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China-CELAC Agreement Could Bolster Infrastructure Development In Latin America

  • CELAC and China signed a wide-ranging economic agreement in December.
  • The agreement is expected to lead to a rise in infrastructure investment.
  • Plans were outlined for greater engagement between the public and private sectors.
  • 4IR technologies could also benefit from greater economic cooperation.

A number of Latin American and Caribbean countries have strengthened their ties with China after signing a wide-ranging economic and political agreement.

In December the Community of Latin American and Caribbean States (CELAC), a bloc of 33 countries that includes regional heavyweights such as Argentina, Colombia and Mexico, signed the China-CELAC Joint Action Plan for Cooperation in Key Areas 2022-24.

The seven-point agreement outlines plans for greater engagement and cooperation between governments, private companies and financial institutions in a number of areas, including infrastructure development, the economy, and political and security issues.

While China has invested significantly in the region in past decades, the deal is expected to herald a deepening of cooperation in a region that has traditionally been heavily tied to the US.

The agreement is also indicative of CELAC’s growing ties with the world: the deal with China builds on previous agreements with the US, Canada, ASEAN, the EU, Turkey, Japan and Russia.

Infrastructure investment

A key pillar of the joint action plan relates to infrastructure.

This is a crucial issue for Latin America and the Caribbean, with the Inter-American Development Bank (IADB) predicting that the region will need to invest 3.1% of its GDP into infrastructure annually in order to meet its Sustainable Development Goals by 2030.

Of this, the bank says 59% of the amount would need to be invested in new infrastructure, with the rest allocated to the maintenance and replacement of existing assets.

To this end, the China-CELAC agreement has outlined plans for greater cooperation with regard to the former’s Belt and Road Initiative, which could see more state-backed Chinese infrastructure investment in the region.

Further to this, the agreement also included the objective to hold a Forum on China-CELAC Transport Cooperation “as soon as possible”.

An improvement in transport infrastructure is crucial to Latin America and the Caribbean’s economic development. Around half of the 3.1% of annual GDP in infrastructure investment required in the region – according to the IADB – relates strictly to the transport sector, whether in the form of roads, airports or other types of public transport.

The pandemic laid bare some of the shortfalls of the region’s transport networks, with many parts of the continent experiencing either food, medical or key equipment shortages at different stages. Improving transport connections would not only build resilience in the region’s internal supply chains, but also improve the business environment for local companies.

Aside from strictly public involvement, the joint action plan also looks to incentivize greater private sector investment in Latin America, and dovetails with a number of current global economic developments.

“The disruption of global supply chains created by the pandemic has created a higher impetus to locate industrial sites closer to the main destination markets,” Bruno Martinez, the CEO of Mexican industrial park developer Alveo Kapital, told OBG. “Coupled with rising wages in Asia, this context has put Mexico under the spotlight for Asian investors looking to diversify their production bases and bring them closer to the US.”

Increasing economic cooperation

In addition to facilitating infrastructure investment, the China-CELAC deal also seeks to improve what it describes as “pragmatic economic cooperation”.

Highlighting nine focus areas – trade and investment, finance, agriculture and food, science and technology innovation, industry and information technology, aviation and aerospace, energy and resources, tourism, and Customs and taxes – the agreement aims to improve cooperation and collaboration between the various parties.

While the effects of this could be felt across a wide range of sectors, one area that would significantly benefit is that of high-tech manufacturing and what are known as Fourth Industrial Revolution (4IR) technologies.

4IR, also known as Industry 4.0, refers to technologies such as artificial intelligence, analytics, the internet of things, cloud computing and robotics that are seen as key to next-generation manufacturing, as well as advancements in other sectors. 

Through greater cooperation with innovative Chinese companies and state bodies, CELAC firms and governments alike could benefit from an improvement in technology, skills and know-how.

A number of countries, including Argentina, Chile and Mexico, have highlighted the importance of developing 4IR capabilities, which are seen as key to future economic growth and the ongoing recovery from the Covid-19 pandemic.

By Oxford Business Group

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Leave a comment
  • Mamdouh Salameh on February 13 2022 said:
    Under the Banner of its Belt and Road Initiative (BRI), China has been spreading its wings and deepening its economic and political ties with emerging nations across Asia, Africa and South America. This has enabled it to integrate its economy deeper into the global trade system.

    The signing of a Joint Cooperation Plan between China and the Community of Latin and Caribbean States (CELAC), a bloc of 33 countries that includes regional heavyweights such as Argentina, Colombia and Mexico, is no exception.

    The seven-point agreement outlines plans for greater engagement and cooperation between governments, private companies and financial institutions in a number of areas, including infrastructure development, the economy, and political and security issues. A key pillar of the joint action plan relates to infrastructure.

    Since the BRI’s launch in 2013, more than 100 countries have signed on to its projects. By the middle of 2020 more than 2,600 projects valued at $3.7 trillion could be linked to it. It has become a pillar of Chinese foreign policy and a strategic tool for Beijing as it has deepened its partnerships and boosted its influence in the process.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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