Growth Hotspots – Focus on Latin America

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“According to one panellist, Colombia’s stock exchange has quadrupled since 2002, and though its corporate cycle has shown some lack of pace, larger conglomerates are selling their assets and focusing instead on core business to buoy their new efforts.”

World Economic Forum. Latin America has experienced several economic revolutions and shifts in business models. The session moderator observed that, in spite of the seemingly morose tone of the previous session on the effects of the US crisis, Latin America has shown substantial growth rates and is witnessing the emergence of new markets with attendant economic optimism.

A panellist emphasized that prospects in Brazil vary by region and by sector. The prospects are positive; the business environment is buttressed by political stability. He singled out two sectors showing particularly promissory prospects – SMEs and services – but bemoaned the lack of private, aggressive risk-taking investment.

Another panellist agreed, relating the propitious business environment to low inflation and real interest rates. He also predicted that the US crisis would have effects in Brazil, albeit not immediate ones. There is a consumer explosion occurring in Brazil, and a 16% growth rate. The country is now the platform for 30 IPOs and other offerings a year, while a few years back one or two offerings were synonymous with success in the stock market; Sao Paulo sees US$ 14 billion trade on its stock exchange, third to Shanghai and Hong Kong.

In a similar vein, a panellist stated that Mexico is not an economic monolith but a collection of economic regions with distinctive sectors of activity, adding that all economic predictions and observations depend on which Mexico you refer to. Certain sectors have shown resilience in view of decreased trade relations with the US and opt for value-added goods instead of low-value ones. It was also noted that the economic relationship between Mexico and Brazil is based on cooperation and camaraderie rather than competition, e.g. Brazil now employs a growing number of the 70,000 Mexican engineers.

The discussion then turned to the new economic energies of the region, in particular Colombia. According to one panellist, Colombia’s stock exchange has quadrupled since 2002, and though its corporate cycle has shown some lack of pace, larger conglomerates are selling their assets and focusing instead on core business to buoy their new efforts. Some noteworthy developments:

· Markedly higher activity of family-owned businesses in capital markets

· Debt structure has vastly improved

· Growth is driven by investment as well as demand from neighbouring countries

· The country has become the preferred platform for the provision of services to neighbouring countries

· Economic boom is especially visible in non-tradable goods sector, e.g. infrastructure, retail and construction

Colombia’s pension funds are growing, mainly in government securities. Cautious in his economic portrayal, the panellist provided a muted warning concerning Colombia’s newfound trade glee: reliance should not turn into economic dependence.

The moderator then asked panellists to comment on the changing patterns of trade between Latin America and China – from US$ 200 million four decades ago to a potential US$ 100 billion in 2007.

One panellist explained that his company had begun trading iron ore, steel products and tin at the beginning of the 1980s. It has now changed trade into investment, and he invited panellists to consider China as a worthwhile partner in trade as this could result in mutually beneficial investment opportunities.

It was noted that Argentina is enjoying the most positive rates of growth in its modern history, but that some problems persist primarily due to a lack of counter-cyclical measures, high inflation and energy problems. Though growth is fragile, it is widespread.

The attention of the panellists turned to the dangers of new, emerging political powers in the region. One participant added a caveat that the growth is imperilled by widening inequality. Unless this is addressed, through education or appropriate economic measures, the radical rhetoric of destructive forces will be heard. The moderator concluded the session, noting the positive predictions for Latin America, the confidence in its capabilities and the fact that, although dark spots exist (such as a lack of a common agenda), Latin America’s economic performance is anything but negative.

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