From the "Labyrinth of Solitude" to a "Network of Partnerships" – the new story of Mexico .. a new opportunity for Indian business

Octavio Paz, the celebrated Mexican writer who was Ambassador to India in the sixties, wrote in his book " The Labyrinth of Solitude" that the "Mexican is always remote from the world and other people". This was his conclusion after an in-depth analysis of the character and identity of the Mexicans who have inherited a mix of Aztec and Mayan Indian traditions and European culture and have been influenced overwhelmingly by the culture of US. If Paz is alive today, he would have changed the title or written another book with the title" Network of Partnerships" to reflect the new reality of Mexico. The Mexicans are no longer alone in labyrinths introspecting their solitude. They have become extroverts, eagerly embracing partnership and alliance with countries around the world. Mexico has signed Free Trade Area ( FTA) agreements with 44 countries, which account for 70% of global GDP. Their FTA partners include US, Canada, European Union, EFTA countries, Japan and some Latin American countries. Mexico is member of  NAFTA, Pacific Alliance, APEC and OECD. It has joined the Trans Pacific Partnership (TPP) which is negotiating a new generation economic partnership among 12 countries, going beyond conventional FTAs.

With these partnerships, Mexico has expanded its economic and commercial space beyond its own market of 114 million people and 1.3 trillion dollar GDP. It has become a geographic, linguistic and cultural link to the markets of its partners. Mexico straddles the developed markets of US and Canada in the north and the emerging markets of South and Central America. The country has access to the east through Atlantic and the west through Pacific. It connects the northern entrepreneurship culture to the Latino spirit.  As the largest spanish-speaking country in the world, Mexico is the entry point to the larger market of 400 million spanish speakers in Latin America, US and Europe.

Unlike the raw materials exporting South America, Mexico is an exporter of manufactured products such as automobiles, electronics and aerospace equipments. The country has a conducive ecosystem for manufacturing with an integrated supply chain, availability of large pool of skilled people and technologies. Companies from US, Europe, Japan, Korea and China are using Mexico as a platform for supplies to NAFTA markets. Mexico exports 80% of its 3 million cars produced annually. The car companies are investing 10 billion dollars in the next six years to modernize and expand their production facilities.

The cost of Mexican labour has become competitive vis-a-vis the Chinese whose wages have gone up. According to a recent study by Bank of America, Mexican wages are 20% cheaper than China's in some cases. Mexico has a large and growing young population unlike the ageing Chinese society. US imports from Mexico have started rising faster than those from China. It is, therefore, not surprising that Mexico is being talked of as the "China of the Americas". 

Mexico, the second largest economic partner of India has a competitive edge over Brazil and Argentina the number one and number three markets of Latin America. While Argentina and Brazil have erected a number of barriers for imports, the Mexican market is open with low tariffs. The Mexican government policies are more stable, transparent, predictable and investor-friendly. Argentina runs an annual inflation of 25% since 2007 and the companies are forced to increase the salaries of staff at least by 25% every year.  In Brazil, the cost of production, wages and interest rates are very high. In contrast, Mexico has low inflation (just 3.6% in 2012), low wages( 2.5 dollars an hour) and low interest rate of 4.8%. It is not surprising that Brazil has put restrictions on the imports of Made In Mexcio cars which threatened the high cost Brazilian automobile industry. In any case Mexico's trade of 740 billion dollars is larger than the combined trade of Brazil and Argentina which was 665 billion in 2012.

The Mexican market is going to be even more attractive in the future, given the ongoing reforms in various sectors of the economy under the "Mexico Pact", a consensus agreement between the four major political parties of the country on vital national issues and reforms.

Of course, Mexico faces many challenges such as crime, drug trafficking, poverty, inequality, slow economic growth, political polarization and corruption. The overdependence on the US market makes Mexico vulnerable to the economic situation there. But the point to note is that now the Mexicans have a new mindset, confidence and optimism to tackle these issues and believe in Reincarnation unlike the past when they had resigned themselves to the Karma.

With the large network of partnerships and competitive manufacturing environment and wages, Mexico offers a strategic base for Indian companies with global strategies. The Indian IT companies are already leveraging the unique position of Mexico for their global delivery services. For example TCS has 3000 staff in Mexico providing near-shore same time zone services to their US clients. They work 12 hours from Mexico and another 12 hours from India to provide 24/7 services seamlessly with their new 12/12 business model. Their Mexican programmers develop software in English for the US market and in Spanish for the Spanish speaking market of 400 million. TCS finds value addition from the different mindset and culture of their Mexican managers and developers who complement the Indian imagination and creativity.There are a dozen Indian companies manufacturing tyres, pharmaceuticals, chemicals and auto parts in Mexico mainly for exports to US. JK tyres, which has three plants employing 2000 Mexicans,  exports their products to even Brazil. 

India's trade with Mexico was 6.3 billion dollars in 2012, of which imports were 3.3 billion and exports 3 billion. India's imports of crude oil were 2.8 billion dollars in 2012. Mexico is keen to increase oil exports to India since US, their main market is reducing imports of Mexican oil thanks to the growing domestic production of shale oil and gas. India's exports could be increased to 10 billion dollars in the next five years if the Indian exporters target the Mexican market more seriously.The Indian government should sign a FTA with Mexico at the earliest to remove the disadvantage faced by Indian exports vis-a-vis the the exports from the 44 countries which have FTAs with Mexico.

Mexican edutainment for Indian Betas and inspiration for Indian Netas

" Excess of Reality" - this was how Octavio Paz , the Mexican writer and Nobel prize winner, described his feeling when he set foot in Mumbai for the first time in 1951. He was absolutely overwhelmed by the crowds, colors, noise and smell of the bustling city of Bombay. Later he became Mexican ambassador to India and wrote poems and essays inspired by Lodhi garden in Delhi and Meenakshi temple in Madurai among others.

Now it is the turn of the Indian children to be overwhelmed by the excess of reality  and be inspired by a Mexican.  Xavier López Ancona, a Mexican entrepreneur has set up in Mumbai an innovative edutainment ( educational entertainment) centre "Kidzania", an indoor theme park, which lets the kids play 80 different real life roles. They can be  a pilot, surgeon, fashion designer, fireman, vet, cook and perform such jobs in the Kidzania which has over 60 establishments such as Bank, University, Fire Department, Radio Station and Newspaper. They  are either paid for their work as a Stylist, Construction Engineer, Surgeon,  or pay to get a service  from a University, Culinary School, Department Store, Driving School, Bollywood Acting Academy, Pottery Studio, Kalakshetra Art and Boxed Lunch Delivery service of the famous Dabbavala of Mumbai. The Kidzania city is built to scale for children, complete with paved roads and cars, city buildings, recognisable establishments and a functioning economy. Kidzania combines education with fun and help the children discover their own talents, identify their aptitude, explore career options and develop a real world consciousness.

For Xavier López Ancona, the Mumbai Kidzania is the fourteenth centre. He established the first one in Mexico City in 1999 and has opened in nine countries namely Chile, Indonesia, Japan, Kuwait, Malaysia, Portugal, South Korea, Thailand and United Arab Emirates. His next Kidzania centre in India will be in Delhi by 2015 and later in Bengaluru. Mr Ancona is not only an innovative entrepreneur but also a smart businessman. This is evident from his strategy of partnership with Shah Rukh Khan who holds 26% stake in the venture. King Khan himself inaugurated the Mumbai centre on 29 August.

While Kidzania edutains the Indian kids, another Mexican company Cinepolis is entertaining the adults of India through its multiplexes in cities such as Amritsar, Thane, Bengaluru, Patna, Bhopal, Ahmedabad, Surat, Ludhiana, Mangalore, Jaipur and Mumbai. They have an ambitious plan to operate 500 screens in India with an investment of Rs 1,500 crores. Cinepolis is the biggest cinema chain in Mexico with 205 theaters in 65 cities, the largest chain in Latin America and the fourth largest in the world with over 230 theaters and 3,000 screens.

Besides the two Mexican companies, a Mexican actress too has joined in entertaining the Indian audience. Barbara Mori, the Mexican actress has acted in the Bollywood film "Kites" ( released in 2010) with Hrithik Roshan.

Mexico could be an inspiration for Indian Netas too.. The " Pact for Mexico"( Pacto por Mexico), an agreement signed in December 2012 by the four major political parties of the country committing support to vital policies and reforms of national importance is a model for Indian political leaders. The Pact has brought together the ruling centre-left Instituitional Revolutionary Party(PRI) and the three principal opposition parties; the leftist PRD party, the Conservative  PAN ( which was ousted from power in 2012 after two terms) and the Green Party which joined the Pact in January 2013. The political parties came together for the Pact after the realization that the polarization of politics had weakened the country alarmingly. The 95- point agenda of the pact ranges from tax overhaul to barring junk food in schools. The Pact has already helped in passing legislative bills to reform the educational system; a legal reform to strip public officials of immunity from criminal prosecution; a telecommunications bill that limits the quasi-monopolistic powers of the country's biggest telephone company, controlled by Carlos Slim, the world's richest man. A  tax reform bill has just been presented in the Congress. Electoral and energy reforms are the next to follow. 

The Mexico Pact was an initiative by Enrique Penha Nieto the dynamic, young visionary who took over as President of Mexico on 1 December 2012. His party started the negotiations with the other parties as soon as he was elected in July 2012 and  signed the Pact on the second day after his inauguration.  Despite the ideological differences and clash of political interests, the leaders of the four parties meet regularly over Tequila and Tacos to reach consensus on policies of crucial national importance. The Economist magazine commended, "Mexico appears to have found the medicine for political gridlock" and commented,"plenty of Americans must have cast a jealous eye south of the border this year".  Wall Street Journal wrote, " At a time when politicians in Washington struggle to agree on anything, their Mexican counterparts sit down almost daily to talk about thorny issues". Understandably, tensions and conflicts between the parties and the protests by vested interests affected by reforms continue to pose challenges for the implementation of the Pact. But the Mexicans, in general, are encouraged by the new consensual approach of the parties and are optimistic that Mexico has a new future.

The Indian political parties need to learn from the constructive consensus of  "Pact for Mexico"and stop the destructive divide which has hindered reforms and development of India. The next Prime Minister in 2014 should start with a "Pact for India".

Brazilian IT market revenue reached 60 billion dollars in 2012

The Brazilian IT market, which includes software, hardware and services, grew by 41.6% reaching  US$60.2 bn from US$42.5bn in 2011. Brazil is in seventh position in the global IT market and is the first in Latin America with a share of 49.1% of the region's US$122bn total. 

Of the total IT market, software and IT services accounted for US$27 bn, expanding 26.7% from 2011 and staying above the annual growth average of 20% seen since 2004, according to a study by the country's software companies association ABES in partnership with the consultancy IDC. Exports of software and services in 2012 were $2.2 bn. In 2012, applications represented 42.2% of the Brazilian software market, followed by systems for development environments with 31.1%, and security and infrastructure systems with 23.8%.The three main "buyer" sectors of software in Brazil last year were finance and accounting for 25% of total deals, followed by services and telecom with 24.8%, and industry with 18.6%.

In terms of future outlook, 90% of the local IT market growth from 2013 to 2020 is projected to come from mobile technologies, social business, cloud and big data, bets IDC/Abes. In 2012, these segments accounted for only 22% of total IT investments.

Latin American GDP will grow by 3% in 2013 – ECLAC's midterm forecast

Latin America is likely to grow by 3% in 2013 (the same rate as in 2012) according to the 24 July 2013 report of the Santiago-based UN Economic Commission for Latin America and Caribbean ( ECLAC).  The report predicts above four percent growth in 2014.
The South American sub region is expected to grow by 3.1% in 2013 ( up from 2.5% in 2012) and  Central America by 4% ( down from 5% in 2012). 

Growth projections for the major countries in 2013 are: Brazil – 2.5% ( better than the 0.9% in 2012), Mexico-2.8% ( down from 3.9% in 2012), Argentina-3.5% ( up from 1.9% in 2012), Colombia –4% ( no change from 2012), Peru –5.9% ( down from 6.5% in 2012), Venezuela- 1% ( from 5.6% in 2012), Chile-4.6% ( 5.6% in 2012). 

The highest growth in the region will be 12.5% in Paraguay  which was the only country in the region which suffered a negative growth of 1.6% in 2012. This is not surprising since Paraguay is known for such ups and downs. Panama will have the second highest growth of 7.5%.

The region's growth rate of 3% looks modest but is not at all bad given the external environment of GDP contraction in the Eurozone successively in the last two years and the lower growth in the rest of the world. 

The primary driver of growth during 2013 continued to be consumption which has been helped by expanding credit, improving labour market conditions and increase in wages. 

The macroeconomic fundamentals continue to be healthy and strong with the following indicators:

-In May 2013, the cumulative 12-month inflation for the region stood at 6%, compared with 5.5% in December 2012 and 5.8% in May 2012.  Venezuela and Argentina were the exceptions with  double digit inflation figures.

- Unemployment stood at 6.7% in the first quarter of 2013.

-  Foreign Direct Investment in Latin America in 2012 was 122.86 billion dollars, the highest in the last eight years.

-Total Gross External Debt of the region in 2012 was 1.18 trillion dollars. The ratio of gross external debt to GDP stood at 20 % in 2012 coming down from 34.8% in 2004.A number of countries have decreased their public debt in recent years and have access to funding for their deficits.

- The International reserves of Latin America and Caribbean has steadily risen from 226 billion dollars in 2004 to 826 billion in May 2013. 

-The overall current account deficit for Latin America is likely to be 2% of GDP in 2013. 

The region faces slowdown in exports due to the reduced external demand and the drop in the prices of some of the region’s export commodities  such as minerals, metals, oil and some food items.  Sugar and coffee prices have gone down while wheat and maize have increased in the first half this year. Although the prices of oil seeds had increased modestly in the first half of 2013, they are expected to go down due to the bumper harvest expected. While some experts say that the super cycle of high commodity prices are over, others expect the prices to remain relatively high in the coming years. Exports of the region are expected to increase by 4% and imports by 6% in value terms in 2013.

The total GDP of the region reached 5.64 trillion dollars in 2012. Brazil and Mexico are in the trillion dollar league with 2.25 trillion and 1.17 trillion dollars respectively. Argentina is the third largest economy with 477 billion dollars followed by Venezuela with 381 billion, Colombia 370 billion, Chile 268 bn and Peru 204 bn. The remaining 13 countries of the region have double digit billions as GDPs except for Haiti whose GDP was in single digit (7.8 billion).

Lessons from Jindal’s Bolivian failure

Jindal’s integrated mining and steel project in Bolivia was the largest contract secured by an Indian company in Latin America. The project, which ultimately became a victim of the country's domestic politics, has lessons for Indian companies venturing into Latin America

BY Ambassador R. Viswanathan 

FORMER INDIAN AMBASSADOR TO ARGENTINA, URUGUAY AND PARAGUAY

4

¨Hermano… Yo tambien soy Indio ¨ ( “Brother …I am also an Indian”). This is how Bolivian President Evo Morales greeted Naveen Jindal, when they first met in 2006. The two “Indians” signed an agreement in July 2007 for an integrated mining and steel project in eastern Bolivia. The iron ore was to be mined from “El Mutun” which has one of the biggest iron ore reserves (40 billion tonnes) in the world. Jindal was allowed to exploit 50% of the reserves and export annually over 10 million tonnes for a lease period of 40 years. The company agreed to set up a pellet plant of 10 million tonnes per annum, a 6 million tone sponge iron unit, a 1.7 million tonne steel plant and a 450-MW power plant. The total investment was $2.1 billion, spread over a period of eight years.

This was the largest foreign investment contract signed in the history of Bolivia. The government was to earn $200 million annually from it, and generate 12,000 jobs. It was also the biggest ever contract secured by an Indian company in Latin America. The project held the promise of other spin-off opportunities in gas, railways, infrastructure, and export opportunities for Indian companies. Naturally it assumed a high profile in India’s rapidly developing economic relations with Latin America.

But in July 2012, the contract was terminated by Jindal after the Bolivian government encashed the guarantee of $18 million, saying that the company failed to adhere to its investment commitment. Jindal blamed Bolivia of not honoring its commitment to supply natural gas for the project. Negotiations broke down and the Bolivian government took some high-handed measures including ordering of the arrest of key Jindal employees, who managed to leave the country in time. Now the matter is under arbitration. There is absolutely no hope for Jindal to revive the project.

What happened? The most fundamental problem is that Jindal did not conduct a proper political risk analysis before venturing into this project, and ended up becoming the victim of a local power tussle.  In 2006, Evo Morales became the first-ever native Indian president in the history of Bolivia, wresting power from the European-origin oligarchs who controlled politics, business and media till then.  Morales had an agenda empowering the native Indians and he show-cased the first-ever steel plant project as a monument of his glorious Indian government. His opponents and vested interests instead decided to sabotage the project and use the failure to bring Morales down and return to power.  The Jindal project thus became a high stakes game and was caught in the crossfire.

Understandably, Morales attached great personal importance to the project and its completion during his term. Its slow progress frustrated him. Initially the falling price of iron ore was thought to be the reason for the delay. But later, as time went on with very little to show for it, he suspected the Indian company of not being serious about the investment commitment. When asked, Jindal had no convincing explanations. Instead, the company made the mistake of blaming Morales publicly for not providing gas, land and other infrastructural support. This played right into the hands of the opposition who glessfully exploited the controversy. Instead of a triumph, President Morales realized that the project might end up as his graveyard. Thereafter, limiting the damage by terminating the contract and hence the project, became a priority.

The Jindal project may have lived up to its potential, had the company done its homework on four counts:

1. Ascertain the politics of the area. The El Mutun mine is located in the Santa Cruz province – fertile ground for the tug of war between the federal government of Morales in La Paz and the provincial government of Santa Cruz, the latter controlled by the European-origin elite.  Prosperous Santa Cruz which produces 35% of Bolivia’s GDP and attracts 40% of foreign direct investment, had long been threatening to cecede from the centre and its new government dominated by the poorer native Indians who comprise 60% of Bolivia’s population. The Santa Cruz politicians and businessmen used every opportunity to attack Morales and manipulated and used the Jindal project. Had the mine been located in an Indian-dominated province, it would not have had this fate.

2. Understand the leadership. Jindal underestimated Evo Morales, who rose from a poor coca farming background with very little education and understanding of the world before becoming President.  Jindal assumed a superior knowledge of iron ore and steel, and that it would snare the contract by initially waving the billion-dollar figure but later find a way to get out of the excessive investment commitment. Morales, however, is different from the politicians in New Delhi that Jindal is used to. He is uncorrupt and deeply committed to his people and the country. The nationalistic-leftist Morales was aware of the manner in which foreign companies had managed to get sweetheart deals from the previous corrupt regimes in his  country, and that modus was unacceptable to him. He had already shown astuteness in picking an Indian company for the project rather than a large western multinational or a Brazilian or Venezuelan company which would inevitably bring their superior bargaining strength and the political influence of their governments, to the project. He also understood that unlike western governments, New Delhi did not have a track record of supporting or rescuing Indian companies abroad. In any case, Morales was already disappointed with the Indian government which had failed to honor its commitment of providing a line of credit for the supply of Dhruv helicopters.

3. Size the investment wisely. The proposed investment of $2.1 billion in the poorest country of the region (pop. 10 million, GDP $18 billion in 2007) was too much. It raised expectations all around, becoming the target of intense public focus and media scrutiny in the politically charged and polarized atmosphere of Bolivia. Had Jindal committed to a few hundred million dollars of investment, the controversy may not have been outsize. The project would have been better broken into two parts: first, just mining and exports with a reasonable royalty to the government, then expanding into the steel plant and other facilities, if feasible.

4. Ask the obvious question. In their eagerness to get the contract, Jindal didn’t ask the obvious question: If El Mutun with its massive reserves, was such a prize, how did it stay so long without being captured by the established global players such as Rio Tinto, BHP and Vale – which operates iron ore mines across the border in Brazil? Or, more significant, the Chinese who have been acquiring mining assets around the world? There are no answers yet, though some Bolivians whisper about a conspiracy by Vale and Brazil to prevent competition from Mutun.

The first lesson for the Indian companies is that a brilliant business plan is not enough when venturing into Latin America, a continent where people matter more than systems, rules and regulations. Political and cultural understanding and sensitivity are equally important. A thorough political risk analysis is necessary.

Jindal was not the first Indian company to fail in Latin America. Dr. Reddy’s Laboratories’      joint venture in Brazil – the very first Indian venture in Latin America in the nineties – failed because of a poor understanding of Brazilian management culture. The made up for the loss by managing better their entry into Mexico with a $60 million investment which is now  doing well. TCS failed in Brazil during the same period; its contract with a local bank was terminated for alleged unsatisfactory execution.  TCS too learnt from its mistake, and is now a success story in Latin America. Its key learning: hiring the right regional manager from Latin America who understood well  both the Latino and Indian mindset. Transporting Indian managerial talent, as many Indian companies do, often fails; they do adjust well to the region and are unable to get the best out of their investment and talented and skilled Latin American staff. Understanding local politics and culture is critical.

The second lesson: don’t announce disproportionately large investments in small countries. London-based Indian metals commodity entrepreneur Pramod Agarwal is learning the hard way: he made the mistake of announcing with big fanfare, a $2 billion iron ore project in Uruguay, a small country of 3 million people. His project has, unsurprisingly, run into a storm of controversy between government, opposition, environment activists, farmers and vested interests. At one stage Uruguayan President Mujica even talked of holding a referendum on the project but fortunately did not. The company is now working with the government on the environmental impact. Rumors swirled that Agarwal wanted to sell his project to Jindal –  but the latter, burned from Bolivia, has wisely declined the offer.

Ambassador Viswanathan is a Distinguished Fellow at Gateway House, an expert on Latin America, having served as India’s Ambassador to Argentina, Uruguay and Paraguay and also to Venezuela, and as Consul General in Sao Paulo.

This article is part of the Ambassadors’ views section, a collection of articles featuring eminent Indian diplomats written for Gateway House: Indian Council on Global Relations.

For interview requests with the author, or for permission to republish, please contact Gautam Kagalwala at kagalwala.gautam@gatewayhouse.in or 022 22023371.

Aditya Birla Group has the largest business turnover among Indian companies in Latin America

Aditya Birla Group is a late entrant to Latin America and came very much later than the Tatas and Reliance, the other big iconic Indian business groups. However Birla has made up for lost time by emerging as the Indian company with the largest annual business turnover in Latin America, which was around 1.8 billion dollars last year. Birla is also the largest investor from the Indian private sector in Latin America.

Novelis Brazil, which is part of the Aditya Birla Novelis (with a global turnover of 11.1 billion dollars in 11 countries), had a turnover of 1.3 billion dollars in 2012. Birla had bought the global assets of Novelis in 2007 for six billion dollars. Novelis Brazil has 2000 employees in their three Aluminium plants in Brazil located at  Pindamonhangaba and Santo Andre in Sao Paulo state and Ouro Preto in Minas Gerais. They are investing over USD 300 million in these plants in the coming years to increase the production capacity. 

After Aluminium, the Group has entered manufacture of carbon black with the company Columbian Chemicals Brazil. This was again part of another acquisition of the Atlanta-based Columbian Chemicals in 2011 for 875 million dollars. This has made the Aditya Birla Group as the largest carbon black producer in the world with production facilities in 12 countries. There are two plants in Brazil, one in Cubatão in Sao Paulo state and another in Camaçari in Bahia. The turnover of the two plants was 476 million dollars last year. The plants are being modernised with new investment. 

Aditya Birla Yarn Brazil is the market leader in supply of viscose yarn to Brazilian textile companies. The Group is the world’s largest producer of Viscose Staple Fibre.

The three Indian giants (Tata, Reliance and Birla) enrich three distinct sectors of Latin America and the growing Indo-Latin American business partnership. Tata is a leader in Information Technology and human resources development in Latin America with 8000 Latin American staff in nine countries of the region. Reliance is the largest trader with the region accounting for a quarter of the total trade between India and Latin America. Birla is plugged into the industrial sector of Brasil and the region. The products made in the five plants of Birla are inputs which help the growth of Brazilian and Latin American industries in sectors such as packaging, automobiles, construction,chemicals and tyre production.

While employing 2260 Brazilians, the Group has only one Indian in Brazil Mr Anil Jhala, the Latin America head of the Group. This is typical of the Indian companies who believe in local Latin American talents and in training and nurturing them.

Anil Jhala, settled in his elegant office in the World Trade Centre building of Sao Paulo, is upbeat about the long term growth prospects of Brasil and the region and is actively exploring opportunities for further investment in areas such as Cement, Fertilizers,Insulators, Cellulose,Commercial forestry, Plantations, Commodity trading and Mining.

Peru - the macroeconomic star of Latin America

"Peru has become Latin America’s macro-economic star, combining sustained high economic growth with low inflation",says Joachim Bamrud editor of Latinvest magazine and former editor of Latin Business Chronicle and Latin Trade, in a recent analysis based on IMF data. More from his analysis below

- Peru has had the region’s second-lowest inflation despite having the
second-highest GDP growth rate. The economy grew on average 6.5 percent in the 2008-12 period, while its inflation remained at an average of 3.5 percent.

-Peru is expected to see Latin America's second-lowest inflation rate in 2013 ( 2.1%)as well. 

- As a result of its strong GDP growth and low inflation, Peru is expected to have Latin America’s second-highest increase in purchasing power this year.

- For the past eight years – during the period 2005 through 2012 – Peru’s GDP has consistently been higher than that of Latin America each year. While Peru’s economy grew on average 7 percent during that period, Latin America’s GDP expanded by 4.1 percent. 

- Overall, Peru has a very favorable business climate. It has Latin America’s best environment for doing business, according to The World bank’s latest Doing Business report. 

- In 2012, foreign direct investment grew 48.8 percent to a record $12.2 billion. That’s almost as much as Mexico received ($12.7 billion).

Bamrud says that the Peruvian success of high growth with low inflation could be studied by Brasil which is struggling with low growth and high inflation.

Of course, Peru has the usual developmental challenges of poverty, inequality, infrastructure and education. But Peru is progressing in the right direction under the leadership of President Ollanta Humala who pursues Inclusive Growth policy in a pragmatic and mature manner and, setting himself as a role model for other leaders in the region.

Unemployment in Latin America is decreasing...

The unemployment rate in Latin America and the Caribbean(LAC)  in 2012 was the lowest in recent decades, reaching 6.4 percent, according to a joint report (released on 21 May 2013) by the Economic Commission for Latin America and the Caribbean (ECLAC) and the International Labour Organization (ILO). The unemployment rate has fallen from 6.7% in 2011.  It is expected to fall by another 0.2 percent in 2013. 

This is impressive given the massive unemployment situation of Spain and some other European countries. In a role reversal, the Spanish and Portuguese  are emigrating to Latin America these days in contrast to the past when Latin Americans were going for jobs in Europe. In the last Latin America-EU summit meeting President Rafael Correa of Ecuador said," The Europeans are welcome to come to Latin America for jobs".

The unemployment rate for the LAC region was 11.2 percent in 2012 and has been declining steadily.  In the case of Brasil, the rate has decreased from 11.7% in 2002 to 5.5% in 2012; Argentina from 19.7 to 7.2 %; Colombia from 17.6 to 11.2%; Chile from 9.8 to 6.4%; Peru from 9.4 to 6.8%; Venezuela from 15.9 to 8.1%. In the case of Mexico, while the rate has fallen from 6.6 in 2010 to 5.9% in 2012, there has been an increase from 2.7% in 2002.

The declining trend of unemployment is part of the new virtuous cycle of the region in which economic growth is driven by domestic demand created by the income of the people who enter the job market. This trend has started since 2003 with GDP growth, lowering of inflation, revival of manufacturing, boom in global commodity demand and prices, flourishing services sector and strengthening macroeconomic fundamentals of the region. The wages, including minimum wages, are correspondingly increasing in the region.

Peru - the new Billion Dollar trade partner of India in Latin America

India's trade with Peru crossed the one billion dollar mark in 2012 reaching 1.128 billion dollars. With this, Peru has joined the Billion-Dollar club of the other six countries namely Brasil, Venezuela, Mexico, Chile, Colombia and Argentina with whom India's trade is over one billion dollars.

The increase in trade with Peru was an impressive fifty percent from 750 million dollars in 2011. In 2007 the trade was 470 million dollars and it has been increasing steadily. The bilateral trade could reach 2 billion dollars by 2015.

India's exports to Peru reached a record 742 million dollars in 2012 from 510 million in 2011 and 250 million dollars in 2007.  This is more than the exports to Argentina ( 573 million dollars in 2012), the third largest market of Latin America. 

The main exports of India in 2012 were: iron and steel products including pipes - 100  million dollars;  motorcycles and cycles- 72 million;  cotton yarn and fibre-74 m, vehicles-59 m and polyester yarn- 41 m.

India's imports from Peru in 2012 were mostly minerals and metals. The major items were: copper-140 million dollars; gold-107 million; other minerals- 120 m. Peru has started exporting fresh fruits such as grapes. Fishmeal is another regular import from Peru. 

Peru has transformed itself politically and economically in the recent past. Democratic instituitions have taken strong roots. The current President Ollanta Humala pursues a pragmatic and balanced policy (Lulaism) of pro-poor and pro-market- policies. He has helped millions of poor people to come out of poverty through government projects as well as through job creation by the flourishing private sector. His spending power for his Inclusive Agenda has increased thanks to the higher tax revenue generated by the dynamic corporate sector. Although he is a leftist, he has not allowed his convictions to distort the foreign policy. He maintains good relations with US and the neighbors and does not get into any ideological fights or promotion as Chavez did. Labelled as the Chavez of Peru by the opposition, Humala lost the elections in 2006. But in the 2011 elections he rebranded himself as the Lula of Peru and won easily. 

The country is enjoying a virtuous circle of economic growth. Over the period 2002–12, the Peruvian economy almost doubled in size, real GDP grew at an average annual rate of 6.3 percent (the highest 10-year average growth in Peru’s history) despite the impact of the US and European crises, and the average annual inflation rate fell to 2.7 percent, one of the lowest in the region. In 2013, the projected GDP growth rate is is six percent after a growth of 6.3% in 2012. The macroeconomic fundamental are strong and healthy.

Foreign investment is pouring into mining, hydrocarbons and big infrastructure projects. The FDI in 2012 was 12.2 billion dollars, an increase of 49% over 2011. Peru is one of the seven countries in Latin America which has an Investment Grade rating. There are four big mining projects which will double Peru’s output of copper, its largest single export, in the next four years. Peru is one of the leading mining countries of the world with reserves of minerals such as copper, gold, zinc, silver, lead and tin. The Peruvian mining sector expects to see an investment of 52 billion dollars in the next ten years. There are oil and gas potentials too which are being explored. Peru has already started exporting gas.

The Peruvian government has an innovative corporate taxation policy. It gives companies the option of paying part of their tax bill in the form of regional infrastructure works in the poorest regions. The companies can choose from approved lists of public works projects in various regions, or make their own proposals. The companies love this new mechanism which enhances their Corporate Social Responsibility image more than what they would gain by simple payment of taxes. The people also like it since the projects are done more efficiently and cost-effectively. 
There are investment opportunities in Peru for Indian companies in mining, energy and services sectors.The foreign investment policies of the Peruvian government are positive, transparent, predictable and stable. Four Indian companies have invested in mining with modest amounts. This includes IFFCO which has invested in a potash mine in Peru in collaboration with a Canadian company. TCS and Aegis have opened IT/BPO centres in Lima. Some Indian pharma companies have offices in Lima. There is a vibrant Indian community and some of them are in business. An Indian owns a chain of cinema halls while another has set up pharma manufacturing and distribution units. A Peruvian soft drinks company has opened a bottling plant in Maharashtra to produce and market its BIG Cola brand of fizzy drinks. Their audacious act of competing with Coke and Pepsi in India ( although the competition is not significant) is admirable since even Indian cola producers have given up.

India's exports to Peru should cross a billion dollars in 2014, given the high rate of growth in recent years. But India's exports are at a disadvantage vis-a-vis the exports from Peru's FTA partners. Peru has signed FTAs with a number of countries including China, US, Japan, Thailand, Singapore and is a member of regional economic groupings such as Pacific Alliance, APEC and Andean Community.   It is in India's interest to initiate negotiations to sign a FTA/PTA with Peru as India has done with Mercosur and Chile. 

FDI into Latin America increases to a new record of 166 billion dollars in 2012

Foreign Direct Investment (FDI) flow into Latin America hit a new record high of US$ 166 billion in 2012, according to a report published by the Economic Commission for Latin America and Caribbean (ECLAC) on 14 May. This is 4.4 % above the level posted in 2011 and confirms a consistent uptrend that began in 2010. The figures for 2012 were particularly significant because the global FDI flows had decreased by 13 percent in 2012 from the previous year. The developed countries had seen a drop of 22% in FDI in 2012. 

The region’s share of global FDI flows reached 12.5 % in 2012. Brazil was the largest recepient of FDI with 65 bn $ ( 2% less than in 2011) accounting for 41% of the total FDI flows into the region. Chile was the second highest recipient with 30.3 bn $. Colombia was third with 15.8 billion, followed by Mexico 12.6 billion ( this was 35% less than in 2011), Argentina-12.5 bn and Peru 12.2 bn ( 49% increase over 2011). Central America received 8.8 bn  of which Panama was the highest recepient with 3 bn followed by Costa Rica- 2.2 billion. 

Much of the FDI in South America went into natural resources sector including oil and gas and minerals. In Brasil and Mexico a significant portion of FDI went into manufacturing and services. Bulk of of FDI in Costa Rica went into forty high-technology greenfield projects in advanced manufacturing and life sciences.

The confidence of the foreign investors in Latin America has gone beyond FDI and they increased their portfolio investment also in 2012.

The general macroeconomic stability of the region and sustained growth (despite the ongoing crisis in Europe) as well as the relatively high prices of commodities have been the main drivers of FDI into Latin America.

US and Europe are the main origin of FDI although a substantial part ( including Chinese investment) has come through tax havens such as Caymen Islands, British Virgin Islands and Luxemburgh.

Outward FDI by Latin American companies ( mostly MultiLatinas) increased by 17% in 2012 to an all-time high of US$ 48.7 billion, following historically high figures for the past three years. The share of MultiLatinas in the total FDI into Latin America is an impressive 14 percent.These investments have come mainly from companies of Brazil, Chile, Colombia and Mexico, but in 2012 came almost exclusively from Mexico and Chile. Mexico was the region’s largest outward investor in 2012, with US$ 25.6 billion, more than double the figure for 2011 and far exceeding the previous high of two years earlier. América Móvil was the prime stakeholder in this process, as it expanded its activities into Europe. Chilean outward investment also reached a fresh record in 2012 at US$ 21 billion, mainly in South America and principally in the retail industry, forestry and transport. The most notable case is the merger of Chilean airline LAN with Brazil’s TAM, which had been announced in 2010 but was not completed until 2012. The US$ 6.5 billion transaction via a stock swap has created LATAM, a binational airline that is now the largest in Latin America. Many Brazilian firms have continued to expand abroad, as well, and account for 7 of the 20 largest acquisitions by MultiLatinas in 2012. For Indians it would be interesting to know that the Mexican company Cinépolis (the fourth largest movie theatre chain in the world) announced early this year the opening of 350 theatres in Brazil, Colombia, India and the US.

There was no big ticket investment by Indian companies in Latin America in 2012. But there were some cases of investment in double digit millions. There is potential for Indian companies to invest in Latin America in sectors such as energy, agribusiness, mining and IT/BPO.