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Terry McCoy @ Purdue University - February 19, 2014


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Terry McCoy @ Purdue University - February 19, 2014

  1. 1. February 19, 2014 THE 2014 LATIN AMERICAN BUSINESS ENVIRONMENTS: BRAZIL AND CHILE Purdue CIBER Terry L. McCoy University of Florida
  2. 2. Presentation Current Environment for Business and Investment in Latin America •Snapshot of 2013 environment •Outlook for 2014 •Differentiating Countries: Brazil and Chile Evolution of the Latin American Business Environment at Krannert •2009: Coping with the Global Financial Crisis •2010: Robust Recovery •2011: The New Latin America? •2012: Growing Uncertainties •2013: Mild Recovery, Long-term Challenges 2014: Consolidation of Post Recovery Environment •Continuity for most countries •But important outliers
  3. 3. Components of the Latin American Business Environment Global Economic ------------Financial Domestic Environment Political Regional Social Policy --------------Legal
  4. 4. Regional Profile: Moderating Growth
  5. 5. With Moderate Inflation
  6. 6. And Slower Export Growth
  7. 7. In Softer External Environment with Weaker Commodity Prices
  8. 8. And Slowing Capital Flows
  9. 9. With Growing External Debt
  10. 10. And Weakening Fiscal Accounts
  11. 11. Are Rising Standards of Living Theatened? Economic Reform Sustained Growth
  12. 12. Outlook for 2014: Cautiously Optimistic but . . . External Environment •Increased global growth (3.2% from 2.4%) led by rich countries •Tailwind: Stronger trade (but subdued commodity prices) •Headwind: Volatile capital flows (“Emerging Markets Rout”) •Shifting regional blocs (Pacific Alliance vs. Mercosur) Domestic Environment •Economic: Modest uptick in growth and inflation •Social: Increasing mobilization and protests from civil society •Political: Elections unlikely to produce significant re-alignment •Policy: Reducing inflation and growing external and fiscal imbalances while stimulating growth Significant Country Differences
  13. 13. Attractive Environments (9) Defining Features Sustained growth with moderate inflation Diversified export base Growing middle class Centrist democratic politics with power sharing Social market policy consensus and continuity Protection of property rights Transparency, accountability Strong credit ratings and FDI Countries ▼Brazil* ▲Mexico* =Chile* =Peru* =Panama* ?Colombia* =Uruguay* ?Costa Rica =Dominican Republic *Investment grade rating
  14. 14. Problematic Environments (4) Defining Features The Populist ALBA bloc Power concentrated in reelected presidents Interventionist states Weak legal environment and high rates of corruption Energy export dependence Growth with moderate inflation Significant poverty reduction High risk countries with growing dependence on China Countries ▼Venezuela ------------------------------------=Ecuador =Bolivia ---------------------------=Nicaragua
  15. 15. Mixed Environments (5) Defining Features Slowing growth with high inflation Rich commodity base Strong middle class Increasing state control of economy and serious macroeconomic imbalances --------------------------------------------Slow growth Weak terms of trade Heavy US dependence Widespread poverty Drug-related violence --------------------------------------------Poor but growing Countries ▼Argentina ------------------------------------=Guatemala =El Salvador =Honduras ------------------------------------▲Paraguay
  16. 16. Brazil and Chile: Important Latin American Markets
  17. 17. Economic Environments Brazil Chile GDP ($bn/11) 2, 310 GDP Growth (Av.%/04-12) 3.9 GDP Growth (%/13/14) 2.5/2.5 Inflation (%/13) 6.5↑ Exports ($bn/12) 282.4↓ Current Account ($bn/12) -54.2↑ Net FDI ($bn/12) 68.1↑ External Debt ($bn/12) 312.9↑ Debt/GDP (%) 11.8↓ Fiscal Balance (%GDP/12) -2.0↓ FX/US$ (13) -6.9 Stock Market (%/13) -15.9 300 4.6 4.4/4.5 0.9↓ 90.9↓ -9.5↑ 9.2↑ 117.8↑ 31.0↓ 0.6↓ -5.4 -15.9
  18. 18. Natural Resource Economies Brazilian Soy Beans Chilean Copper
  19. 19. Social Environments Brazil Population (m) Pop. Growth Rate (%) Illiteracy (%) Per capita GDP ($ppp) HDI Rank (of 186) Poverty (%/11) Inequality (Gini) Unemployment (%/12) Homicide Rate (/100,000) Chile 200.0 0.8 9.7 11,909↑ 85 20.9↓ 54.7↓ 5.5 21 17.6 0.8 1.4 22,352↑ 40 11.0↓ 52.1↓ 6.4 3
  20. 20. Modern Cities Sao Paulo Santiago
  21. 21. Political Environments: Dictatorships to Consolidated Democracies Dilma Rousseff Michele Bachelet
  22. 22. Institutional Environments Brazil Rule of Law (%) 51.7 Corruption Rank (of 159) 69 Econ. Freedom Rank (186)100 Property Rights Rank (%) 50 Start a Business (days) 119 Country Risk Rating (13) BBB Global Competitiveness Rank (of 142) 56 Chile 88.2 20 7 90 8 A 34
  23. 23. Conclusions Brazil and Chile are important markets •Chile is fundamentally stronger (less risk) but Brazil is bigger (greater upside) •Companies need employees who know these counties and know how operate with, and in, them Acquiring competency to business degree •Become familiar with the country •Learn Spanish and/or Portuguese and the local culture •Do a study abroad or internship in Chile or Brazil •Research firms (profit and non-profit) with business in the country •Build a network of contacts (beginning here at Krannert) Take the first step – Study Tour Brazil or Chile
  24. 24. And have fun! Ipanema Chilean Vineyard