This week, La República, one of Colombia’s most important economic and financial newspapers, has published the latest article by ATREVIA’s president, Núria Vilanova, titled “Raw Materials, Driver of Transformation.” The pandemic has made us confront reality: without raw materials, nothing works. Although Bloomberg’s raw materials price index fell by up to 25% due to the production halt caused by the confinement, the growing demand driven by the recovery has caused this same index to grow by 56% between May 2020 and July 2021.
“According to numerous experts, we may be facing a new supercycle of rising prices for materials, food, and fuels similar to the one that occurred between 2004 and 2014. Among the reasons are those linked to the pandemic, such as monetary policies that have led to excess liquidity, turning raw materials into safe-havens.
Also, the advancement of ESG criteria is driving economic recovery; however, we must keep in mind that decarbonization and digital transformation processes require substituting specific natural resources for others, such that raw materials continue to be necessary. Furthermore, there is a growing demand for commodities from India, a country which will play a similar role as China did in the past.
In any case, as Bloomberg states in its blog, “Supercycle or not, commodities are set to be the driver, not the consequence; and the beneficiary, not the victim of the energy transition over the next decade”. In addition, we must not forget that Latin America is home to 40% of the world’s biodiversity, 17% of global oil reserves, 52% of copper, and 85% of lithium (essential for batteries).
This is an optimistic starting point for Latin America, which means making the most of opportunities and minimizing risks.
Reducing Inequality, decreasing the public deficit, or promoting structural reforms are among the possible opportunities. The increase in income will help minimize the adverse effects of the pandemic, such as the fall in tourism, the outflow of capital, or the slowdown in domestic economies. It will also help to overcome poverty, as was the case in the previous stage, when it fell from 45% to 28% in Latin America as a whole.
The risk factors include a global upturn in inflation, an increase in poverty, and a rise in debt.
Higher commodity prices would increase poverty and provoke new social protests. On the other hand, a rise in interest rates would affect many Latin American countries when it comes to paying their debts, forcing them to increase their tax burden.
So, we are optimistic but also realistic. It is clear that this phase is only temporary. The key is to have a clear vision of the future and to use this additional income wisely. It is necessary to end the region´s infrastructure, education, health, and social deficiencies. We must invest in the production and use of renewable energy and address structural reforms. Moreover, it is necessary to lay the foundations for a sustainable development model that makes economic growth compatible with increased social welfare by generating formal, quality employment.
In short, we must all (governments, companies, and social agents) do our part to succeed in the collective challenge of transforming this increased demand for the region’s natural resources into raw material for a better future. It is time to create and believe in Ibero-America (the motto of the Alliance for Ibero-America Business Council). Let us not waste the opportunity”.