Caribbean countries could benefit significantly from nearshoring — IDB study

LOS ANGELES, United States (CMC) — The Inter-American Development Bank (IDB) says that nearshoring could add an annual US$78 billion in additional exports of goods and services in Latin America and the Caribbean (LAC) in the near and medium-term, with opportunities for quick wins in the auto industry, textiles, pharmaceuticals, and renewable energy, among others.

Nearshoring is an approach to business when a third-party company provides specific services from another geographic location, which is relatively close to the company’s area.

A study to be released by the IDB shows that all countries in the LAC will benefit from nearshoring, with the bank indicating that of the US$78 billion in revenue, US$64 billion will derive from exported goods and US$14 billion in services.

According to the IDB, Caribbean Community (Caricom) countries will benefit from the trade for increased exports. It said the Bahamas has the potential to receive US$177 million, Belize US$43.9 million, Barbados US$60.6 million, Guyana US$400 million, Haiti 251.3 million, Jamaica US$138.5 million, Suriname US$58.5 million and Trinidad and Tobago US$476.6 million.

The estimates were provided to senior government officials from Latin America and the Caribbean, including ministers of trade and foreign affairs, and senior executives from companies of the Western Hemisphere, who gathered here on Tuesday to analyse options for taking advantage of the opportunities provided by the reconfiguration of global supply chains, trends in trade sustainability and climate change, and the increasing digitalisation of economies.

The IDB said the meeting of ministers and chief executive officers on the side-lines of the Ninth Summit of the Americas, represents an important effort by the Washington-based financial institution to promote economic recovery through the collective action of countries, in close cooperation with the private sector.

“Increased environmental concerns, along with the health crisis and the recent invasion of Ukraine by Russia, have presented an opportunity in which the region can contribute to the global economy and the fight against inflation by taking a more active role in global supply chains in a way that is sustainable and equitable,” said IDB President Mauricio Claver-Carone.

The IDB said that supporting the reconfiguration of global value chains is one of its priorities under the IDB’s Vision 2025 plan to accelerate the economic recovery and growth of Latin America and the Caribbean.

“This meeting is a demonstration that leaders, from the public and private sectors, can put aside their differences to find ways to create jobs and improve the wellbeing of our citizens — and trade is one of the main avenues to accelerate our prosperity,” he added.

The meeting was aimed to deepen understanding of key trade issues. More than 100 companies took part, with panel interventions by executives from firms such as Gap Inc, UPS, Cintora, Citibank, Amazon Web Services, Stripe, and Microsoft.

Executive vice president and head of international affairs at the US Chamber of Commerce, Myron Brilliant, provided a private-sector view on trade, as part of the Americas Business Dialogue (ABD), which brings together companies from all sectors and countries in the Western Hemisphere, with the IDB acting as coordinating entity.

The ABD is presenting a report to heads of state gathered in Los Angeles, with concrete recommendations and specific indicators to measure implementation.

The IDB said that recent studies indicate that the participation of firms in global value chains (GVC) brings multiple benefits, in addition to traditional gains from additional trade and investment. Participation in GVC increases productivity through transfers of technology and knowledge and creates jobs and more opportunities for women. An increase of 10 per cent of a country´s participation in GVC increases its per capita GDP by 11-14 per cent.

But it said for the region to take advantage of opportunities that come with increased participation in GVC, it recommends countries focus on a “3i” strategy: investment, infrastructure and integration.

Regarding investments, the IDB said countries should increase efforts to attract investment, including by making improvements in the business climate and the capacity of investment - and export-promotion agencies. The IDB estimates that each dollar invested in investment promotion produces almost US$42 in direct foreign investment.

The bank said improving infrastructure in trade, connectivity, transportation and logistics in the region is key to ensuring firms are cost-competitive. A 10 per cent reduction in international shipping costs increases the value of exports by at least 30 per cent, according to IDB estimates.

The financial institution said the region must deepen and modernise its regional integration to lower trade friction and boost competitiveness. This includes redoubling efforts to converge and harmonise more than 33 preferential trade agreements in the Americas. This harmonisation would increase intraregional trade by nearly 12 per cent.

In addition, the region must increase the availability of financing for companies, particularly to enable small and medium-sized firms to connect with international markets.

The meeting also discussed the importance of sustainability and trade. According to IDB calculations, internal greenhouse-gas emissions in Latin America and the Caribbean to produce goods for external consumption contributes 20 per cent of total emissions that cause global warming — a significant number, but somewhat below average global emissions linked to trade.

Countries must work together to protect the environment while maintaining an open posture on international trade.

On digital trade, participants discussed the importance of creating a regulatory framework that would facilitate the creation of a digital marketplace and attract investment. Digital transformation would enable more firms to export services consumers want, such as remote learning and telemedicine. Digital tools can also improve the capacity of government entities that facilitate trade, such as customs and trade promotion agencies.

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