The five best - and five worst - events of 2009 for Latin American business.
BY CHRONICLE STAFF
2009 was a bad year for Latin America and the rest of the world. Yet, for those who have followed the region through its many ups and downs, it was a surprising year. Many of the countries – especially Brazil -- fared better than expected.
The United Nation’s Economic Commission for Latin America and the Caribbean (ECLAC) expects a GDP decline of 1.8 percent this year, it said earlier this month. That compares with an estimate of 2.5 percent decline by the International Monetary Fund (IMF) as late as October.
While the first half was generally grim for most sectors, the third quarter showed positive signs. The wireless sector, for example, had a relatively good quarter, according to the Latin Wireless Index from Latin Business Chronicle.
But what were the key events that shaped Latin American business this year? Latin Business Chronicle singles out the five best and five worst events of the year.
FIVE BEST EVENTS
Rio 2016. The selection of Rio de Janeiro to host the 2016 Olympics is by far the most important business event in Latin America this year, even though it won’t take place for another seven years. The repercussions were felt immediately – with foreign multinationals (including Coca-Cola and hotel chains) boosting their planned investments in Brazil, while the country’s federal and local governments were gearing up for a massive overhaul of infrastructure. All in all, Rio’s state governor expects $50 billion in investments to pour in the next six years in infrastructure, construction, transportation, public security, education and training, while the value of commercial real estate in Rio should grow more than 50 percent over the next seven years. Brazilian President Luiz Inacio Lula da Silva deserves much of the credit for Rio's historic victory.
Brazil’s Resilience. Latin America’s largest economy managed to survive the global crisis relatively unscathed thanks to a combination of continued strong demand from China for its exports and a strong local economy. Brazil last year replaced Mexico as China's top market in Latin America, according to a Latin Business Chronicle analysis of data from the International Monetary Fund (IMF). Not only has Brazil grown up, it is now outshining its neighbors in times of crisis. A significant, and welcome, departure from previous crises. ECLAC expects Brazil’s GDP to grow by 0.3 percent this year, a clear improvement from the decline seen earlier this year.
China-Latin America Boom. China not only helped reduce the global crisis, but also helped save exports from countries like Brazil and Peru this year. In April, China signed an FTA with Peru, while an FTA with Costa Rica is planned for next year. For Latin America, China provides not only a welcome market to offset weak sales in the United States and Europe, but also a good source of investments – again helping offset the weaker cash position of U.S. companies, traditionally the top foreign investor in Latin America. While trade likely fell this year, it probably saw less of a decline than Latin America’s trade with its other key partners. Last year, trade reached a record $140 billion.
Panama and its President. Ricardo Martinelli was popular among local and foreign investors even before he became Panama’s president in July, but has impressed everyone with his no-nonsense style and results. Among his key achievements in less than six months: starting the process for a Panama City metro, revamping the city of Colon (home to the world’s second-largest free zone), relaxing tourism visas (an especially popular move among real estate investors) and ramping up the fight against crime. Meanwhile, Panama is slated to have one of Latin America's best GDP performances this year - 2.5 percent growth, ECLAC estimates. This year also marks two milestones for the Panama Canal. In a few weeks, it can celebrate the tenth anniversary for the handover from the United States to Panama. And in July, the agency that runs the canal, the ACP, awarded the biggest contract in its $5.2 billion expansion program in a process widely hailed as transparent.
Avianca’s Anniversary. Colombia’s flagship airline celebrated its 90th anniversary earlier this month with much fanfare. Only five years back, it wasn’t at all clear if the airline could see its 90th birthday. After years of poor service and financials, it filed for US Chapter 11 bankruptcy protection in 2004. And while Chilean airline LAN was kind enough to offer $1 for its assets, Bolivian-Brazilian businessman Germán Efromovich got the final OK to buy the carrier (paying $63 million in cash and assuming nearly $220 million in debt). His reign has been hugely successful, lifting employee moral and customer satisfaction to a record-high. Now, thanks to a merger with Salvadorian airline TACA, Avianca will become the second-largest airline in Latin America.
FIVE WORST EVENTS
Venezuela’s Free Fall. Venezuela entered into recession this year after several years of strong growth. Its GDP will likely fall by 2.3 percent this year, the worst in Latin America, ECLAC estimates. While the recession in large measure was caused by a fall in international prices of oil, Venezuela’s main source of revenue, it also was caused by the near-destruction of the private sector in the country as well as growing government mismanagement of oil giant PDVSA, electricity company EDC and telecom company CANTV (the latter two nationalized only two years ago). In addition to the growing corruption in Venezuela, foreign companies have had to deal with the restrictions on access to U.S. dollars – hitting even those firms that actually do well in such a difficult market.
U.S. Trade Policy. Nearly a full year has passed since Barack Obama became president and zero progress has been made on trade. While the United States has been facing its worst economic crisis since the recession of the 1930s, U.S. companies have had to pay unnecessary tariffs for exports to Colombia because of congressional delays in approving the 2006 US-Colombia free trade agreement. Those tariffs have amounted to a total of $2.4 billion, according to the Latin American Trade Coalition. About $1 billion of that occurred the past year, according to a Latin Business Chronicle analysis of data from the U.S. Commerce Department in 2008 and the trade coalition. Amazingly enough, the Obama administration is now not only ignoring Colombia and Panama (which also has a pending free trade agreement) to push for a Trans-Pacific Partnership with Asian countries and Chile and Peru -- two Latin American countries that already have U.S. FTA’s. Fortunately, Colombia is not sitting idle, and is negotiating an FTA with the European Union and an investment agreement with China.
Argentina’s Free Fall. Argentina is Latin America’s third-largest economy. Yet, you wouldn’t know that by looking at business news out of the region these days. Thanks to government policies, Argentina has become nearly irrelevant for foreign investors – a stark contrast to the 1990s, when it was among the top darlings for both multinationals and Wall Street investors. When Arturo Valenzuela, the U.S. Assistant Secretary of State for Western Hemisphere Affairs, pointed this out last week, he was met with a wave of official protests from government officials, who claimed that Argentina actually has “a good business climate.” ECLAC estimates Argentina’s GDP will expand by 0.7 percent this year.
Costa Rica’s CAFTA Delays. While local and foreign investors alike are keenly awaiting full CAFTA implementation in Costa Rica (the last Central American country to do so), they were disappointed this year. Among other things, state telecom and electricity company ICE delayed providing bandwidth to the presidency, so they could start the process of soliciting bids for wireless competition next year. ICE’s delay will likely result in wireless competition in 2011 instead. The result is that Costa Rica again will continue to be the wireless laggard of Central America, with low penetration rates and outdated technology.
Ecuador’s Free Fall. Ecuador this year entered a recession, saw lower oil revenues and production, posted another year of mismanagement at the state oil company and continued to scare away investors by breaking agreements and meddling in the judiciary. It also plans to change the way bad news is calculated. After central bank president Carlos Vallejo resigned on December 10, Correa officials were quick to point out that from now on all statistics will be developed using a different methodology. ECLAC estimates a GDP fall of 0.4 percent this year – the only decline in the Andean region.
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