Former Obama campaign advisor talks LatAm-Asia opportunities, hurdles

China is expanding its footprint in Latin America – but Asia is much more than China.

Indeed, the manufacturing powerhouse’s smaller regional neighbors, such as Malaysia and the Philippines, are growing apace.

This all spells opportunities for Latin American countries in terms of trade and much-needed inward investment. Many countries in the region have already signed up to China's Belt and Road Initiative. This initiative is a massive infrastructure scheme designed to improve connectivity and cooperation on a transcontinental scale, consolidate China's geopolitical influence, and develop markets of Chinese exports. 

But how can South America take advantage of this emerging Asia, what are some of the roadblocks? 

To explore these issues and more, BNamericas spoke with Parag Khanna, global strategy advisor and former campaign advisor to Barack Obama.

Khanna, founder and managing partner of FutureMap, a Singapore-based data and scenario based strategic advisory firm, is also author of six books, including The Future Is Asian, which is described as the definitive guide to Asia’s global influence in the 21st century.

BNamericas sat down with Khanna in Chilean capital Santiago recently, where he was the main speaker at commercial bank Bci’s annual conference. 

BNamericas: How can Latin America best take advantage of this emerging Asia?

Khanna: I think, in some ways, it already has, but it’s not the end of the story. I think it had a good run during the commodities super-cycle, which will be remembered as the 1990s-early 2000s period when the boom in commodities prices, driven by Asia’s growth, was a very positive development for Africa, for South America and for the Middle East.

Those stars aligned and that was the first wave, the first generation of taking advantage of Asia’s growth from a Latin American standpoint. Brazil even signed an agreement, known as a strategic partnership, with China.

The question now is what do you do next. You’re not going to have a commodities price boom again. A purely commodities-dependent repeat of the super-cycle boom is not really going to happen. But that said, you want to remain connected and export as much as possible to them. This is why I advocate cultivating deeper ties, not just with China but, of course, with India, with Southeast Asia, etc. That’s part one. Part two will definitely be around the financial [facet], opening up the capital markets further, attracting foreign investment, using that to really build strong, national champion firms – it could still be in the extractive area. 'Not just commodities' is obviously part two of the equation.

BNamericas: What are some of the potential barriers?

Khanna: Distance, regulation, obviously. Quite frankly the size and appeal of the market. Latin America, with Brazil as a high-risk place that is scaring away capital, is not a good brand for the continent. To some degree, you need a Brazilian turnaround for the continental story to be positive. Not all of that is going to be within your control. Venezuela is obviously less significant than Brazil but still it is even worse news right now. 

So, you would say a Brazilian and a Venezuelan turnaround are going to be absolutely critical. So, when you talk about obstacles, those are pretty big obstacles. And that is going to be important in getting Asians interested in being here more. That said, I am based in Singapore. We have a Latin America-Singapore business forum and it is certainly growing every single year. There is evidence, and obviously a lot more Latin [American] ambassadors and a stronger business and commercial presence is establishing itself in ASEAN. It feels a bit more exploratory right now, but, that said, I think there will be some organic growth.

BNamericas: How about China’s Belt and Road Initiative. How will the country finance these projects?

Khanna: China will do a lot of things bilaterally through its development banks and it will also multilateralize Belt and Road more, to attract foreign capital and private capital.

BNamericas: That applies to Latin America as well?

Khanna: It does, to the extent that foreign and private capital want to enter Latin America, which they don’t want to as much as they want to enter Southeast Asia.

Asia being more attractive to Asians is one of the biggest shifts in the last 30 years because Asian capital and savings has been round-tripping for generations. It’s been invested in New York and London, rather than its own markets. And to the extent that Asians invested in Asia, they did it through round-tripping, through London and New York. 

They don’t do that anymore. Now, Asians take the majority of their money and they invest it in themselves or in their neighbors.

BNamericas: Not good news for Latin America then?

Khanna: Latin America has attracted capital from Europe but European capital dried up after 2010. Then you’ve got the Americans who are now much more focused on chasing domestic yield and so forth. So, you don’t have as much American interest. The Americans have been complaining that China has been coming and seizing this region but it’s also because the US has not been competing, stepping up and plugging those gaps. 

I think you could have a similar effect, where Latin savings are invested in this region, but that would require some pretty structural reforms, which are not really happening right now.

BNamericas: How big is the importance of intraregional trade?

Khanna: Huge. The Asianization of Asia is the single most important economic trend of the last 30 years, not the rise of China. The rise of China is part of the Asianization of Asia and it shows you, though, just like the Europeanization of Europe, just what a powerful force regionalism can be. 

I would of course love to see more of that but, as you know very well, regionalism in South America is more of a joke than a reality – and that’s a big mistake. Southeast Asia is much more ethnically, religiously, politically, historically diverse and heterogenous than South America but they’ve managed to pull together.

BNamericas: How can Latin America transcend the status quo?

Khanna: There is a technocratic answer which is savings and counter-cyclical investment. There is a reason why certain formulas, principles, prescriptions become entrenched, become part of the dogma – it is because they are right. How could you argue against those things?

Doing things right that one was supposed to have already done, during better times, and now having to figure out how to do them in harder times, is the challenge right now. 

Structural reforms, human capital. We're talking about 300mn people in Brazil and you're talking about the potential of Colombia and if you can have a new leadership in Venezuela. You know, having a continental area of 600mn-700mn people is still very, very high potential and that’s without factoring in how to cope with climate change and the fact that this continent does not have to be a victim of climate change, the way it is sort of making itself. There are a lot of human decisions that need to be made and should have been made, but we know what role irrationality and domestic politics and national pride and machismo play in political decisions here. 

BNamericas: Can Trump’s trade spat benefit Latin America indirectly?

Khanna: I think TPP member countries will find that China is going to be very favorable toward reducing tariffs with them, trading more with them, just look at agriculture. 

Everyone has to look at their own economic composition and their exports and ask themselves, what can we sell to China that China doesn’t want to buy from America anymore. 

BNamericas: In a nutshell, what’s at the root of Trump’s trade spat, why is he lashing out?

Khanna: Because he doesn’t understand the relationship between trade, investment and supply chains and how a) you can’t defeat them and b) they actually do distribute gains in a holistic way, including back into your own economy, that is very positive for your economy, but he doesn’t understand that. 

BNamericas: Any final thoughts?

Khanna: American capital remains very mobile and that, just like I am not surprised when American companies on the one hand tell Trump they support the trade war because they want to be tough on China on IP [intellectual property] but on the other hand they don’t want to lose access to China and to Asia, so they are actually offshoring even more. Let’s remember that one consequence of the trade war is more American offshoring, not less.

Now is a good time, maybe, for Latin economies and companies to actually be turning around to American business and saying ‘you want to invest here because we’re going to reform, we’re going to grow, we can even be a good access point to Asian markets because we’re TPP members.’ Why not?

Don’t count out US business. Remember that American business doesn’t really agree with Trump on the trade war, doesn’t really agree with him on TPP, doesn’t agree with him on Belt and Road. I have never met an American company that doesn’t wish that America joined the Belt and Road Initiative which, of course, is the last thing it will ever do.

Just like with every other country, you should not hold the people hostage to the views of their regime.

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