latin america opportunities and challenges latin american and argentina development: opportunities...
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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