The year 2022 has been a very particular year worldwide, after previous events in the last two years, which are not far behind. In the first place, COVID-19 was an event with which the world economy was strongly affected, because it led to a very drastic decision making, in order to safeguard the general population from an enemy of which we had no idea how it affected the human organism, causing panic in which any story or rumor acquired the degree of validity. The decisions taken by several nations meant a hard blow to the economy and commercial interconnectivity in general, especially those in the process of growth, which were more affected.
This was favored by the recovery process that occurred with the arrival of vaccines and a greaterv knowledge of this new enemy.
However, the advent of the war in Ukraine has dealt a new blow to the international economy and trade in general, once again causing an abrupt change in the form of commercial interaction between the different world players. Once again trade is forced to act to the sound of the, commonly called, random acts that a war implies. In the case of Europe, these changes have brought with them an increase in fossil energy consumption, as well as an increase in inflation. Even more so when Russia and Ukraine are the main exporters of fertilizer for agriculture, which brings with it the cultivation of agricultural foodstuffs in that region.
Despite this, the main question that this brings us to this side of the world is how much this situation will affect Latin America economically, especially when it assumes the role of a player in the process of economic growth, compared to other participants with greater competition in the market, giving us to understand that this would again mean a great impact on an economy that is still in recovery after the arrival of COVID-19.
Surprisingly, however, reality has shown us that such fears are not as true as previously believed. This has meant an increase in the demand for imported goods by countries seeking to streamline their production systems and subsequently, their markets. It is here where countries such as Brazil, Ecuador, Colombia, among others, gain a significant advantage.
As has been seen in recent years, these different South American countries have shown a great demand for high quality goods, such as fossil products (including oil and its derivatives), mineral products, high quality foodstuffs that are not available in North Latin American, European, African or Asian countries, and machinery produced in Latin America. According to data provided
by the World Bank, the economic growth that has been reflected in Latin American and Caribbean countries has been of 9.8%, compared to the last years, which were in a threshold that did not exceed 5% of annual growth and of course, the worrying -7.9% that the World Bank recorded in these countries in 2020 1 .
Graph of annual economic growth of countries in Latin America and the Caribbean. World Bank 2
This is due to the fact that several Latin American countries enjoy having first quality products, which have been exponentially demanded by other economies in order to keep afloat trade systems, in terms of compliance with obligations regarding goods and services, which depend on their importation. In the present case, countries such as Colombia, which has presented a 49% increase in the export of fossil fuels such as oil, presenting profits of US$2,365 million 3 ; or as in the case of Brazil, which increases by 36.9% the export of poultry meat, thus giving an increase of 1.7% in its production, with profits of US$4,301 million 4 , among other examples.
Datos obtenidos de la página del Banco Mundial, Exports of godos and services (anual % growth) – Latin America and Caribbean.
1 Watch [Online]: https://data.worldbank.org/indicator/NE.EXP.GNFS.KD.ZGnd=2021&locations=ZJ&start=1990&view=chart
2 Wacth [Online]:
3 SEMANA, Exportaciones de Colombia crecieron 47 % en mayo; el petróleo sigue liderando, 6 de julio
de 2022. Ver [Online]: https://www.semana.com/economia/macroeconomia/articulo/exportaciones-de-
4 Opportimes, Exportaciones de carne de aves de Brasil suben 36.9%, 14 de julio de 2022. Ver [Online]:
5 CNN en español, La inflación se dispara y llega al 9,1% interanual en Estados Unidos, impulsada por el precio
récord de la gasolina, 13 de julio de 2022. [Online]: https://cnnespanol.cnn.com/2022/07/13/inflacion-dispara-
6 IMF, WORLD ECONOMIC OUTLOOK: WAR SETS BACK THE GLOBAL RECOVERY, APRIL 2022. [Online]:
However, this also means a considerable increase in problems already latent in Latin American territory, such as the affectation of land dedicated to the field for the cultivation of food, the growing exploitation of mining, a growing dependence of these countries by the constant discovery of new oil wells and in many cases the implementation of techniques that have already acquired infamy for the consequences of its practice, as is the case of “Fracking”, a latent increase in economic changes that lead to affect these national economies and their various micro and macroeconomic actors.
The above mentioned is enough to make us think that these economic changes coming from the conflict between Russia and Ukraine are enough for an irremediable affectation against Latin American countries. Contrary to this approach, although this analysis sounds antagonistic, this event is a great opportunity for South America to have an increase in its economy, which can result in capital savings for internal investment and mainly, the construction of infrastructure as an option for the improvement of transit routes for goods and services, the acquisition of technology that means a more friendly practice to the environment and surroundings, as well as
an important generator of employment.
It is important, of course, to highlight that this war means a hard blow to the economy, meaning inflation in several regions of the world, such as the United States, which being one of the most important economic actors nowadays, has registered an increase of 9.1% in inflation, the highest ever seen in the last 40 years of the North American country 5 .
Likewise, the war in Ukraine has meant a deceleration of economic growth in general, being originally projected at 6.1% for 2021, now with 3.6% projected for 2022 and 2023, being 0.8% and 0.2% lower in the years 2022 and 2023 6 . Likewise, it has been seen how Latin American economies started projecting an economic expansion of 6.8%, which has been slowed down by the conflict in Ukraine 7.
This cannot ignore one of the greatest obstacles for Latin America, which has been the effect of inflation, which due to the abrupt changes in the supply chain of goods, has affected several countries in the old world due to this conflict, causing a rise in the prices of several products necessary for the ordinary course of daily life, such as fossil fuels, food, services, etc. This reflects and has ultimately meant, of course, a percentage increase in inflation, for example, an increase of 7.7% inflation for Colombia or 8.2% inflation for Brazil, among others. 8 Likewise, COVID-19 still represents a latent threat to these economies, even more so with a new outbreak
in China, which has also affected the rate of exports and imports to the Asian country.
Currently, Chinese trade has seen a rebound in its customs services, showing an increase of 13.2% in exports and 4.8% in
imports, which brings hope to this issue, although it is still a latent risk 9 .
Graph obtained from Statista, regarding the percentage of inflation in the Latin American countries 10
However, even though the Southern Cone and South America in general are not exempt from the effects of this event, they have not been so severely affected, since 0.6% of their exports are directed to these countries, so they are not significantly affected. The opposite occurs for countries such as Jamaica and Ecuador, which have registered approximately 4% of their exports to Russia and Ukraine 11 . Similarly, Latin American economies still reflect a possible growth of 2.1% in their economies by 2022 and 2% by 2023. 12
In conclusion, although Latin America is not exempt from the economic consequences of the war between Ukraine and Russia, nor is it exempt from the effects of the Coronavirus, causing a slow recovery from the effects brought by the Coronavirus in 2020, the truth is that this event 8 Marina Pasquiali, ¿Cuánta inflación se espera en América Latina para 2022?, Statista, 11 de mayo de 2022.
9 CGTN, El comercio exterior de China mejora su resistencia a las “pruebas de estrés”, 14 de julio de 2022.
10 Ver [Online]: https://es.statista.com/grafico/27420/tasa-de-inflacion-en-america-latina/
11 Alicia Barcena Ibarra, The economic and financial effects on Latin America and the Caribbean of the conflict
between the Russian Federation and Ukraine, UNITED NATIONS ECLAC, 28 de Marzo de 2022
12 IMF, WORLD ECONOMIC OUTLOOK: WAR SETS BACK THE GLOBAL RECOVERY, APRIL 2022. [Online]:
has marked an opportunity for these markets to positively impact their economies, as well as a point of support for overcoming the challenges brought by COVID-19; The above, supported by the fact that the degree of their imports was not diminished, nor was there a relationship of interdependence (even almost non-existent) between Latin American countries with Russia or Ukraine. This is an opportunity to focus on improving internal aspects in each country that would ultimately generate medium or long-term investments for the improvement of their markets, such as the construction of infrastructure or the acquisition of technology required in several areas. The above, without losing sight of the great challenges that this entails, such as inflation.
At López & James we are more than willing to provide support on this issue, as we also have professionals specialized in the areas of Corporate Law, Civil Law, Tax Law and other areas of law. Likewise, our team of financial, administrative and foreign trade consultants is ready to provide advice on any concerns regarding these issues through its virtual channels, at any time, through the email firstname.lastname@example.org or by calling our landline in Bogota (+601) 7498261. For more information, please visit www.lopezjames.com.
About the author:
Samuel Fuentes is a lawyer from Universidad Jorge Tadeo Lozano in Bogotá, is part of the Bogotá team, and has experience in Human Rights and Criminal Law. He specializes in labor settlements and is bilingual Spanish – English.
Bogotá D.C. July 28, 2022.