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Tim Harcourt
Chief Economist
Australian Trade Commission
Sydney
Email: tim.harcourt@austrade.gov.au
04 April 2008
Australia held a world first the other day – a world Alpaca conference right here in Sydney! No I am not pulling the wool over your eyes, there is a global industry of Alpaca breeders and wool exporters and Australia has played a part in developing its international potential. Whilst Alpacas may be native to Peru there are now breeders in Australia, New Zealand, and South Africa and even in Europe and North America. Whist addressing the World Alpaca Conference in Sydney’s Darling Harbour, Austrade CEO Peter O’Byrne pointed out that whilst Alpacas are truly Peruvian, Australia had been able to “add value to the industry in terms of fibre technology transfer and training, veterinary skills, and helping open up the Asian market for Alpaca fleeces.”
But what other interests does Australia have in Peru apart from our fluffy friends the Alpacas? According to Nicholas Baker, Australia’s Trade Commissioner in Lima, there’s a new ‘El Dorado’ in Peru and the other Andean countries in terms of mining and exploration. “We not only have the multinational mining giants like BHP Billiton, Rio Tinto and Xstrata Copper but we also have exporters like Gekko, Ryco Hydraulics and Caterpillar-Elphinstone who help provide technology, training and infrastructure to Peru’s burgeoning resources sector,” he explained. In addition, outside mining a number of other Australian companies have a presence in Peru including Orica Chemicals and Mining, Amcor PET Packaging, Codan (radio communications) and Southern Cross Alliance (a migration service). I also noticed on my last visit to Peru, a large number of Billabong outlets, as Peru has its own surf culture (In fact, Billabong can be found all over the Americas, Europe, South Africa and Asia so it’s no wonder that Billabong now earns more revenue off shore than Westpac Bank!). According to Nicholas Baker, Austrade now helps almost 100 companies in Peru to the export value of more than $98 million so there’s good reason to be optimistic about the new El Dorado.
In fact, the increasing interest in Peru from Australian companies reflects growing ties between Australian and Latin America as a whole. Latin America is performing better economically than now than in its more recent past, which has seen Australia’s trade with the region grow at 23 per cent annually over the past half-decade or so with Australia’s merchandise exports reaching around $2.3 billion in 2006-07.
Most Latin American countries are growing and are relatively stable in the 2000s and 1990s compared to the more turbulent 1970s and 1980s. With the exception of Argentina, most South American economies have experienced steady growth and Mexico has performed consistently for the past decade. Banco Santander Chief Economist for Latin America, the New York based, Ernest ‘Chip’ Brown told Australian investors at the Excellence in Investment: Latin America 2008 conference, that the region could “continue to expect growth in the 4-5 per cent range over the 2000s, because of the strong global outlook for global commodities in general” and the fact that Latin American policy-makers had “largely done the right thing in terms of fiscal and monetary policy although microeconomic reform had a long way to go especially in Argentina.”
Whilst Latin American economists themselves are closely watching the sub-prime crisis in the North it is expected that the South American economies are better placed than in the past because of the growth of intra-Latin American trade (similarly with intra-Asian trade), stronger Latin American links with Asia (through APEC) and structural improvements in there own economies. Of course, Mexico is closely linked trade-wise with the North through NAFTA, although Latin American economists believe Mexican exports and imports will move together avoiding a major external shock. There is some concern, however, about a lack of foreign direct investment (FDI) in Argentina. For instance, neighbouring Chile, which is a much smaller economy than Argentina is receiving five times its level of FDI, according to Banco Santander estimates.
Is this helping Australia? In terms of trade, the economic renewal in Latin America – particularly in Brazil and Chile – is reflected in Australian exporter attitudes to Latin America. According to Austrade research, there are around 469 Australian businesses exporting to Brazil, 439 exporting to Chile, 379 to Mexico followed by 245 to Argentina and 209 to Peru. Chile has also been a major hub, with 60 or so Australian companies based in Santiago. Better trade links – such as Qantas new direct flights – will help facilitate trade and investment across the South Pacific between Australia and Latin America. In addition, the services underpinning mining exploration, constriction and infrastructure are helping develop opportunities for Australian exporters in Latin America. As Nicholas Baker says, “Even if the capital is from London and Toronto, the management and know-how remains solidly Australian.”
But back to those Alpacas. Financial market economists expect solid GDP growth in Peru this year in the 7 to 9 per cent range on the back of mining, construction, and some non-traditional manufacturing. A credit upgrade is expected for Peru although there is some concern about inflation. There is certainly more interest from Australian exporters and with APEC coming to Lima in 2008, we can expect the Peruvian economy to no longer ride solely on the Alpaca’s back.
Whose fleecing who? Australia
has added value to the Peruvian
Alpaca industry
Thanks are due to Nicholas Baker, Dennis Godfrey, Sarkis Khoury, Ernest ‘Chip’ Brown, Jose Blanco, Bernard Wheelahan, Steve Horsley, Martin Mansur, Mauricio Molan and Carolina Raminez for their assistance with this article.
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