Latin America: country by country

21/08/2013 por DNI

What does Argentine business landscape look like?

Latin America: country by country

 

1. Introduction:  A very profitable period for Latin America

Over the last years Latin America economy has been better off than many other economies in the world. In fact, that good period is expected to continue in 2013.

As a result, it is foreseen the following increase in the gross product all 2013 year long:

•       Worldwide level: 3%

•       The United States of America: 2%

•        Euro-Zone: 0.2%

•        Japan: 1.1%

•        Asia: 6.8%

•        Latin America: 3,9%

 

Latin American GDP as well as GDP per capita have been growing and both have reached their best performance ever:

Latin America GDP:

1990:  1,750,000 million dollars

2000:  2,400,000 million dollars

2011:  3,300,000 million dollars

GDP per capita in the region:

1990:  4,000 US dollars

2000:  4,200 US dollars

2011:  5,800 US dollars

 

Consequently, middle-class population has increased and poverty has decreased in the region.

Year	Poverty level	Middle / low class	Middle  class	Wealthy people
Year 1980	41%	11%	41%	7%
Year 1990	46%	10%	36%	8%
Year 2000	40%	9%	42%	9%
Year 2010	28%	11%	50%	11%

 

Moreover, since the above information results in the fact consumerism is one of the pillars of economic advancement, the retail sales levels are higher than Asia’s. The former is another emerging continent that is closely observed by companies.

Per capita retail expenditure (2012)

Latin America: $1,700 (USD)

Asia: : $ 900 (USD)

Easter Europe: $ 2,300 (USD)

The US and EU: $ 6,000 (USD)

 

Latin America has gained increasing ascendancy of international relevance, which is also evidenced by its participation in several strategic sectors all over the world.

Latin America:

• It produces half of the world’s soy.
• It provides a third of the world’s meat.
• It elaborates almost a quarter of the total amount of the world’s milk.
• It is dominant power in minerals. This region suppplies 45% of copper, 20% of molibdenum, zinc and tin.
• It also leads the energy power supply sector: 30% of biofuels are processed in the region.
• It owns a third of the largest freshwater reserves in the world.

 

On the other hand, as it is evidenced below, Latin America is the most heavily developed and built-up region and such fact results in not only advantages but also serious problems.

•                   Latin America population amounts to 588 million inhabitants.
•                   80% of the population lives in cities.
•                   There are 8 megalopolis inhabited by 5 million people.
•                   65 million people live in metropolises.
•                   111 million people live in shantytowns.
•                   122 million people live in poverty.
•                   Demand for housing amounts to 55 million.
•                   Half the population lives in medium-size cities.

 

However, Argentina will enjoy some benefits arising from the situation before mentioned but it will not take advantage of other factors within the region.

The increasing levels of globalization in Latin America and particularly in South America and the fact that Argentina is a vital member in the region and a link of said Latin American chain that is in its best period have been considered and evaluated. Therefore, it is herein stated several Argentina characteristics related to and in comparison with the region where such country is located. Besides, it is ranked drawing comparisons with its neighbors.

What does an international company evaluate or should it evaluate if business is done in Argentina? Take into account that such international company may fall into any international business category, either as a new potential investor; a company currently set up but whose operations can increase o decrease at any time; any export or import company; any company depending on suppliers set in any of the above categories or any company whose clients belong to the before mentioned classification.

 

2. The analysis of 10 different topics within the business  reference framework:

 

a)      Economy growth

 

The first element to be considered is the forecast of economy growth. What’s Argentina’s position in comparison with its neighbor countries?

Country	GDP variation 2012	GDP variation forecasted by 2013
Peru	5.9	5.5
Bolivia	5	4.5
Chile	5	4.8
Nicaragua	5	5
Venezuela	5	3
Colombia	4.5	4.5
Ecuador	4,5	4.5
Mexico	4	4
Uruguay	3.5	4
Argentina	2	3
Brazil	1.6	4
Paraguay	-2	5

 

The above information evidences Argentina’s sharp slowdown in comparison with its neighbors. Our country cannot show regularity and its economy has stagnated over the different periods of the last decade when it was more unstable than its neighbors’ economy.

GDP growth:

Country/ period	Average2003/2008	Average2010/2011	Average2010/2012
Argentina	8.5	9	3.2
Bolivia	4.5	4.7	5
Brazil	4.2	5.1	3.2
Chile	5.1	6	4.7
Colombia	5.2	5	4.4
Mexico	3	4.7	3.6
Paraguay	4.5	8.7	4.7
Peru	7	7.9	6
Uruguay	5.3	7.3	3.8
Venezuela	7.5	1.3	4.1
Average	5.5	6	4.3

 

 

 

 

 

 

 

 

B) Unemployment.

In contrast to the doubts that may arise when Argentina is evaluated pursuant to what is herein stated under section a), in this section a positive aspect emerges when such country is compared to its neighbors. Argentine unemployment rate has fallen. In fact, it is still at reasonable levels; even though, the private sectors stopped offering job positions last year. Regarding unemployment, Argentina is within the favorable trend set by the neighbors and it remains at an average rate.

Unemployment rate

Brazil	7.5
Argentina	7
Colombia	11
Venezuela	8
Peru	7.5
Chile	7.2
Ecuador	7.2
Uruguay	6.6
Bolivia	no information
Paraguay	5.6

 

 

c)      Inflation

Inflation rate is the third possible comparison.  The author of this report and DNI consultancy firm do not carry out any measuring method related to inflation rates. Thus, due to public controversies, the rates considered herein arise from the measurement performed in some provinces (San Luis province among others) and the well-known index informed by the National Congress.

In this regard, Argentina is clearly in a worse position in the «Doing Business» environment. Apart from the fact it has a high inflation rate; the slowdown that several countries of the region exhibited does not contribute to any kind of improvement.

 

	Average 2003/2008	Average 2010/2011	Average 201/2014
Argentina	12.6	16	20
Bolivia	6.6	6.2	4.5
Brazil	6.9	5.8	5
Chile	3.9	2.4	3
Colombia	5.8	2.9	3
Mexico	4.3	3.8	3.5
Paraguay	8.9	5.6	5
Peru	2.9	2.5	2.7
Uruguay	9.3	7.4	7.5
Venezuela	21.9	27.1	26.9
Average without considering Argentina nor Venezuela	6.1	4.6	4.3

 

 

 

 

 

 

 

Another variable to be considered is the one that emerges from the fact that Argentina does not exhibit good indexes in the banking system depth as well as from the credit granted to companies.

 

Credit to private sector as GDP percentage

Country	Year 2008	Year 2009	Year 2010	Year 2011
Panama	90	88	91	105
Chile	86	70	67	71
Brazil	53	53	55	61
Costa Rica	50	49	45	47
Colombia	37	40	43	45
Paraguay	27	34	38	41
Bolivia	34	37	40	41
Ecuador	26	28	31	33
Peru	24	24	25	26
Mexico	21	23	24	26
Uruguay	28	21	23	23
Dominican Republic	20	21	22	22
Argentina	12	12	13	15

 

d)     Public spending

Public spending is an indicator that shows State participation in the country’s economy and can be the reflection of the levels of taxation pressure, currency issuance, fiscal deficit or public debt (as the event may be).

Unfortunately, as far as this topic is concerned, our country does not appeal to oversea companies’ trade especially due to the particular Argentine background.

 

 

Public spending including GDP percentage

•        Argentina: 42.6%
•        Brazil: 37.3%
•        Colombia: 26.7%
•        Chile: 23.9%
•        Peru: 19.3%

 

e)      Membership to a bloc that expands markets and boosts trade

Argentina has its main international strategic alliance with Mercosur. That bloc has been the reason to justify foreign direct investment for many years and nowadays it is Argentina’s main trading partner. Nevertheless, Mercosur membership is not currently appealing to do business, considering that this bloc was the only one whose trade, even intraregional, fell in 2012.

Region	Exportation growth 2012
Andean Community	5.1
Central American Market	5.5
Mexico  (Nafta)	6.3
LAIA	1.8
Mercosur	-2.2
Latin America	1.5

 

(Since the above image cannot be modified, translation references are as follows:)

Crecimiento exportaciones: Exportation growth

Latinoamérica: Latin America

Mercosur: Mercosur

ALADI: LAIA

México (Nafta): Mexico Nafta

Merc. Centroamericano: Central American Market.

 

f)       Exportation

If evolution of Argentine exports is analyzed in comparison with its neighbor’s, neither in this regard nor others is our company in a position that justifies the fact international companies give it preference in their decisions about expansion, investment and trading growth plans.

 

 

 

 

Country	Exportation 2000	Exportation 2003	Exportation 2008	Exportation 2012	Evolution % 2000/2008	Evolution % 2000/2012	Evolution % 2003/2012
Mexico	166,294	164,907	291,343	371,426	75	123	125
Brazil	55,119	73,203	197,942	244,234	259	343	233
Argentina	26,341	29,939	70,021	81,682	165	210	172
Venezuela	30,948	24,974	95,138	99,118	207	220	284
Chile	18,215	20,077	66,455	75,905	264	316	278
Colombia	13,158	13,092	38,531	61,216	192	365	367
Peru	6,866	8,749	31,529	44,369	359	546	407
Ecuador	4,822	6,038	19,147	24,290	297	403	385
Uruguay	2,295	2,208	7,100	8,961	209	290	305
Paraguay	871	1,242	7,812	4,844	796	456	290
Bolivia	1,457	1,651	6,448	11,064	342	659	570
CACM	17,611	18,997	40,898	29,088	132	65	53

(The above image cannot be modified, so the translation references are as follows:

“Crecim” means Growth)

 

Exportation trends 2012

g)      Foreign and overseas investment

It is certain that Argentina also reports negative findings on receiving foreing direct investment as a result of the above information and the feedback given.

	2003	2004	2005	2006	2007	2008	2009	2010	2011
Brazil	10,144	18,146	15,066	18,822	34,585	45,058	25,949	48,506	66,660
Mexico	10,731	18,244	17,805	20,006	31,313	26,889	15,959	20,218	19,440
Colombia	1,291	3,117	10,192	6,656	9,049	10,620	7,137	6,899	13,234
Chile	2,982	7,173	7,209	7,298	12,534	15,150	12,874	15,095	17,299
Peru	1,332	1,816	2,519	3,467	5,491	6,924	5,576	7,328	7,659
Argentina	1,103	4,774	4,462	5,537	6,473	9,726	4,017	7,055	7,423

 

Therefore, Argentina does not seem to be a country with large companies that invest abroad, considering it is a weak external investor itself.

 

Countries that invest abroad (and amount of money invested) in 2012

•        Chile: 11,000 million  US dollars
•        Mexico: 12,000 million  US dollars
•        Colombia: 7,000 million  US dollars
•        Brazil: 5,000 million  US dollars
•        Argentina: 1,000 million  US dollars
•        Venezuela: 1,000 million  US dollars

 

Number of multi-Latin companies among the 60 major ones in the region.

Brazil:       25 (in 13.7 countries on average)

Mexico:     13 (in 12.8 countries on average)

Chile:        12 (in 7.3 countries on average)

Argentina:   4 (in 14.7 countries on average)

 

h)     Market size and quality

This topic can be analized considering two subdivisions:

 

FIRST: Population/length and breadth of the market

Regarding market size, Argentina can be considered one of the most important in the region:

Population:

•        Brazil:    190 million
•        Colombia:   45 million
•        Argentina:   40 million
•        Peru:  29 million
•        Chile:  29 million

 

Most heavily populated cities:

• Buenos Aires: 11 million
• Sao Paulo: 11 million
• Mexico: 9 million
• Lima:   7 million
• Bogota: 6 million
• Río do Janeiro: 6 million
• Santiago (Chile):  5 million

 

SECOND: Attractive cities to invest in

Argentina does equally compete against the leaders of the region for having  a city among the best ones listed to do business in, and it wins. Buenos Aires is among the 5 main cities, although it is the only Argentine one in the list.

The best rated cities according to different international indexes (multilateral organizations and research carried out by “Universidad de Rosario de Colombia- a Colombian University)

1. Sao Paulo
2. Mexico  DF
3. Santiago de Chile
4. Río do Janeiro
5. Buenos Aires
6. Bogota
7. Panama City
8. Monterrey
9. Lima
10. Brasilia

Nevertheless, regarding this matter, Argentina’s score is intermediate because while Buenos Aires is in a good position, Argentina is a South American country with just one city in the list like Chile, Colombia and Peru.

j)  Productivity associated with geographical concentration

One aspect that should be included in this report is the degree of geographical diversification in Latin America regarding production centers that each country has.

57% of Latin America’s GDP is produced just within 9% of the territory. Besides, there are 8 regions that exhibit high GDP per capita and social values. The important factor is to analyze whether countries have more than a region in such list or not:

Unipolar countries: Argentina, Chile and Peru.

Bipolar countries: Bolivia and Ecuador.

Multi-polar countries: Brazil, Colombia and Mexico.

 

Unipolar:

Argentina: Buenos Aires/ Rosario: 58%

Peru: Lima/ El Callao 52%

Chile: Santiago: 47%

Bipolar:

Bolivia: La Paz and Santa Cruz (53%)

Ecuador: Guayas and Pichincha (44%)

Multi-polar:

Brazil: Sao Paulo; Río do Janeiro and Minas (53%)

Mexico: Nuevo León, DF, Mexico and Jalisco (44%)

Colombia: Valle, Antioquia and Bogota (50%)

Regarding this subject the score is also intermediate. Although Argentina exhibits only one center out of the eight main ones, and that fact is really good, said country is unipolar, since it is the eighth largest country in the world and it may have more than one city or center.

 

3. Conclusion: Final assessment.

All kind of assessment is bound to be subjective as long as it is a score. Nevertheless, this report includes 10 topics that “DNI” considers particularly important to rank Argentina as a place to do international business by comparing it with its neighbors.

However, the real value of this paper is to analyze the state of business trends in several different countries.

Moreover, this assessment has been carried out based on the statistics revealed by international organizations such as ECLAC, IDB, IMF) or well-recognized and very experienced private entities.

 

 

Desarrollo de Negocios Internacionales (DNI)