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How will the Russian invasion of Ukraine affect Latin America?
To understand the effect of Russia’s devastating invasion of Ukraine on Latin America, is to understand the world’s reaction to the invasion, as the ripple effects of sanctions add to the challenges facing Latin America’s economic outlook.
Like most of the world, Latin America still suffers from economic and political hangovers of extended quarantines and supply chain challenges from two years with COVID. Governments in Latin America are strapped for cash after sales tax revenues crashed during quarantines and relief packages were needed to save the business sector. Although Latin American business leaders anticipated high levels of growth in 2022, their optimism is lower now.
On a global scale, the Russian invasion of Ukraine will drive energy prices higher and aggravate inflation. But how will the current situation affect the Latin American economy and business sector?
Here are five expected outcomes:
- Rising energy prices threaten global growth, but a welcome boom to energy exporters including Colombia, Mexico, Argentina, Brazil and emerging producers such as Guyana and Suriname. Latin America’s energy producers are not restricted by OPEC production caps, so the race is on to leverage current energy prices
- The global automobile industry has fully embraced the shift towards electric vehicles. The construction of tomorrows electric vehicle infrastructure requires a grid with copper and other industrial metals, which many Latin American countries have in high natural preserves
- Net food exporting countries in Latin America will see a continuous increase in grain prices as Russian supply is sanctioned and high oil prices induce greater reliance on ethanol fuel. For most countries around the world, high food prices are a burden, but so far this is not true for Latin Americas largest net food exporters such as Brazil, Argentina, Peru and Chile
- Coal producers in Colombia, utilities in Chile, gold miners in Peru, infrastructure concessionaires in Brazil etc. are all capital-intensive, regulatory-sensitive sectors that are vulnerable to interference by political changes. For these sectors, the current market volatility can both pose great challenges, but in the short run also create an economic surge
- Historically Suriname and Guyana have been two of the world’s poorest countries, but the two countries have discovered an estimated 16 billion barrels of oil equivalent. This can result in Guyana becoming the largest producer of oil per capita in the world and increase oil-prices as a result of Russia’s invasion in Ukraine can magnify the development.
A prolonged war in Ukraine can aggravate sky-high energy prices and will force Latin American leaders to make drastic decisions. But in the short term, certain industries in Latin America kan experience a surge.