Latin America: country by country

21/08/2013 por

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

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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

 

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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

 

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(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

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

“Crecim” means Growth)

 

Exportation trends 2012

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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)

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