Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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EU-Latin America Economic Ties

by Shannon K. O'Neil
November 19, 2012

Police officers walk in front the entrance of the EU-Latam headquarters in Lima Police officers walk in front the entrance of the EU-Latam headquarters in Lima (Enrique Castro-Mendivil/Courtesy Reuters).

European nations have had deep economic connections with many Latin American countries since independence, though most of the news today centers on how they are losing economic ground to China. Similar to my other posts on China’s and the United States’ economic ties with Latin America, this one will examine the European Union’s economic ties with the region through its trade, investments, and loans.

The European Union has long been Latin America’s number two trading partner after the United States, with merchandise exports and imports totaling $202 billion in 2011. The two largest European trading partners with Latin America are Germany (US$60 billion) and the Netherlands (US$38 billion), followed closely by Spain (US$35 billion) and Italy (US$31 billion). Commodities—food products, minerals, and fuel—are again (similar to the United States and China) the major products going to Europe, making up 70 percent of Latin America’s exports. But manufacturing and higher technology exports are also moving east across the Atlantic, as Mexico leads the way in exporting automobiles and telecommunications equipment, and Costa Rica is increasingly sending micro-chips.

European foreign direct investment (FDI) in Latin America has remained high despite the financial crisis. When taken as a whole in 2011, the EU’s US$60 billion far outpaces that from the United States (US$25 billion) or China (US$10 billion in 2010). Topping the list of investors was the Netherlands, but, as I wrote in an earlier post, only 8 percent of this investment stems from Dutch companies (and the rest comes from transnational companies using the country as a conduit for investments from third countries).

Coming in next was Spain, with some US$18 billion invested in 2011 (or 14 percent of all FDI in the region). The majority of Spain’s investments have been in Mexico, Brazil, Chile, and Argentina, and almost 86 percent of its investment is in the service sector (and only 2 percent in primary production). In recent years the Latin American investments of Spanish companies such as Santander and Telefónica have added billions in much-needed revenue, somewhat sheltering their bottom lines from the economic downturn at home.

Europe has also provided development loans to Latin America through the European Investment Bank (EIB). Though these loans pale in comparison to China’s in recent years, the EIB has financed several significant projects, including the US$507 million renovation of the Panama Canal and US$530 million for energy infrastructure development in Brazil.

Overall, and despite the financial crisis, the European Union’s economic ties with Latin America have continued to grow. While most analysts believe China will overtake the EU to become the second largest trading partner with Latin America by 2015, on the investment side the EU far outpaces other nations (even that of the United States). These long term bets by European companies on Latin America’s economy mean deeper ties into the future.

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