Despite in-region challenges, business in Latin America remains robust, according to participants in the August 26 LT CFO Event in Miami. And at the mid-year point, the regional economic outlook is positive, according to Kathryn Rooney Vera, senior macroeconomic strategist and partner at Bulltick Capital Markets.
Rooney Vera’s regional forecast is predicated on sluggish economic growth, of about 1.6 percent this year, in the United States. She is not forecasting a recession but cautioned that she sees the U.S. economy moving slowly between 2011 and 2012, at a rate of 1.5 to 2.4 percent. In constrast, most of Latin America is doing well and Bulltick’s forecast calls for nearly 5 percent regional growth this year.
Rooney Vera anticipates a slowdown of the growth rate in Brazil in 2012 and some leveling off of the appreciation of the real in 2012-2013.
She forecasts a 6.7 percent increase in GDP in Chile this year, given that “domestic demand is rocketing,” she said. Rooney Vera added that she believes Argentina will grow on par with Chile.
“Inflation continues to be the main problem in the entire region but especially in Argentina,” she added. She anticipates that the Argentine peso will weaken before year-end 2011. “It’s the only country where we see currency depreciation,” she said. FDI is flowing into the other countries, supporting appreciation.
Mexico reported disappointing results in the first two quarters of 2011, acknowledged Rooney Vera, who predicts a second-half rebound, supported by low unemployment and sustained consumer demand, that will result in 4 percent GDP growth for the year.
Latin Trade Group Executive Editor Joachim Bamrud discussed regional trade activity. “Despite the sluggish U.S. economy, Latin American exports grew by 22 percent in the first half of the year,” he said. “It had a lot do with certain commodities, and certain countries doing better than others, but overall it’s pretty impressive.”
Integrated treasury management that leverages new technologies can generate back-office savings and better cash flow management, said executives from Visa.
One CFO said 21 people of his staff of 148 are focused on treasury or cash management, and handling invoices. “I do agree that it is a lot of people doing low-value added work and if you look at from an SG&A perspective, it is very costly,” he said.
Card acceptance is a consideration, said Emilio Fortou, head of the LAC Multinational Program at Visa. “As we move away from urban centers, acceptance becomes an issue and in that case using a card becomes more inefficient because [companies] have to revert to a lot of the manual processes.”
The threshold for using cards versus other forms of payment will vary by company, said Diego Rodriguez, head of LAC commercial products for Visa. “Higher frequency and smaller value transactions are where you can find the efficiencies,” he said.
Alejandro Ubeira, vice president of corporate accounting and reporting for DHL Americas, set the stage for a spirited discussion of shared regulatory burdens, which emphasized taxes. “The burden in our region is high, even in the U.S.,” Ubeira said.
A number of CFOs estimated that they devote as much as half their time to regulatory and tax issues. The attendees agreed that Brazil is especially complex.
One executive noted that her company integrates tax expertise when assessing any plan. “We have seen a lot of business initiatives go down the drain when you see that it just doesn’t flow on a tax basis,” she said.
Brazil also dominated the panel devoted to key markets and best practices. Approximately 5 million Brazilians are moving from the so-called Class C to Class B, said Rogerio Menezes of AkzoNobel. “If we have that three years in a row, that is the market size of Chile,” presenting enormous opportunities, he said.
Menezes cited challenges such as education, expensive financing, onerous tax and labor laws and a slow-moving legal bureaucracy. “Because the Brazilian legal system is so old fashioned, you get a tax statement 15 years late. By then, your tax lawyer has died,” he described, not entirely in jest.
Paulo Giacomini, executive director, treasury services advisory Latin America, J.P. Morgan, made the point that globalization has been the driver behind benchmarking and best practices — but that best practices are not rigid rules. “Best practices are good to see but they are going to be different country by country and company by company,” he said.
Since 2008, Giacomini has seen a trend emerge of companies separating their cash, from strategic cash that will produce better returns to more stable funds that will be used for acquisitions. “In a country like Brazil, when you have a daily liquidity paying a 6 percent real return, you don’t really need this,” he noted.
Larger companies in Brazil, Mexico, Chile and, to a lesser extent, Argentina, have been investing and making acquisitions in other parts of the world, Giacomini said. “In the United States and Europe, assets are getting cheaper,” he said. “We are colonizing the people who colonized us.”
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About the Author: Mary Sutter is a contributing editor to Latin Trade.