Why is UK trade with Latin America so poor?

William Hague, the UK Foreign Secretary, recently gave the Canning House lecture in London (see the YouTube Canning House lecture video and a transcript at this link: Canning House lecture) where he talked candidly about the relationship between Britain and Latin America.

Here are some key points from the speech:

  • In 1808, 40% of British exports were sent to Latin America. By the First World War, 50% of foreign investment in Latin America came from Britain, more than 20% of its trade was with Britain. Today UK exports to Latin America make up only 1% of all international exports to the region.
  • The UK exports over three times more to Ireland than to the whole of Latin America – a region of 576 million people and a GDP of $5 Trillion.
  • UK trade with Brazil – a country of almost 200 million people – is less than half that with Denmark.
  • Chile and Argentina are only the UK’s 43rd and 49th largest export markets respectively.
  • Germany exports nearly four times as much to Latin America as the UK, and France and Italy have also left the UK behind in this respect over the last twenty years.
  • UK diplomatic presence in the region has diminished: four British Embassies in the region have been closed since 1998 alone.
  • A number of UK companies have been successful in Latin America, including HSBC, BG Group, AstraZeneca, Balfour Beatty, Rolls Royce and Anglo-American.
  • Since 2000, 40 million people in Latin America have been lifted out of poverty, 72 million jobs have been created, and 17 million people have overcome illiteracy.

Referring to the UK’s more recent past with Latin America, the Foreign Secretary quoted a former British Ambassador in Brazil who described the problem as follows:  “in all too many circles in the UK…there is small imaginative conception of the fact that….no part of the world is developing more quickly than Latin America…Unless we are prepared in these days of rising competition to allow ourselves to be frozen out of this market by our more enterprising rivals, we must encourage in ourselves a more competitive outlook [and] adopt more positive policies”. Very tellingly these words were said over 50 years ago, but they are just as true today.

The UK Trade & Investment team recently published a report “From Surviving to Thriving: Doing Business Overseas” (available for download by clicking the link) as part of the focus of the new UK Coalition government to double exports within the next five years (similar to the Obama initiative in the US). The report does a good job of explaining the advantages of trading internationally (improved credibility, less dependency on the domestic economy, higher revenue, ability to spread risk and faster growth) and it also indicates that UK companies trade less with Latin America than any other region in the world (including Africa).

So whereas it is good to see a senior member of the UK government pledging more support for trade with Latin America there is a long hill to climb before it becomes on par with Germany, France and Italy, the three other major EU economies. Similar to their counterparts in the US, many UK companies (and SMEs in particular) need to believe that there is demand for Britain brands in Latin America and that the region as a whole is set for sustained growth and further reform and offers plenty of opportunities for their goods and services.

Yes, Latin America is different to the EU and the US, which are the UK’s major trading partners, its customs rules and bureaucracy require stringent procedures and patience, communication can be more difficult because of perhaps less English spoken than in other parts of the globe, the business model and products will probably have to be modified to increase the chances of success, but the region offers a growing market of consumers and businesses eager to sample international brands.

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