South America needs to create conditions for ‘nearshoring’

According to experts, South American countries are still far from having the necessary conditions to capitalize on the current trend toward the reorganization of global value chains. If South American governments do not want to miss out on this historic opportunity, they must act quickly to improve the business environment in their countries before other regions consolidate themselves as destinations for investments in the current wave of “nearshore” and “friendlyshore” logistics, warn these analysts.

“The pandemic, the invasion of Ukraine, and the ongoing tensions between China and the United States are compelling countries to reconsider strategic alliances and trade policies while companies rethink investment decisions,” said Alejandro Wagner, executive director of the Latin American steel association Alacero. “The process of reshoring or ally-shoring opens up the possibility of new regional investments for its natural resources and key raw materials.”

Ryan Berg, director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, points out two reasons South America has not yet woken up to attract companies leaving China.

“First, the nearshore and friendshore ‘window’ is just starting to open. This process will likely last a decade or more, especially as rethinking supply chains is time-consuming,” he said. “Second, more government incentives and actions will be needed to move supply chains further south,” he continued.

According to analysts, not even Chile, one of the region’s main destinations for direct foreign investment (DFI) in recent decades, has ideal conditions for attracting companies and new capital.

Mexico and the countries of Central America – not to mention those in Asia – appear as the favorite destinations for companies that are leaving China in search of closer countries and “friends” of the USA. Benefiting from its geographic location, Mexico attracted US$33 billion in DFI in 2021.

Due to the size of its economy and market, Brazil is always seen as an attractive platform for DFI but lacks free trade agreements with the US and European countries.

“I believe that nearshore strategies should accelerate new trade agreements in the coming years, mainly within the scope of the Pacific Alliance [Chile, Colombia, Peru, and Mexico] and Mercosur [Brazil, Argentina, Paraguay, and Uruguay],” said Alejandro Romero, Global CEO of LLYC consultancy.

Source: Valor Econômico

To read the original news article, please see: https://valor.globo.com/mundo/noticia/2023/04/05/america-do-sul-precisa-criar-condicoes-para-integrar-o-nearshore.ghtml

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