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IDB encourages push for diversification of region’s service exports

In light of the slowdown in the growth of the global economy, the Inter-American Development Bank (IDB) is encouraging countries in Latin America and the Caribbean to diversify its exports from the region, with part focus on high value-added services.

The Inter-American Development Bank in Washington, DC.

“The synchronised slowdown of advanced and emerging economies and the contraction of the terms of trade in the region indicate that Latin America needs an insurance policy to protect itself from external risks,” noted Paolo Giordano, principal economist at the IDB’s Integration and Trade Sector.

Giordano was responsible for coordinating this year’s annual publication of the IDB Trade and Integration Monitor, which analyses trade flow trends in the region.

Paolo Giordano is the chief economist in the Inter-American Development Bank’s (IDB) Integration and Trade Sector Department. Under his watch, the IDB published the 2019 Trade and Integration Monitor. (Photo: Spain’s News)

According to the study, the value of exports from Latin American and the Caribbean fell by 1.3 per cent in the first half of 2019 when compared with the same period in 2018. Further, the decline from 8.8 per cent growth in 2018 brought to an end a period of expansion lasting two years.

“It will not be possible to reactivate trade expansion without putting the challenges of competitiveness in international markets at the centre of the development agendas of the countries of the region,” Giordano pointed out.

The change in trend was due mainly to the weakening demand for commodities, which resulted in both a fall in prices and a deceleration in export volumes.

“…there are still indications that the region is lacking in diversification. Of note, exports of services grew by 0.4 per cent in the first half of 2019, but could not match 2.4 per cent increase registered in the same period in 2019.”

-Inter-American Development Bank

The decline in intraregional trade

“The 8.4 per cent fall in intraregional shipments in the first half of 2019 impacted the weak trade performance of the region in that period, consolidating a medium-term trend marked by the reduction in the intensity of intraregrional trade,” a release from the IDB shared.

“This contrasts with exchanges within the region in 2018 which increased 6.9 per cent,” the release continued.

Only countries in the Pacific Alliance — Mexico, Colombia, Chile, and Peru — recorded small upticks in external sales, mainly driven by extra-regional exports from Mexico, the IDB noted. In contrast, other integration blocks experienced declines in both intraregional shipments and exports to the rest of the world.

Exports from Mexico drove small upticks in Mexico, Colombia, Chile and Peru.

In MERCOSUR, which comprises Brazil, Argentina, Uruguay, and Paraguay, the drop in sales among members contributed significantly to the decline in exports.

Given the global context of economic slowdown, the IDB study highly recommends “advancing in deepening regional integration”.

Progress in the export of services

“In 2018, the contribution of exports of services from the region to total shipments (13.7 per cent) was below the world average (23.2 per cent) and was concentrated in traditional sectors such as travel and transport.”

– Inter-American Development Bank

The IDB highlighted that Latin American and the Caribbean have made “notable progress in the export of services”; however, there are still indications that the region is lacking in diversification. Of note, exports of services grew by 0.4 per cent in the first half of 2019, but could not match 2.4 per cent increase registered in the same period in 2019.

“In 2018, the contribution of exports of services from the region to total shipments (13.7 per cent) was below the world average (23.2 per cent) and was concentrated in traditional sectors such as travel and transport,” the IDB cited.

Export of services was centred around traditional sectors such as transportation and travel in 2018.

“However, knowledge-based services are gaining ground, especially in business and information technology services,” it added.

Based on a medium-term analysis of the competitive profile of export of services, between 2012 and 2017, only five per cent of the value of external sales came from strategic segments, such as information technologies. The region gained market share in this segment while global demand grew more than the average.

The IDB said in order to improve the position and performance of the region in the global services market, reforms and investment to boost the development of strategic sectors, as well as better data to measure cross-border transactions, are needed, especially considering the slowing in the trade of goods.

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