Published: January 01, 2000
Clients around the world increasingly tell us that Latin America is a crucial part of their strategic growth objectives. It’s no wonder. Statistics show that Latin American countries have performed strongly in the post-crisis period, with GDP growth far above that of many developed countries. While growth has been somewhat subdued this year because of declining commodity prices and the slowdown in China (which is a major buyer of Latin American commodities), the World Bank expects GDP to expand by 2.9% in 2015 and 3.5% in 2016 [1]. Moreover, many individual countries have grown far faster than the regional average: Peru’s GDP rose by an estimated 5.8% in 2013 [2]. The region’s markedly improved stability over the past decade is reflected by the sizeable currency reserves held by many central banks in Latin America.
Given the region’s attractive prospects, foreign direct investment (FDI) is booming. Latin America and the Caribbean hit a historic high of $184.92bn in 2013 – 5% more than in 2012 [3]. Mexico – which has just implemented a number of investor-friendly reforms – is expected to enjoy a significant boost to FDI, perhaps overtaking Brazil as the largest recipient of FDI in the region. Meanwhile, Chile, Peru and Colombia now have economies that rank as some of the most open among emerging market countries.
As Latin America has grown, the nature of its economies has begun to change. Historically, many countries’ economic activity has focused on natural resources. Oil and gas, minerals and mining, and agriculture remain crucial components of Latin America’s output and have led to a huge growth in trade, especially with China, over the past decade. However, growing affluence – for the first time in history, Latin America’s middle classes will outnumber the region’s poor by 2016 [4] – and positive demographics have prompted a surge in consumption.
Recent client forums in Europe and Asia, organised by Bank of America Merrill Lynch to showcase Latin America’s attractiveness as an investment destination, have confirmed both the level of international interest in Latin America and the broadening of interest to new industry sectors, including retail, insurance and healthcare. One increasingly important trend is the expansion of US middle market companies, defined as having annual revenue below $5bn a year, to Latin America, many of which are growing outside their home market for the first time.
The expansion of Latin America’s economic base has been accompanied by a huge growth in trade and a broadening of the region’s trading partners. Historically, Latin America has been heavily dependent on trade with the US, and therefore vulnerable to downturns in its economy. However, over the past decade, trade with other countries – especially emerging markets – has grown significantly.
While Latin America’s increasing engagement in the global economy is clearly positive, one of the region’s most impressive recent achievements has been the creation of the Pacific Alliance. This free-trade bloc – formed by Chile, Colombia, Mexico, and Peru, and shortly to include Costa Rica – should dramatically increase intra-regional trade. As well as encouraging free trade between members, the Alliance aims to further trade with Asia. Members already have free-trade agreements with many other countries, including the US and Japan.
The Mercado Integrado Latinoamericano (MILA) is a similarly promising initiative, designed to integrate the Santiago Stock Exchange, the Colombia Stock Exchange, the Lima Stock Exchange and, most recently, Mexico’s Stock Exchange. The creation of a pan-regional market offers great opportunities for companies seeking to raise capital for pension and insurance funds, both of which are enjoying huge growth in assets under management, to access new investment opportunities.
Latin America’s economic success in recent years has been mirrored by that of Bank of America Merrill Lynch. The bank’s success in the region can be attributed to a number of factors. It has set out a clear strategy for its Latin America operations, making a strong commitment to the region, and has devoted the necessary resources to realise this strategy. In practical terms, Bank of America Merrill Lynch has transformed how it serves clients in the region: it now relies less on third party banks and has a well-established presence in the key regional markets, Brazil and Mexico, and representative offices in Colombia, Peru and Chile. Having carefully built up and retained a team of talented professionals in recent years, Bank of America Merrill Lynch has a wealth of experience on which to draw.
At the same time, the bank has invested in market-leading capabilities that combine its global products with local knowledge to deliver solutions that meet the needs of companies in Latin America and overcome the region’s specific challenges. For example, as Martin Barrios explains in his article, there is broad recognition among corporates that inter-company lending is often managed poorly in Latin America, with idle balances in key markets such as Brazil receiving no or limited remuneration. There is also an acknowledged need to optimise trapped cash in some markets in the region. The article outlines how an in-house bank offers a focused way to overcome such challenges.
Similarly, Hernan Mayol explores how supply chain finance programmes have been adapted to take account of the nature of relationships between buyers and suppliers in Latin America, and the region’s legal and regulatory diversity. The bank also combines its local and global expertise to offer escrow services in Latin America. These enable multinationals to manage price, transaction, regulatory and counterparty risks as they increase their business activities in the region, as Tom Avazian explains in his article. Bank of America Merrill Lynch is able to bring its global expertise to bear to enable treasury professionals in Latin America to carefully vet the risks in the funds they are considering to ensure a fund manager’s risk appetite aligns with their risk tolerance, as Dallas Ebel and Michael Tafur explain in their article.[[[PAGE]]]
Luiz Carlos Couto and Moises Vidal discuss two of the most important markets segments in Latin America – non-bank financial institutions (NBFIs), such as insurance companies, pension funds and stock exchanges, and public sector entities – and how they are increasingly turning to global solutions in their article. Bank of America Merrill Lynch’s deep understanding of the regulatory and business environment in each country in Latin America helps NBFIs to take advantage of deregulation and changing demographics. Similarly, the bank is working with the public sector to introduce technology and solutions that improve transparency, efficiency, visibility and accessibility.
Bank of America Merrill Lynch’s success in Latin America is attributable to more than just products and services. Its consultative approach is especially important given the region’s complexity. The bank’s strong knowledge of the region is spurring companies from Latin America – and international firms expanding into the region – to choose to work with it. As Liba Saiovici explains, many corporate treasurers in Latin America need help to meet their expanded remit in the post-crisis environment (which has, in many cases, not been accompanied by additional resources).
Support is also critical to US middle market companies as they take their first steps into Latin America. As Ana Diaz writes, companies need all the help they can get if they are to successfully navigate the diverse regulatory and business environment of the region’s countries and understand the implications of these differences for their business strategies.
Bank of America Merrill Lynch recognises that the way in which solutions are delivered – and the underlying structure of the bank providing them – can be an important factor in their ability to meet clients’ needs. Marcelo Moussalli’s piece discusses how integrated trade finance and FX capabilities can give companies that are active in the region the ability to improve efficiency and control and overcome Latin America’s challenges, including highly regulated markets and non-convertible currencies.
More broadly, the bank’s strength in Latin America is not just limited to Global Transaction Services. It offers a wide range of investment and corporate banking services and a robust global markets capability. The bank’s close integration – the melding of Bank of America with Merrill Lynch — has resulted in a shared culture across the bank and can offer a unique end-to-end proposition for clients.
Bank of America Merrill Lynch is in Latin America for the long term. The bank views the region as critical to the global economy – offering some of the greatest opportunities in the world, both for the bank and its clients. This commitment has allows consistent delivery for clients. And this ability to deliver for clients will facilitate continued success in the region.
Notes
[1] Global Economic Prospects, World Bank, June 2014 (figure includes Caribbean countries)
[2] Global Economic Prospects, World Bank, June 2014
[3] Foreign Direct Investment in Latin America and the Caribbean 2013, Economic Commission for Latin America (United Nations), May 2014
[4] Social Gains in the Balance, World Bank, February 2014
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