Leveraging Opportunities in Latin America
Insights into Cash Management in Brazil, Argentina and Mexico
by Helen Sanders, Editor
Five years ago, a great deal of conference talk revolved around the ‘BRIC’ countries – Brazil, Russia, India and China. In reality, the logic of grouping these countries together was tenuous at best, with the only common factors being double digit growth and the potential for foreign investment. Between 2005 and 2010, with the crisis in between, the ‘BRIC’ economies have each had to tackle their own challenges and pursued their own distinct strategy and growth paths. The financial crisis threw some of the differences between the BRIC countries into sharp relief. For example, although the domestic market had grown in the years leading up to the crisis, Russia was hit hard due to its heavy reliance on commodity exports. In 2008, Russia enjoyed a 5.6% increase in GDP while GDP fell dramatically in 2009 by 7.9%. In China, however, the crisis caused only minor turbulence in GDP growth (2008 – 9%; 2009 – 8.7%) with a strong and increasingly market-oriented economic outlook. However, the country has real environmental and demographic challenges ahead, including pollution, demand for natural resources such as water, the problems of an ageing population and spiralling social security costs.
The idea that BRIC exemplified, however - high growth economies with strong investment potential - has not disappeared, but the crisis has helped companies to refine their investment focus and to target countries specifically that offer particular opportunities in supply and/or demand. While Asia, particularly China, has dominated much of the trade press, Latin America has remained largely resilient during the crisis and companies of all types are increasingly recognising the potential in the region. This is reflected too by many of the major international banks announcing their expansion in Latin America, particularly Brazil.
As the largest economy in the region, Brazil has enjoyed increasing economic stability in recent years, including lower inflation, growing foreign reserves and greater fiscal responsibility. Although Brazil experienced recession for two quarters of recession, as both commodity exports and access to credit collapsed, this followed two years of record growth and the country quickly returned to growth, with expectations of 5% growth during 2010.
Argentina experienced many years of economic recession until 2002, but then rebounded with significant growth until 2008, taking advantage of under-utilised industrial and labour capacity, innovative debt restructuring and expansionist monetary and fiscal policies. High inflation, followed by the global financial crisis curbed growth and the government attempted to reduce government spending, such as nationalising private pension funds, but this created a further downturn in private investment and consumer confidence.
Mexico saw the most considerable drop in GDP in 2009, with a decline of 6.5% and a range of challenges in the economy, public health, education and living standards. However, free trade agreements with over 50 countries, representing over 90% of trade, and private investment opportunities in industry and infrastructure make Mexico an attractive future market for many business sectors.
The following series of articles, courtesy of Latina Finance, offers insights into managing cash effectively in Latin America, including local insights into payment and collection methods, local clearing, regulatory constraints and reforms. With Latin America offering both short term and longer-term opportunities for growth, companies of all types should be reviewing not whether but how to leverage these opportunities most successfully.