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Business executives are optimistic about Mexico, here represented by capital Mexico City. (Photo: Clinker)
Wednesday, January 15, 2014
Special Reports

Latin America 2014: Positive Business Outlook

Business executives generally optimistic despite key challenges.


Despite a slowdown in economic growth, business executives are generally optimistic about Latin America.

“I think prospects for the region are quite positive,” says Adriana Cisneros, CEO of technology and media company Cisneros, which has extensive business in Latin America, including its original home base of Venezuela.

Alvaro Diago, Latin America COO of UK-based InterContinental Hotel Group, agrees. “As the global economy continues to recover from the recession, Latin America in the aggregate will continue to be positively impacted and most experts predict modest growth,” he says. “I would concur with that. The continued acceleration of intra-regional businesses, which has generated substantial growth in the hospitality industry, continues to look fairly robust. Having Europe slowly work itself through its own financial woes will also help Latin America.  Those combinations – North American recovery, European recovery, and the region expanding from within – should net positive growth as predicted.”

Both Cisneros and Diago point to the recent poverty reduction in Latin America as a clear sign of progress. “The region has taken some big steps towards reducing poverty,” Cisneros says.

The emergence of a growing middle class (which currently represents 55 percent of the population and could reach 78 percent in 2025) represents a fundamental pillar for deepening the region’s economic growth, she says.

“Reports noting double-digit reduction in the region’s poverty rate are important long-term harbingers, “ Diago says. “We need more people working. That is the only real long-term solution.”

Cisneros also sees other improvements. “Our countries have generally been making a big effort to improve the business environment,” she says. “In 2013 many countries began reforms to improve tax collection, exportation, startup businesses as well as the exchange of goods and services.”

Jaime Ardila
, president of South America for General Motors, points to differences between countries.  My expectation is for average GDP growth of 4 percent, with Brazil, Argentina and Venezuela growing below average and Colombia, Chile and Peru keeping higher growth rates,” he says. “Mexico is likely to benefit from the economic recovery in the US as well as recent reforms in energy and telecommunications.”

Growth has slowed down in most countries due to a fall in commodity exports and in some cases prices, mainly to China, he points out. “In addition, in some countries such as Brazil the less favorable external outlook has been compounded by a loss of consumer confidence and higher debt levels by households,” Ardila says.


The slowdown of the Chinese economy – the top export market for many Latin American countries – has also impacted GDP growth in the region.

“Many regions have been impacted by the slowdown in the Chinese economy, including Latin America,” Diago says.

Apart from the economic slowdown, business executives see other major challenges impacting the bottom line.

“The main challenges for the region are related to excess government interference in countries such as Argentina, Venezuela and Ecuador that create unfavorable conditions to private investment, as well as a delay in the much needed investments in infrastructure and education in most countries,” Ardila says.

Cisneros sees three major challenges that need to be addressed: the lack of diversification, the growing demands of the middle class and relations with Asia.

We are witnessing the process of world wealth shifting towards emerging economies, primarily in Asian economies,” she says. “In this context, competitiveness has become a huge challenge for Latin America.”

In 2011, raw materials represented 60 percent of total exports in Latin America. “It is one of our greatest strengths, but we must also strengthen other sectors through innovation, development of infrastructure and fiscal incentives,” Cisneros says.

The substantial reduction of poverty in the region has created an emerging middle class which demands efficient services, quality products and the adoption of public policies to promote growth and greater productivity, she points out. “The middle class challenges both governments and companies,” Cisneros says.

And while the Asian economies are a big challenge for Latin America’s competitiveness, they also represent enormous opportunities to diversify the region’s export destinations, she argues.

Meanwhile, Diago also sees the price of foreign capital becoming a challenge as countries deal with that issue.


Business executives see clear benefits from recent reforms aimed at making Mexico more competitive.

Mexico is making significant moves to improve investment and business conditions in general such as the recently approved reforms in the telecommunications and energy sectors, and will be one of the greatest beneficiaries of better economic conditions in the US,” Ardila says.

Diago agrees. “Mexico’s reforms are taking hold, and the country, which was very negatively impacted by the recession in the U.S., seems to be in an extremely positive overall path,” he says. “Mexico’s economy is also becoming more attractive to investors, and that is of course positive.”

Cisneros points to estimates by the Inter-American Development Bank, the OECD and the ECLAC which show a significant acceleration in Mexico during 2014.

“I would emphasize two big factors,” she says. “On the one hand, the prospects of acceleration of the US economy and on the other hand, the big prospects of structural reforms the Mexican government is undertaking in the areas of telecommunications, fiscal policy, energy and education, which seek to push growth over the medium to long term."

The energy reforms are expected to boost the economy and foreign direct direct investment. Mexican officials predict the country’s economy should grow 4 percent this year and 5 percent by 2018 as a result. Meanwhile, FDI could boost FDI by as much as $15 billion annually, JP Morgan estimates. Bank of America’s chief Mexico economist, Carlos Capistran, is even more bullish, predicting an additional $20 billion by 2015, according to Bloomberg.

To put that in perspective, Mexico attracted an average FDI of $19.2 billion in the five year period 2008-12, according to a Latinvex analysis. In other words, the two estimates would nearly double or double the average FDI for Mexico.

“I would not be surprised to see total FDI into Mexico surpassing the $30 billion mark in 2014, thanks to the materialization of the initial wave of foreign investments that will look for ways to take advantage of the newly-reformed energy matrix," Alberto J. Bernal-León, head of research and partner at Bulltick Capital Markets in Miami, told the Inter-American Dialogue’s daily Latin America Advisor recently.

During the first nine months last year FDI reached $28.2 billion, which was a historic maximum for that period, Cisneros points out.

Mexico currently ranks 53rd out of the 189 nations included on the World Bank’s “Doing Business” ranking for 2014. “Although it has fallen a few rungs, it continues to maintain a good position for investment and doing business,” she says.

However, Mexico also faces several challenges, executives say.

The Mexican government does not have a majority in Congress to push major reforms and relies on a fragile alliance with the main opposition party, Ardila points out. “Any fracture in that alliance could delay or even reverse the on-going reform process,” he says.

Cisneros sees two big challenges this year. “The first is precisely to do with possibilities in relation to the reforms being put into place; whether or not their implementation will be efficient or limited, and to what level they fulfill overseas expectations of Mexico,” she says.

The second challenge is the ability to learn a lesson from the deceleration experienced during the first half of 2013 as a consequence of deceleration in the US economy.

“Now is a good time to diversify export destinations,” Cisneros says. “There is a big opportunity with the Pacific Alliance, which this year hopes to continue working towards achieving the free trade of 90 percent of products that are already currently exchanged between its members.”

Diago agrees with Cisneros that the reforms will be a challenge and adds another key issue that especially impacts the hotel and travel sector. From an industry perspective security is the biggest challenge,” he says. 


Executives disagree on the impact of the FIFA World Cup in June and July. Cisneros and Diago see it as having a positive impact, while Ardila says it will likely have a detrimental effect.

“Clearly the country will be front-and-center on the global stage with the FIFA World Cup this summer, and of course the Olympics two years from now,” Diago says.  “I would submit that this will be a most positive for Brazil. While mounting an event on a global scale is challenging, I believe it will be present Brazil, overall, in an extremely positive light. Brazil is a country with great people, and great potential.”

Cisneros agrees. “Brazil has a huge opportunity this year with the FIFA World Cup which is expected to generate an economic impact of $80 billion, as well as creating around 700,000 jobs,” she says.

However, Ardila believes that the combination of the World Cup, this year’s carnival season and the October presidential elections are all likely to have a more detrimental than beneficial impact on business as sales tend to slow down during those events.

“A tongue-in-cheek “Brazilian 2014 Calendar” making the rounds on Facebook jokes that, because of the soccer World Cup, an unusually late Carnival, other holidays and a presidential election, real work will only be possible during three months next year,” Reuters wrote recently.

In a worst-case scenario, the “calendar effect” could shave as much as 0.3 percentage points off Brazil’s gross domestic product next year,  Andre Perfeito, an economist at Gradual Investimentos in Sao Paulo, told Reuters.

While Carnival ended on February 12 last year, in  2014, its last day will be March 4 because of the lunar calendar that dictates the pre-Lenten festival’s timing. “That means many Brazilians will extend their vacations, or at least keep “summer hours” for an extra few weeks,” Reuters says.

Brazil’s economy grew an estimated 2.3 percent last year after inching 0.1 percent in 2012. “The country has been on the road to recovery and continues to be a great investment destination,” Cisneros says.  “Proof of this recovery is that during 2013, the country surpassed the primary surplus by 2 billion Brazilian reais (public funds savings for debt payment), to reach close to 75 billion reais (1.5 percent of the country’s GDP) thanks to improved fiscal tax collection.”

According to a central bank survey of economists, Brazil’s economy will likely expand by 2 percent this year.

“Brazil will start seeing some benefit from investment in infrastructure projects that were recently awarded to public/private partnerships and the pre-salt oil fields, Ardila says. “However, this will be largely offset by lower private consumption resulting from higher interest rates and high levels of consumer debt.”

In addition to its slowdown, Brazil faces several other challenges, executives say.

“The main risks for Brazil are associated with a potential downgrade of Brazilian debt by rating agencies, persistently high inflation levels above the Central Bank target, a faster devaluation of the Real compounding inflationary pressures, and a delay in the necessary fiscal adjustment due to the presidential elections late in the year,” Ardila says. “All of this may deter investors, accelerate capital flight and lead to a greater loss of consumer confidence.”

Brazil has a big challenge of continuing to strengthen its middle class this year, Cisneros argues. “The country has undertaken great work by bringing 30 million people out of poverty and now it needs to consolidate its middle class which is now beginning to make itself heard,” she says. “It demands services appropriate to the growth the country has experienced over the last decade.”

Diago agrees: “There are numerous growing pains that must be addressed on an ongoing basis,” he says. “While there are legitimate challenges within the Brazilian economy, one of the country’s biggest issues, in my esteem, is in being victims of their own success. Brazil experienced unprecedented growth, enough for it to become the world’s sixth largest economy.”


Both Colombia and Peru are expected to continue seeing strong interest from foreign investors, while Chile may see some impact from a possible shift in economic policies, including higher corporate taxes.

Peru’s economy should grow by 5.7 percent this year, the second-highest rate in Latin America after Panama, the International Monetary Fund estimates. Colombia’s GDP will likely expand by 4.2 percent, above the rates expected in both Mexico and Brazil.  Chile will likely grow by 4 percent, according to a Central Bank panel of economists.

Elsewhere there is some optimism that Paraguay will attract more foreign investment thanks to its new president, Horacio Cartes, who assumed office in August. Cartes is a former businessman, with holdings in tobacco and banking.

“There are strong signs that Paraguay's investment climate will improve in 2014,” UK-based consultancy IHS Global Insight says. “The government is firmly pro-business under Cartes.”

IHS expects that he will forge ahead with pro-investment policies, which, since he came into office, have included passage of a public-private partnership bill.

Paraguay’s GDP grew an estimated 12 percent last year, the highest in Latin America, and will likely expand by 4.6 percent this year, according to the IMF.

Argentina and Venezuela will be the key laggards, thanks to growing restrictions and continued problems with inflation. Venezuela’s economy will likely only grow 1.7 percent this year – the second-lowest in Latin America – while Argentina’s GDP should increase 2.8 percent, the fund estimates.

Overall, Latin America’s GDP is set to grow by 3.1 percent this year, according to estimates from the IMF. The World Bank expects 2.9 percent. That compares with an estimated 2.6 percent expansion in the United States and only 1.3 percent in the European Union.

“We are convinced that this will be Latin America’s decade and we hope this year will be a great year for the region,” Cisneros says.

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