Salvador When Federal Chancellor Olaf Scholz (SPD) arrives in Brazil this Monday after his visits to Argentina and Chile, individual damage will still be visible in the government district despite the repairs.
Radical supporters of former President Jair Bolsonaro destroyed a lot there about three weeks ago when they stormed the official residence of his successor, Luiz Inácio Lula da Silva, the Supreme Court and Congress. But the plan to provoke a coup with the participation of the military failed.
After the vandals’ storm, the German state visit to Brasília will probably be seen as a clear sign of solidarity with Brazilian democracy and Lula. That goes well with Berlin’s plans: Scholz wants to revive relations with Brazil with the social democrat Lula. These had been put on hold under Bolsonaro. Politically, the timing is good: not only in Brasília, but also in Santiago and Buenos Aires, the governments of the traffic light coalition are close.
With his lightning visit, Scholz now clearly shows how important South America has become. That’s why his trip is an opportunity for the German economy to get more involved in South America.
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The continent has become more important for Europe with the changed global political situation caused by the Ukraine conflict and climate change. States benefit from the energy transition as producers of energy, food and raw materials. The reasons for the growing geopolitical and geoeconomic attractiveness of South America for Europe:
South America as a food supplier
With Brazil and Argentina, but also because of the farms in countries such as Chile, Paraguay, Peru, Bolivia and Colombia, South America has risen to become an important agricultural exporter, as reported by the Food and Agriculture Organization of the United Nations. According to this, Brazil is in third place – after the USA and the EU. Argentina is number ten.
The region supplies food all over the world, which is now lacking in part because of the Ukraine crisis.
(Photo: dpa)
The region supplies food all over the world, which is now lacking in part because of the Ukraine crisis. Most of the soy, corn, sugar and animal protein from cattle, pork and poultry are sold to the Far East.
But food exports, for example from Brazil – the region’s largest agricultural exporter – to Europe are growing faster than to China, Brazil’s most important sales market. Europe imported 40 percent more from Brazil last year, according to Brazil’s Ministry of Economic Development.
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According to investment bank JP Morgan, there are few producers in the world that are so broadly positioned that they can supply their products all over the world without becoming dependent on one customer.
South America exports industrial raw materials
At the same time, many South American countries are important suppliers of raw materials for global industry: This traditionally applies to iron ore and bauxite from Brazil, copper from Chile and Peru, and lithium from Argentina. But the supply of raw materials from mining in South America is much more diversified than it appears at first glance.
Almost two-thirds of the global reserves of lithium are located in the Andean regions of Bolivia, Argentina and Chile, the US scientific agency “Geological Survey” recently estimated.
(Photo: dpa)
Example Brazil: The German raw materials agency Dera points out that, in addition to iron ore, bauxite and niobium, Brazil has many special metals and industrial minerals that are essential for the development of future technologies in energy and electromobility in Germany, but also worldwide.
The US Geological Survey recently estimated that Brazil has large deposits of nickel, tin, tantalum, vanadium, copper and the mineral graphite. The potential for cobalt, lithium and rare earths is also enormous. Many of these deposits are in the process of being developed.
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Almost two-thirds of the world’s lithium reserves are in the Andean regions of Bolivia, Argentina and Chile, the agency said. The border triangle in the Andes becomes the world’s leading supplier of battery raw materials.
South America as an energy supplier and as an exporter of green hydrogen
The energy transition and the need for sustainably generated energy makes South America interesting as a supplier and location for industry that wants to reduce their emissions. Chile and Uruguay are the most advanced.
In Chile, for example, there are currently around 30 projects in which green hydrogen will be used industrially, as Cornelia Sonnenberg, Managing Director of the German-Chilean Chamber of Commerce in Santiago, says. “Chile aims to become one of the most competitive green hydrogen producers in the world by 2030,” adds Sonnenberg.
The country also produces conventional energy.
(Photo: imago images/YAY Images)
Brazil is also increasingly becoming a supplier of sustainably generated energy. On the one hand, the country produces conventional energy (oil, ethanol from sugar cane, biodiesel from soy). “In the global energy balance, Brazil is one of the countries with the largest share of renewable energy,” says the Energy Export Initiative of the German-Brazilian Chamber of Commerce in São Paulo. Most of the electricity is produced in hydropower plants, solar or wind farms. There is also bio-electricity from the sugar refineries and methane gas from agriculture.
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This makes Brazil predestined to be a future supplier of green hydrogen. Luiz Ribeiro, the manager of the private equity fund General Atlantic in Brazil, expects that Brazil will play a decisive role in the future when it comes to decarbonization worldwide.
Despite the crises, foreign corporations are again investing massively in the region
Foreign corporations were the first to recognize the strategic importance of South America – and are investing there, as they were last doing in the 2000s. Brazil is a pioneer, despite weak economic growth for a decade now. Brazil attracted the most foreign direct investment in 2021 after the US, China and Hong Kong and Canada.
Scholz is pushing Argentina to conclude the free trade agreement
JP Morgan estimates that it will increase by another ten percent this year to around 56 billion dollars. Ivan Kleimann, portfolio manager at Abrdn in São Paulo, says: “Compared to other emerging markets, Brazil is less exposed to geopolitical risks and is also considered to be a strong democracy with solid institutions.”
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The same applies to the rest of South America: Even in smaller economies such as Uruguay or Chile, the proportion of foreign investments compared to gross domestic product (GDP) is above average, as can be seen from official statistics.
Many of South America’s democracies are surprisingly stable
Along with Western Europe and North America, Latin America is the region with the highest density of democracy. According to the Economist Intelligence Unit’s (EIU) annual Democracy Index, about 80 percent of the region’s 664 million people live in democracies.
Not only in Brasília, but also in Santiago and Buenos Aires, the governments of the traffic light coalition are close.
(Photo: IMAGO/Esteban Osorio)
The leading position of some countries in the index is surprisingly positive: Uruguay is in 13th place, two places ahead of Germany. Uruguay is one of the few countries in the world that has been improving its democracy for more than 15 years. Chile, in 25th place, ranks on the same level as, for example, Spain in terms of the quality of its democracy. Both countries are well ahead of the USA, Italy and Belgium on the EIU index.
Political changes of direction have taken place within the democratic rules of the game in Chile, Colombia and Brazil. The positive events are overshadowed by the serious unrest in Peru, where many people are demonstrating against the interim government. According to activists in the country, the government in Venezuela is pursuing a policy of systematic intimidation and reprisals against civil society organizations.
The high density of democracy in South America makes the region attractive as a partner, given the growing geopolitical polarization. However, the strategic upgrading of South America also makes the region attractive for other partners: Europe is just one, but not Brazil’s most important foreign policy partner – the USA and China have priority for almost all South American governments.
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The reverse is also true: China is currently very active in reviving its investments and political channels to Brazil and South America after the pandemic break. The United States is also paying attention to South America in a way Washington hasn’t shown the region for decades.
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