Charles W. Thurston, Latin America Correspondent03.22.22
Signs are that more Latin Americans support regional integration than ever, boding well for the once-estimated $10 billion paint and coatings market there. Seventy percent of the people in the region are in favor of greater integration, according to a recent survey by the Inter-American Development Bank (IDB) in cooperation with pollster Latinobarómetro.
By country, Uruguay revealed an 89% level of support for a pan-Latin American economy, followed by El Salvador with 84% percent, and five other countries — Dominican Republic, Venezuela, Paraguay and Costa Rica — above the 75% level. The La Voz Latinoamericana (Voice of Latin America) survey, completed in 2021, included more than 20,000 respondents from 18 Latin American countries.
By sub-region, 71% of the respondents from Central America are in favor of integration, followed by 69% in the Caribbean, 67% in the Andes, and 5% in the Mercosul sub-region — including Argentina, Brazil Paraguay and Uruguay.
Similarly, a 2021 report by The Organisation for Economic Co-operation and Development (OECD) opined that “To foster deeper regional integration and increase productivity growth the region will need to promote trade integration and regional value chains by undergoing major industrial-policy efforts and converging the different existing integration mechanisms and institutions.
“Further regional integration in LAC could strengthen competitiveness and job creation, particularly in key sectors such as the pharmaceutical, automotive, energy, the circular economy or sustainable agriculture,” said the report.
“Moreover, fostering digital transformation and a digital single market could play a major role in boosting productivity and promoting regional value chains,” according to the OECD report, Latin American Economic Outlook 2021.
The concept of a more regional economy in Latin America is not new. One shining example is the North American Free Trade Agreement (NAFTA), which lasted intact for 20 years. “With the signing of NAFTA, Mexico became a very important link in the regional value chains of North America and progressively increased the technological intensity of its exports, mainly to the United States,” the OECD observes.
To recover from the COVID pandemic, “Regional integration must be expected to play a key role in the crisis-recovery strategies in Latin America and the Caribbean,” the OECD reckons.
Broad Growth Supports Integration
The combined economies of Latin America, comprising an integrated market of 650 million inhabitants, will grow an estimated 2.1% this year, according to the United Nation’s Economic Commission for Latin America and the Caribbean, Eclac. This estimate includes 1.4% for South America, 3.3% for Central America and Mexico and 6.1% for the Caribbean, the organization reports.
The gross domestic product (GDP) estimates were produced for the organization’s 2022 report, Preliminary Overview of the Economies of Latin America and the Caribbean, compiled from 2021 data.
Growth this year will be slower than last year, when the region seemed to be recovering from the impact of COVID. During 2021, the region recovered at a 6.2% growth rate, including 6.4% in South America, 6% in Central America and Mexico, and 1.2% in the Caribbean, Eclac reports.
Still, Latin America’s overall demand for paint and coatings is expected to recover to the pre-COVID level of $10 billion by 2024, according to a projection by market consultants Rácz, Yamaga & Associates.
Potential for Closer Mercosur Integration
Mercosur, the Common Market of the South, includes most of the Latin American GDP activity, led by Brazil and Argentina. Advances in integration there would help rationalize paint and coatings investments in production, transportation and distribution, while spurring on greater international trade.
Recognizing the importance of Mercosur, the IDB in December announced “a credit line for $300 million to improve the integration of countries located in the River Plate Basin, or the Cuenca del Plata, through actions in sustainable infrastructure, trade facilitation and urban development in border areas.” The IDB defines the Cuenca del Plata as including Argentina, Bolivia, Brazil, Paraguay and Uruguay.
The River Plate Basin comprises the watersheds of the Paraguay, Paraná, Río de la Plata and Uruguay rivers and is home to nearly 130 million inhabitants, IDB noted. “The Basin’s hydrocarbons, minerals, agricultural, agroindustrial, and trade sectors generate nearly 80% of the gross domestic product (GDP) of Argentina, Bolivia, Brazil, Paraguay and Uruguay,” the bank said.
The Credit Line will initially be opened with a $100 million operation to improve the logistical and transport infrastructure capabilities of the Cuenca countries, improving urban development in border areas and strengthening the capacity of the Financial Fund for the Development of the Plata Basin (Fonplata), among others, the bank reports. Eligible projects will not exceed $50 million for infrastructure, $30 million for urban development, and $10 million for integration, rural development, and tourism.
Improving Paint & Coatings Markets Access
The basic market segments for paint and coatings — architectural, automotive and industrial — would all benefit from accelerated economic integration in Latin America.
The architectural segment, the largest of all segments in the region, will find continuing growth opportunities in housing and other related construction areas like hotels and tourism. Housing alone is a massive market opportunity in the region. A 2020 report by the IDB indicated that the countries in Latin America and the Caribbean have a shortage of urban housing ranging from 12% of the population to 70% within urban areas, in which 80% of the people in the region live. The urban population percentage is projected to increase to 90% by 2050, the bank reports.
In the Caribbean alone, an estimated $1.5 trillion worth of housing damage was done in 2019 by Hurricane Dorian in the Bahamas. Another $350 billion in damage to housing occurred in Dominica in 2017 as a result of Hurricane Maria, according to a December 2021 study by the IDB. To combat this situation, the bank is now conducting a study of resilient building standards for the Caribbean.
The automotive sector in Latin America is also poised for greater growth, both in terms of exports and in domestic sales. The Brazilian automotive paints and coatings market alone is estimated at over $550 million and growing, according to the Associação Brasileira dos Fabricantes de Tintas (Abrafati), the Brazilian coatings manufacturers association. The auto industry in Argentina, like that in Brazil, is projected to recover over the next few years from a 2020 low of just over 250,000 vehicles, one-third of the total in 2013.
In December, Volkswagen announced plans to invest €1 billion ($1.15 billion) over five years in the region, where it projects profitability this year, following years of recovery. Major producers of automotive paints and coatings, like PPG, are enhancing investments to capture this segment.
The industrial market segment is also poised to expand under greater regional integration. About 73% of intraregional trade in Latin America is composed of industrialized products, the OECD reports. Similarly, 63% of all exports from the region as a whole are industrialized products, the group notes.
By country, Uruguay revealed an 89% level of support for a pan-Latin American economy, followed by El Salvador with 84% percent, and five other countries — Dominican Republic, Venezuela, Paraguay and Costa Rica — above the 75% level. The La Voz Latinoamericana (Voice of Latin America) survey, completed in 2021, included more than 20,000 respondents from 18 Latin American countries.
By sub-region, 71% of the respondents from Central America are in favor of integration, followed by 69% in the Caribbean, 67% in the Andes, and 5% in the Mercosul sub-region — including Argentina, Brazil Paraguay and Uruguay.
Similarly, a 2021 report by The Organisation for Economic Co-operation and Development (OECD) opined that “To foster deeper regional integration and increase productivity growth the region will need to promote trade integration and regional value chains by undergoing major industrial-policy efforts and converging the different existing integration mechanisms and institutions.
“Further regional integration in LAC could strengthen competitiveness and job creation, particularly in key sectors such as the pharmaceutical, automotive, energy, the circular economy or sustainable agriculture,” said the report.
“Moreover, fostering digital transformation and a digital single market could play a major role in boosting productivity and promoting regional value chains,” according to the OECD report, Latin American Economic Outlook 2021.
The concept of a more regional economy in Latin America is not new. One shining example is the North American Free Trade Agreement (NAFTA), which lasted intact for 20 years. “With the signing of NAFTA, Mexico became a very important link in the regional value chains of North America and progressively increased the technological intensity of its exports, mainly to the United States,” the OECD observes.
To recover from the COVID pandemic, “Regional integration must be expected to play a key role in the crisis-recovery strategies in Latin America and the Caribbean,” the OECD reckons.
Broad Growth Supports Integration
The combined economies of Latin America, comprising an integrated market of 650 million inhabitants, will grow an estimated 2.1% this year, according to the United Nation’s Economic Commission for Latin America and the Caribbean, Eclac. This estimate includes 1.4% for South America, 3.3% for Central America and Mexico and 6.1% for the Caribbean, the organization reports.
The gross domestic product (GDP) estimates were produced for the organization’s 2022 report, Preliminary Overview of the Economies of Latin America and the Caribbean, compiled from 2021 data.
Growth this year will be slower than last year, when the region seemed to be recovering from the impact of COVID. During 2021, the region recovered at a 6.2% growth rate, including 6.4% in South America, 6% in Central America and Mexico, and 1.2% in the Caribbean, Eclac reports.
Still, Latin America’s overall demand for paint and coatings is expected to recover to the pre-COVID level of $10 billion by 2024, according to a projection by market consultants Rácz, Yamaga & Associates.
Potential for Closer Mercosur Integration
Mercosur, the Common Market of the South, includes most of the Latin American GDP activity, led by Brazil and Argentina. Advances in integration there would help rationalize paint and coatings investments in production, transportation and distribution, while spurring on greater international trade.
Recognizing the importance of Mercosur, the IDB in December announced “a credit line for $300 million to improve the integration of countries located in the River Plate Basin, or the Cuenca del Plata, through actions in sustainable infrastructure, trade facilitation and urban development in border areas.” The IDB defines the Cuenca del Plata as including Argentina, Bolivia, Brazil, Paraguay and Uruguay.
The River Plate Basin comprises the watersheds of the Paraguay, Paraná, Río de la Plata and Uruguay rivers and is home to nearly 130 million inhabitants, IDB noted. “The Basin’s hydrocarbons, minerals, agricultural, agroindustrial, and trade sectors generate nearly 80% of the gross domestic product (GDP) of Argentina, Bolivia, Brazil, Paraguay and Uruguay,” the bank said.
The Credit Line will initially be opened with a $100 million operation to improve the logistical and transport infrastructure capabilities of the Cuenca countries, improving urban development in border areas and strengthening the capacity of the Financial Fund for the Development of the Plata Basin (Fonplata), among others, the bank reports. Eligible projects will not exceed $50 million for infrastructure, $30 million for urban development, and $10 million for integration, rural development, and tourism.
Improving Paint & Coatings Markets Access
The basic market segments for paint and coatings — architectural, automotive and industrial — would all benefit from accelerated economic integration in Latin America.
The architectural segment, the largest of all segments in the region, will find continuing growth opportunities in housing and other related construction areas like hotels and tourism. Housing alone is a massive market opportunity in the region. A 2020 report by the IDB indicated that the countries in Latin America and the Caribbean have a shortage of urban housing ranging from 12% of the population to 70% within urban areas, in which 80% of the people in the region live. The urban population percentage is projected to increase to 90% by 2050, the bank reports.
In the Caribbean alone, an estimated $1.5 trillion worth of housing damage was done in 2019 by Hurricane Dorian in the Bahamas. Another $350 billion in damage to housing occurred in Dominica in 2017 as a result of Hurricane Maria, according to a December 2021 study by the IDB. To combat this situation, the bank is now conducting a study of resilient building standards for the Caribbean.
The automotive sector in Latin America is also poised for greater growth, both in terms of exports and in domestic sales. The Brazilian automotive paints and coatings market alone is estimated at over $550 million and growing, according to the Associação Brasileira dos Fabricantes de Tintas (Abrafati), the Brazilian coatings manufacturers association. The auto industry in Argentina, like that in Brazil, is projected to recover over the next few years from a 2020 low of just over 250,000 vehicles, one-third of the total in 2013.
In December, Volkswagen announced plans to invest €1 billion ($1.15 billion) over five years in the region, where it projects profitability this year, following years of recovery. Major producers of automotive paints and coatings, like PPG, are enhancing investments to capture this segment.
The industrial market segment is also poised to expand under greater regional integration. About 73% of intraregional trade in Latin America is composed of industrialized products, the OECD reports. Similarly, 63% of all exports from the region as a whole are industrialized products, the group notes.