Latin America: “Land Of Opportunity For Foreign Investors”:

 Eight-thirty in the morning is perhaps a little early for a seminar about microeconomic management. That, however,was the time the Economist Intelligence Unit (EIU) scheduled for its breakfast presentation entitled “ Prepare For Opportunity: Latin America”  on the top floor of the Economist Tower in St James Street W1 on Friday 18th May. The objective was to advise companies and entrepreneurs interested in entering or developing further in the Latin American market exactly how they could profit from investing and operating in the region. A wide range of organisations was represented at the event, such as Accenture (UK) Ltd (global management  & technology services), Invesco (international investment), Lloyds Register (risk management), Deloitte (financial consultants), Cognita (international independent school group) and Telefonica (international telecommunications)  plus diplomats from the embassies of Colombia, El Salvador,Guatemala, Panama and the Peruvian Ambassador. Indeed, such was the demand for places that the EIU arranged a repeat seminar for Tuesday 22nd May.

The introductory handout specified EIU’s role as “using the best analytical minds” to provide comprehensive coverage of more than 200 countries and thus “empower business leaders to act with confidence when making strategic decisions”. It assessed Latin America as having “quickly bounced back from the 2009 global crisis with a 6.2% growth rate” but that considerable political and economic risks remain. The main speaker, Irene Mia,(EIU Latin America Editorial Director) dealt with the key issues – especially the prospects for Latin America over the next 5-20 years, the countries in the region with the most potential , the extent to which the eurozone’s problems ( & the Chinese slowdown) are impacting on their trade and how Latin America should  “combat the high poverty levels and widespread income & regional disparities” She indicated that the region as a whole “is expected to grow at an annual average of 4.1% in 2012-16”. Panama, Peru, Chile and Colombia are “among the top performers” with annual average growth rates of 4.7%-5.8%. For Brazil, the figure is 4.4% and Mexico 3.6%.

One of the region’s “most promising recent trends”, observed Mia, has been “the rise of the middle class, the consequence of greater economic stability and increases in minimum wages”. As a prime example, “48.7 million Brazilians have moved into the upper and middle-class categories since 2003”. She added a note of caution: Evidently, Brazil has an abundance of strategic natural resources, is diversifying its export markets and products, has a sound and profitable banking sector and its tourism sector will be boosted by the Football World Cup (2014) and the Olympics (2016). But: According to a ‘Fundacao Dom Cabral’ survey”,  92% of firms in Brazil experience difficulties in recruiting suitably qualified professionals and technicians such as mechanical engineers (34% shortfall), project managers (29%), production operators (24%) and electrical engineers (23%).  An EIU “executive summary” has judged Dilma Rousseff to be Brazil’s most popular President,  with an approval rating of 77%. It also predicts the country’s GDP this year will slow to 5.5%,  lower than the 6.9% in 2011. Meanwhile, Mia described Colombia as a “diverse and dynamic economy with a young growing population, a strong tradition of respect for private and intellectual property and where new opportunities are opening up for foreign investors, particularly in hydrocarbons, mining, road construction, electricity and telecoms.  Mexico is “the most important lowest-cost component manufacturer in the world”, has the advantage of a  “strategic geographic location” but is currently “held back by oligopolies and requires significant structural reforms”. Brazil is the main beneficiary of the increasing importance of the region as a “FDI (Foreign Direct Investment) Destination” and is predicted to maintain this position during 2012-2016, followed by Mexico, Chile, Colombia, Argentina, Peru, but only a very modest rise in FDI is anticipated for Ecuador and Venezuela.

China is  “the new player to watch”: It is now Latin America’s third trading partner (11%) after the USA (21%) and the European Union (13%), its third biggest investor  (mostly for extraction and natural resources) and has lent more than US$75 billion to the region since 2005. Mia expressed concern that Latin America is “lagging behind” other parts of the world in improvements to its business environment (5.82% compared to 8.24% for North America and the international average of 6.82%). She cited the “problematic factors” as being “poor infrastructure, rigid labour markets, insufficient financing, cumbersome fiscal systems, shortage of skilled labour and too much bureaucracy”. Furthermore: “Social unrest – fuelled by mounting frustration with the slow pace of reforms, the perceived unfair allocation of the benefits of economic growth, rising food prices and high levels of insecurity  – represents a potential threat to governability” The EIU forecasts that the 56% approval ratings of  Peruvian President Ollanta Humala will “continue to be vunerable to minor corruption scandals” and that his country’s GDP will drop from 6.9% in 2011 to 5.5% this year; Enrique Pena Nieto of Mexico’s PRI (Partido Revolucionario Institucional) “will win the July 2012 Presidential elections” and Mexico’s economy will grow by 3.4% in 2012 (down from 4% in 2011); Colombia’s growth rate this year “will be 5.1%”  (down from 5.9% in 2011). In Chile, “Growing demands for reform and the low popularity of President Sebastien Pinera will limit his administration’s efforts to improve productivity and competitiveness: GDP will grow at an annual average of 4.7% in 2012-16 “(it was 6% in 2011).

Irene Mia was followed to the rostrum by Colin Stewart of Air Europa, the third largest airline in Spain after Iberia and Vueling. Based at Palma de Mallorca Airport, its passenger numbers within Spain have been in decline: More than half its flights are now to Argentina (+ 34%), Venezuela (+ 58%), Peru (+58%) and most impressive of all Brazil (+112%). It has a presence in Havana (Cuba), Cancun (Mexico), Santo Domingo & Punta Cana (Dominican Republic) and is currently negotiating to expand into Colombia.  As Stewart made clear, Latin America has become Air Europa’s main target market.

 

 

 

 

Filed under: Politics | Posted on May 30th, 2012 by Colin D Gordon

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