Seven years after its creation, the Pacific Alliance - formed by Colombia, Mexico, Peru and Chile - totals 57% of Latin America's foreign trade and 41% of total foreign investment in the region.1 The Pacific Alliance is an initiative of political, economic and regional cooperation and integration.
These countries' growth expectation for 2018 is higher than the average for Latin America and the Caribbean, according to the International Monetary Fund (IMF). The IMF expects the economy of the region will grow an average of 2% (negatively influenced by Venezuela), while Colombia will grow by 2.7%, Mexico 2.3%, Peru 3.7% and Chile by 3.4%. However, it is expected that the presidential elections in Colombia in May and Mexico in July, as well as others to take place in the region (Brazil and Paraguay), will slow down growth in the first half of the year.
The promotion of external investment and achieving greater relationships with the world, especially with the Asia-Pacific region, is one of the Pacific Alliance's strategies to increase trade. Likewise, negotiations on trade continues with Australia, Canada, New Zealand and Singapore. The aim is to increase and diversify the exports of member countries to the Asia-Pacific region, as well as increasing employment and attracting more tourism.
Within the Alliance, there are many actions that have allowed member countries to increase trade. They include, the elimination of tariffs on the movement of merchandise, services, financial and human resources, the business visa, the Single Window of Foreign Trade (Ventanilla Única de Comercio Exterior) and the approval of technical standards in some sectors such as food, pharmaceutical and cosmetics.
Regarding foreign trade, Mexico has focused its strategy on market diversification, with the Pacific Alliance being the key to its expansion into Latin America. During 2017, within the framework of the Alliance, Mexican companies made 25 million dollars in exports to be completed during that year, mainly consisting of consumer goods such as processed foods, beverages and various manufactures.
Meanwhile, in matters related to the financial industry, Colombia has made progress on the possibility of stock companies, trust companies or administrators acquiring shares of investment funds abroad. This can happen when these are in countries with which the financial Superintendency has information exchange and supervision agreements, such as Mexico, Chile and Peru. Chilean pension funds are already authorized to invest in a list of sovereign countries categorised ¨BBB¨ and ¨AA¨, among which includes Colombia.
In 2017, Peru was the country that emerged as the Pacific Alliance nation with the largest increase in exports, with an annual rate of 22.6%, managing to rank above Colombia (19%), Chile (9 .9%) and Mexico (4.4%). The main reason was the increase in external sales in the hydrocarbon, mining and agroindustry sectors. For 2018, a positive outlook is expected with investment playing an important role, although it is not yet possible to determine how the political changes of the country will influence investments.
No doubt there is much to be done, but the outlook is promising. In addition to the strategies and actions for trade and investment, the Alliance has put in place a cooperation agreement for entrepreneurship and innovation. It seeks the exchange of experiences, knowledge and learning to allow a greater development of the member countries and a better adaptation to the changes and challenges that globalization presents to them.
The Pacific Alliance is creating more opportunities for investors and international businesses in this region. Get in touch with our local experts to learn more about how TMF Group can help your business in Mexico, Colombia, Chile and Peru.
1 Source: ABC: Alianza del Pacífico with data from IMF, WB, WTO and UNCTAD.
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