Services includes transport. Road and railways 2m Chinese workers in Africa Johnson & johnson Pfizer Maersk Goodyear Adidas Haiwei
Luanda (angola capital) most expensive city in the world
Roads, railways & ports are inadequate – as are power & water supplies Faster growth has exposed bottlenecks Investment is underway but improvement will take time Aviation is stronger – and so are telecommunications Public-private partnerships are emerging but not all are successful. Best prospects in South Africa & Ghana.
Burdensome regulations & red tape Crime & corruption (& sluggish courts) Although improving, Africa is still the worst region in the world to do business. African countries dominate the lower reaches of the World Bank’s Doing Business In rankings In 2010/11 78% of Sub-Saharan countries introduced at least one reform to make it easier to do business Key obstacles include: Cost and difficulty of setting up a business Skills shortages and labour market restrictions High taxes – and complex tax systems Dealing with licenses – and registering property Enforcing contracts Political influence
7m motorbikes. 1m cars a year. 2m by 2020 Moody’s downgrades vietnam
EU suspended virtually all sanctions for a year US eased investment and import sanctions Thein Sein aung suu kyi
Stable growth with relatively contained inflation Sound macroeconomic policies Strong foreign reserves coverage Sounder and stronger financial systems Favourable demographics with a growing middle class (supported by strong credit growth) feeding into increasingly important domestic markets Abundance of strategic natural resources and diversified export markets and products (especially for bigger economies) Record FDI inflows (US$182.6bn forecast for 2011)
On August 5, 2004, the United States signed the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) with five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) and the Dominican Republic. The CAFTA-DR is the first free trade agreement between the United States and a group of smaller developing economies. This agreement is creating new economic opportunities by eliminating tariffs, opening markets, reducing barriers to services, and promoting transparency. It is facilitating trade and investment among the seven countries and furthering regional integration. Central America and the Dominican Republic represent the third largest U.S. export market in Latin America, behind Mexico and Brazil. U.S. exports to the CAFTA-DR countries were valued at $19.5 billion in 2009. Combined total two-way trade in 2009 between the United States and Central America and the Dominican Republic was $37.9 billion. APEC: Asia-Pacific Economic Cooperation ( APEC ) is a forum for 21 Pacific Rim countries (formally Member Economies) that seeks to promote free trade and economic cooperation throughout the Asia-Pacific region includes Mexico, Chile and Peru "Pacific Alliance" the four main members will be Mexico, Colombia, Peru and Chile with Costa Rica and Panama as observer members.
Asia has become in 10 years, second largest trading partner after the US. China accounts for 11% of Latam trade, it was the third investors in the region in 2010 (mostly extraction and natural resources but also in infrastructure and manufactures). It is also an increasing source of funding: Chinese banks have lent more than USD 75bn from 2005 on to the region. Asia demand – especially from – also good for commodity prices. Asia has become Latin America’s second trading partner, after the US (accounting for 21% of Latin America’s trade, as compared to 34% for the US and 13% for the EU)
Colombia FARC on the wane Murder rate down Peace talks a sign of weakness Economy is a stellar performer Rapid FDI growth Natural resources boom Tradition of respect for private & intellectual property FTAs with almost 50 countries (including the US)
Highest growth rate in region next 5 years Biggest reserves in the world in silver, copper, zinc Fiscal surplus, low inflation BUT, big urban/rural divide
Everyone knows the BRICs, which are among the largest emerging markets. But EIU has created a new category of up-and-coming emerging markets that we think will be important in the next decade. These are the CIVETS, which stands for Colombia, Indonesia, Vietnam, Egypt and South Africa. These countries are not as large or important as the BRICs, but they have important strengths, including large populations, improving economic policies, regional importance, and more stable political systems (less true of Egypt now, but we think Egypt will be more stable and democratic over time.) These Civets fit nicely in between the biggest BRICs (China and India, at the top of the growth chart) and Brazil and Russia, which are further down. The countries in black are important emerging markets that are neither BRICs nor Civets. The richest countries, the major Western powers plus Japan, are at the very bottom of the list because of slow growth, high debt, ageing populations, and gridlocked government.
Pacific alliance presentation
Diamonds in the roughUnearthing opportunity in un uncertain worldIrene MiaRegional DirectorLatin America & the CaribbeanCali, May 24th, 2013
2OutlineI. Introduction The state of the worldII. Diamonds in the rough Africa Asia Latin AmericaIV. Conclusions The emergence of the developingworld
3Key points for the global economy in 2013• After a series of crises and setbacks, global economy is mendingUS economic fundamentals are strengthening◦ Jobs market is on a modest upswing◦ Housing is clearly recoveringChina is recovering from a slow 2012◦ Boom years are over, but so is the slump European debt crisis is stabilising…◦ …but austerity is killing the economy◦ Euro zone remains big drag on global growth Most emerging markets were weak in 2012…slowly improving this year• Central banks are supporting the recovery in a big way• Don’t expect a brisk recovery, though; many risks remains Debt levels still high; fiscal woes in the US; tensions in Middle East, China, Korea
4Key points for the medium term• Recoveries from recessions with financial crises take four to six years Banks are recapitalising (especially in the US) but have further to goin Europe Consumers are reducing debt(again, especially in the US), freeing upfunds to spend; but more deleveraging ahead• Euro zone: From acute to chronic Merkel says Europe will struggle for years!!! Expect more flare-ups, like Cyprus Risk of one or more countries leaving the euro zone within five years remains high• Consumer spending in emerging markets will accelerate Wages have been rising; more disposable income; will offset slowing exports Greatest opportunities for revenue growth are still in Asia
5US clawing out of the hole• Much better than Europe 2.1% GDP growth in 2013 Personal balance sheetadjustment done? Consumers borrowing again◦ Especially for cars Business borrowing also rising• But economy still compromised Jobs recovery still behind thecurve Fiscal policy has potential toderail 2013◦ Long-term outlook frightening A new normal?◦ Ageing society, fiscal strains,productivity woes, question overreturns to innovationSource: US Fed
6Euro zone: From critical to chronic•GDP to contract by 0.7% in 2013Underlying levels of sovereigndebt◦ Still very high for many countries,especially on the periphery; years toresolve Fiscal austerity◦ Difficult balancing act► Growth vs markets◦ Will keep growth at 1% or less for sometime Financial catastrophe and break-up?◦ Reduced probability of market panic◦ Euro zone break-up much less likely◦ ECB, bail-out funds, political will have allprogressed2-year government bond yield, %. Source: Haver“Whatever ittakes”
7Politics not yet consistent with long-term euro survival• Sustainable euro zone requires: Either:◦ Willingness for on-going transfers between core and periphery Or:◦ Willingness for deep one-off adjustment in periphery living standards torestore competitiveness◦ Willingness to reform rigid periphery markets to allow long-runcompetitiveness◦ Willingness to pool sovereignty to address asymmetric shocks◦ Willingness to recognise insolvency and deal with it• Gradual recovery, depressing muddle, renewed crisis There are signs of life◦ Where are Italy, France?
8Adjustment is slowly happening, but not where it countsUnit labour costs, index, (2005 =100).Source: OECD.
9Surging ahead…or still digging out?Sources: National governments, Haver, EIUThe cost of the crisisDifference, in % terms, of real output per headbefore the recession started in 2007 comparedwith 2012.%
10Hitting a BRICS wall? Cyclical and structural troublesQuarterly real GDP growth % change year on year.Source: Haver Analytics.But some improvement in 2013 asconditions strengthen among tradingpartners and investor risk toleranceimproves
12Africa at a glance• Africa is small: just 3% of the globaleconomy But includes fastest growing marketsin the world• In an ageing world, SSA’s fertility ratesremain high 5.2 per female, cf global average of2.5• By 2100, on current trends Nigeria’s population rises to 700m 950m in China• Around 90m households earn more thanUS$5,000 a year (PPP)• Governance is improving• Key sectors banking, retail, infrastructure,agriculture, services (healthcare,education etc)Source: EIU.
13The engines of growth• Rising external demand – especially fromChina and India – also good forcommodity prices• Rising internal demand – driven byurbanisation and “consumerisation”• The macro outlook is favourable Fastest growing region in the world,apart from China and India, in 2012-13• Businesses can no longer afford to ignoreAfrica – but risks remainMiningManuf actur ingSer vicesAgr icultur eOther s2000US$681mMiningManufacturingServicesAgricultureOthers2010US$9.3bnChinese FDI in Africa
14The demographic dividendPopulation in 2011• Nigeria – 166m• Ethiopia – 76m• DRC – 68m• South Africa – 49m• Tanzania – 45m• Kenya – 42m• Uganda – 35m• Ghana – 25m• Mozambique – 24m• Angola – 20m
15Key risks: InfrastructurePorts, Air transport, Retail distribution, Power, Road, Rail,Telephones, IT. 100=riskiest
16Key risks: Legal & regulatoryFairness of judiciary, Speediness of process, Enforceability ofcontracts, Confiscation, Bias against foreigners; IPR. 100=riskiest
18China is changing• Recent data disappointing Now expect just 8% growth thisyear◦ Some discrepanciesbetween income andspending, housing marketand investment• Longer-term trend for softening China is 6-7% economy Rebalancing towards consumerdemand Rising wages• Lower level manufacturing will beshed to Asia• RMB internationalisation for tradeset to rise sharplySources: Haver, EIU.
19ASEAN: Steady economic progress• ASEAN GDP growth should hold up wellthrough 2012, despite the importance of tradeand the downturn in the West• Indonesia attracting real attention frominvestors – domestically driven growth• Philippines making welcome headway againsttraditional problems like fiscal deficits & graft• Strong growth in the “poor cousins” – Laos,Myanmar & Cambodia2012 GDP(%)Inflation(%)Brunei 1.5 1.6Cambodia 6.0 4.4Indonesia 5.9 5.3Laos 7.7 7.0Malaysia 4.0 2.4Myanmar 5.0 5.7Philippines 3.4 3.6Singapore 3.0 3.9Thailand 6.0 3.2Vietnam 5.7 13.8
21ASEAN: Near, medium and...• Indonesia (near): Bigger population than Brazil Strong domestic demand Rich natural resources BUT: Uncertain political outlook• Philippines (medium): Outsourcing boom Big domestic market Economic fundamentals look a bit better Improved politics (but still a shambles) BUT: Old problems persist(infrastructure,private consumption led) -2024681012141619961998200020022004200620082010C hina Ph ilippine s(GDP growth, y on y)
22...long term• Myanmar (long): Huge, untapped potential 10th largest gas reserves in the world Population of 80m 60% chance that gradual reform will continue Foreign aid kick-starts development Western sanctions eased Opportunities in tourism, minerals,healthcare, education, and consumer goods Joining Asian’s apparel supply chain?Bangladesh, Sri Lanka, Myanmar, Cambodia BUT: Appalling infrastructure and v low education levels Whole reform process could go backwards
24Mapping growth in 2013-173.4%3.8%6.3%5.8%4.5%4.8%Source: Economist Intelligence Unit,CountryData.3.8%2.8%5.8%• Expected regional growth of 3.6% in 2013(compared to 3% for the previous year),and an average of nearly 4% for 2014-17period• Recent slowdown is cyclical rather thanstructural, with future growth sustained bysound macro policies in most countries,resilient domestic demand and a modestpick-up in global growth• Recovery in China will benefit producersof soft and hard commodities, as demandwill sustain prices at high levels• Widening current account deficits hasincreased LAT’s vulnerability to shifts inmarket sentiment
25The demographic dividendPopulation (Million)Source: Economist Intelligence Unit, CountryData.
26The rise of the consumer marketSource: Economist Intelligence Unit, CountryData.GDP per head ($ at PPP)• Rise of middle class throughgreater economic stability,increases in minimum wages andconditional cash transferprogrammes• Gini index has fallen over pastdecade, with 41 and 18 millionpeople falling out of poverty andextreme poverty, respectively• Young median age compared torest of world (in Brazil, average isless than 30 years, 30% are 14years or younger), but agingnonetheless• Urbanization rate, up to 79% (Brazil& Chile, above 85%)
27Integrated regional market and diversified export markets Latin American markets increasingly integrated by aseries of trade agreements (Mercosur, AndeanCommunity, the newly signed Pacific Alliance,Caricom)And stretching out to other regions using its strategiclocation close to the US and with a Pacific outreach:US (NAFTA, CAFTA-DR, trade agreements withChile, Colombia and Panama)Asia (APEC, Trans-Pacific Partnership Agreement,several bilateral agreements between Mexico, Chileand Peru notably with Asian countries)% of total % of totalUS 23.0 US 56.1EU 65.1 China 19.6China 8.5 EU 17.4Canada 3.4 Japan 7.0Leading markets Leading suppliers
28 China has increased its share in LatinAmerica’s trade from 1% in 1880 to 11% in2011, becoming third trading partner afterthe US (21%) and the EU (13%) Main trading partners for countries likeBrazil or Chile China was the third investors in the regionin 2010 (mostly extraction and naturalresources but also diversifying ininfrastructure and manufactures) China is also an increasing source offunding: Chinese banks have lent morethan USD 75bn from 2005 to 2012 to theregionChina-Latin America: A growing relationshipDiversifying and increasing exports toAsia, in particular to China. The regionis currently running a trade deficit withAsia, and would benefit from tradediversification beyond commodities andtowards more value added products(notably through business initiatives topromote intra-industry trade among thetwo regions)Opportunities for enhanced co-operation in innovation and humancapital development, and to attract moreknowledge-based FDIBUTAFEWCHALLENGESREMAIN:
29Business environment: Lagging behind in reformsThe EIU business environment rankings measure the attractiveness of the business environment in 82 countries worldwide, based on the marketopportunities, policy toward enterprises and FDI, foreign trade and exchange controls, taxes, financing, infrastructure among others.Among the problematic areas: poor infrastructure, rigid labour markets, insufficient financing,cumbersome fiscal systems, availability of skilled labour, poor competition, red tape.Source: Economist Intelligence Unit, CountryData.2008-12 2013-17 changeNorth America 8.12 8.30 0.18Western Europe 7.41 7.42 0.01Asia & Australasia 5.99 6.34 0.35Eastern Europe 6.55 6.93 0.38Latin America 5.81 6.02 0.21Middle East & Africa 5.50 5.81 0.31World average 6.56 6.80 0.24
30Mexico at a glance• Optimism about structural reforms is growing• Growth prospects for the medium-longer term arepositive, although short term risks (weak globalrecovery, peso appreciation)• Public spending sustains fiscal deficit, butmanageable• Inflation stabilises at 2-4% per year• Despite recent appreciating trend, peso remainsweak relative to other emerging-marketcurrencies, boosting competitiveness• Consumer confidence at near 5-year high,suggesting consumption pick-up in 2013• US developments remain major source of riskKey IndicatorsKey IndicatorsGDP growth, 2013(2012 growth)3.7%(4.0%)FDI billion USD, 2013(% growth)$23.5(31.3%)Public sector balance, 2013 %of GDP (2012)-1.4%(-2.4%)Disposable income per capita2013, USD (real %)$7,031(3.9%)Domestic credit growth 2013(average, 2014-16)15.9%(15.6%)Retail sales billion USD, 2013(% growth)$434.8(13.1%)Business environment ranking (2013-17): 32 (out of 62)
31Chile at a glance• Campaigning for Nov elections dominates politics• Record of prudent policies unaffected, whoeverwins election; still the region’s star performer• GDP grows 4.7% in 2013 and 4.8% on averageover five years• Inflation stays within 2-4% target range, whilepeso remains stronger than historical average• Gov’t focuses more on cash transfers and othermeasures to address structural poverty andregional inequalities• Energy bottlenecks present key risk for economyand business operationsKey IndicatorsKey IndicatorsGDP growth, 2013(2012 growth)4.7%(5.5%)FDI billion USD, 2013(% growth)$22.0(-4.3%)Public sector balance, 2013% of GDP (2012)1.5%(1.4%)Disposable income per capita2013, USD (real %)$9,574(5.4%)Domestic credit growth 2013(average, 2014-16)9.2%(9.6%)Retail sales billion USD, 2013(% growth)$90.7(9.4%)Business environment ranking (2013-17): 12 (out of 62)
32Colombia at a glance• Peace talks and pre-election maneuveringdominate political scene• Presents one of most stable economic andbusiness climates, with rising profile amongemerging markets• GDP gathers pace to 4.3% in 2013 and 4.6%average over five years• Prudent policies keep inflation within target 2-4%• Peso remains strong, owing to interest-ratedifferentials and strong FDI inflows• Gov’t policies promote social inclusion andformal job creation, boosting consumer marketpotentialKey IndicatorsKey IndicatorsGDP growth, 2013(2012 growth)4.3%(3.8%)FDI billion USD, 2013(% growth)$17.4(6.9%)Public sector balance, 2013% of GDP (2012)-0.7%(-0.3%)Disposable income per capita2013, USD (real %)$5,904(3.4%)Domestic credit growth 2013(average, 2014-16)15.2%(14.5%)Retail sales billion USD, 2013(% growth)$121.6(9.4%)Business environment ranking (2013-17): 47 (out of 62)
33Peru at a glance• Gov’t maintains pragmatic and broadlycentrist policies despite prior leftist leanings• GDP growth of 6.2% in 2013 is amongstrongest in region, and stays firmthereafter• Growth is balanced, supported by stronginvestment, robust private consumptionand improving external demand• Inflationary pressures ease; gov’t continuesto intervene to prevent NSol appreciation• Firm GDP will further reduce poverty (down28% in 2011), but inequality remains achallengeKey IndicatorsKey IndicatorsGDP growth, 2013(2012 growth)6.2%(6.2%)FDI billion USD, 2013(% growth)$10.6(10.0%)Public sector balance, 2013% of GDP (2012)1.3%(1.9%)Disposable income per capita2013, USD (real %)$3,128(5.1%)Domestic credit growth 2013(average, 2014-16)12.0%(5.8%)Retail sales billion USD, 2013(% growth)$85.0(13.5%)Business environment ranking (2013-17): 32 (out of 62)
36Retail sales: The rise of emerging-market consumers02,000,0004,000,0006,000,0008,000,00010,000,00012,000,0002000 2010 2016G10 E10Retail sales, US$m. G10: US, UK, Canada, France, Germany, Italy, Spain, Australia,NZ, Japan. E10: Brazil, Russia, India, China, Colombia, Indonesia, Vietnam, Egypt,Turkey, South Africa. Source: EIU
37Where’s the growth?Real GDP growth; % change, year on year. ASEAN = Association of South East Asian Nations. CIS = Russia, Ukraineetc. As of April 2013. Source: Economist Intelligence Unit, CountryData.
38Key economies to watch in next five yearsReal GDP, average annual % change, 2013-2017. Source: Economist Intelligence UnitBRICsCIVETSOther EMsG 70 1 2 3 4 5 6 7 8 9ChinaIndiaNigeriaVietnamIndonesiaTurkeyColombiaEgyptSouth AfricaBrazilRussiaSouth KoreaMexicoUSCanadaGermanyFranceJapanUKItaly
39Implications for business• Geographic refocusing Emerging markets will become the primary source of revenue and profit• Doing more with less Permanently leaner as low-cost competition increases◦ Freeing up resources to become more agile• Balancing the short and long-term Surviving today vs. investment in a dramatically changing business
40Irene MiaRegional director, Latin American & the CaribbeanEIU Country Analysisirenemia@eiu.com