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In Latin America, only 23% of the roads are paved and it’s home to one of the least extensive rail networks in the world. Rising logistics costs make the region less uncompetitive and reduce growth.
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00:00Getting around in Latin America can look like this, making it really hard to do business.
00:07The region's main trade partners are the US and China,
00:10with China compensating for a big underspend in transport infrastructure.
00:15China invests more in Latin American infrastructure than the combined amount of development base.
00:21But how do you allow for an increase in trade
00:23while protecting the region with the highest biodiversity in the world?
00:30It's impossible to look at the connection between transport and trade in Latin America
00:34without first taking note of its geography.
00:37This is a region that spans from Mexico to Patagonia,
00:42and in between there you find the Amazon, the largest tropical forest in the world.
00:47The Andes Mountains, the world's longest mountain range, wall off one half of the continent from the other.
00:54So that all means that building infrastructure is difficult and it's expensive.
00:57Will Freeman is a fellow for Latin America studies at the Council on Foreign Relations.
01:02I mean, you look at a country like Peru, where you have a thin strip of coastal land and then
01:08there are just mountain ranges for most of the rest of the country until you get to the Amazon.
01:12Ecuador, Colombia, a number of countries have geography like that.
01:16So it's a lot more difficult than, say, building a road in France or in Germany.
01:20This map shows the percentage of the rural population living within two kilometres of an all-weather road.
01:26The pink areas are the least connected, orange a little bit better, yellow better again,
01:32and the light blue and dark blue are the best connected areas.
01:35We've no information for some countries.
01:38Protected areas here in white often coincide with regions with limited road connectivity.
01:44That's Paula Caballero, Executive Director of the Latin America Region of the Nature Conservancy.
01:56This map shows the 40% of the species and the 25% of the forests.
02:01One of the three bottles of water on the planet is in Latin America.
02:05That's a third of the sweet water.
02:07This makes the continent mega-diverse when it comes to its ecology.
02:11It's got really impressive ecosystems like the Pantanal, one of the most important wetlands in the world.
02:17While the forests surrounding the Andes have habitats like the Padamos that support agriculture,
02:23the region's climate and geography also influence its assets.
02:27Like oil and soybeans and copper, Chile and Peru are top global producers of the mineral,
02:33used in things like renewable technologies.
02:36Then there's coffee, a lot of it, and not forgetting lithium, the mineral of the moment.
02:41Argentina, Chile and Bolivia, known as the lithium triangle,
02:45hold over 50% of global lithium reserves, making the region really important in the global energy
02:51transition as the mineral is used to help power EVs and store renewable energy.
02:58But how do traders and businesses move their goods around?
03:01Railways are largely underdeveloped and while roads are the primary means of transport,
03:06only 23% of them are paved.
03:09It's clear that the region invests less in infrastructure than other emerging economies.
03:14Elijah Oliveros-Rosen is the Chief Economist for Emerging Markets at S&P Global Ratings.
03:21The amount varies, but if we average the total infrastructure investment for the region,
03:27it is roughly 3%. Now, if you narrow it down to just transport infrastructure, that's around 1%.
03:33So it's really small.
03:34This lack of investment has ripple effects across the whole economy because investing in infrastructure
03:39tends to have a multiplier effect on growth. You invest $1, and you get more than $1 back in
03:45the long run because you've facilitated increased trade. But the opposite is happening in Latin America.
03:52According to a study from the World Bank, all Latin American countries face logistics costs that are
03:58much higher than those in the OECD and the US. The benchmark for logistics costs is around 10%.
04:06In Latin America, they range from 15% to 25%. And though research is sparse on the topic,
04:12a study from 2008 looking at moving soybeans by truck for export from north of the Brazilian state
04:19of Mato Grosso to the port of Paranaguá could cost around $79 per tonne.
04:25This compares to $34 per tonne when moving by truck and barge soybeans produced around Minneapolis
04:33in the US, along the Mississippi River to the Gulf ports in the country. Brazil, according to one study,
04:39is actually estimated to spend an extra almost 30% moving goods because of problems with the
04:45conditions of its roads. The picture is further complicated when looking at some ports in the
04:50region, with the lack of access roads being a particular problem. And while they have gotten
04:56better with the numbers on the left representing their rating, they lag behind their peers in other
05:01regions of the world. Panama in Central America, with the Caribbean Sea on one side and the Pacific Ocean
05:08on the other, is a connectivity outlier in the region because of its canal. 5% of all seaborne
05:14trade in the world passes through this canal each year, with access to both the Atlantic and
05:21Pacific Oceans, without the lengthy trip around South America. But whether Panama can continue to
05:29be a major player is questionable. Higher global temperatures are especially relevant to the region.
05:35Natural disasters have become more frequent and destructive, making the region the second most
05:41disaster prone across the world. In 2023, for example, the Panama Canal was hit by a severe drought.
05:48Authorities dropped the number of crossings and there were record delays. This had a huge impact on
05:54supply chains. It forced liquid natural gas exporters from the US to circumnavigate the southern tip of
06:00South America, adding days of transit time. And that's one of the reasons why Panama is at the center of trade
06:06tensions between the US and China. China is operating the Panama Canal, and we didn't give it to China,
06:14we gave it to Panama, and we're taking it back. You can almost precisely divide the continent in two.
06:22Below Panama, it's essentially China being the main trading partner, and above Panama, it's the US.
06:29So if you look at Mexico, for example, Mexico exports around almost 30% of their GDP to the US.
06:36But if you look at Chile, Peru, they export around 10% to China, but only a couple percentage points to the US.
06:44This is how the two powers have played out in the region over a 20-year period, from 2000 to 2021.
06:52For some countries, we've no information. But you see that within just two decades,
06:56China is now a major trading partner of South American countries.
07:01That relationship is primarily trade-driven and diplomatic. China has turned to Latin America
07:08as a place to secure raw materials, metals and agricultural goods, to feed a growing population,
07:15to supply its own turn towards renewable energy and new types of manufacturing. And it's also
07:23looked for diplomatic support. And more specifically, it's looked to isolate Taiwan.
07:27It's also looking, China is looking to compete with the United States in its own neighborhood.
07:31You know, at the same time that the US tries to leverage influence in Asia Pacific,
07:37China is trying to turn around and do essentially the same thing,
07:41remind the United States that it's not invulnerable in its own country.
07:44And apart from trade, with many of the region's governments operating under
07:48significant physical constraints, China is among the top sources
07:52of foreign direct investment in Latin America.
07:55Between 2005 and 2022, it invested in 228 infrastructure projects,
08:0277 related to energy, 13 were for telecommunications, and 90 of these were transport projects.
08:10This is a striking statistic. China invests more in Latin America infrastructure,
08:14than the combined amount of development banks. It's the largest single external investment
08:19source for infrastructure, especially when it comes to ports and railways. So there's clearly
08:26a lot of interest in China in securing access to key resources of the region and in building economic
08:33relationship with the region so they have access to these resources.
08:36Many of these projects arrive under the banner of China's Belt and Road Initiative,
08:41its global infrastructure development strategy to increase trade. For example, it's just built a
08:47megaport in Chiang Kai in Peru, cutting down on transport times between South America and Shanghai.
08:53It's really going to become a conveyor belt of South American minerals and agricultural goods from
08:58Brazil, from Argentina, from Chile, from Peru, from Ecuador, across the Pacific. There's a self-interested
09:04reason that China is investing in this infrastructure. It wants to streamline those flows of commodities
09:08out of the region and into its own markets.
09:11But given all that we know about biodiversity in the region, is it possible to preserve it
09:17while allowing for development and economic growth?
09:36Here you see areas across the world that hold the most carbon. The lighter and color the region,
09:42the less carbonate it soaks, while the darker areas absorb the most CO2.
09:48The good news is that the idea that one or the other has to be either growth or environment,
09:55is completely wrong. What we see is that there cannot be growth if we do not have and we do not
10:00protect those cements, those environmental fundamentals, so that we have guarantees of a stable climate,
10:07fertile soil, water provisioning, etc., etc.
10:11But a study looking at deforestation around the Amazon found that roads in the region
10:16can be linked to the clearance of trees.
10:20Satellite images show the BR-163 highway in the Brazilian state of Pará in 1990. Then it was a narrow,
10:28unpaved road. Fast forward to 2019. Significantly deforested land here in Orange leads off the road,
10:36then mostly paved and in some stretches with two lanes.
10:41It's a big difference. It's a significant difference.
10:43I want to hear this transmission. It is a significant difference.
10:47The 95% of deforestation in the Amazonas is a significant difference.
10:52That is a significant difference in the region.
10:52that is kept at a global level.
11:22We've got an expansion of cocaine trafficking and coca growing there.
11:26Huge expansion of illegal gold mining as prices for gold surge
11:29and only seem to be going up more and more as we have this increasing uncertainty
11:33over the future of the global trading system.
11:36So I do worry that those actors who aren't constrained by the law,
11:39they're going to be the ones who are doing most to destroy the environment in Latin America.
11:43And, you know, government's having a very hard time reigning them in.
11:46According to a report from Insight Crime,
11:49illegal economies are placing the region's biodiversity under significant threat.
11:54And the region is the most violent in the world for those who defend the land and the environment.
12:00The figures on the left show the number of environment-related killings across the world.
12:05In blue you see other regions of the world, while the pink represents Latin America,
12:10which in 2023 recorded 85% of all murders of environment defenders.
12:17It's not straightforward when looking at whether Latin America can preserve its biodiversity
12:22while strengthening trade and transport capacities.
12:25There hasn't been enough spending on infrastructure to truly know.
12:29And with the little spending we've seen, the region is already experiencing problems.
12:34I was surprised when researching the story that governments in Latin America haven't managed to deliver
12:39a broad multi-year transport infrastructure strategy,
12:43especially given that logistics costs are so high and their economies are on the line.
12:47And while there are hurdles from the region's geography to the rise in illegal economies,
12:52the biggest hurdle to me seems to be the lack of a vision and the money to back it up.
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