February 19, 2014

THE 2014 LATIN AMERICAN BUSINESS THE 2014 LATIN AMERICAN BUSINESS ENVIRONMENTS:ENVIRONMENTS:

BRAZIL AND CHILEBRAZIL AND CHILE

Purdue CIBERPurdue CIBER

Terry L. McCoyTerry L. McCoy

University of FloridaUniversity of Floridatlmccoy@latam.ufl.edutlmccoy@latam.ufl.edu

PresentationPresentation

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

Components of theComponents of theLatin American Business EnvironmentLatin American Business Environment

Economic

-------------

Financial

Social

Political Policy

---------------

Legal

Global

Regional

Domestic Environment

Regional Profile: Moderating GrowthRegional Profile: Moderating Growth

With Moderate InflationWith Moderate Inflation

And Slower Export GrowthAnd Slower Export Growth

In Softer External Environment withIn Softer External Environment withWeaker Commodity PricesWeaker Commodity Prices

And Slowing Capital FlowsAnd Slowing Capital Flows

With Growing External DebtWith Growing External Debt

And Weakening Fiscal AccountsAnd Weakening Fiscal Accounts

Are Rising Standards of Living Theatened?Are Rising Standards of Living Theatened?

Economic Reform

Sustained Growth

Outlook for 2014Outlook for 2014::Cautiously Optimistic but . . 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

Attractive Environments (9)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

Problematic Environments (4)Problematic Environments (4)

Defining Features

The Populist ALBA bloc

Power concentrated in re-elected 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

Mixed Environments (5)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

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Poor but growing

Countries

▼Argentina

-------------------------------------

=Guatemala

=El Salvador

=Honduras

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▲Paraguay

Brazil and Chile:Brazil and Chile:Important Latin American MarketsImportant Latin American Markets

Economic EnvironmentsEconomic Environments

BrazilGDP ($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

Chile300

4.6

4.4/4.5

0.9↓

90.9↓

-9.5↑

9.2↑

117.8↑

31.0↓

0.6↓

-5.4

-15.9

Natural Resource EconomiesNatural Resource Economies

Brazilian Soy Beans Chilean Copper

Social EnvironmentsSocial Environments

BrazilPopulation (m) 200.0

Pop. Growth Rate (%) 0.8

Illiteracy (%) 9.7

Per capita GDP ($ppp) 11,909↑

HDI Rank (of 186) 85

Poverty (%/11) 20.9↓

Inequality (Gini) 54.7↓

Unemployment (%/12) 5.5

Homicide Rate (/100,000) 21

Chile17.6

0.8

1.4

22,352↑

40

11.0↓

52.1↓

6.4

3

Modern CitiesModern Cities

SantiagoSao Paulo

Political Environments:Political Environments:Dictatorships to Consolidated DemocraciesDictatorships to Consolidated Democracies

Dilma Rousseff Michele Bachelet

Institutional EnvironmentsInstitutional 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

Chile88.2

20

7

90

8

A

34

Conclusions 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

And have fun!And have fun!

Ipanema Chilean Vineyard