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Latin America: A New Frontier for Your Products

Photo credit: Victor San Martin, Wikitravel

Latin America’s economy continues to forge ahead while America and Europe slumber. The first of a three-part series.

At APG, we are obsessed with staying informed, and nothing satisfies our hunger more than trying to answer the age old question: “What’s going on in the world?” At a quick glance, the state of the world is colored by impending European economic disaster, a slowing China, an ever-unstable Middle East and the ongoing malaise of the American marketplace. But there are bright spots for those who choose to dig deeper, and foremost on the list of silver linings is the strong, continued growth among the nations of Latin America.

From the Rio Grande to Tierra del Fuego, the countries of Central and South America have long had their troubles. From military juntas to civil wars, the past century was not always kind to the region. But it seems too often the biggest problem facing Latin America is its reputation. After all, the threat of Marxist governments and unruly drug violence are hardly music to the ears of the entrepreneur, investor or traveler. But for the more intrepid-hearted, looking beyond conventional wisdom presents a range of opportunities in the southern half of the Americas.

To start, the numbers are good. Estimates point to a tripling of middle class consumer spending in Latin America over the next decade. And compared with advanced countries, the region’s principal economies have less debt, and low fiscal account deficits, meaning that even during the current global downturn LatAm is likely to keep growing. Demographically, the populations are growing, too, and while this was once considered a bad omen for an economically challenged region, improved education and access to health care is turning population trends into a big advantage.  

But it’s not just in the numbers. Opportunities are evident in the rise of a commercially significant middle class, the abundant diversity of new and rapidly growing industries and the increasingly business-friendly positions of several key LatAm markets. In short, attitudes are changing for the better.

In this post we will discuss some of the prominent nations of South America, their various attributes and why you should care about them. In upcoming entries, we’ll cover the remaining economies of South America, as well as Mexico and Central America.

 

Argentina

Argentina is a nation rich in history and culture, possessing vast natural resources and a vibrant, highly educated populace. It is the 8th largest nation on earth by area with a diverse geography that encompasses tropical jungles, 5,000-meter mountains, prime agricultural plains and frozen tundra. In other words, Argentina has the capabilities and conditions necessary to produce just about anything you can think of.

Buenos Aires, Argentina’s capital, is one of the most important commercial, intellectual and artistic hubs of the Spanish-speaking world. It is a large and ethnically diverse city that has been home to a fair share of internationally renowned movements (tango, gauchos) and personalities (Jose Luis Borges, Che Guevara, Evita Peron). Visitors to Buenos Aires are often struck by its colorful urban setting, itself a mix of cosmopolitan modernity and elegant old-world charm.

Through much of the past decade, Argentina saw an economic renaissance fueled by high world demand for Argentine commodities (soy, beef, etc.), rapid growth of its biggest trade partner (Brazil) and favorable exchange rates with the US dollar. During this time, the country also experienced a boom in tourism and foreign investment.

In addition to its status as a literary, film and media capital, “BsAs” has recently become a major player on the high tech scene. The list of tech brands with offices in the city is now exhaustive and includes the likes of Google, Microsoft, IBM, Hewlett Packard and Intel. With a glut of qualified engineering talent available at favorable costs relative to other Western nations, Argentina is keen on building South America’s answer to Silicon Valley.

The success has not come without warning signs on the horizon, however. Recently, Argentina’s government has moved decidedly leftward, leading to increased levels of borrowing and spending. The nation also continues to flirt with high inflation. Moreover, political decisions made by some nationalistic leaders have precipitated complicated import/export laws and a resulting drop in imports and foreign direct investment.

Bottom Line: Despite its problems, Argentina is the third most powerful economy in Latin America, and Buenos Aires remains an influential, global city. The nation’s GDP per capita is the highest in all of LatAm, making it an obvious market for new products and services.

 

Brazil

When it comes to LatAm, Brazil is the undisputed big kid on the block. It is one of the world’s largest nations geographically, endowed with an incredibly vast assortment of natural resources. And with more than 200 million people, it’s the fifth largest country on earth by population. It is also now the world’s 6th biggest economy by GDP and at current growth rates is expected to be the 4th biggest within 20 years. Speaking of growth, Brazil’s economy has seen 5% annual growth in GDP over the past decade, and moved an estimated 40 million people out of poverty and into the middle class. Amazing.

Gaudy numbers aside, Brazil offers an attractive opportunity for myriad reasons. First, it has timing on its side. As the home nation for the 2014 World Cup and with Rio de Janeiro hosting the 2016 Olympic Games, Brazil will have two mega-popular events in the next four years to pitch itself on the world stage. And as a member of the BRIC, G20, WTO and Mercosur, Brazil will get a number of opportunities for self-promotion and to push hard for international trade policies beneficial to its economy. In short, the time to invest in Brazil is now.

Like any nation of similar economic clout, Brazil possesses a highly complex economy and has a growing presence in nearly every industry imaginable, from manufacturing to services, agriculture to technology, transport to energy. The country’s biggest brands include Petrobras and Globo, but it is also home to huge markets for international corporations like Shell, GM, Carrefour and DaimlerChrysler, among others.

Philosophically, Brazil offers an interesting economic model for world economies to watch. The nation sports a slew of pro-growth policies and private investment incentives while also taking care to balance its relationship between the state and markets. In other words, while the Brazilian economy is growing rapidly, government regulation is substantial and efforts to correct economic disparity are always popular.

Brazil is unique in that it is an island of Portuguese speakers in a hemisphere of Spanish and English speakers. To some extent this has influenced the perception of the Brazilian people and culture in its own region, where language differences have contributed to cultural separation. Probably few outsiders, for example, are aware that there are more than 20 cities in Brazil with metropolitan areas of more than 1 million people. The implication here is that there are more than 20 cities with highly sophisticated economies sporting a range of options for entrepreneurship and foreign investment.

Bottom Line: The growth policies of the past two ruling administrations have begun to reveal to the rest of the world some of the secrets that the Brazilian people have known all along. Chiefly, that the country is diverse and innovative with world-class cities, advanced infrastructure, skilled labor, modern amenities and a multifaceted people and culture. Additionally, Brazil has one of the fastest growing middle classes on earth. With a $2.5 Trillion annual GDP and counting, this is a market that cannot be ignored.

 

Chile

Chile prides itself on being one of Latin America’s most stable nations, both economically and politically. Having one of the region’s fastest growing economies, Chileans enjoy modern infrastructure and a high quality of life. First-time visitors are often surprised and impressed by the country’s staggering natural beauty and clean, well-run cities. With the second highest GDP per capita of any South American nation, Chile’s residents enjoy an uncommon prosperity relative to its neighbors.

Buoyed by a wealth of natural resources, Chile has developed a strong export culture attributable to its focus on mining and hydrocarbons—industries that have profited immensely from high demand in Asia. Chile has been traditionally strong in tourism, wine and agriculture, areas that have also seen growth in the past decade. In fact, its diverse economy has earned the nation an A+ credit rating from Standard & Poor’s.

Recently, the capital city of Santiago has begun to cement a reputation for investment and emphasis on high tech industries. Government projects like Start-Up Chile, which funds cutting edge entrepreneurs, and a healthy influx of venture capital have helped encourage a small boom in successful new technology businesses.

With liberal immigration and Visa laws, Chile is a relatively easy nation to relocate into. It offers a range of tax breaks and financial incentives for startups, too. With that said, Chile has also demonstrated a good record of environmental stewardship and regulatory protection that has been a bonus to investors looking to get into the market.

Bottom Line:As the only country in South America that is a member of the Organization for Economic Cooperation and Development, it is clear that Chile’s government policies encourage foreign economic interest and investment. Overall, this is a country that wants to make doing business easy.

 

Colombia

For much of the past half century, the international reputation of Colombia centered on two things: cocaine and coffee. In fact, the consistent portrayal in American pop culture of Colombia’s drug culture has in the eyes of some made the country’s name synonymous with bloodthirsty drug cartels and the covert jungle guerilla operations that supply them. 

To be certain, the nation’s history is inextricably linked with these two products and will continue to be for many years to come. But falling victim to these reputation-based fallacies only obscures a great story of a sophisticated people, dynamic culture and welcoming, business friendly economy.

As the largest Spanish-speaking country in South America, Colombia has a diverse population spread primarily throughout several modern, urban metropolitan areas—Bogota, Barranquilla, Cali, Cartagena and Medellin. Each of these cities plays a major role in both the economic output and the collective psyches of Colombians.

Bogota is the nation’s largest city and financial center, as well as the political capital. Barranquilla is the nation’s primary industrial city and biggest port. Cali is a cultural hub, home to the country’s biggest sporting venues, hottest music and dance scenes, and a large network of some of Latin America’s most advanced universities. Cartagena is the heart and soul of Colombia’s colonial history and one of the biggest tourist draws in all of the Caribbean. Medellin is Colombia’s commercial, industrial and agricultural powerhouse and serves as the gateway to the “zona cafetera,” or coffee zone.

Colombia is a rapidly modernizing country that has made great strides to wipe out drug violence and put its civil war legacy behind it. The FARC guerillas, at one time an influential separatist group, now consist mostly of a few stray bands of small militias hiding out in remote rainforests in the far eastern Andes. An infusion of close to US$2 Billion over the past 10 years under Plan Colombia has pushed the organization to the brink of extinction and resulted in one of Latin America’s statistically safest nations.

Moreover, Colombia is making a concerted push to attract tourists, investors and new industries. A recently signed free-trade agreement with the U.S. is expected to create a bonanza in foreign investment as companies looking for unfettered access to American consumers set up offices in the country. The Colombian finance department expects a 10% increase in exports and 300,000 new jobs in 2012 alone. The Colombian government is currently negotiating a similar deal with China.

Bottom Line:A nation that longs to break free from its troubled past, Colombia is literally sprinting into a phase of prosperity. When you step off the plane at El Dorado International Airport in Bogota, you can palpably feel this energy and passion. A skilled labor force, business-first government and rapidly expanding consumer class are tag-teaming to make Colombia one of LatAms can’t miss investment opportunities.

Questions or comments? Please email Michael Fenton at mfenton@atlantapacificgroup.com

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