Pitfalls and promises for Latin America in 2012 say experts from Aon, Florida International University
The outlook for many Latin American countries in 2012 is positive, experts say, though there are pockets of concern throughout the region.
Among those are many bubbles developing in many countries, the reliance on commodities, a boon or danger depending how you look at it, and the impact of the Eurozone debt crisis on South America, a panel said at WorldCity’s Annual Global Economic Outlook on Jan. 27
On the bright side foreign direct investment is growing since a drop off in 2009, said Corina Monaghan, vice president of Aon Risk Services’ Political Risk Practice. “In 2009 GDP growth in Latin America after the 2008 crisis was 2.1 percent,” she added. “In 2010 GDP growth increased to six percent.
Driving that growth, and making the region attractive for companies from around the world to invest, are “higher commodity prices, reduction of external and an increase of hard currency reserves,” Monaghan said.
Despite the positive signs that continue to come out of the region there are some concerns.
It “used to be that 44 percent of the GDP of Latin America exports were commodities based and now it’s 54 percent and that’s not a good sign,” said Jerry Haar, director of the Pino Global Entrepreneurship Center at Florida International University. Additionally are concerns about potential bubbles forming around the world. In China, Haar said, “China bank lending is nearly $2 trillion. You have a problem not just in China and India, but in Latin America, prices are rising far too quickly.
In Brazil “the government… is subsidizing home mortgages and credit expansion is proliferating,” he added. Last but not least is worry over the upcoming Olympics, and what will be done with the facilities under construction today.
“After 2012 I would short the Brazilian real,” Haar said.
However John Price, managing director of Americas Market Intelligence, said South America’s reliance on commodities gives him a bullish outlook for the region, as well as the fact that capital markets throughout the region are beginning to ‘grow up.’
“The reason Latin America has always been volatile comes down to this: If you are wealthy enough to save money you put that money outside the region so [it] was and still is chronically undercapitalized,” he said. “Governments have shrunk their deficits tremendously, they’re not crowding out capital markets like they used to.
“It used to be that Latin America didn’t believe in their capital markets, now they do… and they’re beginning to lend to the middle class,” he added. With that lending comes an ever growing numbers of people entering the middle class, and an expanding market for multinationals to tap into.
Though the panel often disagreed about which economic trends are good and bad for Latin America, for the most part the region is expected to grow consistently and to be an attractive place for global companies.
“Multinationals are developing unique products for Latin America,” Haar of FIU said. Many of those multinationals are also the ones funding the majority of research and development going on throughout the region. What will be key to the region’s continued development, is how many people are prepared to fill the increasingly complex jobs that arise as economies grow.
“There’s no public investment in technical training. Capital intensive industries, energy, commodities they require technicians and the publicly funded system doesn’t care them,” said Price. “There are technical colleges from Europe that are going in and building training facilities.”
The next Global Connections forum is scheduled for Feb. 24 and will focus on The Workforce of the Future: Technology, Trends and Challenges.