Latin America: A revised approach

This is an edited summary of the New Zealand Government’s revised Latin America Strategy, approved by Cabinet in May 2010.

Why is Latin America important for New Zealand?

Commensurate with the growing economic opportunities in the region, competition for Latin America’s attention and resources is increasing.  The region warrants a sharper focus from New Zealand for the following reasons:

• New Zealand already has significant economic interests in LatinAmerica.  Our annual exports (mainly dairy to Mexico, Venezuela and Cuba) average around NZ$1b annually and New Zealand investments (in agri-technology, energy, fisheries, and specialised manufacturing etc) are worth around NZ$1.3b.
• There is considerable scope to expand investment and services trade in the region.  This could be a significant avenue of economic diversification for New Zealand's external economic interests. The agricultural potential of South America provides New Zealand businesses with the chance to capitalise on their agri-technology strengths.  Better returns will be achieved through establishing secure relationships which yield long-term returns for New Zealand. In general, there is good potential to build on existing business links, and develop new opportunities, in energy, clean technology, and fisheries, as well as to grow the education and tourism markets.  
• South American agricultural production will increasingly compete with New Zealand products in third markets.  Expansion of New Zealand’s production, processing, and distribution footprint in the region is a way of addressing this threat.  
• Latin America, and especially Brazil, is a global player on the issues that matter to New Zealand, including the Doha Round, responses to the global economic crisis through the G20, and international climatechange negotiations.
  

The Latin America Strategy: Focusing on Economic Links

Since 2000, New Zealand’s Latin America Strategy Fund (LASF), worth NZ$250,000 annually, has promoted foreign policy cooperation and political links; trade and economic links; and people-to-people links between Latin America and New Zealand.

Since late 2008, the Latin America Strategy Fund has emphasised trade and economic links.  Its objective is to expand and deepen New Zealand's links with Latin America, especially to maximise the economic opportunities for New Zealand in the region and to strengthen political and foreign policy engagement. 

Under the Latin America Strategy, New Zealand has prioritized sixcountries: Brazil, Mexico, Chile, Argentina, Uruguay and Peru, with scope to also increase our engagement with other countries such as Colombia and Cuba.  Necessarily our approach to each country needs to be tailored to reflect the different stages of our relationships. The dedicated overall Latin America framework is appreciated by our Latin American partners.  It has been seen as a positive point of difference in our engagement with the region.

What should New Zealand be doing?

Looking ahead, the following are specific priority action areas for New Zealand government agencies working with Latin America.

• Underpin economic links with political engagement.  The Latin America Strategy is appreciated by the region.  We need to intensify efforts to build a broad-based political dialogue with the current governments and "next generation" leaders.  This will help to create a favourable response to New Zealand investments and trade, demonstrating our long-term commitment to the region.  
   
• Promote a better understanding of the region among New Zealand businesses to help identify prospects for increased investment, trade and joint ventures. Some businesses have not yet recognised the opportunities nor developed the capability (including use of Spanish/Portuguese language) to operate effectively in Latin America.  MFAT and NZTE are working together to ensure that Latin America is increasingly on the radar of businesses. We also need to raise New Zealand’s profile as an investment destination in the region in areas of strategic economic importance to New Zealand, e.g. through the Rugby World Cup 2011 and other promotions.
• Lower barriers to business.  The TransPacific Partnership (TPP: with respect to Chile and Peru) will be a key tool for providing businesses with improved market access and regulatory certainty. Sanitary/phyto-sanitary agreements, double taxation agreements, and regular trade policy discussions are other useful ways to address barriers to New Zealand businesses in the region. 
• Promote New Zealand tourism in the region^*. Tourism New Zealand funds activities to build the knowledge and the capability of agents who sell New Zealand. Tourism New Zealand’s three-year marketing strategy to 2013 is currently focused on existing markets (e.g. US, China, Germany) because this is where the greatest returns are earned from investment.  Tourism New Zealand is investing modestly in emerging markets such as Latin America because of their growing importance,  during and beyond the three-year strategy timeframe.
• Improve airlinks between New Zealand and the region. There are currently ten flights a week between the region and New Zealand (from Santiago and Buenos Aires to Auckland)^**. New Zealand has an interest in enhanced airlinks, including direct flights between Brazil and New Zealand.  New Zealand has air services arrangements in place with Argentina, Brazil, Chile and Mexico.
• Deepen education links with the region. EducationNZ is eager to expand and mature the education market beyond secondary school and English language training^****. Brazil is a priority market for EducationNZ (currently students and tourists from Brazil are worth more to New Zealand than goods exports).  There are increasing numbers of post-graduate students from Chile under the Bicentennial scholarships scheme and strong potential for education links and marketing in Colombia. Existing Working Holiday Schemes with Argentina, Brazil, Chile, Mexico, Peru, Uruguay help to build people-to-people links, including promoting study in New Zealand.
• Expand research and science links. This is an important means of supporting New Zealand’s investment and education links. New Zealand has a shared interest in addressing agricultural emissions through the Livestock Emissions Abatement Research Network and now the Global Research Alliance.
• Align New Zealand’s development assistance programme with New Zealand’s economic and political interests in Latin America. The modest development assistance programme is an important means to demonstrate New Zealand’s commitment, and to strengthen relationships with the governments of the region.

Risks

In order to take advantage of the opportunities in Latin America, we will need to recognise, and mitigate, key risks:

• Latin America will be a growing agricultural competitor. To address this, New Zealand needs to be part of the South America food value chain through increased investment in agricultural production, processing and distribution, rather than competing with it. This requires on-going effort to convince New Zealand businesses of this strategy.
• New Zealand businesses may sell their comparative advantage short in Latin America, by allowing their intellectual property to leach to Latin America for short-term gain.  Given the prospect of growing agricultural competition with the region, this could erode our longer-term comparative advantage particularly in the agri-technology sector.  NZ Inc needs to work together to promote long-term economic partnerships which generate an income stream back to New Zealand and a better understanding of intellectual property issues through business education.
• There may be negative perceptions of New Zealand's economic links with Latin America.  Given the broader ramifications for New Zealand's image, NZ Inc needs to promote a positive response to New Zealand investments, including demonstrating a long-term broad-based commitment and working with New Zealand businesses to minimize any reputational concerns. Political engagement and other government-to-government links are an important means of doing this.
• Political or economic volatility may affect New Zealand's interests. Latin America (particularly the key countries of interest to New Zealand) presents a more stable and predictable economic environment than previously, although economic populism as well as high levels of crime pose risks for New Zealand investors in some markets. Monitoring of the situation, information-sharing and engagement with New Zealand businesses on the risks remain important.
• Other priorities and limited resources impede New Zealand Inc’s capacity to tap the potential of the region. This is relevant for education and tourism promotion (and the related requirement to ensure that visa services in the region can cope with any increased demand). New Zealand businesses have identified Double Taxation Agreements as a key measure to assist offshore investment, particularly in South America – but, given other negotiating priorities, the Inland Revenue Department will not be in a position to address this in the medium term.

*There were 35,803 visitors, including students, from the region in 2009, almost half from Brazil. Argentina, Chile and Mexico are also growing sources of visitors to NZ.
***There are six LAN Chile flights from Santiago to Auckland and four Aerolineas Argentina flights from Buenos Aires to Auckland each week. There are also three Qantas flights from Buenos Aires to Sydney each week.
***There are approximately 3,580 students from Brazil (mainly secondary school and English language students) – making it New Zealand’s ninth biggest market for foreign students with an estimated yield of NZ$55million in 2009.

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