For closer trade relations
IW: Germany should invest more in Colombia and Brazil
03/14/2023 11:46 am
The German Economic Institute is demanding that Germany increase its investments in Brazil and Colombia. This should strengthen trade relations. Otherwise, both countries threaten to turn to China. And that could turn into a big problem.
According to the Cologne Institute for Economic Research (IW), Germany should significantly increase its investments in Brazil and Colombia in order to counterbalance China. Investments should be made particularly in strategically important future sectors in order to win the countries over as partners in the fight against climate change. In the short term, Brazil and Colombia are also important suppliers of fossil fuels in the current energy price crisis.
Both countries also have raw materials that are indispensable for Germany, such as rare earths, but also green hydrogen. Federal Economics Minister Robert Habeck and Federal Agriculture Minister Cem Özdemir are currently visiting the two countries that the Federal Government has identified as important partners in trade and climate policy because of their wealth in such raw materials.
“Germany has to act much more strategically in the region,” said IW economist Simon Gerards Iglesias. “Instead of warm words, what is needed is targeted investment in future issues and infrastructure that will take countries forward. If we don’t do it, South America will turn to countries with different ideas about democracy and climate protection.”
According to IW, German investments in Brazil have declined in recent years. The investment portfolio was still 21 billion euros in 2019, a year later it had fallen to 17.7 billion euros. German companies have invested primarily in the automotive sector, the chemical industry and mechanical engineering – strategically important future sectors hardly play a role, according to the IW study.
China is getting more involved
According to the IW, at least 5.8 billion dollars in new investments flowed from China to Brazil in 2021. Because the data situation is not transparent, the actual value should be significantly higher according to IW. Between 2015 and 2020, however, the average investment was only 4.2 billion euros. In Colombia, China made a $3.8 billion investment in a single major infrastructure project in 2021.
Both countries are potential suppliers of important raw materials that are classified as critical for decarbonization. These include tantalum, niobium, tin and rare earths. Therefore, a “strategic commitment” by Germany in both countries is necessary, as the IW emphasized.
“Because of their large forest stocks, Brazil and Colombia are also key countries in achieving global climate goals,” said the IW. Colombia has been one of the leading climate actors in the region for some time. Brazil’s President Lula has also announced that he will protect the Amazon rainforest more. Both countries would be important partners in the climate club envisaged by Chancellor Olaf Scholz.
“German companies have shied away from the macroeconomic risk in the region and instead focused on China. But times have changed. Germany has to emancipate itself from China and needs new partners,” said IW economist Iglesias.