Lights and Shadows of the War in Ukraine:

Economic and Social Effects on Latin

America and the Caribbean

José Durán Lima

Chief, Regional Integration Unit
International Trade and Integration Division
UN-ECLAC

Urbana - Champaign - Illinois, March 24, 2023

Latin America and the Caribbean is a heterogenous
region with three distinct groups of countries

• Mexico and Central America, with strong links with the

U.S. economy (trade, FDI, migration, etc.) and
specialized in the export of manufactures.

• The Caribbean, made up mostly of small island States

whose economies are based on services (tourism and
financial services). Highly vulnerable to natural
disasters.

• South America, rich in natural resources (minerals,

energy, and agricultural products). Within this
subregion we have Brazil, a country of continental size.

Source: https://www.pinterest.cl/pin/422071796298007240/
 First of all, it is important to consider two points

1.- The period between 2014 and 2023 will be remembered as “the new lost
decade” for the LAC region
• Average GDP growth will be just 0.9% a year, considering not only the sharp fall
during the COVID crisis (-6.8% in 2020), but also the interruption of the recovery
(6.7% in 2021) due to the war and its consequences.

• This will be the second lost decade since the 1950s. In terms of GDP growth, it will be
even worse than the first one during the debt crisis of the 1980s.

2.- LAC, with 8% of global population, had about 30% of all deaths from
COVID 19 in the world.
 The list of negative effects is a long one

1. The fall in exports to Russia and Ukraine.

2. Rising import prices
3. Increase in freight prices due to disruptions in supply chains
4. The scarcity of fertilizers, key inputs for agriculture.
5. The increase in domestic inflation
6. Contagion to the world economy
7. The deterioration of the terms of trade
8. Setback in recovery from poverty
 The sequence of effects
tional Trade
Interna
1. Trade disruptions
Fall in exports to Russia and
Ukraine.
Rising import prices (wheat,
vegetable oil, and energy)
Increase of freight prices due to
interruption of supply chains
Limited impacts
Winners and losers according to
structure of export patterns
Domestic economies
Production
3. Effect is transferred to
2. Disruptions in supply of Macro variables
key agricultural inputs
CPI rise (food and energy)
Central Banks tighthen monetary
policy
Shortage of fertilizers and
agrochemicals, leading to Economic growth is reduced
higher prices (ammonium, Trade demand falls
phosphate, urea, etc.)
The cost of external debt
increases
Future agricultural production is affected Contagion
The direct impact is felt by the farmers World economy is affected through
who face increasing production costs financial markets
 The sequence of effects
tional Trade
Interna
1. Trade disruptions
Fall in exports to Russia and
Ukraine.
Rising import prices (wheat,
vegetable oil, and energy)
Increase of freight prices due to
interruption of supply chains
Limited impacts
Winners and losers according to
structure of export patterns
Domestic economies
Production
3. Effect is transferred to
2. Disruptions in supply of Macro variables
key agricultural inputs
CPI rise (food and energy)
Central Banks tighthen monetary
policy
Shortage of fertilizers and
agrochemicals, leading to Economic growth is reduced
higher prices (ammonium, Trade demand falls
phosphate, urea, etc.)
The cost of external debt
increases
Future agricultural production is affected Contagion
The direct impact is felt by the farmers World economy is affected through
who face increasing production costs financial markets
 The sequence of effects
tional Trade
Interna
1. Trade disruptions
Fall in exports to Russia and
Ukraine.
Rising import prices (wheat,
vegetable oil, and energy)
Increase of freight prices due to
interruption of supply chains
Limited impacts
Winners and losers according to
structure of export patterns
Domestic economies
Production
3. Effect is transferred to
2. Disruptions in supply of Macro variables
key agricultural inputs
CPI rise (food and energy)
Central Banks tighthen monetary
policy
Shortage of fertilizers and
agrochemicals, leading to Economic growth is reduced
higher prices (ammonium, Trade demand falls
phosphate, urea, etc.)
The cost of external debt
increases
Future agricultural production is affected Contagion
The direct impact is felt by the farmers World economy is affected through
who face increasing production costs financial markets
With a few exceptions, the export exposure of LAC countries to
the Russian market is very low

Latin America and the Caribbean, exports to Russia by country,

2020
(Share of total exports)

§ Paraguay: Butter and fats

§ Jamaica: Aluminum oxide
§ Ecuador: coffee, bananas, flowers
§ Uruguay: bovine liver, chesses
§ Argentina: butter, fresh chess
§ Chile: copper, salmon, fresh cheese

Source: Author, based on COMTRADE database

The greatest affectations occur in agricultural and agro-industrial
products (Xs), and in inputs for the industry (Ms)
Países Exportaciones (% de las Xs totales de cada producto) Importaciones (% de las Ms totales del producto)
Butter (99%); fresh cheese (32%); lemons (25%); butterfat (67%); Ammonium nitrate (70%); Rubber "BR” (36.2%); Potassium
Argentina
tangerines (45%); horse meat (27%); apples and pears (23%) Chloride (35.5%); Paper and cardboard (32%);
Peanut (43%); tractors (13%); coffee concentrates (15%); Apples Iron or steel planes >= 600 mm. (98%); Ammonium nitrate
Brazil
(29%) (95.5%); Mineral fertilizers (54.5%); potassium chloride (49%)
Copper waste (61%); salmon (40%); fresh cheese (35%); soprene Rubber “ÏR” (97.7%); Ammonium nitrate (75.5%);
Almonds (22%); frozen trout (21%); apples and pears (10%) wooden boards (41%); Nitrates (38%); Flakes, granules and
Chile
"pellets" of potato "potato" (25%)

Milk cream (98%); butter (97%); cocoa paste (18%); coffee (15%); Ammonium nitrate (83%); Helicopters (99%); books and
Colombia banana (10%); flowers (9%) brochures (93%); urea (31%); aluminum (25%); potassium
chloride (21%)
Ecuador Coffee (34%); flowers (36%); bananas (21%); fish (18%); jams Phosphate mineral fertilizers (77%); diammonium phosphate
(15%); (69%); Ammonium nitrate (63%)
Jamaica Aluminum oxide (99,95%) Octiphenol (67%); monoammonium phosphate(62%);
methylene chloride(54%)
Paraguay Butter and fats (86%); bovine meat (20%); soy (11%) Oil residues (35%); fertilizers (32%); inorganic chemicals (4.5%).

Uruguay Bovine livers (97%); melted cheese (37%); butter (25%) bitumen and asphalt (77%); Potassium Chloride (76%); Sodium
dichromate (45%); sulfur (31%); Urea (22%)
Source: Author, base on World bank price database
 Rise of energy import prices due the war
Oil (US$ per barrel) Gas ($/mmbtu)
160 14.0
140 12.0
120
10.0
100
8.0
80
6.0
60
40 4.0

20 2.0
0 0.0
Nov

Nov
Feb
Sep

Feb
Sep
Jun

Jun
Jul

Jul
Oct

Oct

Oct
Mar

Mar

Mar
May

May

May
Abr

Abr
Dec

Dec

Dec
Ene

Ene

Ene
Ago

Ago

Ago

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul
Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20222 023 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20222023

Coal (US$/mt) Energy (Index 2019 = 100)

45
500
40
450
400 35
350 30
300 25
250 20
200 15
150 10
100 5
50
0
0

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul
Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene
Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul

Jul
Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

Ene

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20222023
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20222023
Source: Author, base on World bank price database
 Rise of fertilizers prices. All prices are still higher than pre-
pandemia
Fertilizer prices (Index 2019 = 100)

Source: Author, base on World bank price database

 The region is highly dependent on Russian fertilizers

SHARE OF RUSSIA IN FERTILIZER IMPORTS, 2020 (%)

Source: Author, based on COMTRADE database

 -
1,000
2,000
3,000
4,000
5,000
6,000
2019-01-02
2019-01-23

1,282
2019-02-13
2019-03-06
2019-03-27
2019-04-17
2019-05-13
2019-06-04
2019-06-25
2019-07-16
2019-08-06
2019-08-28
2019-09-18

such as metals, grains and fossil fuels by sea

2019-10-09
2019-10-30
2019-11-20
2019-12-11
2020-01-09
2020-01-30
2020-02-20
2020-03-12
2020-04-02
2020-04-27
2020-05-19
2020-06-10
2020-07-01
2020-07-22
2020-08-12
2020-09-03
2020-09-24
2020-10-15
2020-11-05
2020-11-26
2020-12-17
2021-01-15
2021-02-05
2021-02-26
2021-03-19
2021-04-13
2021-05-05
2021-05-26
2021-06-17
2021-07-08
2021-07-29
2021-08-19
2021-09-10
2021-10-01
2021-10-22
2021-11-12
5,526

2021-12-03
2022-01-04
2022-01-25
2022-02-16
2022-03-09
Baltic Dry Index – BDI, January 2019 to February 2023

2022-03-30
2022-04-22
2022-05-16
2022-06-08
2022-06-29
2022-07-20
3,344

2022-08-10
2022-09-01
2022-09-26
2022-10-17
2022-11-07
2022-11-28
2022-12-19
2023-01-17
prices following the one caused by the pandemic

2023-02-07
2023-02-28
The war also produced a new rise in maritime freight

1587

Source: ECLAC, based on Bloomberg. Note: A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials
 Fertilizers represent a significant share of the cost structure of
several agricultural products

Fertilizers (share of cost in percentages)

50
40 39
40 35 33
30
30 25
22 20
20 16
10

0
yellow coffe rainfed rubber irrigation cocoa sugar cane potatoes banana
corn rice rice

Source: ECLAC, based on Aldana (2022), Cadenas productivas sienten el impacto del incremento en los costos. En línea en: https://www.contextoganadero.com/economia/cadenas-productivas-sienten-el-impacto-del-
incremento-en-los-costosñ Perfetti y Otros (2012), Costos de Producción de doce productos agropecuarios. En el caso del arroz incluye fertilizantes y plaguicidas.
 On average, Latin America closed 2022 with a decline of
agricultural GDP of 0.8%

Latin America (14 countries): Variation in Agriculture, Livestock and fishing GDP, 2019-2022 (%)

Source: Author, based on CEPALSTAT and official countries GDP, according National Statistic Offices. 2022 are preliminary figures.
 10000
30000
50000
70000

-50000
-30000
-10000
Brasil
Uruguay 11457 62500
Trinidad y Tabago 9900
Peru 9569
Argentina 6923
Venezuela, (B.R.) 5742
Bolivia, (P.S.) 3264
Chile 2858
Guyana 2849
Ecuador 2324
Suriname 800
Paraguay -76
Dominica -163
San Vicente y las Granadinas -206
Saint Kitts y Nevis -281
Santa Lucía -349

Source: Author, based on National Statistical Offices

Granada -349
Antigua and Barbuda -530
Belice -624
Barbados -1416
The Bahamas -3682
(million of dollars)

Jamaica -3895
Haiti -3980
Nicaragua -4090
Costa Rica -4935
Cuba -8100
Honduras -8221
Colombia -8800
LAC countries: Balance of trade, 2022

Panamá (ZLC) -9376

Panamá -9531
El Salvador -10223
Guatemala -17114
Dominican Republic -17154
(countries with Deficit)

Mexico -26421
10
20
30
40
50

-40
-30
-20
-10
39

Venezuela, (B.R.)
33

Trinidad y Tabago
18

Colombia
Antigua and Barbuda
Ecuador
7 6 5

Bolivia, (P.S.)
5

Guyana
2

Barbados
Argentina
Granada
-1 -1 -2

Cuba
Paraguay
Bahamas
Uruguay
Perú
-3 -3 -4 -4 -4

El Salvador
Costa Rica
Guatemala
Mexico
Saint Vincents and the Grenadinas
Panama
(change in percentages)

Brasil
-5 -6 -6 -6 -6 -7 -7

Belice
Honduras
Haiti
Chile
LAC countries: Terms of Trade, 2022

Jamaica
Surinam
-9 -9 -10-10-10-10

Nicaragua
increase in their trade deficits and a negative impact in their terms of trade

Saint Lucia
(Affected countries)

-11-12

Saint Kitts y Nevis

-14
LAC countries which are highly dependent on energy imports suffered in 2022 an

Dominican Republic
-28

Dominica
 The consumer price index increased dramatically
Latin American CPI Index (variations in percentages excluding Argentina and Venezuela)
18% 80
16% 70
14%
14% 60
12%
50
10%
8% 40
8%
30
6%
4% 20

2% 10

0% 0
E M M J S N E M M J S N E M M J S N E M M J S N E M M J S N E M M J S N
2017 2018 2019 2020 2021 2022
Source: Author, based on CEPALSTAT, ECLAC. General CPI Food CPI
Note: Excluding Argentina and Venezuela
Including Argentina, regional inflation is notably higher

Latin American CPI Index (variations in percentages)

Some LAC countries benefited from higher commodity in
2022

Benefited with higher energy prices

oil (40%); gas (65%); coal (150%)
• Brazil, Bolivia, Colombia, Ecuador, Venezuela, and Mexico in Latin America
• Bahamas, Guyana, and Trinidad and Tobago among the Caribbean countries.

Benefited with higher agricultural prices

Chicken (60%); wheat (36%); beef (33%); sunflower oil (32%): corn (23%): rice (22%); sugar (16%),

• Argentina, Brazil, Uruguay, Paraguay and Peru

 Some ideas about the future lights

• There is a set of latent interdependences in the Global landscape

• A link between production and trade
• development of research and development on frontier issues: development of new
materials, the transition towards electromobility, and above all the search for less
polluting production patterns, and scientific development.
• In the background of these transformations are the increasing tension
between the great world powers, The United States, Europe, China, Japan.
• After the pandemic, the war in Ukraine, and the current geopolitical tensions
are changing production patterns.
 What are the changes?

• Production is concentrating more on investment in regional poles.

• A movement from a Global to a Regional Value Chain approach

• Asia Pacific is deepening its intraregional ties by advancing toward the implementation of RCEP
• United States focuses more on promoting trade relations with Mexico and Canada within the USMCA framework
• Europe follow the same way.

• There is a perception of a loss of space in the technological development and production

of strategic manufacturing: pharmaceutical, aeronautical, nanotechnology, computer and
cybernetic development, and electromobility, to name a few fields)

• The United States and Europe promote a greater regional interdependence, for reasons
like the preservation of autonomy and control of essential production chains.
 And the concern
• China has advanced significantly
• The number 1 producer of Electrical Batteries
• The main producer of electrical vehicles. More than 90% of Electrical buses
• The main supplier of electronic devices and software for smartphones.
• Very active in research and development, etc.

• In some of these sectors, China has advanced significantly, and intellectual and
political circles are concerned about the security implications of China's increasingly
dominant position.
• European agriculture’s reliance on energy for industry
• The dependence on large markets such as China and Russia for Latin America poses a
great risk at the time of abrupt disruptions.
 In this scenario, is it possible that Latin America could
receive some benefits?
• As is widely known, Mexico and Central America have a strong connection with the
United States. Mexico and Costa Rica are part of the North American value chains
for:
• electronics, medical equipment, vehicle production,
• South American countries are more connected to China and the Asia Pacific than to
each other. They are the main suppliers of:
• oil, gas, copper, iron ore, zinc, bauxite, lithium, precious metals, among others.
• South America participates in the Chinese and Asian value chains as a supplier of
basic raw materials
• The dependence on large markets such as China poses a great risk for South
American exporters at the time of abrupt disruptions such as war, or the rupture of
supply chains.
 And what about the space of LACs in this scenario

• Seems to have a suitable space for a new form of economic and trade
relationship with the United States
• There is a space for greater integration of LACs in a continental-type value
chain
• Production of medical equipment, battery cells, electrical batteries, green hydrogen
• Promote investments in cleaner and more sustainable production systems.

• And, for what purpose?

• To counterbalancing the predominance of China in many strategic sectors

that have left the United States and Latin America in a disadvantageous
situation.
 And what about the space of LACs in this scenario

• In the sense that it could better take possession of a strategy that promotes
a new hemispheric regionalism in which nearshoring in Latin American and
Caribbean countries is feasible,
• Not only with Mexico, Costa Rica and the rest of Central America
• Also, with other South American countries. Many countries can be part of this strategy.
• Spaces can be opened for new American and Latin American investments
throughout the hemisphere in strategic sectors in which some countries in
the region have comparative advantages, and which for now are more
connected with China and Asia.
LAC is rich in minerals which are key inputs for several strategic industries (biomedical, electronic,
semiconductors, electrical batteries)

# Minerals MAIN USES COUNTRIES

1 Arsenic Biomedical, electronics, photovoltaic applications, solar cells, bateries. PERU
2 Boron Chemical, glasses and ceramic, cleaning products, semiconductors AR, BOL, CHL,PER
3 Cadmiun Niquel Cadmiun batteries, pigments, plastic stablizers MEXICO, PERU
4 Graphite Vehicle batteries, battery cells, drive units, and energy storage products. BRASIL, MEXICO
BOL, CHI, MEX, PER,
5 Cooper electric and electronic devices, comunications, batteries
ECU, PAN
6 Indium alloys and solders, electrical components and semiconductors PERU
X-ray contrast media, pharmaceuticals, liquid crystal displays (LCDs),
7 Iodin CHILE
iodophors and biocidas
8 Iron ore Steel industry, car industry, electromobility BRA, CHI, PER, MEX
Abrasive products (vehicle brake shoes and pads and grinding and cutting
9 Kyanite PERU
wheels) ceramic products (electrical insulating porcelain)
Batteries, 74%; ceramics and glass, 14%; lubricating greases, 3%;
10 Lithium AR, BRA, BOL, CHI
continuous casting mold flux powders, 2%; polymer production, 2%

11 Molybdenum Intermediate products, such as ferromolybdenum, metal powder, and ARG, CHI, MEX, PERU
various chemicals
Electrical contacts, electromagnets, electron tubes and targets, heating
12 Rhenium CHILE
elements, ionization gauges, mass spectrographs, metallic
 An example. Electromobility industry (1)
• Instead of exporting to China the raw materials required to produce battery
cells in some Latin American place. Maybe Brazil, Colombia,….
• Latin American countries could be destined strategic raw material for plants
on the continent, in countries with the potential, to supply the existing
demand for the automotive industry, which then could produce cell
batteries for electric vehicles in small factories in other countries (connecting
the electrical car production with the main component, the battery).
• To do that the region needs to match the production capacity from
Argentina, Brazil, Colombia, and México, with FDI from United States firms
(also EU firms), and the network of regional suppliers of parts and
components, including body cars and assembler of heavy vehicles (buses,
trucks, pick up, etc.).
 An example. Electromobility industry (2)

• Cities need zero-emission cars, especially electric buses to reduce pollution

in public transport, but also, in the transport of goods (trucks, trailers, …).
• There is a demand for electric buses in Sao Paulo, Mexico, DF., Bogota, and
Santiago.
• Consumers in Latin America will increase their well-being, because the
prices of electric cars will down, and the level of emissions of the cities will
decrease.
 Looking for the future. 2023 forecast
• How continued tensions between Russia and Ukraine could affect the
growth of the world economy in 2023.
• Financial turbulences are affecting growth expectations and casting doubt
on the strength of global economic growth.
• Let me tell you that the next few months of 2023 will be months of great
volatility in the financial and commodity markets
• Prices of energy and fertilizers are still higher and will put pressure on
inflation. Risk of new increasing of interest rate.
• The GDP growth target of 5% in China will support oil prices around US$ 70
dollar per barrel in 2023. And, a higher price (US$ 90 d/b) if GDP recovers
the pre-pandemic dynamic.
 It is to be hoped that these tensions will cool and
economic international relations between Ukraine and
Russia will normalize, with the consequent recovery of
world economic growth and peace
Lights and Shadows of the War in Ukraine:
Economic and Social Effects on Latin
America and the Caribbean

José Durán Lima

Chief, Regional Integration Unit
International Trade and Integration Division
UN-ECLAC

Urbana Champaign - Illinois, March 24, 2023