Market at a Glance

Emerging Market At A Glance is a monthly series of articles designed to give exporters a glimpse of political and economic trends of emerging markets. To see the full articles, click the links below.
 


Strengths

Ÿ   Strategic location - logistical hub for the East African region

Ÿ   Rich natural resources

Ÿ   Large and young population

Challenges

Ÿ   High poverty rate

Ÿ   Weak economic fundamentals - twin deficits in fiscal and current accounts

Ÿ   Security issue related to terrorist attack

 

Key Information

Capital

Nairobi

Population

46.8 million

Area

569,259 sq km

Currency

Kenya shilling (1 KES = 0.0097 USD as of 10 February 2017)

Official language

English and Kiswahili

Form of government

Republic

Ease of doing business by World Bank

# 92 out of 190 in 2017 (↑21)

The Global Competitiveness Index by the World Economic Forum

# 96 out of 138 in 2016/17 (3)

Logistics Performance Index by World Bank

# 42 out of 160 in 2016

Major Merchandise Exports (% of total, 2015)

Major Merchandise Imports (% of total, 2015)

Tea (20.9%)

Industrial supplies (29.1%)

Horticulture (20.0%)

Machinery & other capital equipment (17.4%)

Coffee (4.7%)

Transport equipment (11.3%)

Top three export markets (% of total, 2015)

Top three import markets (% of total, 2015)

Uganda (11.5%)

India (15.3%)

Tanzania (7.4%)

China (16.4%)

Netherlands (8.3%)

UAE (6.4%)

Source: Economist Intelligence Unit

Political Highlights

 

Political tensions loom large

Kenya is a constitutional democracy with a bicameral parliament and executive president directly elected by voters. The next presidential and legislative elections will be held in August 2017. Current president Uhuru Kenyatta will run for his second term in office. The ruling coalition, comprising Kenyatta''s the National Alliance and deputy president William Ruto''s United Republican Party, formally merged into a single entity called the Jubilee Party in September last year to present a united electoral front. The Coalition for Reforms and Democracy, led by Kenya’s most prominent opposition leader Raila Odinga, will be the main challenger. Election-related violence on issues like the creditability of the electorate system heightened political tensions ahead of the elections.

High threat from terrorism

Kenya’s foreign policy is mainly driven by economic interests, especially the maintenance of close relations with key donors in the West and the advancement of regional integration within the East African Community (EAC). Kenya has seen an upsurge in violent terrorist attacks since 2011. Kenyan government officials asserted that many of the murders and attacks were carried out by the Somalia-based Islamist group Al-Shabaab in retaliation for Operation Linda Nchi, a co-ordinated military operation between the Kenyan military and the Somali military in October 2011, when troops from Kenya crossed the border into the conflict zones of southern Somalia. Security risk will remain a serious challenge, with the main threat being posed by al-Shabaab militant group, and locally recruited radicals.

Economic Trend

Economic Indicators

2013

2014

2015

2016*

2017^

Nominal GDP (USD bn)

55.1

61.4

63.4

70.6

75.3

Real GDP growth (%)

5.7

5.3

5.6

5.8

5.9

GDP per capita (USD)

1,260

1,370

1,380

1,490

1,550

Inflation (%)

5.7

6.9

6.6

6.3

5.9

Budget balance (% of GDP)

-9.8

-6.2

-7.2*

-7.8

-6.9

Current account balance  (% of GDP)

-8.8

-10.3

-6.4

-5.9

-5.6

External debt (% of GDP)

24.9

27.2

28.9

29.3

29.6

*Estimates ^ Forecasts

Source: Economist Intelligence Unit

 

Strong domestic demand fuels growth

Kenya has been developing as one of the fastest growing economies in Africa, supported by lower energy costs, strong infrastructure investments, agriculture and manufacturing. Economic growth accelerated to 5.8% in 2016. Key growth drivers were infrastructure spending and buoyant household consumption, underpinned by strong underlying demand for goods and services. Kenya’s retail sector experienced considerable growth in recent years (annual rate of 7.3% in 201115; 6.6% year-on-year in the first half of 2016) thanks to rapid urbanisation and increased purchasing power of the expanding middle-class population. Economic performance is expected to remain solid in 2017; while downside risks include higher oil prices and election-related uncertainty. Notably, all major political parties favour a freemarket system, which means the next election in 2017 is unlikely to herald any adverse policy shifts.

Leading role in East African Community

Kenya plays a key role in EAC trade bloc, which has a combined population of over 150 million and a combined nominal GDP of over US$100 billion. EAC also comprises Burundi, Rwanda, Uganda and Tanzania. Kenya is EAC''s biggest and most advanced economy, and serves as the logistical hub for the EAC''s other landlocked nations. With its dominance role in the region, Kenya attracted an increasing amount of foreign direct investment (FDI). According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2016, Kenya’s FDI inflows reached a record level of US$1.4 billion in 2015, resulting from renewed investor confidence in the country’s business climate and booming domestic consumer market, with the sources coming from a wide variety including the US, Europe, key Asian economies and South Africa. 

A more accommodating business environment

In the World Bank''s Doing Business 2017 report, Kenya saw a sharp rise in its ranking to 92nd (out of 190 countries) from 113th in the previous year, reflecting its continued effort in implementing administrative reforms. Following the passage of new company and insolvency laws in 2015, resolving insolvency has become easier with a clearer and more flexible framework. Meanwhile, Kenya also saw a sharp improvement in the Logistics Performance Index (LPI), jumping from 74th in 2014 to 42th (out of 160 countries) in 2016, the second best in Africa, just behind South Africa. According to the LPI, Kenya has greatly improved trade flow and reduced the cost of doing business for importers and exporters, further enhancing its position as the logistic hub of Africa.

Hong Kong – Kenya Trade

Source: Census and Statistics Department of Hong Kong

 

Total exports from Hong Kong to Kenya decreased by 19.7% from HK$1,647 million in 2015 to HK$1,322 million in 2016. The top three export categories to Kenya were: (1) telecommunications, audio & video equipment (-17.3%), (2) office machines & computers (-7.0%), and (3) textiles (+21.4%), which represented 86.1% of total exports to Kenya.

 

Source: Census and Statistics Department of Hong Kong

 

ECIC Underwriting Experience

 

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Kenyan buyers. Currently, the insured buyers in Kenya are mainly small and medium sized companies. For 2016, the number of credit limit applications on Kenya remained stable, while the amount of credit limit applications and Insured business increased by 188.9% and 159.8% respectively. Major insured products were toys, chemical products and electronics, which represented 98.6% of ECIC’s insured business on Kenya. The Corporation’s underwriting experience on Kenya has been satisfactory, with no claim payment or payment difficulty case reported during the past 12 months (from February 2016 to January 2017).

Please click here to download the charts (PDF format)

 

Last update: 24 February 2017

 

Strengths

Ÿ  Rich in natural resources

Ÿ  Relatively stable political environment

Challenges

Ÿ  Macroeconomic imbalances

Ÿ  Dependence on commodity exports

Ÿ  Inadequate infrastructure

 

Key Information

Capital

Accra

Population

27.4 million

Area

238,533 sq km

Currency

Ghanaian Cedi (1 GHS = 0.2281USD as of 8 February 2017)

Official language

English

Form of government

Republic

Ease of doing business by World Bank

# 108 out of 190 in 2017 (3)

The Global Competitiveness Index by the World Economic Forum

# 114 out of 138 in 2016/17 (5)

Logistics Performance Index by World Bank

# 88 out of 160 in 2016

Major merchandise exports (% of total, 2015)

Major merchandise imports (% of total, 2015)

Agricultural products (31.7%)

Manufactured goods (63.1%)

Fuels and mining products (28.0%)

Agricultural products (11.7%)

Manufactured goods (8.8%)

Fuels and mining products (1.8%)

Top three export markets (% of total, 2014)

Top three import markets (% of total, 2014)

European Union (29.6%)

European Union (28.7%)

South Africa (22.4%)

China (17.8%)

United Arab Emirates (13.1%)

US (9.8%)

Source: Economist Intelligence Unit, the World Trade Organization

 

Political Highlights

 

A stable democracy

Ghana is a relatively stable democracy in Africa. It is often seen as a model for political and economic reform in the region due to its peaceful elections and changes of power. In the general elections held in December, Nana Dankwa Akufo-Addo of the largest opposition New Patriotic Party (NPP) was elected president, defeating the incumbent John Mahama of the National Democratic Congress (NDC). The NPP also won a majority of seats in Parliament. The elections and smooth transition of power have reconfirmed the strength of Ghana''s democracy, further enhancing the country''s international reputation.

Ambitious industrialization programme

Akufo-Addo won the election in part by promising voters he would give US$1 million to each of the 275 constituencies every year for development, build a dam in every village and a factory in every district. One of Akufo-Addo’s policy priorities will be to speed up the process of industrialization in order to boost the population’s living standard. The industrialization project will open up opportunities for the private sector and foreign investors, but fiscal pressures will restrain its execution.

Desire to review the IMF deal

In 2015, Ghana signed a three-year US$ 918 million financial assistance deal with the International Monetary Fund (IMF) aimed to restore the country’s debt sustainability and macroeconomic stability. The programme, signed by the previous NDC government, imposes strict targets for revenue collection and spending. The new government has expressed a desire to review it with the IMF because more money will be needed for the industrialization program and other spending plans. The approach by Ghana''s new government towards the deal will come under scrutiny.

 

Economic Trend

 

Economic Indicators

2014

2015

2016*

2017*

2018*

 

Nominal GDP (USD bn)

38.6

37.7

42.8

46.6

51.3

 

Real GDP growth (%)

4.0

3.9

3.3

7.4

8.4

 

GDP per capita (USD)

1,472.99*

1,401.73*

1,550.81

1,648.27

1,768.66

 

Inflation (%)

15.5

17.2

17.0

10.0

7.0

 

Budget balance (% of GDP)

-10.9

-4.7

-3.8

-2.0

-2.3

 

Current account balance (% of GDP)

-9.6

-7.5

-6.3

-6.0

-4.9

 

Public debt (% of GDP)

72.2

70.8

66.0

62.2

58.6

 

* Estimates

Source: the International Monetary Fund

 

 

In the aftermath of the commodity boom

Ghana is rich in natural resources. The agriculture sector accounts for nearly one-quarter of GDP and employs more than half of the workforce. Gold and cocoa exports are major sources of foreign exchange. Ghana also became an oil producer in 2010 after its discovery of an offshore oil field in 2007. Gold, cocoa and oil together form 80% of the country’s exports. The expansion of the oil industry has boosted economic growth, and the country was recently hailed as a model for African growth. However, lower global commodity prices in recent years and energy shortages have taken a toll on Ghana’s economy. Real GDP growth slowed to an estimated 3.3% in 2016, compared to 14% in 2011. Over the past five years, the Ghanaian Cedi has lost 60% of value against the US dollar.

Grappling with macroeconomic imbalances

During previous boom years, the government increased spending due to over-optimistic revenue projections. Now, the country is grappling with macroeconomic imbalances. The decline in commodity prices has resulted in lower export receipts and budget revenues. Despite tight monetary policy with benchmark interest rate at 25.5%, inflation remains high and above the 8 +/-2% target range of Bank of Ghana. Under the IMF programme, Ghana will need to implement a sizeable fiscal adjustment, aiming at turning the primary balance, i.e. the budget balance before interest payments, from a deficit of 3.7% in 2014 into a surplus of 3.2% of GDP in 2017.

Seeking alternative growth engines

Growth is expected to rebound in 2017, supported by increased oil and gas production and improvements in electricity provision. However, the overall economic environment remains challenging. Conditions on international capital markets would also become less favorable amid the tightening US monetary policy, and the downward currency pressure is likely to persist. In addition, China makes up more than 50% of the world''s demand for metals, and its economic slowdown will weigh on commodity exports. It is therefore unlikely that metal exports will drive Ghana’s future growth as much as they did in the 2000s, and the country’s long-term prospect will depend on how fast it can find alternative engines for growth.

Hong Kong – Ghana Trade

Source: Census and Statistics Department of Hong Kong

 

Total exports from Hong Kong to Ghana increased by 82.6% from HK$ 808 million in 2015 to HK$ 1,476 million in 2016. The top three export categories to Ghana were: (1) telecommunications, audio & video equipment (+60.6%), (2) power generating machinery and equipment (+8,144.5%), and (3) Non-ferrous metals (-36.0%), which represented 91.9% of total exports to Ghana.

 

Source: Census and Statistics Department of Hong Kong

 

ECIC Underwriting Experience

 

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Ghanaian buyers. Currently, the insured buyers in Ghana are mainly small and medium sized companies. For 2016, the number of credit limit applications on Ghana remained unchanged while the amount of credit limit applications increased by 60.0%. The insured business decreased by 43.9%. Major insured products were chemical products, metallic products and electrical appliances. The Corporation’s underwriting experience on Ghana has been satisfactory, with one payment difficulty case reported in 2016, involving food.

Please click here to download the charts (PDF format)

 

Last update: 16 February 2017

 

 
 
 

Strengths

Ÿ  Abundant natural resources

Ÿ  Prudent economic policy

Challenges

Ÿ  Vulnerable to commodity price fluctuations

Ÿ  Implementation of peace accords

 

Key Information

Capital

Bogota

Population

47.2 million

Area

1,038,700 sq km

Currency

Colombian peso (1 COP = 0.0003 USD as of 19 January 2017)

Official language

Spanish

Form of government

Presidential republic

Ease of doing business by World Bank

# 53 out of 190 in 2017 (↓2)

The Global Competitiveness Index by the World Economic Forum

# 61 out of 140 in 2015/16 (5)

Logistics Performance Index by World Bank

# 94 out of 160 in 2016

Major Merchandise Exports (% of total, 2015)

Major Merchandise Imports (% of total, 2015)

Petroleum & petroleum products (39.9%)

Intermediate goods (43.2%)

Coal (12.8%)

Capital goods (34.4%)

Coffee (7.1%)

Consumer goods (22.4%)

Top three export countries (% of total, 2015)

Top three import countries (% of total, 2015)

USA (27.5%)

USA (28.8%)

Panama (7.2%)

China (18.6%)

China (5.2%)

Mexico (7.1%)

Source: Economist Intelligence Unit (http://www.eiu.com)

Political Highlights

 

Peace deal signed finally

Colombia is a presidential republic. The president heads the executive branch, while legislative power is vested in Congress. The centre-right president Juan Manuel Santos was re-elected for a second four-year term in June 2014, but will not be eligible for a re-run in the coming presidential election as the constitutional reform passed in 2015 had banned any presidential re-election. The Santos administration started peace talks with the leftist Revolutionary Armed Forces of Colombia—People''s Army (FARC) rebel group in 2012 and made a significant progress last year. The two sides signed a peace agreement which was subsequently approved by Congress in late 2016, putting an end to more than 50 years of internal conflict.  The main goal of Juan Manuel Santos will be to advance implementation of the peace accords with the FARC rebels before he leaves office in 2018.

Trump will bring changes to US-Colombia relations?

Colombia has been one of the US''s strongest allies and the largest recipient of US financial assistance on fighting drug cartels. The new US government under Donald Trump presidency may bring changes in the US-Colombia bilateral relations, particularly on the drug-trafficking issues. Given Trump’s apparent aversion to overseas entanglements, US economic aid to Colombia may be reduced in the coming years. Negotiations on more flexible visa requirements for Colombian nationals entering the US, which started in early 2016, are likely to be put on hold by the Trump administration. Elsewhere, friction with Venezuela persists, but in August 2016 Venezuela partly reopened its border with Colombia, having closed it a year earlier. A risk for Colombia is a potential large influx of Venezuelans fleeing economic crisis and political instability, as this would generate significant security and humanitarian relief costs.

Economic Trend

Economic Indicators

2013

2014

2015

2016*

2017^

Nominal GDP (USD bn)

380.2

378.5

292.1

281.1

303.7

Real GDP growth (%)

4.9

4.4

3.1

1.6

2.4

GDP per capita (USD)

8,030

7,921

6,056

5,778

6,188

Inflation (%)

2.0

2.9

5.0

7.5

3.2

Non-financial public sector balance

-0.9

-2.0

-3.4

-3.7

-2.8

Current account balance (% of GDP)

-3.3

-5.2

-6.5

-4.8

-4.1

External debt (% of GDP)

23.6

26.8

38.0

40.8

39.0

* Estimates ^ Forecast

Source: Economist Intelligence Unit (http://www.eiu.com)

 

Economy bottoming out

Economic growth of Colombia slowed further in 2016 on the back of depressed commodity prices, as the Colombian economy depends heavily on oil and coal exports. Inflation, which had accelerated rapidly in recent years due to currency devaluation, peaked in July and declined gradually since then. Receding inflationary pressures allowed room for policymakers to start an interest-rate cutting cycle in December last year. Other economic indicators also showed positive signs in the final months of 2016, with exports registering double-digit increase in November, though still recording a decline of 16.5% for the period of January – November.

Reform tax system

With falling export revenue from the oil sector, Colombia’s fiscal deficit widened to around 3.7% of GDP in 2016. To help balancing the budget, Congress approved tax reform in late 2016 by raising the value-added tax (VAT) rate from 16% in 2016 to 19% from 2017. The tax reform is expected to generate US$2 billion in additional revenue in 2017, and will help to preserve the country’s long-term macroeconomic stability. Meanwhile, companies will benefit from the tax reform as it provides tax relief and simplify the tax regime for small enterprises and corporations.

Peace deal could boost the economy

Economic growth in 2017 is forecast to register a moderate rebound; partly thanks to the higher commodity prices. For the medium term, the peace agreement will make the Colombian economy more attractive for investors by bringing greater stability along with increased consumer confidence and national consumption. Following the FARC’s demobilization programme, the government looks set to increase infrastructure and investment in the development of rural areas. Tourism will also benefit with better security. Yet, this “peace dividend” will not materialize immediately, but rather gradually, and on the condition of a successful implementation of the signed peace deal.

Hong Kong – Colombia Trade

 

Source: Census and Statistics Department of Hong Kong

 

Total exports from Hong Kong to Colombia decreased by 26.2% from HK$4,915 million in Jan-Nov 2015 to HK$3,629 million in Jan-Nov 2016. The top three export categories to Colombia were: (1) telecommunications, audio & video equipment (-28.5%), (2) office machines & computers (-10.2%), and (3) electrical machinery, apparatus & appliances, & parts (+12.4%), which represented 85.0% of total exports to Colombia.

 

Source: Census and Statistics Department of Hong Kong

 

ECIC Underwriting Experience

 

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Colombian buyers. Currently, the insured buyers in Colombia are mainly small and medium-sized companies. For 2016, the number and the amount of credit limit applications on Colombia decreased by 29.2% and 23.9%, respectively, while insured business also decreased by 34.8%. Major insured products were plastic articles (+39.9%), toys (-0.8%) and electronics (+67.8%), which represented 44.9% of ECIC’s insured business on Colombia. The Corporation’s underwriting experience on Colombia has been satisfactory, with no claim payment or payment difficulty case reported in the past 12 months (from January to December 2016).

 

Please click here to download the charts (PDF format).

 

Last update: 26 January 2017

 
   

Strengths

Ÿ  Rich in natural resources

Ÿ  Prudent macroeconomic policies

Ÿ  Extensive network of free trade agreements

Challenges

Ÿ  Vulnerable to fluctuations in commodity prices

Ÿ  Dollarization of financial system

Ÿ  Inadequate infrastructure

 

Key Information

Capital

Lima

Population

31.2 million

Area

1,285,216 sq km

Currency

Peruvian Nuevo Sol (1 PEN = 0.2974 USD as of 16 January 2017)

Official language

Spanish, Quechua, Aymara

Form of government

Presidential republic

Ease of doing business by World Bank

# 54 out of 190 in 2017 (1)

The Global Competitiveness Index by the World Economic Forum

# 67 out of 138 in 2016/17 (2)

Logistics Performance Index by World Bank

# 69 out of 160 in 2016

Major merchandise exports (% of total, 2015)

Major merchandise imports (% of total, 2015)

Copper (23.9%)

Intermediate goods (42.6%)

Gold (19.1%)

Capital goods (32.1%)

Zinc (4.4%)

Consumer goods (23.5%)

Top three export countries (% of total, 2015)

Top three import countries (% of total, 2015)

China (21.0%)

USA (23.9%)

USA (14.4%)

China (23.8%)

Switzerland (7.1%)

Brazil (5.6%)

Source: Economist Intelligence Unit

 

Political Highlights

 

President Kuczynski faces hurdles in Congress

Peru is a democratic country of which the president is elected for a five-year term and cannot immediately stand for re-election. Pedro Pablo Kuczynski of the centre-right Peruvians for Change party narrowly won the presidential runoff election in June 2016, defeating Keiko Fujimori, the daughter of jailed former President Alberto Fujimori. His administration focuses on boosting economic growth and improving public security, the two issues that dominated the election campaign. However, achieving this agenda requires negotiations with Fujimori’s right-wing Popular Force, which holds a majority (72 of 130 seats) in the unicameral Congress, as his party has just 18 seats.

Business-friendly policy framework will remain in place

Peru has signed free trade agreement (FTAs) with the United States, China, the European Union, Japan, among others. It is a member of the Pacific Alliance, an economic integration pact that includes Colombia, Chile and Mexico. It is also a member of the Trans-Pacific Partnership (TPP), although the deal’s future is uncertain. Under Kuczynski’s government, Peru will likely retain its prudent, business-friendly policy framework and openness to foreign trade. Kuczynski, a former World Bank economist, has expressed a commitment to this model. Commitments made by Peru through its network of FTAs will also continue to underpin this framework.

Economic Trend

Economic Indicators

2014

2015

2016*

2017^

2018^

Nominal GDP (USD bn)

203.0

192.5

197.2

208.3

217.9

Real GDP growth (%)

2.5

3.3

4.0

4.6

3.9

GDP per capita (USD)

6,588

6,179

6,269

6,557

6,792

Inflation (%)

3.2

3.5

3.5

3.4

3.1

Budget balance (% of GDP)

-0.3

-2.1

-3.1

-2.5

-1.6

Current account balance (% of GDP)

-4.0

-4.8

-2.8

-2.6

-2.8

Public debt (% of GDP)

20.1

23.3

26.4

28.8

29.8

* Estimates ^ Forecast

Source: Economist Intelligence Unit

 

Low commodity prices weigh on economy

Peru is a major producer of mineral commodities such as copper, silver and gold in the world. Metals and minerals exports account for almost 60% of the country''s total exports.Therefore, the lower global commodity prices since mid-2014 have weighed on Peru’s economy. In addition, structural deficiencies such as a rigid labor market, a relatively low-skilled workforce and inadequate infrastructure have held back productivity. Although Peru remains one of the fastest growing economies in Latin America, economic growth has slipped to more moderate levels from an average of 5.6% during 2009-2013, while the country’s currency, the Peruvian Nuevo Sol, has lost almost a fifth of its value against the US dollar.

Adherence to prudent macroeconomic policies

Nevertheless, Peru’s longstanding track record of prudent fiscal management has helped maintain macroeconomic stability. The Fiscal Responsibility and Transparency Law, which established a deficit target (of 1% of GDP) for the non-financial public sector and a debt ceiling at 30% of GDP, has kept debt at low levels and allowed for countercyclical spending. Meanwhile, the central bank has kept inflation under control while a flexible exchange rate provides buffers to external shocks. It has also taken steps to reduce Peru''s high level of credit dollarization which poses risk to financial stability. According to the International Monetary Fund, the share of foreign currency-denominated loans in total loans dropped to 27.4% in January 2016 from 38.2% in December 2014. However, deposit dollarization remains relatively high at around 45%, as individuals seek protection against currency depreciation.

Improving productivity is key to long-term growth

Economic growth is expected to accelerate to 4.6% in 2017, on the back of expanding mining production and a recovery of investment driven by the implementation of several large infrastructure projects including Lima’s metro system. But Peru will face risks and challenges such as a renewed decline in commodity prices, the potential financial volatility associated with the interest rate increases in the US, as well as opposition from Congress. Looking ahead, economic performance will become more dependent on productivity gains given the end of the commodity boom. More investments in infrastructure and labor will be needed to improve competitiveness and quality of education, reduce logistics costs and unlock the country’s full potential.

Hong Kong – Peru Trade

Source: Census and Statistics Department of Hong Kong

 

For January to November 2016, total exports to Peru increased by 19.5% to HK$3,585 million compared to the same period in 2015. The top three export categories to Peru were: (1) telecommunications, audio & video equipment (+24.4%), (2) office machines & computers (+34.1%), and (3) electrical machinery, apparatus & appliances, & parts (+0.3%), which represented 87.2% of total exports to Peru.

 

Source: Census and Statistics Department of Hong Kong

 

ECIC Underwriting Experience

 

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Peruvian buyers. Currently, the insured buyers in Peru are mainly small and medium sized companies. For 2016, the number and amount of credit limit applications on Peru increased by 6.9% and decreased by 49.4% respectively, while insured business increased by 21.6%. Major insured products were clothing, footwear and toys, which represented 67.5% of ECIC’s insured business on Peru. The Corporation’s underwriting experience on Peru has been satisfactory, with two payment difficulty cases reported in the past 12 months (from January to December 2016), involving travel goods, clothing and jewellery.

 

Please click here to download the charts (PDF format).

 

Last update: 16 January 2017

 

Strengths

Ÿ   Well-developed manufacturing sector

Ÿ   Extensive network of free-trade agreements

Challenges

Ÿ   Dependence on US economic performance

Ÿ   Uncertainty arising from trade protectionism

Ÿ   Security issue

 

Key Information

Capital

Mexico City

Population

127.0 million

Area

1,964,375 sq km

Currency

Mexican Peso (1 MXN = 0.0489 USD as of 19 December 2016)

Main language

Spanish

Form of government

Presidential republic

Ease of doing business by World Bank

# 47 out of 190 in 2017 (¯2)

The Global Competitiveness Index by the World Economic Forum

# 51 out of 138 in 2016/17 (­6)

Logistics Performance Index by World Bank

# 54 out of 160 in 2016

Major merchandise exports (% of total, 2015)

Major merchandise imports (% of total, 2015)

Manufactured goods (89.3%)

Intermediate goods (75.2%)

Oil (6.2%)

Consumer goods (14.2%)

Agricultural products (3.4%)

Capital goods (10.6%)

Top three export markets (% of total, 2015)

Top three import markets (% of total, 2015)

USA (81.1%)

USA (52.0%)

Canada (2.8%)

China (19.5%)

China (1.3%)

Japan (4.8%)

Source: Economist Intelligence Unit

Political Highlights

 

Ambitious reform agenda

Mexico has a presidential system of government. The president is elected for a six-year term and cannot be re-elected. Since taking office in 2012, President Enrique Peña Nieto from the Institutional Revolutionary Party (PRI) has pushed through reforms in energy, telecommunications, finance and education, aiming to boost competition and raise economic growth. The energy reform, which opens up the energy sector to private investment, is expected to reverse the country’s decline in oil and gas production due to operational inefficiency. During the remainder of his term (which ends in October 2018), Peña Nieto will focus on the implementation of the reforms.

New relationship with the US in the age of Trump

Peña Nieto is under pressure to start delivering results as social discontent has grown amid a series of corruption scandals, tepid economic growth and rising violence. However, tenders to open up the energy sector that were expected to draw significant investment coincided with the global oil price plunge. Meanwhile, the victory of Donald Trump in the US presidential election has brought uncertainty and new challenges for Mexico. During the campaign, President-elect Trump made statements supporting increased trade protectionism (including the potential renegotiation or termination of the North American Free Trade Agreement, or NAFTA), and the building of a wall along the US-Mexico border. Mexico has very close ties with the US, which have strengthened significantly since the adoption of NAFTA in 1994. Mexico exports over 80% of its products to the US, which is in turn, the leading provider of foreign direct investment inflows to Mexico. Relations between the United States and Mexico will be tested once the Trump administration takes office in January.

Economic Trend

Economic Indicators

2013

2014

2015

2016*

2017^

Nominal GDP (USD bn)

1,262

1,298

1,144

1,024

991

Real GDP growth (%)

1.6

2.2

2.5

1.9

1.8

GDP per capita (USD)

10,200

10,350

9,000

7,960

7,610

Inflation (%)

3.8

4.0

2.7

2.8

3.9

Budget balance (% of GDP)

-2.3

-3.2

-3.5

-3.0

-2.6

Current account balance (% of GDP)

-2.5

-2.0

-2.9

-3.0

-2.9

Public debt (% of GDP)

40.4

43.2

47.6

51.3

54.1

External debt (% of GDP)

32.2

33.3

38.6

47.6

54.2

* Estimates  ^ Forecasts

Source: Economist Intelligence Unit

 

Adjusting to external shocks

Mexico is the second largest economy in Latin America. Abundant cheap labor, preferential trade access and geographical closeness to the United States have lured investment in manufacturing. The country is also a major non-OPEC oil producer with approximately 20% of government revenue coming from the state-owned oil company, PEMEX. However, falling oil prices and output, as well as weakness in US industrial activity have constrained economic growth in recent years. Since 2013, Mexico’s economy has registered annual growth of below 3% and the peso has depreciated by more than 30% against the US dollar. Although a weaker peso could help improve exports by making Mexican goods more affordable abroad, the actual effect is limited because of high import content of exports.

A period of uncertainty

Uncertainty arising from the Trump victory will have a considerable impact on Mexico’s short-term growth by hurting business and consumer confidence. Trump''s policy agenda, such as the potential renegotiation of NAFTA, could result in the US applying special tariffs on key Mexican manufacturing exports. In addition, taxes or fines on US companies moving jobs and production to Mexico would dampen Mexico’s longer term prospects. Against this backdrop, the peso has weakened by over 10% immediately following the US presidential election. In an attempt to support the currency and control inflation, the central bank announced its fifth rate increase of the year in December, raising the benchmark interest rate to 5.75%, its highest level since 2008. The decision came one day after the US Federal Reserve increased interest rate. As a result of declining oil revenues, the finance minister has ramped up austerity drive in his 2017 budget. But these measures come at a price and there are concerns that fiscal austerity and interest-rate increases will instead cool the economy further.

Reforms can bring brighter prospects

Dependence on the US economy has made the country vulnerable to fluctuations in the US economic cycles and policy changes. The real impact of Trump’s victory on Mexico largely depends on whether the president-elect follows through on his promises. On the positive side, continued implementation of the structural reforms agenda should help lift longer-term growth by eliminating some bottlenecks, enhancing competition, reducing labor market rigidities and attracting the much-needed private investment, particularly in infrastructure and the energy sector. Some benefits are already visible, for instance, private investments in natural gas pipelines, electricity generation, and telecommunications have picked up while increased competition in telecommunication services has led to a significant reduction in prices. In addition, Mexico has attempted to reduce its economic dependence on the United States by actively signing free trade agreements with European Union, Chile, Israel, among others.

 

Hong Kong – Mexico Trade

Source: Census and Statistics Department of Hong Kong

 

Total exports from Hong Kong to Mexico increased by 1.9% from HK$28,791 million in 2014 to HK$29,345 million in 2015. The top three export categories to Mexico were: (1) telecommunications, audio & video equipment (-3.3%), (2) electrical machinery, apparatus & appliances, & parts (+1.6%), and (3) office machines & computers (+19.0%), which represented 78.7% of total exports to Mexico.

 

Source: Census and Statistics Department of Hong Kong

 

ECIC Underwriting Experience

 

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Mexican buyers. Currently, the insured buyers in Mexico are mainly small and medium sized companies. For 2015, the number of credit limit applications on Mexico was unchanged. The amount of credit limit applications and insured business on Mexico increased by 25.5% and 12.9%, respectively. Major insured products were furniture, electrical appliances and electronics, which represented 44.7% of ECIC’s insured business on Mexico. The Corporation’s underwriting experience on Mexico has been acceptable, with two payment difficulty and three claim payment cases reported during the past 12 months (from December 2015 to November 2016), involving plastic articles, watches & clocks, office & stationery and toys.  

 

Please click here to download the charts (PDF format)

 

Last update: 19 December 2016


 

 

Strengths

Ÿ  Large domestic market

Ÿ  Abundant natural resources

Ÿ  Ample foreign reserves

Challenges

Ÿ  Vulnerable to commodity price fluctuations

Ÿ  Weak public finances

Ÿ  High inflation rate

 

Key Information

Capital

Brasilia

Population

204.5 million

Area

8,515,770 sq km

Currency

Brazilian Real (1 BRL = 0.2949 USD as of 14 November 2016)

Official language

Portuguese

Form of government

Federal republic

Ease of doing business by World Bank

# 123 out of 190 in 2017 (2)

The Global Competitiveness Index by the World Economic Forum

# 81 out of 138 in 2016/17 (6)

Logistics Performance Index by World Bank

# 55 out of 160 in 2016

Major merchandise exports (% of total, 2015)

Major merchandise imports (% of total, 2015)

Primary products (45.6%)

Intermediate products & raw materials (47.4%)

Manufactured products (38.1%)

Capital goods (22.0%)

Semi-manufactured products (13.8%)

Consumer goods (18.0%)

Top three export markets (% of total, 2015)

Top three import markets (% of total, 2015)

China (19.7%)

China (19.7%)

USA (12.7%)

USA (17.2%)

Argentina (6.8%)

Argentina (6.7%)

Source: Economist Intelligence Unit

 

Political Highlights

 

A fresh start

Brazil is a federal republic and South America’s most influential country. The president is both head of state and head of government. The legislative branch is made up of a bicameral National Congress which consists of the Senate and the Chamber of Deputies. Dilma Rousseff of left-wing Workers’ Party began her second four-year term in January 2015, but she was removed from office in August 2016 following a vote in the Senate to impeach her on charges that she manipulated government accounts. The former vice-president, Michel Temer of the centrist Brazilian Democratic Movement Party (PMDB), who has been interim president since May, was sworn in to serve until the end of 2018. This brought an end to the 13-year rule of the Workers'' Party.

Fixing the economy is top priority

For the past 13 years the Workers’ Party dominated politics. It had a track record of reducing poverty and inequality thanks to its generous social program at a time of global commodity boom. It also attempted to boost economic growth through tax cuts and subsidized lending. As a result, Brazil’s public finances have eroded. Major credit rating agencies have downgraded the country’s credit rating to “junk” status. Brzail’s economy is struggling and unemployment rate reached 11.8% for July-to-September period. The top priorities of the new government are to turn around the economy and shore up public finances, through privatization, deregulation and restoring fiscal discipline.

Not an easy task

However, implementing austerity measures is never an easy task. Fiscal adjustment is undermined by budget rigidities. Less than 15% of expenditure in Brazil is discretionary. Most public spending is rigidly determined and cannot legally be reduced. For 2017 and beyond, the government has proposed a cap on the growth in federal noninterest spending at the previous year’s inflation rate, and announced plans for social security reform. It has also initiated a privatization program to enhance growth. Although the PMDB government holds a two-thirds majority in the Congress, policymaking may not be easy as Brazil’s political landscape has become more fragmented. The PMDB has also been embroiled in the investigation of Petrobras, the state-controlled oil company.

 

Economic Trend

 

Economic Indicators

2013

2014

2015

2016*

2017^

 

Nominal GDP (USD bn)

2,464.0

2,416.5

1,772.3

1,833.2

2,030.3

 

Real GDP growth (%)

3.0

0.1

-3.8

-3.3

1.1

 

GDP per capita (USD)

12,260

11,920

8,670

8,900

9,780

 

Inflation (%)

6.2

6.3

9.0

9.0

7.2

 

Budget balance (% of GDP)

-1.6

-4.8

-8.4

-6.4

-6.8

 

Current account balance (% of GDP)

-3.0

-4.3

-3.3

-1.0

-0.8

 

Public debt (% of GDP)

51.7

57.2

66.5

72.5

79.1

 

External debt (% of GDP)

19.6

23.0

30.6*

29.6

28.1

 

* Estimates  ^ Forecasts

Source: Economist Intelligence Unit

 

 

Economy in deep recession

Brazil is Latin America’s largest economy. Industries are diversified, ranging from the manufacturing of consumer durables to automobiles and aircraft. The country is rich in natural resources, particularly iron ore. However, Brazil is currently going through a deep recession due to low commodity prices, failure to make the necessary policy adjustments, political uncertainty in the past two years, and slowdown of China, which is Brazil’s largest export market. Brazil''s economic growth has decelerated since the beginning of this decade, from an average annual growth of 4.5% between 2006 and 2010 to 2.1% between 2011 and 2014. Real GDP contracted by 3.8% in 2015, and is expected to shrink by 3.3% in 2016. Over the past five years, the Brazilian real has lost half of its value against the US dollar.

First interest rate cut in four years

Despite economic downturn, Brazil’s central bank maintained tight monetary policy in recent years due to high inflation rate, which was pushed up by a weaker currency and higher government-administered prices such as electricity. The benchmark interest rate reached 14.25% in July 2015 and was left unchanged for more than a year. Tight financial conditions and cuts in capital spending by Petrobras have led to weak investment. Meanwhile, Brazil’s high interest rates also make public debt costlier to service. Interest payments accounted for 8.6% of GDP last year, compared to an average of around 5% in previous five years. It was the first rate cut in four years when the bank lowered the rate by 0.25% to 14% in October 2016 as price pressures eased. Additional rate cuts will depend on further improvements in the inflation trend.

It’ll take time to heal the economy

Although Brazil’s economy is not in good shape, there is no immediate threat of a balance-of-payments crisis. Current account deficit has been narrowing as the weaker currency boosted exports while a prolonged recession limited imports. The country has ample international reserves of US$ 358 billion - or 18 months of imports - at the end of 2015. There are signs that the recession is coming to its end. Market confidence has also improved with the real appreciating by 17% against the US dollar since the beginning of the year, after a roughly 30% decline last year. But it will take time to heal the economy as unemployment rate is still high. Brazil’s outlook will depend on the progress of fiscal consolidation and reforms. As growth drivers over the past decade, such as credit-fuelled consumption and the commodity boom, have receded, higher investment and more gains in productivity will be needed for the economy to take off again.

 

Hong Kong – Brazil Trade

Source: Census and Statistics Department of Hong Kong

 

Total exports from Hong Kong to Brazil decreased by 26.7% from HK$14,520 million in 2014 to HK$10,649 million in 2015. The top three export categories to Brazil were: (1) electrical machinery, apparatus & appliances, & parts (-29.3%), (2) telecommunications, audio & video equipment (-39.8%), and (3) office machines & computers (-20.9%), which represented 65.5% of total exports to Brazil.

 

Source: Census and Statistics Department of Hong Kong

 

ECIC Underwriting Experience

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Brazilian buyers. Currently, the insured buyers in Brazil range from small and medium sized companies to listed companies. For 2015, the number and the amount of credit limit applications on Brazil decreased by 19.7% and 43.1% respectively. The insured business also decreased by 4.5%. Major insured products were electronics, electrical appliances and chemical products, which represented 47.6% of ECIC’s insured business on Brazil. The Corporation recorded five payment difficulty cases and seven claim cases in the past 12 months (from November 2015 to October 2016), involving various kinds of products such as clothing, food, printed matters and mineral products.

Please click here to download the charts (PDF format)

 

Last update: 16 November 2016

 



 

Strengths

Ÿ  Strategic location in the middle of Americas

Ÿ  Well-developed services sector centering on the Panama Canal

Ÿ  Full dollarization

 

Challenges

Ÿ  International pressures to improve transparency of the financial and legal systems

Ÿ  High income disparity

Ÿ  Vulnerable to external shocks

 

 

 

Key Information

 

Capital

Panama City

 

Population

4.0 million

 

Area

75,420 sq km

 

Currency

Balboa (pegged with US dollar at parity), US dollar

 

Official language

Spanish

 

Form of government

Presidential republic

 

Ease of doing business by World Bank

# 70 out of 190 in 2017 (↓3)

 

The Global Competitiveness Index by the World Economic Forum

# 42 out of 138 in 2016/17 (↑8)

 

Logistics Performance Index by World Bank

# 40 out of 160 in 2016

 

Major merchandise exports (% of total, 2015)

Major merchandise imports (% of total, 2015)

 

Manufactured goods (92.5%)

Manufactured goods (90.6%)

 

Agricultural products (5.7%)

Agricultural products (7.7%)

 

Fuels and mining products (0.6%)

Fuels and mining products (1.5%)

 

Top three export markets (% of total, 2015)

Top three import markets (% of total, 2015)

 

European Union (27.5%)

USA (25.9%)

 

USA (19.7%)

European Union (11.7%)

 

Costa Rica (7.7%)

China (9.6%)

 

Source: Economist Intelligence Unit, the World Trade Organization

Political Highlights

 

A stable democracy

Panama is a stable, multi-party, democratic country. The president is elected for a five-year term but cannot seek immediate re-election. Juan Carlos Varela of the centre-right Panameñista Party (PP) won the 2014 presidential election. His government lacks a majority in the National Assembly but has allied with the centre-left Democratic Revolutionary Party. Seizing on concerns about concentration of power by past governments, Varela has committed to a constitutional reform process that would ensure a greater separation of powers among the branches of government. But his popularity has declined as public opinion turned to issues such as improving public services and government transparency.

International pressures to improve transparency
Since Financial Action Task Force (FATF), an inter-governmental body, included Panama in the list of countries with strategic deficiencies in the area of Anti-Money Laundering and Combating the Financing of Terrorism in 2014, the country implemented an action plan approved by the FATF. The FATF recognized the progress by removing Panama from the list in February 2016. But the Panama Papers scandal, which broke in April, represented a blow to the country''s reputation. Amid renewed international pressures, the government announced the creation of an independent commission aimed at strengthening the transparency of the country’s financial and legal systems, and recently signed a multilateral convention to share foreign taxpayers'' details with other governments, marking a big step towards ending its status as an offshore tax haven.

Strategic location as a major shipping route
Lying at the crossroads of the North and South American continents and the Atlantic and Pacific oceans, Panama is strategically important. Every year more than 15,000 vessels pass through the Panama Canal. The country maintains close relations with the US. They cooperate in many ways, such as promoting trade and combating drug trafficking. On the other hand, trade disputes with Colombia, a main export market for Panama’s Colon Free Trade Zone, have soured relations.

Economic Trend

Economic Indicators

2013

2014

2015

2016*

2017*

Nominal GDP (USD bn)

44.9

49.2

52.1

55.2

59.3

Real GDP growth

6.6

6.1

5.8

5.2

5.8

GDP per capita (USD)

11,648.7

12,517.5*

13,012.6*

13,514.7

14,228.5

Inflation (%)

4.0

2.6

0.1

0.7

1.5

Budget balance (% of GDP)

-2.3

-3.3

-2.3

-2.5

-1.7

Current account balance (% of GDP)

-9.8

-9.8

-6.5

-5.5

-4.9

Government debt (% of GDP)

22.2

20.4

20.4

20.1

20.8

* Estimates

Source: The International Monetary Fund

Strong growth supported by investment

Panama has a well-developed service sector centered on the Panama Canal, related logistics and distribution services, as well as insurance, banking and tourism. The sector accounts for more than three-quarters of the country’s economic output. Panama is a fully dollarized economy in which the US dollar is legal tender due to the country’s close links with the United States. Panama has had the highest average growth in Latin America over the past decade, supported by an expansion project which more than doubled the Canal''s capacity. The US$ 5.3 billion project was completed in mid-2016 and will bring extra revenues to the government. For coming years, growth is expected to remain strong, due to the opening of the expanded canal, low fuel prices and investments in the energy, mining, and logistics sectors.

External environment poses downside risks
Panama is benefited from a strong integration with the global trade and financial system. However, as a small economy, it is vulnerable to external shocks. The uncertain external environment poses downside risks. A weaker global growth could dampen canal revenues and capital inflows. Meanwhile, stricter international rules on financial activities could also hurt the profitability of the country’s banking sector. While full dollarization in Panama eliminates currency risk, the flexibility of monetary policy to adjust economy is somewhat restrained.

Twin deficits under control

Heavy investment in infrastructure boosted Panama’s economic growth, but resulted in a larger budget deficit which peaked in 2014. Fiscal consolidation since mid-2014 has helped improve the public finance and the government has taken advantage of lower oil prices to reduce energy subsidies. Budget deficit is expected to decline to 1.7% of GDP in 2017. Meanwhile, Panama’s large current-account deficit is expected to narrow due to the completion of the canal project, which will boost the services exports of Panama.

Significant progress in reducing poverty

Robust economic growth in recent years has had a positive impact on the country’s social indicators. Between 2008 and 2014, Panama managed to reduce poverty from 26.2% to 18.7% according to the World Bank. Nevertheless, sharp regional disparities remain. Poverty prevails in rural areas, mainly inhabited by indigenous people. While in urban areas extreme poverty is below 4%, in rural areas it is about 27%.


Hong Kong – Panama
Trade

Source: Census and Statistics Department of Hong Kong

 

Total exports from Hong Kong to Panama decreased by 4.3% from HK$2,166 million in 2014 to HK$2,072 million in 2015. The top three export categories to Panama were: (1) telecommunications, audio & video equipment (+13.7%), (2) clothing & clothing accessories (-5.7%), and (3) photographic apparatus, equipment and supplies and optical goods, nes; watches and clocks (-16.9%), which represented 61.8% of total exports to Panama.

Source: Census and Statistics Department of Hong Kong

 

ECIC Underwriting Experience

 

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Panamanian buyers.  Currently, the insured buyers in Panama are mainly small and medium sized companies. For 2015, the number and the amount of credit limit applications on Panama increased by 22.2% and 35.6% respectively.  The insured business also increased by 11.6%. Major insured products were toys, clothing and plastic articles, which represented 88.5% of ECIC’s insured business on Panama. The Corporation’s underwriting experience on Panama has been satisfactory, with one claim case of small amount reported in the past 12 months (from November 2015 to October 2016), involving toys.

 

Please click here to download the charts (PDF format).

 

Last update: 15 November 2016



 

Strengths

Ÿ  Rich natural resources

Ÿ  Export-oriented agricultural sector

Ÿ  Diversified industrial base

Challenges

Ÿ  Macroeconomic imbalances

Ÿ  Vulnerable to agricultural commodity prices

 

Key Information

Capital

Buenos Aires

Population

43.1 million

Area

2,780,400 sq km

Currency

Argentine Peso (1 ARS = 0.0658 USD as of 19 October 2016)

Official language

Spanish

Form of government

Federal republic

Ease of doing business by World Bank

# 121 out of 189 in 2016 (↓4)

The Global Competitiveness Index by the World Economic Forum

# 104 out of 138 in 2016/17 (2)

Logistics Performance Index by World Bank

# 66 out of 160 in 2016

Major merchandise exports (% of total, 2015)

Major merchandise imports (% of total, 2015)

Processed agricultural products (41.0%)

Intermediate goods (30.3%)

Manufactured goods (31.6%)

Capital goods (19.7%)

Primary goods (23.4%)

Fuels (11.4%)

Top three export markets (% of total, 2015)

Top three import markets (% of total, 2015)

Brazil (18.1%)

Brazil (24.1%)

China (9.1%)

US (18.2%)

US (6.3%)

China (12.9%)

Source: Economist Intelligence Unit

 

Political Highlights

 

A shift away from populism

In a presidential runoff election in 2015, center-right candidate Mauricio Macri defeated Peronist candidate Daniel Scioli by a narrow margin. It was the first time in more than a decade that Argentina's centre-right opposition has won the presidency. Macri has promised a clean break with almost all of his predecessor's populist and interventionist economic policies to revive an economy that has for decades fallen short of its potential.

Swift pace of economic reforms

The new administration has moved swiftly to implement core economic reforms. It lifted capital controls, allowing the peso to depreciate by 30% in December 2015. It cut export taxes, removed tariffs and quotas on farm exports. It also raised prices on subsidized electricity. A deal was reached with holdout creditors to allow Argentina to regain access to international capital markets. However, the sharp depreciation of peso, subsidy cuts and austerity measures have resulted in a higher inflation rate and hurt consumers, and could erode the public support needed to press on the reforms.

A more active role on the global stage

Efforts by the administration to repair relations with western powers such as the US and UK have achieved progress. Relations with the US improved following the end of the debt dispute. UK and Argentina said they would seek closer co-operation by methods such as removing the restrictions on the Falklands’ oil and gas industry. Meanwhile, China will remain a strategic partner. The bilateral relationship was strengthened under the previous administration by a series of investment accords. Argentina will also take a more active role on the international stage. It is an observer in the Pacific Alliance a regional trading bloc that includes Chile, Peru, Colombia and Mexico; and will hold the presidency of the G20 in 2018.

 

Economic Trend

 

Economic Indicators

2013

2014

2015

2016*

2017^

 

Nominal GDP (USD bn)

613.2

566.9

632.8

511.6

571.8

 

Real GDP growth (%)

2.4

-2.5

2.5

-2.0

2.7

 

GDP per capita (USD)

14,530

13,285*

14,671*

11,737

12,982

 

Inflation (%)

23.3

38.1

26.5

41.0

21.6

 

Budget balance (% of GDP)

-1.9

-2.7

-4.8

-5.0

-4.9

 

Current account balance (% of GDP)

-2.0

-1.4

-2.5

-2.7

-2.1

 

Public debt (% of GDP)

39.4

41.3

54.1

54.0

52.9

 

External debt (% of GDP)

22.2

24.8

21.5

30.5

29.0

 

* Estimates  ^ Forecasts

Source: Economist Intelligence Unit

 

 

Economy in trouble

Argentina is rich in resources in agriculture and energy such as shale gas and shale oil. It has an export-oriented agricultural sector, as well as a diversified industrial base led by food processing, motor vehicles, textiles, and chemicals. However, due to years of economic mismanagement, Argentina’s economy is struggling with slow growth and macroeconomic imbalances. Large fiscal deficits were financed by money creation, which led to high inflation. Argentine Peso has weakened by about 70% against the US dollar over the past five years. Foreign reserves have also dropped from US$ 50 billion in 2011 to the current level of US$ 26 billion.

Reforms produce short-term pain

Macroeconomic adjustments and austerity measures, while necessary, will have a negative near-term impact on the Argentine economic growth, prompting a contraction in real GDP in 2016 of 2%. But a stronger trade and foreign direct investment will likely pave the way for an economic recovery afterwards. Following a sharp rise in inflation rate this year, disinflation will begin on the back of fiscal tightening and an increase in domestic supply. In a long-awaited move, the central bank has formally announced the adoption of an inflation-targeting regime as it seeks to bring inflation down to 5% by the end of 2019. Currency depreciation is expected to bolster the current account as a weaker peso starts to boost exports.

Long road to sustained recovery

The market-oriented reforms implemented by the Macri administration have raised hopes for Argentina's economic revival, but the road to a sustainable growth will not be easy ahead. The impact of low commodity prices and economic slowdowns in Brazil and China, Argentina’s main trading partners, will continue to weigh on the economy. Meanwhile, official statistics showed almost one-third of the urban population living in poverty in the second quarter of 2016. Reducing poverty represents another big challenge to the new government.

Hong Kong – Argentina Trade

Source: Census and Statistics Department of Hong Kong

 

Total exports from Hong Kong to Argentina increased by 88.3% from HK$3,817 million in 2014 to HK$7,187 million in 2015. The top three export categories to Argentina were: (1) telecommunications, audio & video equipment (+156.4%), (2) electrical machinery, apparatus & appliances, & parts (+47.1%), and (3) office machines & computers (+72.6%), which represented 86.2% of total exports to Argentina.

 

Source: Census and Statistics Department of Hong Kong

 

ECIC Underwriting Experience

 

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Argentine buyers. Currently, the insured buyers in Argentina are mainly small and medium sized companies. For 2015, the number and the amount of credit limit applications on Argentina decreased by 4.0% and 18.3% respectively.

Insured business decreased by 32.8%. Major insured products were electrical appliances, clothing and metallic products, which represented 73.2% of ECIC’s insured business on Argentina. The Corporation’s underwriting experience on Argentina has been satisfactory, with no payment difficulty or claim payment case reported during the past 12 months (October 2015 to September 2016).

Please click here to download the charts (PDF format)

 

Last update: 24 October 2016

 


 

  

Strengths

Ÿ  Stable political system

Ÿ  Extensive network of free trade agreements

Ÿ  Solid macroeconomic fundamentals

Challenges

Ÿ  Wide income inequality

Ÿ  Dependence on copper exports

 

Key Information

Capital

Santiago

Population

17.9 million

Area

756,102 sq km

Currency

Chilean Peso (1 CLP = 0.0015 USD as of 17 October 2016)

Official language

Spanish

Form of government

Presidential republic

Ease of doing business by World Bank

# 48 out of 189 in 2016 (no change)

The Global Competitiveness Index by the World Economic Forum

# 33 out of 138 in 2016/17 (2)

Logistics Performance Index by World Bank

# 46 out of 160 in 2016

Major merchandise exports (% of total, 2015)

Major merchandise imports (% of total, 2015)

Copper (49.7%)

Intermediate goods (52.5%)

Fresh fruit (7.4%)

Consumer goods (29.1%)

Salmon & trout (5.6%)

Capital goods (18.4%)

Top three export markets (% of total, 2015)

Top three import markets (% of total, 2015)

China (27.2%)

China (23.4%)

US (13.3%)

US (18.6%)

Japan (9.0%)

Brazil (7.7%)

Source: Economist Intelligence Unit

 

Political Highlights

 

Stable political system

Chile is a presidential republic. It is one of South America's most stable and prosperous countries. The President is both the head of state and government, and elected for a four-year term but not eligible for immediate re-election. Congress has two chambers and consists of a Senate (38 seats) and a Chamber of Deputies (120 seats). Both major political coalitions have a consensus on preserving a liberal market economy and maintaining prudent monetary and fiscal policies.

Mitigating inequality

Chile has the widest income gap between rich and poor among the 34 countries of the Organization for Economic Co-operation and Development. Since taking office for a second, non-consecutive term in 2014, President Michelle Bachelet of the centre-left Nueva Mayoría (NM) coalition has pushed through reforms on tax, education and the electoral system, seeking to reduce inequality. Measures include shaking up the country's highly privatized education system and making university free of charge.

Economic reality holds back reforms

In order to fund the expenditure, the government will gradually raise corporate tax rate to 25-27% from 20% and close some tax exemptions, targeting to collect additional revenues equal to 3% of GDP by 2018. While Bachelet argued the reform would help address the deep-rooted inequality, the opposition accused it of endangering Chile’s economic growth by deterring investment. Meanwhile, Bachelet’s support was weakened due to slow economic growth and a financial scandal involving her family. In response, the government has revised and deferred some reforms as a means of boosting both business confidence and the government’s popularity.

Sea access and land dispute with Bolivia

Chile has increasingly assumed regional and international leadership roles befitting its status as a stable, democratic country. It maintains generally solid relations with the US and other Latin American countries. However, Chile and neighboring Bolivia have long had thorny relations due to disputes over ocean access and territorial boundaries.

 

Economic Trend

 

Economic Indicators

2013

2014

2015

2016*

2017^

 

Nominal GDP (USD bn)

275.6

257.8

239.0

245.3

253.7

 

Real GDP growth (%)

4.0

1.9

2.3

1.7

2.2

 

GDP per capita (USD)

15,680

14,510

13,320

13,530

13,850

 

Inflation (%)

1.9

4.4

4.3

3.9

3.2

 

Budget balance (% of GDP)

-0.6

-1.6

-2.2

-2.5

-2.0

 

Current account balance (% of GDP)

-3.7

-1.3

-2.0

-1.9

-2.2

 

Public debt (% of GDP)

12.8

15.1

16.7

18.4

20.0

 

External debt (% of GDP)

48.0

58.0*

65.3*

65.2