Despite the Central America-Dominican Republic Free Trade Agreement with the United States, he said, that region has not yet begun to operate as a “unified, integrated whole.” But, he said, if the countries in the free trade pact combined with southern Mexico did, in fact, become more economically integrated, “that’s when you could begin to see some real potential’’ in terms of landing assembly business now in China.
Stratfor said Mexico, where assembly industries are already well established near the U.S. border, wouldn’t have been on its list of countries at the beginning of their development cycle — except for an area in south-central Mexico that is populous and relatively undeveloped. It includes the states of Veracruz, Chiapas and Yucatan where there is the potential for “low-end development that fits our criteria.”
“In Mexico, we’re seeing a lot of automotive assembly but also diversification in food processing and cosmetics,” said Karen Hooper, Stratfor’s director of analysis for Latin America.
All the Latin American countries on the list have the advantage of free trade agreements with the United States as well as better proximity to the world’s largest consumer market.
But their big advantage is low wages — or in other words, their relative poverty.
Chinese wages differ by region with lower wages in the interior, but pay is far lower in Peru, the Dominican Republic and Nicaragua. “There are also plenty of indicators that Mexican wages are below or equal with Chinese wages,” said Hooper.
With economic growth forecast at nearly 6 percent this year, the Peruvian economy is one of the fastest growing in Latin America. Peru’s other big advantage is it has the largest port on the Pacific coast of South America, helping cut costs, said Hooper.
Latin America’s largest economy — Brazil — isn’t on the list. Its wage structure is far too high, it is too protectionist and historically it hasn’t been particularly export-oriented, said Hooper.
Also left off the list are countries that are growing because of energy or mineral extraction. There is often currency volatility in these countries, which makes them less attractive to manufacturers, said Hooper.
For the foreseeable future, the PC 16 countries’ potential is in low-skill assembly industries, according to Stratfor. To move to the next level, said Hooper, will require investments in education.