Moscow and Latin America: Growing Together

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

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The International Monetary Fund is predicting that Latin America and the Caribbean will see gross domestic product (GDP) rise 5.8% by the end of 2021 and another 3.1% next year. The region’s more than 500 million residents generate a total GDP of USD 4.166 billion per year, or approximately 4.9% of global GDP, estimated by the World Bank at USD 84.705 trillion. The region is a sizable sales market and a serious economic partner.

As Russia’s financial and economic capital, Moscow is interested in opportunities to strengthen ties and increase trade turnover with Latin America and the Caribbean. The Mosprom Export Support Center hosted a series of online roundtables in mid-September on economic cooperation between Moscow and Latin America in 2021 called Moving Forward: Exporting Goods to Latin America. In this article, we look at the future prospects for trade between Moscow and Latin America and consider how both regions might help boost each other’s economies.

Breakdown of Moscow’s Exports to Latin America 

Before we turn to the future, let’s gain a clear picture of how trade stands today. According to Alexander Prokhorov, head of Moscow’s department for investment and industrial policy, Moscow accounts for 22.5% of Russia’s total trade turnover with Latin America of USD 13 billion. The capital city exported USD 212 million in non-resource and non-energy exports to Latin America in the first half of 2021 alone, four times more than the year before. In the same period, trade turnover with the region increased 45%.

Moscow’s exporters sold goods to 19 countries in Latin America, with most of the volume bound for Argentina, Mexico, Brazil, Nicaragua, Cuba, and Peru. Industrial products, at USD 200 million, accounted for the majority of the exports. These numbers show that Latin America’s markets have significant growth potential for Moscow-based companies.

Value Chains Deliver Growth

The bulk of Latin America’s imports consist of goods for its agricultural and livestock industries, while most of Moscow’s exports to the region are industrial goods, from plastic items and prepackaged pharmaceuticals to diagnostic reagents and food products. Notably, 2021 saw Moscow-based companies restart exports to Latin America of a number of products they had stopped exporting several years before, namely dairy products, meat, and ready-made meat and fish products.

Sergio Contreras, executive vice president of the Mexican Business Council for Foreign Trade, Science, and Technology, believes that Moscow and Mexico would do well to cooperate in creating global value chains. The auto industry, oil refining, and automobile and truck parts are areas where he sees the most potential.

Dmitry Razumovsky, Director of the Institute for Latin American Studies of the Russian Academy of Sciences, points out that the current trend in Latin American countries is to focus on technological independence and self-sufficiency. The modern economy demands that countries become increasingly competitive and productive, and that requires technological upgrades.

According to Razumovsky, those upgrades do not have to happen across the board. Jumping up a single level in the value chain can be enough to deliver noticeable results, and local efforts are often sufficient to make it happen. For example, Latin America is the birthplace of cacao, but the region produces relatively little chocolate because of the difficulty of competing with higher quality European chocolate. The region’s growers export inexpensive cocoa beans instead. However, cocoa liquor, an intermediate product in demand in Europe and the United States, would be a more profitable export for Latin American growers. Moscow-based Kadzama manufactures and sells equipment for turning cocoa beans into liquor. The equipment is affordable for a wide range of enterprises and can help Latin American growers boost the added value of their products. Kadzama exports significant shipments of its cocoa processing equipment to countries in Europe, Africa, and Latin America, as well as to Japan. 

Technology Drives Trade

One of the most promising areas for mutual growth is the creation of joint ventures based in Latin America using Russian technologies. As an example, Bolivia is working with Russian scientists to build a high-elevation nuclear research reactor complex with a radiopharmaceuticals laboratory.

Argentine ambassador to Russia Eduardo Antonio Zuain believes in the potential of joint ventures based on technology transfer in the fields of shipbuilding, railways, power-generation infrastructure, and renewable energy sources.

Anna Kuzmenko, deputy director of Moscow’s department for investment and industrial policy, agrees with Zuain that the city could be exporting a wider range of goods, including through participation in infrastructure projects in Latin America. Mexico alone is currently pursuing 39 such projects at a total cost of close to USD 14 billion. Potential areas of interest to Moscow’s industrial exporters include the construction of roads, ports, and railways, energy projects, and water, sewer, and waste management projects.

Digitalization

Russia boasts sophisticated FinTech and e-commerce infrastructure, which uniquely positions Moscow-based companies to help Latin America get up to speed with digital services for business and daily life. The quality of the region’s digital solutions lags behind even as experts estimate that the FinTech market in Brazil, Argentina, and Mexico is growing a whopping 70-80% each year, making this the perfect time for Moscow’s developers to offer more advanced solutions. 

Digital services from Moscow can also increase the margins for Latin America’s traditional industries. During Mosprom’s online roundtable, an AgroDroneGroup leader explained how unmanned systems can help increase yields, optimize government subsidies, develop new agricultural chemicals, and solve a wide range of other tasks. In its 11 years in the market, the company has amassed impressive experience and trained its drones to analyze field data and report issues for a range of crops.

Technologies for the spot application of herbicides in soybean fields present a strong business case for precision agriculture. After analyzing weed distribution in a test field, AgroDroneGroup created a map with zones showing where herbicides should or should not be applied. The grower was able to cut its herbicide use 90% while harvesting the expected yield. This delivered savings of over USD 1,000 per hectare. 

Focus on Quality

Moscow-based manufacturers have a significant advantage over competitors from countries like China, namely their optimal price/quality ratio. Chinese loans are not as cheap as they were five or ten years ago, and Chinese manufacturers no longer offer the best prices in every case. The weak ruble gives an additional boost to Moscow-based manufacturers in new markets.

The director of Incotex, which sells its Leader Light brand of lighting solutions in Latin America and positions itself as a quality supplier, told other round table participants about its sale of 5,000 LED luminary lights to Argentina four years ago through a joint project with Avangard Energy SRL. Since the time of the sale, no lights have been returned and the buyer has received nothing but positive comments. These results are especially heartening given that the customer installed the lights in a coastal region of the tropics (Quilmes, Bahía Blanca, and Buenos Aires). 

Latin American growers may demonstrate an interest in sensors, parts, microchips, and even entire high-quality precision agriculture solutions from Moscow-based companies. One capital exporter manufactures grass cutters that could be used to prepare fodder for large livestock operations in Argentina and the rest of Latin America.

Potential Barriers

There are five key barriers that Moscow’s exporters need to consider when eyeing opportunities in Latin America:

• Import duties. MERCOSUR maintains protectionist import duties as high as 35%, and local customers may not be aware of additional taxes that a Russian business will encounter upon sale. 
• Certification requirements that essentially protect existing monopolies. As an example, Diagnostica-M, which makes security equipment, encountered certification requirements that were written to exclude all but Latin American manufacturers. 
• Distance and time difference. Ensol, an exporter of lithium-ion batteries to 17 countries around the world, including Costa Rica, has found time and distance to be a factor. It can be difficult to find meeting times that work for everyone. And while traveling to the customer’s location is expensive and time-consuming, it can be difficult to explain all the nuances of a complex product by remote meeting – the manufacturer is left wondering if the customers got all the details they needed. 
• Language barrier. The language barrier comes into play when translating specialized engineering terms between Russian and Spanish or Portuguese. Moscow-based companies hire interpreters to travel with them, since it is not always possible to find qualified Russian interpreters on-site in Latin America.
• Shipping. Evropeyskaya Elektrotechnica experienced first-hand some of the difficulties of delivering equipment to the region. In late 2018 the company signed a memorandum with Ecuador’s national power company to supply oil-saving equipment. The equipment was delivered, but COVID-19 restrictions prevented the Moscow-based company from sending its installation and service teams to get it up and running. In current conditions, travel to Ecuador from Russia takes three to four days and a layover in Panama. The company is waiting for direct flights to resume so that it can complete the project. 

These barriers are all surmountable. The Mosprom Export Support Center is already helping local companies start exporting to Latin America. This spring, Mosprom organized a business mission that took industrial manufacturers to the region to find foreign buyers and meet end-consumers with an interest in products from Moscow. Mosprom took care of all pre-market issues and adapted the exporters’ marketing materials for the Latin American market with the help of an expert professional translator.

The Center’s experts also gave exporters advanced details about all import duties and hidden taxes, certification requirements by industry, and the size of various sectors of the economy. Delivery problems will get ironed out as coronavirus restrictions are lifted and regular flights resume, and the lack of specialized translators should ease as the regions continue to cooperate, with supply growing to meet demand. By and large, Moscow’s future in Latin America depends more on businesses and their ability to see opportunities and negotiate deals than on external factors.

Right now, Moscow-based manufacturers of food products are preparing for the ANUGA-2021 food and beverage fair in Germany. Five exporters will present their products at a Mosprom-sponsored stand. Exporters at the stand include a manufacturer of confectionery and organics, two ice cream makers, and companies manufacturing meat and pasta products. 

ANUGA is the world’s leading food industry trade show, with over 150,000 food and beverage experts in attendance each year. The fact that 90% of the exhibitors come from outside Germany underscores the event’s status and importance for exporters around the world. 

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.