An island of growth and profits? Companies can make more profit in Latin America than in Asia

By Ingo Plöger, Brazilian entrepreneur and President  of CEAL – Brazilian Chapter

It was not the expression of a Latin American leader, but from Andreas Renschler, Member of the Board of VW and TRATON, Chairman of the powerful German BDI Latin America Initiative, who in his last message of 2019, made a warning to European leaders regarding the Latin American continent moment 1).
While news in European headquarters is from extremely bleak points of view, budgets facing very large sales declines, in pursuit of new crisis plans …this statement seems completely out of context. Europe, especially Germany, has heavily focused on cooperation with China over the last decades. Not surprisingly, currently 50 percent of the world’s luxury goods are consumed in China; Europe, with its major brands, captivates this market. In the case of Germany, a country of industry, machines and equipment brands means quality and technological productivity, and this is the Chinese industrial park’s desire for consumption. Unlike Americans, Japanese and Koreans, Europeans have built a much greater interdependence with China and with the U.S.-China trade war, they are the most affected in their exports. They neglected markets like Latin America and Africa. For Europeans, the U.S. market has never been an easy market to conquer; its extent, regionalist and particularities are more difficult than in other markets. In Europe, Brexit, although already priced, still leaves significant marks in the downturn, and the insecurity of the growth of more radical opposing positions does not increase European consumer confidence. Accustomed to continued growth, the scenario for 2020 and 2021 has shifted from “growth mode” to “reduction mode”. The leaders are encouraged to seek the result in reducing expenses, increase productivity, based on the vision of the worldwide drop in consumption.

Nevertheless, American companies’ scenarios are less disastrous. Most of them understand that the year 2020 begins with a process of lower growth in the U.S. without being recessive; giving more credits to Latin America, resizing its position in Europe and China, where participation is lower than its European competitors. Japan resumes its initiatives in Latin America, and Korea increases its trade aggressiveness.
China understands that the trade war was not good for them, as well as occasional events that direct them even more in favor of Latin America, such as the recent problems with the swine fever, among others. Soy imports drop and high value-added meat imports increase. Everything Latin America wants.

However, Latin America is boiling, with people on the streets … where to look for the confidence that this time Latin America will not lose its opportunity again?

As per Renschler’s interpretation, social movements in these democracies are nonetheless a movement for the better, considering the pressure for policies of social and economic improvement of the people and for the improvement of public management. Following this reasoning, showing that if Brazil maintains its structural reforms, it will be the anchor of Latin America for the sustained growth of the region. The latest indicators from the Brazilian conjuncture show that GDP this year will be better than forecast and the market is reevaluating Brazil 2020-21 growth above 2 percent and below 4 percent. However, in international disaster scenarios, this seems hardly credible, yet observing Mexico and Argentina as two major economies on the continent as a sign of crisis. It seems that economic pragmatism could be the platform for convincing. Argentina will have no alternative, eventually, but to surrender to the Brazilian conjuncture, if it wants to lose less in the restructuring and to Mexico the revision of agreements, including with Brazil, in the case of the automobile where it realizes that it is now losing by self-imposed limitation. Privatization will become stronger from 2020, and we may have favorable news in Bolivia and Peru, which benefit from Brazil’s economic climate.

The best scenario for Latin America will be for Brazil to continue its course, opening its economy, maintaining reform programs and stabilizing the region.
If this miracle occurs, it will be an island of growth and profits in the midst of a whirlwind.
Being around Christmas, it is good to believe in miracles, especially if we combine the desire of the people, the sensitivity of the leaders for good reforms and remembering that God is Brazilian and the Pope is Argentine.

Merry Christmas and a good New Year!

1) Sunday brief nr 11


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