Latin AmericaLatin American and Argentina Development: opportunities and opportunities and

challengeschallenges

2008 PresentationFor the University of North Florida

Professors

R. Feeney and M. RossiAustral University, Argentina

Some facts about Latin America

44 countries 550 million people live in this region

(50% more than the US, 8% of world population)

It produces 7% of the world GDP (one third of the US)

Its territory is 21 million square kms (double than de US)

Major world provider of soja, copper, sugar, beef, etc. and many other raw materials

25 uninterrupted years of democratic regimes in most of the countries

Evolution of World GDP per Capita 1950-2003) (PPP)

0

5000

10000

15000

20000

25000

30000

1950 1973 1998 2003

Years

GDP

per C

apita

Latin America Africa Western Europe US, Canada, Au, NZ Asia World

Evolution of the world GDP per Capita (PPP) 1950-2003

World

LA

US, Can, NZ, Au

Western Europe

Africa

World Capita GDP by Region In 1990 US International dollars

(Maddison, 2006)

Region/Year

1950 1973 1998 2003Growth 1950 to

2003

Annual Growth

Latin America

2504 4513 5 837 5786 131% 1.59%

Africa 890 1 410 1444 1549 74% 1.05%

Western Europe

4578 11 417 18 137 19,912 334% 2.81%

US, Canada, Au, NZ

9268 16 179 25 767 28 039 202% 2.11%

Asia 717 1719 3547 4434 518% 3.49%

World 2113 4091 5729 6516 208% 2.14%

GDP Per Capita Annual % Growth Rate (Maddison, 2006 and 2007)

  1913–50 1950–73 1973–98 1999-2003 

Latin America

1.43 2.52 0.99 0 

United States

1.61 2.45 1.99 1.6

Japan 0.89 8.05 2.34 0.5 

WesternEurope

0.76 4.08 1.78 3.7 

Africa 1.02 2.07 0.01 1.4 

World 0.91 2.93 1.33 2.6 

GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007)

  1950-73 1973-80 1980-90 1990-99  1980-99 1999-2003

Argentina 2.06 0.48 -2.33 3.38  0.33 -0.22

Brazil 3.73 4.26 - 0.54 1.07  0.47 0.06

Chile 1.26 1.72 1.10 4.47  2.68 1.86

Mexico 3.17 3.80 -0.31 1.16  0.38 0.06

Total Latin America

2.52 2.57 -0.68 1.36  0.28 0

Latin American Nations Ranked by Gross Domestic Product

(GDP- (PPP)) in 2006 Millions of International Dollars, CIA

World Rank NationGDP (PPP) in millions

US dollar

10  Brazil 1,838,000

12 Mexico 1,353,000

22  Argentina 621,100

29  Colombia 378,808

44  Chile 212,733

52  Venezuela 193,331

48  Peru 185,110

70  Ecuador 64,779

90  Uruguay 37,885

96  Paraguay 31,014

102  Bolivia 27,892

GDP per capita (PPP) 2005, CIA

Rank in world CountryGDP

per capita

50 Argentina 14,109

56 Chile 12,983

60 Mexico 10,600

65 Uruguay 10,028

68 Brazil $9,108

81 Colombia 7,565

96 Venezuela 6,186

97 Peru 5,983

99 Ecuador 5,816

107 Paraguay 4,555

125 Bolivia 2,817

InflationAnnual average compound

(Maddison, 2006, p. 153, 1999-2007 author’s estimate)

  1950-73 1973-94 1994-98 1999-2007 

Argentina 26.8 258.4 1.3 7.7

Brazil 28.4 268.5 19.4 7.1

Chile 48.1 71.8 6.7 3.77

Mexico 5.6 37.6 26.4 7.38

Average main Latin America countries

27.2 159.1 13.5 6.48

Poverty Line (lowest to highest) Source: CIA World Factbook[5

Year ofestimate

Country Population belowpoverty line (%)

2005 Chile 18.2

2006 Argentina 26.9

2006 Uruguay 27.37

2005 Brazil 31

2005 Paraguay 32

2005 Venezuela 37.9

2006 Ecuador 38.5

2006 Mexico 38.6

2005 Colombia 49.2

2004 Peru 53.1

2004 Bolivia 64

Unemployment Rate (lowest to highest) Source: CIA World Factbook

Rank in world Country Unemployment rate(%)

80 Peru 7.20

89 Bolivia 7.80

90 Chile 7.80

100 Argentina 8.70

103 Venezuela 8.90

108 Paraguay 9.40

110 Brazil 9.60

120 Ecuador 10.60

122 Uruguay 10.80

124 Colombia 11.10

A key Variable: the Socio-Economic

Conditions in Latin America

Income equality[12] Gini index

0

10

20

30

40

50

60

70

Inco

me E

qaul

ity In

dex

USA

Latin America

Income Inequality in Latin America

Central Questions about Latin America Why Latin America has not improved more

rapidly after all?

Why being rich in natural resources yet it is relative poor?

The relationship of the US with Latin America

Is Latin America ready for change, especially for regional free trade (FTAA)?

Is the business environment the same across Latin America?

Business Realities in Latin America the hard way… Significant differences by country and by region

More than economics, institutional capacity is critical

..and accountability and transparency

..and also, the Rule of Law

National cultures vs Corporate cultures

Is NAFTA-Mexico a good example?…well

North American Free Trade Agreement –2006 Results

2006 Total Value $868 billion Increase in the last 5 years by 32% Trade with Canada equals $533

billion, increase by 15% Trade with Mexico equals $335

billion increase by 60% Trade with Canada and Mexico

accounts for almost 45% of the total U.S. trade

U.S. corporations seeking to export to EU through Mexico

2005 Security and prosperity agenda (logistics, logistics, and logistics)

Data: U.S. Dept. of Commerce and U.S. Trade

Authority Office

Brazil and Mercosur, or how Americas trade is difficult

Brazil control on trade in South America

strong internal fiscal control (conservative members of cabinet)

strong control of currency volatility

strong attraction of foreign direct investment

strong opposition to U.S. subsidies

strong opposition to free trade USA style

Production of ethanol

Argentina Basic Briefing

Population 2008: 41,000,000

Capital (population): Buenos Aires (12,000,000)

Life expectancy at birth: 76.32, Male: 72.6 Female: 80.24

Total surface 2,766,891 km²

Where we come from? Rosario:

The Center of the Agribusiness Production Area in Argentina

Rosario

Argentina GDP 1993-2007in millions of pesos de 1993

210.0

230.0

250.0

270.0

290.0

310.0

330.0

350.0

370.0

I-93 III-93 I-94 III-94 I-95 III-95 I-96 III-96 I-97 III-97 I-98 III-98 I-99 III-99 I-00 III-00 I-01 III-01 I-02 III-02 I-03 III-03 I-04 III-04 I-05 III-05 I-06 III-06 I-07 III-07

trimestre

Hundred of millones de $

a precios constantes de 1993

serie desestacionalizadaArgentina’s GDP 1993-2007

in constant prices of 1993 pesos

Hundred of millions of

pesos

1993 2002 200719981995 2000 2004 2005 Year

Argentina GDP 1993-2007

210.0

230.0

250.0

270.0

290.0

310.0

330.0

350.0

I-93

II-9

3III-93

IV-

I-94

II-9

4III-94

IV-

I-95

II-9

5III-95

IV-

I-96

II-9

6III-96

IV-

I-97

II-9

7III-97

IV-

I-98

II-9

8III-98

IV-

I-99

II-9

9III-99

IV-

I-00

II-0

0III-00

IV-

I-01

II-0

1III-01

IV-

I-02

II-0

2III-02

IV-

I-03

II-0

3III-03

IV-

I-04

II-0

4III-04

IV-

I-05

II-0

5III-05

IV-

I-06

II-0

6III-06

Thousand of Millions of Pesos

Constant 1993 Pesos

Unseasonal series

1993 1995 1998 2000 2002 2004 2006

Devaluation of the Real I/99

Arg Vice-Pres resigns X/2000

External Credit CutVII/01

III/2001Finance Secretaries(2) Resign

XII/01Financial Bolt

2004-2007 Recovery

1989-1990 Hyperinflation

Argentina’s GDP 1993-2007 in constant prices of 1993 pesos

By now (2007) Argentina’s per capita GDP is higherthan the pre-crisis level

The Horror Story: Inflation in Argentina (INDEC)

Year

Total Acumulative Inflation Index 1970-

2005

Inflation Index 5 Years Accumulative

1970 1 1

1975 20 20

1980 2 830 142

1985 4 139 214 1462

1990 7 320 092 666 1768

1995 17 872 101 933 529 2441

2000 179 465 027 176 1004

2005 27 361 668 003 207 152

2005 prices: 27 thousand billions times 1970

Inflation in Argentina (INDEC)

Year Annual Inflation

1996 0.2

1997 0.5

1998 0.9

1999 -1.2

2000 -0.9

2001 -1.1

2002 2 5.9

2003 13.4

2004 4.4

2005 9.6

2006 10.9

2007 8.5

Devaluation

Recession

Pegged currency

Recovery with increasing

inflation pressure

Balance of Non-Financial Public Sector, in Argentina 1995 - 2006

From Deficit to Suplus

Balance of Non-Financial Public Sector, in Argentina 1995 - 2006

Argentina´s Central Bank International Reserves assets (Dec 1991- Dec 2006)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

31/12/1991 31/12/1995 31/12/1999 30/06/2002 30/06/2003 30/06/2004 30/06/2005 31/06/2006

International Reserves of the Argentine Central Bank in American Dollars 2003-2007

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

03/01

/2003

03/03

/2003

03/05

/2003

03/07

/2003

03/09

/2003

03/11

/2003

03/01

/2004

03/03

/2004

03/05

/2004

03/07

/2004

03/09

/2004

03/11

/2004

03/01

/2005

03/03

/2005

03/05

/2005

03/07

/2005

03/09

/2005

03/11

/2005

03/01

/2006

03/03

/2006

03/05

/2006

03/07

/2006

03/09

/2006

03/11

/2006

03/01

/2007

03/03

/2007

03/05

/2007

03/07

/2007

03/09

/2007

03/11

/2007

Years

Rese

rve

International Reserves of the Argentine Central Bank in American Dollars

10.000 mill US dollars

Argentina’s Central Bank Reserves 2003-2007

50 000 million U$ dollars

2003 2005 20072004 2006

Argentina's Total External Debt

0

20,00040,000

60,00080,000

100,000120,000

140,000160,000

180,000

Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dic-04 Dic-05

Millions USD 107 Billion USD=

55% /ARG GDP

Argentina’s Total Foreign Debt

International CommerceForeign Trade 1992-2006 Argentina

-10000

0

10000

20000

30000

40000

50000

60000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Years

Exports

Imports

Surplus (deficit)

Argentina´s Unemployement Rate

Inestment in Argentina 1993-2006

0

10000

20000

30000

40000

50000

60000

70000

80000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Public Investment Private Investment TOTAL

Infrastructure and Investment: Public and Private Investment 1993-2006

in millions of 1993 pesos

Infrastructure and Investment: Public and Private Investment 1993-2006

in millions of 1993 pesos

Industrial activity

Industry was growing year by year, after the 2001 Industry was growing year by year, after the 2001 crisiscrisis

Currency

The last years were characterized by a relative high The last years were characterized by a relative high peso-dollar real exchange ratepeso-dollar real exchange rate

Exports are mostly based on commodities with low Exports are mostly based on commodities with low value added value added

Exports

10%

19%21%

Complejos oleaginosos

Complejos petrolero -petroquímicos

Complejo automotriz

Domestic demand feels strong and sustained Domestic demand feels strong and sustained

Internal environment

After many years of sustained demand, the industry After many years of sustained demand, the industry is close to full capacityis close to full capacity

Energy demand is climbing to a maximum, without Energy demand is climbing to a maximum, without enough investment to expand the offerenough investment to expand the offer

Threats

Domestic energy prices were kept artificially low Domestic energy prices were kept artificially low (electricity, natural gas, gasoline, etc.) creating an (electricity, natural gas, gasoline, etc.) creating an adverse scenario for private investment in those adverse scenario for private investment in those areasareas

Inflation: growing fast, being not recognized by Inflation: growing fast, being not recognized by official indexesofficial indexes

Threats

Emerging markets grew aggressively in 2007Emerging markets grew aggressively in 2007

Emerging Markets

Emerging Markets

Since Argentine domestic markets are mostly driven Since Argentine domestic markets are mostly driven by food commodities’ prices, there is a good by food commodities’ prices, there is a good perspective for sustainperspective for sustain

Merval index vs. DJI

Summary of Argentina’s Macro Situation

+ Strong short term growth Good Fiscal performance Positive foreign trade

exchange Foreign debt reduction Higher employment

-↓ Still a risky country↓ Potential Inflationary risk↓ Strongly dependent on

commodity prices↓ Poverty: 30% of the population

has serious problems↓ Weak capital and financial

system↓ Low competitiveness in many

industries↓ Weak Infrastructure↓ Low foreign Investment

Since Argentine domestic markets are mostly driven Since Argentine domestic markets are mostly driven by food commodities’ prices, there is a good by food commodities’ prices, there is a good perspective for sustained consumption, at least for perspective for sustained consumption, at least for the next 5 yearsthe next 5 years

If a global recession occurs, Argentina should not If a global recession occurs, Argentina should not have problems due to:have problems due to:

Historical high level of reserves The Banking sector is totally recovered from the 2001 crisis The sovereign debt was restructured

Business Environment

Inflation pressures: both internal and externalInflation pressures: both internal and external

Labor costs: unions do not follow official indexesLabor costs: unions do not follow official indexes

Energy costs: will tend to reach international pricesEnergy costs: will tend to reach international prices

In such an environment, companies should be more competitive improving productivity and value added

Next short-term challenges for companies in Argentina

Brazil Basic Briefing Population 2005:

175,468,575 Capital (population):

Brasilia (1,600,000) Life expectancy at

birth: male 58.96 years, female 67.73 years (2001 est.)

 Physicians per 1000 people: 1.47

 Rural/urban population ratio: 21/79

GDP per capita: U $9,100

Brazil Economic development based in central economy

Foreign investment 1998-1999 first country in

the world 2004-2005 third place

after Mexico and China

Crisis of Confidence Crash of Stocks 3% increase in base

rate since October 14 Leading MERCOSUR

Chile Basic Briefing

Population 2005: 16,598,074 

Capital (population): Santiago de Chile City (6,000,000 metropolitan)

Life expectancy at birth: 76.96male 73.69 years, female 80.40 years (2001 est.)

Total surface: 756,950 km² 

Chile’s Economic Miracle(chart in terms of GDP per capita)

Chile’s per capita GDP

Average LA GDP per cap

Evolution of Chile's GDP 1973-1998

0

50000

100000

150000

200000

1973 1990 1998

Year

GDP i

n con

stant

value

Chile multiplied its GDP by 3 in 25 years

Evolution of Chile’s GDP in 25 Year (in US constant dollars

Competitivity Ranking and Technological InnovationLatinamerican countries 2005

Country CompetitivityTechnological

Innovation

Chile 23 35

Uruguay 54 63

Mexico 55 57

El Salvador 56 70

Colombia 57 74

Costa Rica 64 56

Brasil 65 50

Peru 68 75

Argentina 72 59

Competitivity and Innovationin Latinamerican countries

Source: World Economic Forum 2005

Mexico Basic Briefing

Population 2005: 105,879,171

Capital (population): Mexico City (18,000,000)

Life expectancy at birth: male 69.73 years, female 74.93 years (2001 est.)

Physicians per 1000 people: 1.73/1,000

Rural/urban population ratio: 26/74

GDP per capita: $10,600 (2005)

Mexico Economic Development based in open economy since1988

GATT Open Economy, export

oriented and Foreign investment

NAFTA Interdependence, Rules of

Origin and National Content Free Trade Agreements (14)

European Union, Central America, Chile, Israel, Japan, S. Korea, and Australia.

What is the future Latin American economic scenario?

a. Speed of second generation reforms

b. From internal producing and consuming market to an international, regional and global economy

c. US is a regional leader in the marketplace and that is not going to change

d. Rule of law, accountability and transparency

e. Paradox of social inequality (human capital investments)

Working force development requires to add International Education and Skills (+)

Working Knowledge in: Language skills –

functional level Culture at the exchange

level Political, economic, and

social systems. National cultures Corporate cultures

abroad