Doing business with Latin America. Gabriela Castro-Fontoura
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a quote from William Hague once again, he said in 2010:
“Latin American countries are one of the undisputed engines of the international economy. The combined GDP of Latin America is over $5 trillion and is still growing. Brazil is on track to be the fifth largest economy in the world by 2025. The combined GDP of Mexico and Argentina equals that of India. Three of the G20 economies are Latin American.”
These powerful facts are the basis for why you should be looking at Latin America. Let’s expand on this and look at some other key reasons.
1. Stagnation of traditional export markets
I personally wouldn’t rule out more traditional trading partners such as the rest of the EU and the US (plus Australia, New Zealand, Canada, South Africa, etc.). After all, this might be where your quick wins are.
However, we all recognise that we cannot put all our eggs into one basket. If the economic downturn continues in these countries, you will need to look further afield in order to grow your business. You will consider Russia, India and China – and Latin America should also come at this stage.
2. Your competitors will
I often hear the comment, particularly from SMEs, that they can’t afford to look into these markets or that they just don’t care about them. This quickly turns into genuine interest when I point out how many of their UK and US competitors (and competitors from other areas) are actually operating or starting to operate in these markets. If you are not looking at Latin America, the chances are that your competitors will be. Can you afford not to at least consider these markets?
3. Your competitors will not
I highlighted above the presently weak trade links between Latin America and the UK. If other British businesses have been slow to react (and many still are), that could be a great advantage for you.
4. Economic growth
Despite the global economic downturn, the GDP growth of Latin America in 2013 is forecast by Standard & Poor’s to be 3.5% on average, with 5% for Chile and 6.8% for Panama.
Latin America has recently experienced a considerable period of economic growth. It is beyond the scope of this book to analyse where this growth has come from or to forecast future growth, but what is clear is that economies have been growing year on year, even at rates over 10% per year. We are all used to the doom and gloom in the UK in the last five years or so. The situation is not like that in Latin America, where economies have been buoyant.
Growth means not only that there is more money to spend (from governments, businesses and individuals) but there is also greater optimism (hence more willingness to spend, risk and invest). Millions of people across the region have been lifted out of poverty and are now becoming avid consumers. Governments have realised that inequality is not only a moral and political issue but also an economic one: economies cannot increase productivity or consumption and hence growth if half of their people are living in poverty. They are investing heavily not only in infrastructure (such as roads, airports and telecoms) to respond to the growth, but also in programmes to reduce poverty, increase education and improve welfare (all areas in which the UK is a world leader).
Growth also means that more needs to be produced. Local industry needs supplies and expertise to operate, from fire safety consultants to industrial lubricants, from heavy machinery to lean manufacturing expertise. Local industry just can’t cope, hence many goods need to be imported.
5. Macroeconomic and political stability
Latin America has long been an unstable region. The 1970s and 1980s – with their plethora of dictatorships across the region and serious economic decline, social unrest and civil wars – are still in the minds of many.
However, most Latin American countries are now out of this cycle. Most went back to full democracy in the mid-1980s and have remained democratic since then. Economic instability continued for some time, and the region was particularly effected by the 1998 crisis.
Since then, most Latin American countries (although not all) have had solid governments that have delivered strong macroeconomic policies. I summarise just some of the economic praise for Latin America’s countries in the box below.
“Chile and Mexico amongst the best performing members of OECD in next two years.” 28 November 2012, Mercopress (en.mercopress.com/2012/11/28/chile-and-mexico-among-the-best-performing-members-of-oecd-in-next-two-years)
“IMF praises Uruguayan economic management.” 2 November 2012, Guardian (www.guardian.co.uk/world/feedarticle/10512428)
“Peru posts fastest growth in 11 months on construction boom.” 15 September 2012 Bloomberg (www.bloomberg.com/news/2012-09-15/peru-posts-fastest-growth-in-11-months-on-construction-boom.html)
“Mexico could pass Brazil as top Latin America economy in next 10 years.” 9 August 2012, Reuters (in.reuters.com/article/2012/08/08/latam-economy-idINL2E8J8AGR20120808)
“Panama economic growth accelerated to 10.6% in first quarter.” 15 June 2012, Bloomberg (www.bloomberg.com/news/2012-06-15/panama-economic-growth-accelerated-to-10-4-in-first-quarter-1-.html)
What this means for your business is that you are more likely now than ever before to enter these markets at a time of economic boom and political stability, where local businesses and consumers are more likely to be willing to spend money and where your rights are more likely to be respected.
Please note that political and macroeconomic analysis should be country and time-specific. What I have said here only serves as a broad view, and you should research each country carefully. For example, Argentina is currently regarded as a politically and economically unstable country, despite its considerable economic growth. Venezuela is probably the most unstable country in the whole region, both in terms of the government and the economy.
Smaller Central American countries should also be explored in detail as discrete markets, rather than grouping them together. It is not the same, for example, to analyse the now fairly stable economy of Panama as it is to analyse the more volatile situation in Nicaragua.
The entrepreneurial spirit of Chile is epitomised by this ice cream stand in the Atacama desert
6. Pound depreciation
Without entering into detailed currency analysis, it is important to emphasise that the depreciation of the pound against local currencies; the US dollar and the Euro means that UK exports in Sterling will be comparatively cheaper today to Latin American importers than they were a few years ago.
However, if you are importing from Latin America, you will have noticed that their products will seem more expensive now than they were in the past (not just because of currency issues but because of labour costs and other considerations). This is affecting Latin American exports, for example those of Brazil, and governments are setting out ambitious policies to encourage exports. Sometimes the flipside of this is that they also want to discourage imports (see section below on protectionism).
An interesting aspect of this is that Latin Americans in the UK (students, business travellers and tourists) are finding that the UK is relatively cheap. Many Brazilians have told me, for example, that buying clothes in London is cheaper than in Sao Paulo (this is because of currency issues but also tax and import duties in Brazil).