Dubai: Even as the global economy recovers from the COVID-19 pandemic and battles a major conflict in Ukraine, the UAE and Latin America are two regions that are exploring possibilities of coming together to deepen trade ties.
Russia’s attack on Ukraine has pushed oil prices to over $100 a barrel, benefitting next exporters such as South American countries and the UAE.
Analysts expect the higher commodity prices to boost the budgets of Gulf economies, with most of the additional revenue being invested through sovereign wealth funds or kept as reserves.
Although countries such as Brazil and Venezuela have some of the world’s largest oil reserves, they have not always been the most efficient in producing the commodity. Years of mismanagement by government monopolies and rampant corruption have resulted in Venezuela’s output dropping to around 800,000 bpd (barrels per day) from a peak of 3.2 million bpd in the 1990s.
UAE, OPEC’s third-largest producer, has kept up with the times by embracing emerging technologies such as blockchain and AI to make the most of each barrel. Latin America’s national oil companies could learn from UAE’s adoption of technology to improve their own operations.
“There are obvious opportunities in the oil and gas sectors for UAE to come into the Latin American region and help companies in the oil and gas sectors to become more productive and more efficient, both in the exploration and production,” said Marcos Casarin, Head of Latin America Macro Research at Oxford Economics.
Casarin said companies from both regions could work together to convert the extracted oil into diesel and gasoline. “There are a lot of capital goods that are required to make sure that this oil and gas is then refined and gets to the fuel tanks of the cars and to all the plastics and petrochemicals producers.”
Mexico: $590 million
Peru: $574 million
Guyana: $348 million
Suriname: $299 million
It's not just oil
While oil is one obvious sector with several synergies, from UAE’s standpoint, food is even more important. UAE, which imports about 80-90 per cent of its food products, has said that its imports from Latin America reached $1.9 billion in 2020. In the current scenario, where supply bottlenecks and higher labour costs have led to an increase in food prices, it would do UAE good to further diversify its import sources.
“South America is the world’s biggest farm, so I think in an environment of increased food prices, there’s a huge potential for cooperation,” said Casarin. “There’s potential for collaboration between the two regions, such as in terms of accessing more modern machinery, but at the same time for the UAE to access better providers.”
Brazil, South America’s largest country and a major exporter of soybeans and meat products, will gain the most from any trade collaborations. The value of trade between Brazil and UAE reached $431 million at the end of the first quarter of 2021, with the UAE being the fourth main destination of Brazilian exports among Arab states.
Mexico, too, holds huge untapped potential. The country is a big manufacturing hub for the US and Canada and benefits from its tax free zone with those two countries under the USMCA agreement. The Latin American country also has the most number of free trade agreements in the world, showing its openness to trade and commerce.
Services sector
Any economic partnerships between the UAE and Latin America will probably not involve the services sector. The UAE, which has produced startups such as Careem and Noon, may face some resistance when entering such industries and that’s mostly due to ideological factors.
“Local governments are quite reluctant to open up these sectors to foreign competition, so I wouldn’t name those as the most immediate winners of the collaboration between the two regions,” said Casarin. “Overall, I believe that greater trade integration is going to be something inevitable in the next few years.”
LATAM forum
Two presidents, one prime minister, and 13 ministers from Latin America and the Caribbean region have been confirmed to participate in the fourth edition Global Business Forum Latin America, which takes place on March 23 -24 at Expo 2020 Dubai.
Organised by Dubai Chamber of Commerce in partnership with the Expo, the two-day forum held under the theme ‘Towards a Resilient Future’, will examine synergies between the two regions and explore new avenues of cooperation.
