By Beatrice E. Rangel
As Covid-19 turns around to launch its second wave of deadly spread, the world economic powers begin to warm their engines to enter the post pandemic season. This entails the restructuring of the global value chain to accommodate nationalistic and geopolitical considerations as well as to minimize economic risks going forward.
If any virtue is to be found in the Covid 19 pandemic, it is that it laid bare the risks of allocating worldwide manufacturing efforts to a single country.
China is indeed the world’s manufacturing powerhouse. And as manufacturing efforts concentrated in China, the rest of the world could count on the continuous growth of demand feeding middle classes.
China’ s low cost structure opened access to a very generous basket of goods and services that nurtured worldwide aggregate demand. Also, as manufacturing concentrated in China, liberals from all over the world exacted regulations aimed at protecting the environment. These regulations further pushed companies into moving their manufacturing activities to China where these considerations were less compelling to policy makers.
As Covid-19 brought the world economy to a standstill, world leaders saw the writing on the wall: the supply chain has to be restructured lest we want to replicate the experience.
Supply chain restructuring is thus underway through three policy guidelines. These are :
- China plus one
- In shoring
China plus one entails moving part of manufacturing activities to other Asian countries such as India, Thailand, Vietnam and even Myanmar. Infrastructure weaknesses in these nations are to be taken care of by the Belt and Road initiative plus Western FDI.
Then there is Near shoring which entails bringing part of manufacturing to neighboring countries with lower cost structures.
In shoring is to bring manufacturing back home and charging the market much higher prices for goods and services. This later approach will most probably be booed by consumers.
Near shoring thus is the name of the game if you are a middle income emerging market. And most are already competing to attract both Belt and Road investment as well as Western FDI. The Asian nations are in talks to Japan. The African nations are going to benefit from an early investment of € 6 billion by the EU aiming at creating conditions for European MNCs to move to Africa part of their manufacturing activities. And the United States is moving fast to near shore in Mexico.
This leaves the rest of Latin America reeling in the cold of recession. Unfortunately this seems to be the region’s near future lest leaders act swiftly to correct current imbalances that make near shoring too expensive.
These imbalances are first and utmost of a regulatory nature. All economies in the region except for that of Mexico lack competitiveness because regulations have been designed to protect monopolies for their business leaders.
Without competition like there is in Mexico after embracing NAFTA, no country in Latin America is going to be able to develop economic advantages that attract FDI.
Second, infrastructure needs a serious revamp. Protection of domestic construction monopolies has brought infrastructure modernization to a standstill.
Third there is the digital divide which enslaves the majority of the population in menial jobs while stemming away entrepreneurship. Training the majority of the population into coding and software writing while providing them what ECLAC defines as the digital basket (internet account; tablet; on line training) should be deemed as important as the stimulus packages are to the U.S.A.
Up to now it does not seem that the Latin leaders will step up to the plate.
Beatrice Rangel is President & CEO of the AMLA Consulting Group, which provides growth and partnership opportunities in US and Hispanic markets. AMLA identifies the best potential partner for businesses which are eager to exploit the growing buying power of the US Hispanic market and for US Corporations seeking to find investment partners in Latin America. Previously, she was Chief of Staff for Venezuela President Carlos Andres Perez as well as Chief Strategist for the Cisneros Group of Companies.
For her work throughout Latin America, Rangel has been honored with the Order of Merit of May from Argentina, the Condor of the Andes Order from Bolivia, the Bernardo O'Higgins Order by Chile, the Order of Boyaca from Colombia, and the National Order of Jose Matías Delgado from El Salvador.
You can follow her on twitter @BEPA2009 or contact her directly at BRangel@amlaconsulting.com.