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Published on Sep 12, 2013 in Featured Articles, News

Trends in Latin America

In the decade and a half that we’ve worked with companies throughout Latin America we’ve noticed tremendous growth and great opportunities. In the face of still returning economic opportunities in both the United States and Europe, emerging markets such as those in Latin America have become increasingly attractive to businesses and investors. According to Guillaume Corpart, Managing Director of Americas Market Intelligence, by 2020 it’s anticipated that Latin America will have a combined GDP of 9% of the global GDP, double that of 2010, and an estimated 640 million consumers.3 Part of the reason for this growth can be attributed to the aggressive macroeconomic reforms implemented in the 1990s. Led by free trade agreements between major Latin American nations and growth in areas such as agriculture, oil and gas, mining, and other commodities, Latin America is poised to achieve extraordinary growth in the decade ahead.4 The following are the major trends in Latin America in the coming decade:

Increased urbanization. In the 1950s there were 160 million people in Latin America, less than today’s population in Brazil. The World Bank indicates that two-thirds of Latin Americans at this time lived in the countryside. With so many rural households there were few opportunities for work outside of family businesses. Today Latin America’s population has more than tripled and most people live in the city.10 There are 67 cities in Latin America with populations greater than one million and 4 mega cities with populations greater than 10 million. Mexico City, Sao Paulo, Buenos Aires, and Rio de Janeiro compose four of the world’s 19 mega cities. Recent trends in Latin American cities show the greatest urbanization is now occurring in cities with populations 50 thousand and one million. Business opportunities in these secondary and tertiary cities are substantial and are expected to continue for at least the next decade. Latin America is more highly urbanized than Europe with 78% of the populace living in cities. The primary factors affecting urbanization have been enhanced economic opportunities from the creation of jobs, better quality of life, and increased access to healthcare.5, 6

Increased health awareness. Healthcare globally is a strategic industry, especially in Latin America where growing wealth has driven a demand for higher quality health services.  Healthcare expenditures are expected to grow 30% between 2011 and 2015 to $580 billion. Healthcare spending in Latin America accounted for 7.2% of the Latin American GDP in 2010, and is projected to increase to 7.5% by 2015. This creates an enormous opportunity for the private sector as public healthcare services will be unable to meet the increasing needs of the populace due to underinvestment by governments in many Latin American countries.8, 9

Overweight adults is also a healthcare problem in Latin America. This is anticipated to lead to a 59% increase in diabetes in South and Central America by 2030, affecting 40 million people. In fact, 12.3% of all deaths in South and Central America are currently due to diabetes. The main driver of this increase in diabetes is the increasing prevalence of Latin American people being overweight. As a result there’s a rapidly growing trend towards healthier diets and a change in lifestyle habits. This has created new markets for fresh foods, healthcare supplements, and other healthy living products and services.3, 8

An aging population. Latin America’s population is aging and creating a greying revolution. In 2000 there were 43 million Latin Americans 60 years of age and older. By 2020 this number is expected to rise to 83 million. In fact, the life expectancy in Latin America has jumped by 22 years in the last half century. This will result in more working-age adults with fewer children. As a result there will be a corresponding increase in the demand for services for an older age group. This includes financial planning, outpatient healthcare, and other services targeted to an elderly population. According to the World Bank, economic growth will be more challenging in countries with large numbers of elderly people with healthcare, pension, and other needs. 3, 10

An increasing workforce. Two of the driving forces of a nation’s economic health, according to Peter Francese of the Metlife Mature Market Institute, is both the creation of jobs and the growth of the workforce. Between 2000 and 2010 the labor force in the United States grew 8% to 154 million. During this same period the growth in Latin America and the Caribbean grew 24% to 281 million workers according to the International Labor Organization (ILO). In the next decade (2010 – 2020) the ILO projects an 18% increase in the Latin American workforce compared to 7% in the United States. 7

The reason for this increasing workforce relates to Latin America’s economic growth.7 Mexico is a good example of a growing economy with a rapid growth in its workforce in spite of the growth in population. Between 2010 and 2020 Mexico is expected to have 11 million more residents. In this same period of time the country projects an addition of 10 million workers, the same as projected by the United States during this period. Brazil, which has a workforce of 100 million, the fifth largest in the world, is expected to increase its number of workers by 14% between 2010 and 2020.7 In contrast, as the growth of the labor force decreases so does the country’s economic prosperity.

Increased role of Women in business. Women are assuming an increasing role in Latin America’s work force. In the past 20 years more than 70 million women have become employed.12 A report by the World Bank notes that the growth of women’s income in Latin America has accounted for 30% of the poverty reduction in the region. By 2025 it’s estimated that women will occupy 35% of the decision making positions in Latin America. As an example Pfizer began operations in Colombia 60 years ago with women comprising 40% of their workforce. Today that number is 60% with a great many in executive and managerial positions, including the country’s general manager. As the number of females in the work force increase they will have more financial independence and autonomy over household consumption. As an example, they will have increased decision making over the purchase of consumer goods such as automobiles, technology and communication devices, processed foods, prepared beverages, and similar items.1, 3 Women influence 65% of global spending.12

An increasing middle class. In the past ten years the middle class in Latin America has grown by 50% and represents 30% of the population and by 2020 that number will increase to 43%. According to Lorena Isla of the Visionary Research Group the middle class is expected to increase its spending by 51% during this same period of time. Most of this growth is due to the creation of jobs. With better employment opportunities and enhanced wage earnings the middle class is purchasing cars, electronics, and other items that they were unable to afford in the past.4 In the last decade 73 million Latin Americans have left the ranks of the poor and entered the middle class.

Although job creation was a significant part of this increase, education was also a factor. The number of years the average Latin American spends in a classroom has increased in the past decade from 5 to 8 years with the new generation now desiring the attainment of a college degree to further increase their economic and social status. As the average Latin American becomes better educated their buying habits change and increasingly focus on value rather than cost.11

Increased e-commerce and Internet usage. According to Internet World Stats, there are currently over 254 million Internet users in Latin America / Caribbean as of June 2012. This represents nearly 43% of the population. Brazil, Mexico, Argentina, and Colombia are the countries with the largest number of Internet users respectively. In the past year alone Internet usage in Latin America increased by 15%. What this has translated into is an enhanced market for e-commerce, marketing, social connectivity, communication, and related electronic interfaces.2

Even though Brazil has the greatest number of Internet users with 88.5 million, or 45.6% of the population, Argentina has the largest number of digital buyers exceeding Brazil by nearly 10%. Argentina is expected to retain this dominance in digital buying through at least 2016.

In Latin America B2C e-commerce is still small and accounted for only $36.82 billion in 2012. Brazil, the world’s sixth largest economy, had $336 billion in retail sales last year with 3.6% of those sales from B2C e-commerce. In addition, of the top 400 Latin American online retailers, 248 are based in Brazil and their sales accounted for 19.9% or $9.6 billion in 2012. The country’s consumers have embraced the use of credit cards and have an increasing amount of disposable income due to its expanding economy.13

Increasing environmental awareness. One of the growing trends in Latin America is an increasing awareness and respect for the environment. This has a direct correlation to the rising affluence of the populace. Major metropolitan cities and the wealthier areas of the country have engaged in environmental remediation where necessary and largely maintain compliance with the country’s environmental standards.

However, environmental issues are more acute in areas which have geographical limitations and poverty. For example, many Latin American governments are actively encouraging expansion of businesses outside of major cities to areas where they want to foster economic growth. In doing so they create tax benefits, make land available for manufacturing plants, and provide other economic stimulus packages. However, many industries which relocate to these areas do so because of lax government environmental enforcement. The government frequently doesn’t enforce environmental laws in these areas with the same vigor it does in its cities feeling that the economic stimulus created by these relocating businesses frequently outweighs their negative environmental impact. 5

Latin America’s financially integrated economies (Brazil, Chile, Colombia, Mexico, Peru, and Uruguay), according to the International Monetary Fund, are projected to grow 4.3% in 2013 and be the region’s fastest growing economies. Less integrated economies (Argentina, Ecuador, Bolivia, Paraguay, and Venezuela) are highly vulnerable to trade shocks and therefore have to control spending to ensure fiscal sustainability. Central American countries have debt-to-GDP ratios above pre-crisis levels and are operating near their potential. These countries will have to show exchange rate flexibility in order to buffer against trade shocks.14

endnotes

Alan Refkin               David Dodge

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