian police apprehended Fady Hassan Nabha, a previous member in Hezbollah with the charge of trading in narcotics.
Echoing the spread of the criminal activities of Hezbollah in the Latin American continent, this went to show the importance of cooperation between local authorities to target these activities and combat their finances. They have used the continent as a headquarter for its spread as well as a new way to recruit members and additional sources of finances.
4. The Intake of Refugees: without a doubt, the geographic divide between Latin America and the Middle East will not allow for large influxes of refugees such as Europe did. Yet despite this divide, some Latin American countries have welcomed Syrian refugees, Venezuela for instance declared, via President Madura, that they were ready to accept 20,000 refugees from Syria.
Added to this, Brazil worked tirelessly to accept Syrian refugees and till now more than 2000 have been accepted. It is expected to receive even more refugees according to the declaration by the Brazilian government in May 2016 and they have even extended visas to Syrian refugees for an additional 2 years.
To add to this direction, Argentina and Uruguay have developed a special program to help rehabilitate Syrian refugees and have initialized a “Program for Syria” to give out visas for humanitarian purposes to Syrians that are escaping the conflict. Chile also declared that it received 10 Syrian families in the year 2015. In order to facilitate the mission of these states will require an effort with all of the international organizations and international powers to acquire the necessary funding to take in Syrian refugees.
A Number of Difficulties
The Latin American continent is going through a rough phase in terms of economic instability as well as socially and political in light of the retreat of oil prices since 2014. This can be dealt with in the following manner:
1. The Retreat of Oil Prices: the reduction of oil prices has created economic problems for a number of Latin American states, especially the ones that depend on oil as their primary export, such as Columbia, Venezuela and Ecuador into huge financial crisis. Their financial situations worsened and it was expected to increase government debt. As a result of this international monetary agencies reduced their credit ratings for these states.
2. Social Instability: some Latin American states have been witness to a number of protests due to the increased economic problems and the decline in living standards such as in Venezuela. Even with that, the political situation has evolved in some other states in order to achieve security and stability such as Columbia that signed a peace treaty with the FARC in September 2016.
Opportunities or Threats?
Based on the previous circumstances, it can be concluded that the majority of the economies of the continent are facing difficulties in the near future. This affirms the notion that the IMF had concluded before is that the GDP growth rate of Latin American states will drop to% in 2016 and to negative 2% in 2017. This is as a result of the negative consequences which can be summed up as follows:
1. A Retreat in the Volume of Trade: the slowdown in economic growth in both regions, Latin American and the Middle East, will negatively affect the volume of trade between both sides. This is made clear by the statistics as the retreat in trade volumes has been reduced since oil prices went down to 34.4 billion dollars in 2015 as opposed to 45.8 billion dollars in the year 2014. Even with that, the ambitions will remain to be tied in with the current trade deals that are to be put in place with Iran.
2. Losing Investment Trust: in light of the current international and regional instabilities it is expected that there would be a retreat in any push for investments within the continent and natural resources are considered to be the most important sector that will be affected as a result of this. The environment has become very unappealing to investors with the retreat in prices and has in turn affected the interest of foreign companies negatively. This was reflected when the investment index was reduced by 14.2% in 2015 to reach 131 billion dollars and the share of the following states, Brazil, Columbia and Uruguay was as follows 23%, 26% and 25% respectively.
Despite this, other sectors such as communications, real estate, tourism and hydro-electric power offer an opportunity to bring in investments, whether regional or international, as the growth rates have been high in relation to the economy of the continent. As a result of this, it represents 49% of the FDI in countries such as Brazil or Columbia.
From another investment point of view, investment opportunities seem to be positive in some states such as Brazil and Columbia especially after the removal of President Dilma Roussef and the move to adopt a plan to privatize a number of government assets including government privileges in infrastructure construction and oil drilling licenses. As for Columbia the peace agreement with FARC in September 2016 has pushed for more economic growth.
3. Refugee and Terrorist Issues: in a direct reflection of the previously stated issues in receiving refugees, the complicating situation regarding the economics of the region, the Latin American states will most likely change their stance on welcoming refugees despite their previously stated quotas and pledges, such as Venezuela whom stated they would welcome 20,000 refugees.
Other cases such as combatting the drug trade and terrorist finances of Hezbollah could become a major issue when the FARC peace deal goes through and that is in line with the drug trade activities in the continent and hence the security apparatuses would be able to find out the activities of the party in Latin America.
To conclude, the transformations that Latin America is going through would afford economic and geopolitical gains that are important to the region and this could potentially garner the pace of opening up to the Latin American market seeing that they could be a trusted economic partner.
