Latin America at a glance:

Benefits from:

  • Stable growth with relatively contained inflation
  • Sound macroeconomic fundamentals
  • Sound and profitable financial systems
  • Combined market of around 600m people
  • Favourable demographics with a booming middle class (supported by strong credit growth) feeding into growing domestic demand
  • Abundance of strategic natural resources
  • Strategic location + access to diversified export markets thanks to extended network of trade agreements
  • Record FDI inflows (US$220bn forecast for 2017)

Mapping growth in 2013-18

  • Expected regional growth of 2.6% in 2013 (compared to 3% in 2012), but an average of 3.7% for 2014-18.
  • A striking development of past two years has been reversal in fortunes of Brazil and Mexico. Medium-term prospects now look firmer in Mexico.
  • 2013 slowdown is cyclical rather than structural. Future growth will be driven by sound macro policies, firmer domestic and external demand.
  • Recovery in China will benefit producers of soft and hard commodities.
  • Widening current account deficits have increased vulnerability to shifts in market sentiment

China-Latin America: A growing relationship

  • China has increased its share in Latin America’s trade from 1% in 1980 to 15% in 2012, becoming third trading partner after the US and the EU.
  • Trade between Latam and China has expanded exponentially in recent years (faster than with the EU and the US).
  • China was the third largest investor in the region in 2010 (mostly extraction and natural resources but also diversifying in infrastructure and manufactures).
  • China is also an increasing source of funding: Chinese banks have lent more than US$75bn in 2005-12 to the region.

The rise of the consumer market

  • Rise of middle class through greater economic stability, increases in minimum wages and conditional cash transfer programmes.
  • Gini index has fallen over past decade, with 41 and 18 million people falling out of poverty and extreme poverty, respectively.
  • Young median age compared to rest of world (in Brazil, average is less than 30 years, 30% are 14 years or younger), but aging nonetheless.
  • Urbanization rate, up to 79% (Brazil & Chile, above 85%)

Integrated regional market and diversified export markets

  • Latin American markets increasingly integrated by a series of trade agreements (Mercosur, Andean Community, the newly signed Pacific Alliance, Caricom).
  • And stretching out to other regions using its strategic location close to the US and with a Pacific outreach:
  • US (NAFTA, CAFTA-DR, trade agreements with Chile, Colombia and Panama).
  • Asia (APEC, Trans-Pacific Partnership Agreement, several bilateral agreements between Mexico, Chile and Peru notably with Asian countries).

Brazil at a glance

  • Abundance of strategic natural resources and diversified export markets and products.
  • Renewable energy and oil
  • Huge reserves of oil and gas, which will turn the country into a top ten oil exporter (and self sufficient) by 2025.
  • Second-largest producer and largest exporter of ethanol in the world and one of the world’s biggest producers of hydropower in the world.
  • Sound and profitable banking sector.
  • Manufacturing (aircraft, automotive).
  • Agribusiness and mining
  • Leading producer and exporters of sugar, coffee, soybean, bovine meat, tobacco, ethanol among others.
  • Rich geology from iron ore to gold, diamonds and oil.
  • Tourism: Host of the World Cup (2014) and the Olympics (2016).
  • Infrastructure: US$190bn private concessions programme for roads, railways, ports and airports up to 2015.

Mexico at a glance

  • Key destination for foreign investment in the maquila (offshore assembly for re-export) industry: crucial to this has been the importance that authorities are giving to developing industrial "clusters" in high-value-added manufacturing in collaboration with the private sector and universities
  • Among the most important lowest-cost component manufacturer in the world.
  • Strategic geographic location (“just in time” access to North American markets, in between Pacific and Atlantic oceans, North and South America).
  • Privileged access to the US market, integration into US manufacturing supply chains (including a progressive move up p the value chain).
  • Extensive network of free trade agreements, with over 40 countries in three continents (a potential market of 1bn consumers, or 60% of the world’s GDP).
  • Sound and profitable financial system.
  • Investment opportunities in previously protected telecoms and energy sectors.

Colombia at a glance

  • C of Civets: the EIU chose it as one of the world’s emerging economies with better growth prospects over coming decade.
  • Extensive network of free trade agreements, with almost 50 countries in three continents.
  • Productive transformation strategy of the government focuses on 12 sectors (including tourism, infrastructure, financial services, oil & gas) with highest potential in terms of productivity and innovation.
  • Strong tradition of respect for—and regulation to protect—private and intellectual property; likelihood of important reforms to the land, tax and health systems.
  • New opportunities opening up for foreign investors, particularly in hydro­carbons and mining, road construction, electricity, telecoms, and non-traditional sectors such as agri-business.
  • Free trade access to the US market.

Peru at a glance

  • Highest growth rates forecast for next 5 years in the region.
  • Extensive network of free trade agreements with numerous countries in three continents (a potential market of over 4bn people with a joint GDP of US$56bn).
  • Agribusiness and mining
  • Natural greenhouse; among the best agricultural yields in 2010 (including sugar cane, grapes and avocado); major exporters of fresh and processed products
  • Biggest reserves in the world in silver, copper, zinc.
  • Renewable energy: wide availability of water and natural resources.
  • Infrastructure: Estimated government’s investment in infrastructure in the Proinversion portfolio is US$2.4bn.

Challenges

Business environment rankings, among the problematic areas: poor infrastructure, rigid labour markets, insufficient financing, cumbersome fiscal systems, availability of skilled labour, poor competition, red tape.

2009-13 / 2014-18 / change
North America / 8.12 / 8.30 / 0.18
Western Europe / 7.41 / 7.42 / 0.01
Asia & Australasia / 5.99 / 6.34 / 0.35
Eastern Europe / 6.55 / 6.93 / 0.38
Latin America / 5.81 / 6.02 / 0.21
Middle East & Africa / 5.50 / 5.81 / 0.31
World average / 6.56 / 6.80 / 0.24

Investment pros and cons

Pros

  • Prudent fiscal and monetary policies.
  • Growing domestic market.
  • Heavy investment in infrastructure in many countries.
  • Sounder and well functioning banking systems.
  • A dynamic private sector.
  • Deeper south-south trade and investment links.

Cons

  • A shortage of skills.
  • Rigid labour market.
  • Crime and corruption.
  • Inefficient bureaucracy.
  • Underdeveloped infrastructure.