Thursday, January 07, 2010

Scores of 2009 and Promises of 2010 for Business in Latin America

2009 Scores
Messi won the best football player award of the year
Del Potro won US Open tennis
Luciana Aymar was selected as world´s best woman hockey player for the fifth time this year
Loreena Ochoa retained number one ranking in women´s golf
Cambiasso, the world´s best polo player won the Polo Open
Cabrera won the Masters Golf
And… Brazil won the Olympics venue, beating the heavyweights. ¨Sim Podemos¨ overtook ¨Yes we Can ¨.

The Latin American market could not score that well in 2009, since it got hit by the global crisis. GDP of the region fell by 1.8% in 2009, after having had an annual average growth of 4.8% in the previous six years. In 2009, ten countries managed to grow between 0.2% and 3.5%( Bolivia) while ten countries suffered GDP contraction ranging from -0.4% to -6.7%( Mexico). Exports and imports decreased by about thiry percent.

The good news is that the region did not go under due to the external shock as badly as it would have done in the past. Here is what Pamela Cox, vice president of the World Bank Vice President Latin America & The Caribbean wrote on 28 December 2009 under the title ¨Latin America enters new decade with more clout ¨,
“What a difference a decade can make. Ten years ago, Latin America and the Caribbean received the new century in the midst of tremendous uncertainty. …Today, the picture looks very different. News of default jolts other regions - not Latin America. Thanks to sound fundamentals, such as improved financial regulation and supervision, budget surpluses, and high international reserves, the region has weathered the current crisis without massive currency devaluations, bank collapses, debt defaults, inflationary spikes or capital flights. In other words, the region has learned from its past and is on track toward a better future¨

The OECD Latin American Economic Outlook 2010 says,
“ Latin America has not escaped the global economic crisis, but it has stood up to it with a new resilience. However, it is already apparent that Latin America is rebounding from the shock more rapidly than the majority of developed economies. Most importantly, it is doing so without compromising its significant progress towards its long-term development goals.”

Growth in domestic demand helped many countries to tide over the global crisis. For example, auto sales in Brazil increased to an impressive record of 3.01 million units in 2009 from 2.66 million in 2008. The sales are expected to increase by 10% in 2010. What is more… General Motors Volkswagen and Ford plan to invest a combined 14.2 billion reais ($8.3 billion) in the coming years to increase production capacity. More .. in my article ¨ "Brazil: Short skirts and Big B arouse Global Interest" published in Miami- based Latin Business Chronicle - 17 December.

Average inflation of the region is estimated to have declined to 4.5% in 2009 from 8.3% in 2008. The currencies and exchange rates remained stable. Some currencies such as Brazilian Real strengthened while Mexican peso maintained its rate and Argentine peso depreciated.
External debt was within manageable limits. The Brazilians rewrote the history of Latin America by becoming Creditors from Debtors. They lent US$ 10 billion to IMF in 2009 !

The region continued its consolidation and strengthening of democracies with regular elections and peaceful transfer of power with the exception of Honduras. In the 2009 elections held in Ecuador, Bolivia Uruguay, and El Salvador Leftist presidents were reelected / elected. In Panamá a centre right candidate became the President and in Chile´s first round a centre right candidate got more votes.
In 2010 Brazil, Costa Rica, Chile (second round) and Colombia will go for elections.
It does not matter whether the presidents are left or right. The general trend and consensus in the region is towards pragmatism with agenda for the poor and pro business policies. There are of course a few exceptions…
2010 is the year of bicentennary of independence from Spain for Venezuela (16 April), Argentina (25 May),Colombia (20 July),Chile (18 September) and Mexico (16 September)

The coup in Honduras in June 2009 was an unpleasant reminder of the past. President Zelaya was put in a plane at gun point and sent out of the country. But the Golpistas did not go all the way to install a classical dictatorship by military or by a Caudillo. They held elections in which a new President has been elected.

India´s score in Latin America in 2009
India´s exports to the region went down by about 30 percent in 2009 in comparison to 2008. This was expected, after the global crisis and local import restrictions by the governments which wanted to protect domestic industries and minimise outflow of foreign exchange.
Chemicals, engineering products and textiles were the major exports from India. Crude oil, edible oil and minerals were the main imports.
The India- Mercosur PTA, became effective from June 2009. This should give a boost to our trade with the four Mercosur countries.

Indian IT companies expanded operations in Latin America including in Brazil, Mexico, Argentina and Chile
These companies which set up operations in the region initially to service their North American and European clients, have now started focussing on local cients and have been getting local contracts

Renuka sugar mill made an investment of 240 million in the acquisition of two sugar factories and sugar cane estates in Brazil. This is the first agribusiness investment by an Indian company in the region.

Panama liberalised its business visa system for Indians. Indian business visitors holding US or Schengen visas do not need visa to visit Panama under a Presidential decree issued in July 2009. The decree is for all foreigners including Indians. The visitors can stay for 30 days during each visit. Earlier Panama embassy in Delhi had to send every visa application to their immigration authorities which would take months for clearance. Ecuador, Costa Rica and Honduras are the other countries which have waived visa requirement for Indian business visitors.

During the visit of Argentine President to India in October 2009, we signed a visa agreement under which Argentina has agreed to give five year multientry visas free of cost with validity of 90 days during each visit.
Visa is no longer an obstacle for Indian business visitors to Latin America……

Promises of 2010
Latin America will grow by 4.3 % in 2010, according to ECLAC estimate in their report of 10 December. The growth of Latin America in 2010 is higher than the growth projected for developing countries ( 4%) except China and India.
Brazil will be the 2010 champion of the region with the highest growth of 6%. Ooops... I do not recall Brazil topping the growth chart of the region in recent times. Uruguay and Peru will be runners-up with 5% each. Mexico will grow by 3.5%. Argentina, the third largest market will grow by 4%.It is no surprise that the least growth in 2010 in the region will be in Honduras, which is in a political crisis.While South America is expected to grow by 4.7% in 2010, the Caribbean and Central America are projected to grow by around 2%.

Opportunities for Indian companies
Petrobras, the state oil company of Brazil is investing 174 billion dollars in the period 2009-13 in exploration and production of the recently discovered offshore oil fields. This is the world’s largest corporate investment plan at this moment.
The ongoing Panama Canal expansion project is over 5 billion dollars.
Venezuela , Argentina, Mexico, Colombia, Ecuador and Bolivia also have investment plans in their oil and gas sectors.
Projects related to Olympics and World Cup in Brazil
The manufacturing sector in the big and medium countries of the region are modernising to survive in this time of globalisation and against the competition from Chinese goods.This opens up opportunities for supply of equipments, machinery and spare parts.
Agricultural production in South America is steadily increasing thanks to the growing world demand and high prices. This means more scope for exports of inputs for agribusiness such as agrochemicals.
The new area opening up for Indian exports is Defence equipments and items. India has sold helicopters to Ecuador air force. Other countries have shown interest.
India will be importing more edible oil, crude oil and minerals from the region in 2010 and in the coming years.
Indian companies should consider buying/ leasing farmland in south america to grow oilseeds, grains, sugarcane and pulses, which are needed in India. Thousands of hectares of productive land are available in the private sector at prices less than in Punjab. There is no local government restriction.
Indian companies can also consider investment in commercial forestry in order to have direct access to wood and paper pulp whose imports are also growing in India
Mining sector is another area for Indian entry.
Investment in petroleum sector can be increased
Operations of Indian IT companies can be expanded
Entertainment Industry
Indian films were shot in Rio and Machu Pichu. There are other attractive shooting locations in the region. Latin Americans are keen to collaborate with Indians for coproduction of films and exchanges of soap operas and TV productions.

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