LATIN TRADE
LATIN AMERICA'S DECADE: WORLD ECONOMIC FORUM REPORT
BRAZIL COUNTRY REPORT
CREATING BRAZIL’S MASTERPIECE MARCH / APRIL 2011
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Arcos Dorados and the Thousands of Reasons Why We Love McHappy Day.
Matheus N. Matos, 5 years-old, was diagnosed with lymphoma in 2008 and travels periodically to Rio de Janeiro for treatment and follow-up procedures staying at the local Ronald McDonald House.
We love seeing a McDonald’s full of people. It lets us know we are doing things right, delivering the experience that our customers truly enjoy. But behind every order, there is a story that while not always visible, is a vital part of who we are at Arcos Dorados. Serving meals to more than four million customers everyday in Latin America is something very gratifying to us. However, in addition to working hard to serve millions of families, Arcos Dorados, the largest McDonald’s operator in the world, is also engaged in another kind of work. We are talking about the help we give to thousands and thousands of children and teenagers with serious health issues in our region. To talk about these young people, we first need to talk about Ronald McDonald House Charities (RMHC), a non-profit organization that operates in 58 countries, on all five continents. Our mission is extremely fulfilling: to create and sustain programs that improve the health and quality of life for children and teenagers who suffer from long-term diseases. In Latin America, RMHC, with a budget of more than 20 million dollars in 2010, operates in 19 countries, offering accommodation and treatment for these young patients, as well as support for their family members. In Brazil, for example, the resources go to institutions that care for children and teenagers with cancer, giving them a chance for early diagnosis and proper treatment. For over 20 years, we have helped build special wards in clinics and hospitals, implemented bone marrow transplant units, chemotherapy centers and support houses. In Argentina, a country with four Ronald McDonald Houses, there is also a Ronald McDonald Care Mobile, which travels around the country offering basic pediatric treatment.
Through the support of RMHC, Arcos Dorados is working to open new Ronald McDonald Houses in addition to the 14 that already exist. In these houses, hundreds of families stay for the long periods they need to be away from their hometowns, while their children are being treated. In 2011 alone, we will open new houses in Panama, Brazil, Costa Rica and Puerto Rico, offering care and support to hundreds of families more. New Ronald McDonald Family Rooms, like the ones that already exist in Chile, Colombia and Mexico, are also being inaugurated this year. They are inside or near children’s hospitals and offer support and comfort for the families of young patients. McHappy Day, the most important campaign that supports children’s health in Latin America, is the biggest source of revenue for RMHC activities. It takes place in all McDonald’s restaurants. On this special day, a great army of caring hearts is assembled. The desire to help brings together volunteer groups composed of local people, artists, athletes and celebrities. That’s why all of us at Arcos Dorados have a true passion for McHappy Day. Whenever you step inside one of our restaurants, we never hide our happiness. We’re here to make you happy. So just imagine how we feel when we see a smile on the face of one of the children we help to treat and cure. It’s what makes this day the best and most rewarding of our lives.
CONTENTS
M ARC H/AP RIL 2011 V O L. 19 NO . 2
26 60 xx
32 COUNTRY REPORT: Brazil: Latin America’s Superpower
Despite a wide range of challenges, local and foreign executives are bullish about the business outlook in Brazil. And new President Dilma Rousseff gets high marks initially.
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The Race to the Finish Line: After years of widespread complaints about its infrastructure, Brazil is forced to make significant improvements.
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Industry Report: Franchising Strong local economies and greater consumer purchasing power, along with real estate development trends, are fueling growth for franchised brands in a range of sectors.
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58 60
Special Report: Colombian MBA MBA programs in Colombia are seeing an uptick in enrollment as demand in the Andean nation for better-trained professionals grows and as curricula are retooled to compete with world-class universities.
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Special Report: Congresses and Conventions
COVER ILLUSTRATION BY DAVID NAVAS
LATIN TRADE
03-04/2011
Special Report: World Economic Forum Latin America Latin America: Growing Strategic Importance A Q&A with Marisol Argueta de Barillas, senior director and head of Latin America for the World Economic Forum.
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Latin America in 2011: Fat, Happy & Uncompetitive Commentary from John Price, managing director of Americas Market Intelligence
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MBA Programs Adapt to a Globalized Future
With a growing number of hotel rooms and event venues, cities around Latin America are promoting themselves as desirable destinations for conferences, trade shows and expos.
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Rio de Janeiro Means Business The 2016 Olympics and expansion of homegrown companies like Petrobras and Vale help the city emerge from the shadow of São Paulo.
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Travel: The Evolution of Rio A booming economy and upcoming international sporting events bring investments and an increasingly cosmopolitan flavor to the “marvelous” city.
ROUSSEFF: NEWSCOM; TACO BELL: YUM! BRANDS; CONGRESSES & CONVENTIONS: ACAPULCO DESTINATION MARKETING OFFICE
32 Features
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CONTENTS Pague Menos CEO Deusmar de Queiros
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16
82
The Scene
BRAVO Forum
Trading Views
10 Mexico: The Comeback Kid
18 The Silent Evolution
20 Latin America: The Real Deal
After several difficult years, the Mexican economy is on the rebound.
12 Targeting the New Middle Class Seeing potential among unbanked consumers, Brazilian banks open branches in favelas.
14 Drivers’ Ed General Motors aims to educate taxi drivers in Bogota via an innovative program named Chevrolet University.
On the Road 83 Ask the Concierge
Former President of Colombia Alvaro Uribe details how the region’s advances are grounded in sound policies.
Departments 16 Drugstore Pioneer The founder of Pague Menos has taken an unconventional path to build Brazil’s first national network of retail pharmacies.
22 Costa Rica’s Challenge The cash-strapped nation faces huge hurdles to realizing a national goal of achieving carbonneutral status.
The elements are in place for the region to realize greater potential this decade, argues Susan Segal from the Council of the Americas.
Tech Trends 82 Car Tech Automakers bring connectivity to the driver’s seat.
Made In: Chile 84 Wine Producers of one of Chile’s most dynamic exports have set out ambitious plans for growth.
Editor’s Note 6
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LATIN TRADE
03-04/2011
The Chilean Model
EDITOR’S NOTE
Nobel laureate Mario Vargas Llosa was right when he characterized Chile as a not-yet developed country, but one that is not a developing country either. North Americans, Europeans and other South Americans are typically in awe when visiting Chile’s capital Santiago for the first time. It’s a city where things mostly work, with First World standards both in the private and public sector. While much of that is due to Chileans’ unique culture, credit also goes to the various governments the country has had in recent history and the overall policies they implemented. For more than 20 years, Chile has been Latin America’s freest country. It has had the region’s freest economy, according to the index of economic freedom from the Heritage Foundation and Wall Street Journal. And it is one of only three countries in Latin America that shows full respect for political rights and civil liberties, according to Freedom House. Chile has Latin America’s most competitive economy, according to the World Economic Forum. When it comes to taxes, labor environment and transport infrastructure, it also beats out its Latin American neighbors, according to benchmarking indexes from Latin Business Chronicle. Chile is more transparent and has less corruption than the United States, according to German corruption watchdog Transparency International. It ranks as one of the three safest countries in Latin America, according to the Latin Security Index from FTI Consulting and Latin Business Chronicle, and is the regional leader when it comes to health and education, according to the 2010 Human Development Index from the United Nations Development Program (UNDP). Chile’s current president, Sebastian Piñera, has vowed to make Chile even more impressive. His overall goal is to boost economic growth to an annual average rate of 6 percent so that Chile can reach a GDP per capita on par with the average of the member countries of the Organization for Economic Co-operation and Development (OECD) by 2018. Piñera’s goal of boosting growth is part of a seven-point plan that includes the creation of one million new jobs, boosting the fight against
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LATIN TRADE 03-04/2011
crime and drug trafficking, eliminating extreme poverty and reducing the rates of inequality, improving the quality of health and education, modernizing the state and revitalizing democracy. Although these goals are highly ambitious, Piñera may just be able to achieve them. Before becoming president in March 2010, he was a very successful businessman. Piñera built up the Visa and MasterCard businesses in Chile and had been involved in a broad range of industries, from real estate and media to sports and aviation. He was a major shareholder of airline LAN until he sold his stock after winning the presidential elections. He showed his leadership skills from day one, when he had to address the reconstruction and recovery from the February 2010 earthquake that killed more than 500 people. Later that year, when an accident trapped 33 miners deep under the Atacama Desert, Piñera drew on his background as a successful businessman and implemented a plan that led to the successful rescue of all the miners in October. “The leadership of our president was essential,” maintained Enrique Cibie, former CEO of Masisa and a Latin Trade BRAVO Business Award winner. While Piñera is not guaranteed similar success in achieving his ambitious goals, he has had some victories so far. Last year, Chile’s economy grew by 5.2 percent, the country’s best result since 2005. This year, the International Monetary Fund estimates growth of 6 percent. Independent of Piñera’s record, Chile clearly is a role model for Latin America because it represents the benefits of having a “market democracy” — a country that combines political freedom with a free market.
Joachim Bamrud, Executive Editor
TIZIANA FABI/AFP/GETTY IMAGES/NEWSCOM
The Chilean Model
Sebastian Piñera, president of Chile
Changes at Latin Trade Group The Latin Trade Group, publisher of Latin Trade magazine, is strengthening its focus on live events as well as print and digital content. Jane Bussey, editorial director of Latin Trade, has been named editorial director responsible for the Latin Trade Symposium and BRAVO Business Awards. Joachim Bamrud, editor-inchief of the digital publication Latin Business Chronicle, has been named executive editor of the Latin Trade Group, overseeing editorial content and strategy for Latin Trade magazine (latintrade.com) and Latin Business Chronicle (latinbusinesschronicle.com).
USERS OF LATIN BUSINESS CHRONICLE SAY:
LATIN TRADE EXECUTIVE DIRECTORS ROSEMARY WINTERS rwinters@latintrade.com MARIA LOURDES GALLO mgallo@latintrade.com EXECUTIVE EDITOR JOACHIM BAMRUD jbamrud@latintrade.com MANAGING EDITOR MARY SUTTER msutter@latintrade.com
Your news helps us stay abreast and, in some cases, even stay ahead of our competition in significant small ways.” NAI Global “ It’s an easy system to use for those of us who have little time on our hands.” Intelsat “Latin Business Chronicle [is] rapidly becoming required reading for anyone interested in Latin America.” Foreign Policy
ART & PRODUCTION DIRECTOR ELIZABETH CARLISLE ecarlisle@latintrade.com GRAPHIC DESIGNER SELVIN CHI schi@latintrade.com CONTRIBUTING EDITORS NANCY DAHLBERG, GREGG FIELDS, ALEJANDRA LABANCA, PAUL LEFTON MARK LUDWIG, STUART MCMEEKING, DOUGLAS ROJAS-SOSA REGIONAL CORRESPONDENTS David Agren, Mexico City • Ronald Buchanan, Mexico City • Andrew Downie, São Paulo • Mery Galanternick, Rio de Janeiro • Chris Kraul, Bogota • Gideon Long, Santiago • Anastasia Moloney, Bogota • Charles Newbery, Buenos Aires • Thierry Ogier, São Paulo •José Orozco, Caracas • John Otis, Bogota • Marisol Rueda, Mexico City • Juan Pedro Tomás, Buenos Aires • Lisa K. Wing, Lima CONTRIBUTING PHOTOGRAPHERS Alejandro Balaguer, Lima • Ricardo Barbato, Caracas • Helen Hughes, Santiago John Maier, Jr., Rio de Janeiro • Juan Carlos Ulate, San Jose EVENTS & CONFERENCES EDITORIAL DIRECTOR Jane Bussey, jbussey@latintrade.com EVENTS & SPECIAL PROJECTS MANAGER Ana Piñon, apinon@latintrade.com SALES & CIRCULATION SALES REPRESENTATIVES Miami/Pan-regional sales: Silvia Clarke, Senior Account Manager, sclarke@latintrade.com Miami: Ana Berger, Special Projects Coordinator, aberger@latintrade.com Colombia/Panama: María Cristina Restrepo, mscrestrep@etb.net.co India: Stephen Dioneda, stephen@bsacmena.com CIRCULATION COORDINATOR Claudia Banegas, cbanegas@latintrade.com LATIN BUSINESS CHRONICLE Rosemary Begg, Marketing Associate, rbegg@latintrade.com
For more information:
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MANHATTAN MEDIA CHAIRMAN RICHARD BURNS CHIEF OPERATING OFFICER JOANNE HARRAS ACCOUNTS MANAGER KATHY POLLYEA, kpollyea@manhattanmedia.com LATIN TRADE GROUP IS A DIVISION OF MIAMI MEDIA, LLC, A SUBSIDIARY OF MANHATTAN MEDIA Executive, Editorial, Circulation and Advertising offices are located at Brickell Bay Office Tower, 1001 Brickell Bay Drive, Suite 2700, Miami, Florida 33131, USA. CUSTOMER SERVICE AND SUBSCRIPTIONS: Please visit www.latintrade.com to order online or call +1 (305) 749-0880. Latin Trade (ISSN 1087-0857, USPS 016715) is published bimonthly by Miami Media, LLC. All rights reserved. Reproduction in whole or part of any text, photograph or illustration without written permission of the publisher is strictly prohibited.
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THE SCENE Mexico: The Comeback Kid
A
fter a difficult few years, Mexico is gaining traction. Mexico is expected to see an average annual GDP growth of 4.4 percent over the next five years, according to a Latin Trade analysis of projections from the International Monetary Fund. That compares with 4.2 percent annual growth in Brazil. The gap with China on labor costs is now so narrow that many manufacturers are relocating to Mexico, taking advantage of its proximity to the U.S. market. “Chinese labor is going up in price,” said John Price, the founder of Americas Market Intelligence, a market research firm with offices in the United States and Mexico. “Just as important is that oil is going up in price. That makes near-shoring a more logical option.” In 1993, Chinese labor was one-third that of the cost of Mexican labor. It was only half as expensive in 2009. By next
Ice Cream Per capita consumption in 2010, in liters COUNTRY Chile Uruguay Argentina Colombia Brazil Mexico
7.3 3.8 3.0 1.7 1.7 0.9
Source: Euromonitor International
year, labor in China may be only 15 percent cheaper, predicts Frontier Strategy Group (FSG), an advisory firm with headquarters in Washington, D.C. Transporting goods via trucks and trains is also far less expensive than shipping by sea from China. And orders can be filled in half the time that is generally required when sourcing from China, FSG calculates. That time differential can be crucial when manufacturers want to get a new product quickly to the market. Last, but not least, Mexico’s membership in the North American Free Trade Agreement (NAFTA) means that import duties are cheaper, the customs process is simple and conflict resolution is more straightforward than with China or Brazil, according to FSG. Major appliances, larger electronics and electronic components are among the goods that can be manufactured in Mexico competitively, experts say.
Mexico’s future growth will be driven by exports, but also increased local demand, Americas Market Intelligence’s Price asserts. “The biggest source [of growth] is domestic consumption,” he said. Bank lending, which declined after the 2008 global crisis, is picking up, providing credit for purchasing cars and home appliances. And there’s strong potential for future growth. “Mexico is one of the most under-banked economies of Latin America,” Price said. Tourism is also reviving and should help drive future expansion, Price added. Like the IMF, PricewaterhouseCoopers sees Mexico outpacing Brazil — and doing so for decades. The consultancy says Mexico’s GDP will grow at a faster annual rate than Brazil’s through 2050. It predicts that by that year, Mexico’s economy will have pushed past that of Germany, Europe’s largest, to rank seventh worldwide, up from No. 14 in 2010.
e: The aOrofufindcthe Region Rents
RENT
CITY
neiro Rio de Ja lo u a P São Caracas Miami ires Buenos A y it C o ic x Me Santiago** Lima Quito
$80.27* $51.22* $45.00 $43.62 $30.00 $28.33 $26.65 $17.50 $13.37
CHANGE
011
TREND 2
47% 4% 13% -7% -3% 4% 8% 17% 1%
Rising Rising Rising Stable Stable Stable Rising Rising Rising
se or rs to increa hange refe l were based on C . er et per sq.m in Brazi onthly rent ollar rental rates Las Condes. verage m *D NOTES: A 2010 versus 2009. . **In the district of te in change ra decrease nd 2010 ex the year-e eld & Wakefi ushman Source: C
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LATIN TRADE 03-04/2011
THE SCENE
Growing Trade
Top U.S. trade partners in Latin America in 2010 in millions of US dollars COUNTRY
TRADE
CHANGE 2009 TO 2010
Mexico Brazil Venezuela Colombia Chile
$393 $59.3 $43.4 $27.7 $17.9
28.6% 28.4% 16.2% 33.3% 16.8%
Source: Latin Business Chronicle
Cafezinho Time Per capita consumption of coffee in kilograms in 2010 COUNTRY Brazil ...............................3.2 Costa Rica........................2.4 Colombia .........................1.3 Venezuela........................1.2 Dominican Republic ........1.2 Mexico .............................0.5 Source: Euromonitor International
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LATIN TRADE 03-04/2011
Branching out to the new middle class SÃO PAULO — Many bankers don’t like using words or phrases such as “poor people” or “favelas.” Instead, they are more likely to use euphemisms like “the new middle class” and “popular communities.” Nomenclature aside, the booming national economy has resulted in higher employment levels and salaries — and has lifted 31 million Brazilians out of poverty since 2003, an enormous market segment that needs formal banking services. The country’s retail banks have made it simpler to open accounts — and notably easier by opening branches in urban favelas and rural communities. “All the principal banks are talking about increasing the number of branches because we know that to be part of these people’s daily lives, to generate wealth, we need to be on their radar,” said Hideraldo Dwight, manager of distribution channels at the Banco do Brasil, which last year opened branches in favelas in Brasilia, São Paulo and Rio de Janeiro. The bank plans to open more than 2,000 additional branches in hundreds of cities and towns over the next three years. Itaú, the country’s largest bank, has followed by installing ATMs in two Rio favelas last year and intends to
add more ATMs and open branches in other poor communities this year. Favela branches tend to be smaller than traditional offices in other neighborhoods, but services are the same. Although huge improvements in security in the once notoriously violent Complexo de Alemao in Rio de Janeiro led Santander to test the waters there, the bank only did so after consulting with a local NGO that helps kids sever ties with drug gangs through music. When Santander opened the branch, the entrance to the favela was blocked by residents who had installed iron stakes to prevent police cars from getting in. Inside, the branch is spotless; outside, the street is lined with ramshackle stalls selling everything from fruit to underwear. In a room above the bank, neighborhood kids make a racket as they learn to play samba drums. “It is a pilot project,” said Jose Paiva, executive vice president for retail in Santander Brasil. “It has to show that it is sustainable.” Some 40 percent of Brazilians do not have a bank account, according to a government study, but they will need one as they get credit cards, debit cards and pay bills online. The banks are confident that Brazil’s boom will continue, and branches are a first step to reaching consumers who are not yet banking. Their challenge is to get these new customers involved with their full range of services. “The key is to educate people about banks,” Dwight said. “We are not in these communities for philanthropic reasons. We are there because they are important to our bottom line.” —Andrew Downie
A country report on Brazil begins on page 32.
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THE SCENE
Drivers’ Ed
IN
major cities around the world, taxis are an integral and indispensable component of the transportation mix. To make them a better part, General Motors launched Chevrolet University in Bogota last year. A corporate social responsibility initiative of the automaker’s Chevrolet Foundation, the education program is free and available to any taxi driver, regardless of the brand of vehicle that he may drive. The courses — on safety, maintenance, English (to serve the growing numbers of foreign business travelers and tourists) and smallbusiness management, like budgeting — were devel-
oped by GM in partnership with the National Apprenticeship Service (SENA). SENA instructors teach the courses, said Marco Vintimilla, marketing manager for GM Colmotores in Colombia. “They have the expertise to connect the pedalogical experience with the experiences of the cab drivers.” The program consists of five hours of classes one day a week, taken over four to six months, a schedule designed for drivers to attend on the day their vehicles are not allowed to circulate. Retention rates have been high — only 13 percent of enrollees have dropped out, Vintimilla said. To date, Chevrolet University has graduated 1,300 drivers.
GM has added a second education center in Bogota to make it easier for more taxi drivers to attend, said Vintimilla, whose goal is to educate and graduate another 3,900 drivers before 2011 is out. Although GM has roughly one-third of Colombia’s growing car market, Chevrolet — its only brand in the country — is in the top two for taxis, Vintimilla said. In addition, Chevrolet University is building goodwill for the brand and may help boost future sales. The car market in Colombia is thriving. Total sales among all carmakers exceeded 254,000 vehicles in 2010, an increase of 37 percent over 2009 and surpassing the previous record
of 252,000 vehicles, set in 2007. A number of participants have indicated that their medium- to long-term goals include purchasing their own cabs or adding to their existing fleet, Vintimilla said, adding that some drivers who met at Chevrolet University are joining forces to work toward buying a vehicle together. Given the strong reception in the capital, GM will expand Chevrolet University to a second city in Colombia in July. And it may go regional. “Our friends at GM in Ecuador are very interested in the program,” Vintimilla reported.
—Mary Sutter
Internet Audience
Corruption Cost
Number of online users, in millions, in 2010
Percent of firms that complain of corruption
COUNTRY Brazil Mexico Argentina Colombia Chile Peru Venezuela
COUNTRY Paraguay ................................................ 45.98% Bolivia .................................................... 33.80% Mexico .................................................... 30.50% Ecuador .................................................. 28.78% Dominican Republic ............................... 28.74% Argentina ............................................... 22.90% Brazil ...................................................... 20.41% Uruguay.................................................. 12.04%
USERS 40 17.8 12.8 12.3 7.3 3.8 2.9
GROWTH 20.1% 20.3% 2.4% 25.5% 9% N.A. 31.8%
NOTES: Users 15 years and older accessing Internet from home or work. Growth is increase from 2009. N.A. = not available. Source: comScore
NOTE: Figure is average of surveys on factors such as informal payments and gifts to public officials and corruption as a constraint to doing business. Sources: The World Bank, Latin Business Chronicle
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LATIN TRADE 03-04/2011
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RETAIL
Drugstore pioneer Deusmar de Queiros took an unconventional path when building Brazil’s first national network of pharmacies. Now he is going to the markets to keep his retail chain Pague Menos growing. BY THIERRY OGIER
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LATIN TRADE 03-04/2011
SÃO PAULO — Francisco Deusmar de Queiros is in a hurry. His brother-in-law and business partner has just sent him an image of the new jet he is collecting in Fort Lauderdale, and the retail executive is already primed for takeoff. “This one can fly from Fortaleza to Lisbon, or from Fortaleza to Buenos Aires nonstop,” said Queiros, who would put a private jet to good use by keeping tabs on his fast-growing and far-flung drugstore chain. From a base in Fortaleza, the capital city of 2.5 million in the northeastern state of Ceará, Queiros has over three decades built a national empire of more than 400 Pague Menos stores. He was the first retailer of any type to
establish a presence in every one of Brazil’s 26 states as well as the federal district of Brasilia. A man of simple manners, who most people call Deusmar (which translates as “Seagod”), the hands-on executive insists on personally choosing locations before closing the deal. The executive estimated that the company ended 2010 with sales of 2.2 billion reais ($1.3 billion), an increase of 20 percent over 2009. Queiros predicts revenue will again surge by more than 20 percent this year, to reach 2.7 billion reais by year-end 2011. Queiros aims to open more than 40 stores during 2011. To finance future growth, Pague Menos is looking to the capital markets, as the company president sets his sights on a $600 million initial public offering on the São Paulo exchange by October. Pague Menos is Brazil’s top pharmacy chain by revenues and second-largest by number of outlets, according to Brazilian Association of Pharmacies and Drugstores (Abrafarma). Queiros has pursued a strategy that is
RETAIL unconventional by local standards yet has proved wildly successful. Most Brazilian entrepreneurs would start a business in large metropolitan markets, such as Rio de Janeiro or São Paulo, before seeking to expand across a nation of continental proportions. Queiros, a stockbroker who studied economics, opened his first pharmacy in his native state of Ceará 30 years ago. In Bahia, the largest state in the northeast, Pague Menos first set up not in the capital of Salvador, but in Teixeira de Freitas, a smaller, regional agricultural hub. “Wal-Mart did not come from big cities. It grew from small cities,” said Queiros, who is heavily influenced by U.S. retail culture. And like the U.S. retail giant, Pague Menos has leveraged the scale of its network to offer customers competitive prices. The name — “Pay Less” — says it all. The product lines are not necessarily inexpensive. Pague Menos carries cosmetics and personal-care products like face creams or higher-end shampoos that are typically not sold by traditional retailers in much of Brazil, giving shoppers another reason to patronize Pague Menos. Further distinguishing Pague Menos is its selection. Queiros says his stores carry inventory of about 12,000 products versus 8,000 items at the typical, traditional pharmacy. Nearly one-third of Pague Menos’ sales come from non-drug items. Pague Menos — and the rest of the industry — would like to generate even more sales from non-drug items. Queiros is keen on emulating the U.S. model, where drugstores sell snacks, candy, milk, magazines, greeting cards and more in addition to medicines and personal items like toothpaste. Yet even as pharmacies in Brazil may increasingly resemble convenience stores, they are facing legislative and regulatory hurdles to expanding their product mix. The regulatory agency Anvisa has ruled that pharmacies can sell only prescription medical drugs, cosmetics and personal-care products, effectively banning treats like ice cream. In Congress, there are pressures for more restrictions. “People want to move back towards Portuguese-style pharmacies that existed 20
years ago. While the whole world is talking about opening up, Brazil is considering closing down,” said Sergio Mena Barreto, president of Abrafarma, the association of Brazilian pharmacists. The controversy has triggered a huge legal battle across the country. Through legal appeals and local ordinances, restrictions on the sale of mobile-phone cards for pre-paid devices, beverages and breakfast cereals, among other products, have been lifted. Consumers have unquestionably welcomed the modern drugstore and Pague Menos, which has brought the concept to areas of Brazil that have been ignored by other retailers. “Ten years ago, [drug store chains] basically had a regional focus, mainly in Rio or in São Paulo,” Mena said. That focus has worked to the advantage of Pague Menos, Mena said. In states where Pague Menos has a limited presence, the competition can be stiffer, he said. Nonetheless, “it is difficult to see another national network [to compete against them].” The operation of other large drugstore chains, such as Droga Raia (the thirdlargest by number of outlets) and Drogasil (the second-largest by revenues) remain mostly concentrated in the cities of the southeast, the federal district of Brasilia and parts of the south. But Drogasil’s financial results point to the robustness of this segment of the national retail market: For the nine months ended September 30, 2010, it reported revenue of 1.47 billion reais, an increase of 18 percent over the same period a year earlier, and a 20 percent increase in net income to 67 million reais. Meanwhile, Drogaria São Paulo (the third-largest by revenues) has expanded into the Northeast. It opened stores in Bahia, but it had to close others in Ceará, which is dominated by Pague Menos, Mena says. Despite the competition in São Paulo, the state is Pague Menos’ fourth-largest market after the Northeastern states of Ceará (its home state), Rio Grande do Norte and Bahia. Queiros attributes some of the chain’s success in the country’s biggest metro area to an existing connection with many residents. “São Paulo has a greater population who comes
from the Northeast than of pure paulistas,” he said of those born in the city. “Paulistas still think they are the kings of Brazil. …We are going to remain on top for a long while,” Queiros boldly predicted. Pague Menos’ meteoric rise has not gone unnoticed. Queiros has confirmed that megaretailers like Carrefour and Pão de Açúcar, seeking to expand their drugstore business, have come courting. “The problem is that they want a lot for little money,” Queiros complained. Private-equity funds, which have invested in minority stakes in competitors like Droga Raia, were not well received, either. “I was not ready for that. People who only deal with money would start giving advice on my business — this is not good enough,” Queiros said. “But I would be pretty interested in doing business with someone who understands the pharmaceutical retailing business.”
“Paulistas still think they are the kings of Brazil. …We are going to remain on top for a long while,” Queiros boldly predicted. The local industry has already undergone some consolidation, as when Drogaria São Paulo acquired the Drogão chain last June. For now, Queiros is preparing to take the company public by October, if not sooner. Pague Menos intends to raise 1 billion reais in order to finance an aggressive expansion and modernization strategy. Queiros wants to use the funds to launch another 300 stores, including 50 online/ delivery centers; to modernize the existing ones; to set up a new distribution center in the south of the country; and to increase inventory to 15,000 items per store. With a significantly bigger network, he would apply his “pay less” ethos to both sides of the retail equation. “I want to be able to pay cash in order to get greater discounts from suppliers,” Queiros said. Future Pague Menos stores may be even more diverse: Queiros would like to introduce banking services in 2012.
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BRAVO FORUM
The Silent Evolution BY ALVARO URIBE VÉLEZ
These are not fantasies but an undeniable reality. We are a region of nearly 600 million people with a significant youth demographic, as seen in the median age of 27. We have a vibrant, enterprising and industrious middle class that accounts for about 62 percent of our population. Last, but not least, the average percapita income is close to $9,000. These various indicators do not exist in a vacuum and have been accompanied by incontrovertible social achievements. We have increased life expecBogota, Colombia tancy to age 75; reduced infant mortality by half; increased the reach of water networks to more than 80 percent in rural and urban areas; raised literacy rates above 95 percent; and expanded connectivity and public services. These achievements have not been attained by chance. On the contrary, they reflect an orderly progression in which the major economies of the region — such as Brazil, Mexico, Chile, Colombia, The major economies of the region — such Peru and Uruguay — have pledged without hesitation as Brazil, Mexico, Chile, Colombia, Peru to follow the commandand Uruguay — have pledged without hesitation to follow the commandments of ments of common sense. The consolidation of a true liberal common sense. democracy in which security, of global GDP thirty years ago to close to 46 individual freedoms, social cohesion, independent institutions and citizen participation percent today. Without a doubt, China and take precedence set the foundation of this India are behind that story. construction. But beyond the Dragon and the EleCreating an institutional opening for phant of the East, there is another great investment; realizing an inclusive and sustransformation that is often overlooked, the tainable social policy; expanding markets one that has taken place in Latin America. Not for nothing does Luis Alberto Moreno, with long-term, transparent agreements; implementing a public administration that is president of the Inter-American Developresults-oriented; providing macroeconomic ment Bank, predict that this will be the stability grounded in fiscal and monetary region’s decade. President Piñera of Chile, prudence; ensuring optimal anti-monopoly even more enthusiastic, proclaims that it oversight; building strategic infrastructure will be our century.
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with the private sector; creating vehicles to promote innovation; and monitoring a wellcapitalized financial system that adheres to the norms of modern capital markets: these form the structure of the transformation. Given the example set by the nations already mentioned, countries like Panama, Costa Rica, Guatemala, Salvador, Honduras, Dominican Republic, Paraguay, Belize and the Anglo-speaking Caribbean have opted to consolidate these values, leaving a sizeable minority to the statist intervention models that threaten and erode private initiative, affecting individual freedoms. The success factors today offer great opportunities. Latin America and the Caribbean, with 20 million square kilometers and 8 percent of the planet’s population, of which more than 75 percent live in urban areas, has 9 percent of oil reserves worldwide, 6 percent of the gas reserves, 50 percent of copper reserves, 26 percent of arable land, almost 25 percent of the supply of beef and the highest concentration of biodiversity on land. These are among the many factors for long-term sustainable investment. The region that was once perceived as an unstable place today is attractive, thanks to structural policies shaped by the example of countries that have opted for evolution and consensus on principles rather than for revolution and contempt for the private sector. This is the region that invites investment to stay.
Alvaro Uribe Vélez was president of Colombia from 2002 to 2010. He received a special BRAVO Business Award for Lifetime Achievement in 2010 and was named the BRAVO Leader of the Year in 2004 and in 2008.
BOGOTA, COLOMBIA: NEWSCOM
We live in a world in which emerging economies are the protagonists in the global transformation. According to statistical information the world’s population has increased by nearly 2.5 billion people over the last three decades. Over 90 percent of that growth has occurred in developing countries. This reality is more pronounced when one considers that emerging economies have gone from representing just over 30 percent
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TRADING VIEWS
Latin America: the Real Deal EVERYONE is talking about Latin America’s “new decade.” Discussions in economic forums, investors, multilateral banks and social development groups are focused on Latin America’s new star position — and with good reason. So far, we’ve seen only the tip of the iceberg when it comes to Latin America’s new era of growth, prosperity, poverty reduc-
Pabellón Altavista shopping center in Mexico City
tion and opportunity. Here are just some of the many reasons why the buzz about Latin America isn’t just buzz but the real deal. While the United States — and the rest of the world — saw their economies shrink as a result of the economic crisis, Latin America experienced steady growth. Because of its sound economic policies, fiscal responsibility and macroeconomic reforms over the past several years, most of the region proved that it could withstand the financial shocks plaguing the rest of the world. The region emerged from the crisis stronger than ever, with global recognition of its success and a newfound confidence that is evident in many forms. The success, however, was not overnight.
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It consisted of at least two decades of economic reform with a focus on creating stable macroeconomic environments and low inflation as well as rebuilding banking systems. The results are clear: In 2010, Peru saw 8.6 percent growth; Brazil, 7.7 percent; Uruguay, 9 percent; and Mexico and Chile, 5.3 percent. Uruguay, Colombia, Brazil and Peru are looking closely at OECD benchmarks like income inequality, inflation, labor reform and education. Strong economic growth, coupled with ambitious goals to build on recent successes, is just one example that Latin America is poised to see its best decade yet. Economic growth is not the only reason why this is Latin America’s decade. Social development in the region, specifically poverty-reduction programs, is some of the best in the world. Projects targeting poverty have resulted in a 16 percent drop in poverty since 1990, according to United Nations Economic Commission for Latin America and the Caribbean (ECLAC). Peru, Mexico, Chile and Colombia continue to usher in more citizens into the middle class and into the formal sector because of these programs, in turn fueling demand for goods and services that drives even more economic growth. In Brazil, popular income-transfer policies and the Bolsa Familia program brought 36 million people into the middle class and lifted 28 million out of extreme poverty. On the healthcare front, by providing subsidies for medicine and medical care to the poorest populations, Mexico’s Seguro Popular has provided vital care around the country. The affiliation rate is at about 1 million people per month currently. Just as importantly, economic growth and successful social development programs would not be successful were it not for a strong commitment to democratic values. Regular, free and fair elections are the norm in the majority of the region, and Latin Americans themselves have a positive attitude toward democratic systems and their
leaders. According to a study by the Latin American Public Opinion Project, 69.9 percent of those surveyed in 26 countries, including Haiti, voiced high support for democracy. In a majority of the 26 countries, more than half of the respondents feel proud of their political system. Furthermore, the majority of Latin Americans believe they are better off economically today than they were 12 months ago, a show of confidence in their countries’ leaders. Democratic institutions are the bedrock of any successful, stable society, and Latin America has come a long way in political reform. Even with all the success in Latin America, one cannot ignore the challenges it faces. The region still needs to address education, innovation, infrastructure, crime and diversification of exports, among other issues. However, developed countries — including the United States and Europe — all have their own issues. Latin America is not alone in its challenges, but I am optimistic that leaders in the region will continue to work toward finding solutions. I believe policymakers know the challenges ahead and are committed to improve quality of life for their citizens and to make their countries more globally competitive. Latin America’s era of prosperity is upon us. Its citizens are more optimistic than ever about their future and we should be too. The region is a proven bright spot in a time when recessions and economic instability have take center stage, and I believe it has far from reached its fullest potential.
Susan Segal is president and CEO of the Americas Society and the Council of the Americas.
MEXICO CITY: NEWSCOM / RUSSELL GORDON
BY SUSAN SEGAL
Š2011 Starwood Hotels & Resorts Worldwide, Inc. All rights reserved.
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COURTESY OF NATURE AIR ®
ENERGY
Costa Rica’s Challenge A pioneer in eco-tourism, the nation faces huge hurdles to going carbon-neutral, including the multi-billiondollar price tag. BY CHRISSIE LONG
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SAN JOSE — When then-president Oscar Arias announced in 2007 that he wanted Costa Rica to be the first in the developing world to go carbon-neutral in 14 years, that goal seemed like a stretch for a small, financially-troubled nation. Costa Rica was already on the leading edge of “being green,” having established a thriving market for ecotourism with its 3.2 million acres of protected park spaces and reserves. The country also had a leg up in environmentally conscious energy, as it has long derived more than 90 percent of its electricity from renewable sources. And one of its own — Christiana Figueres — would soon be named as head of the United Nations Climate Change initiative.
But Costa Rica was adding an estimated 200 cars to its roads every day and didn’t have the infrastructure in place to keep trash and wastewater out of its rivers and streams. “When Arias made the commitment to go carbon-neutral, he had no idea what it meant,” said Carolina Rodríguez, whose nonprofit Costa Rica Neutral helps companies lower carbon emissions. “It’s a lot more than planting a few trees and switching some light bulbs. It involves changing the very way we operate as a society, and, so far, Costa Rica hasn’t proved it can be flexible.” A study by the INCAE business school put the cost of going neutral at $7.8 billion, an amount the cash-
strapped country of 4.5 million people, with a ballooning $1.2 billion deficit, can ill afford. Costa Rica is further handicapped by the fact that most emissions, some 80 percent, are generated by the powerful transportation and agricultural sectors. Given the challenges, critics of Arias were right in that the pledge was less about emissions and more about public relations. His pronouncement came at a time when Costa Rica was losing ground in a variety of sectors to larger, more production-oriented countries. Between 1999 and 2009, the number of textile manufactures fell by 46 percent. Many fruit companies shifted their operations to other countries with lower costs. Coffee production sank by 45 percent over the same 10-year period. “Going carbon-neutral is a way for Costa Rica to differentiate itself,” said Roberto Jiménez, one of the early pioneers of carbon neutrality in Costa Rica and founder of CO2.cr. “The country can’t compete with the big boys [Argentina, Brazil and Mexico] on cost, so it needs to show it offers something else to the market.” Over the past three years, a number of private companies have signed on to the carbon-neutral pledge. Local airline Nature Air says it is the first carrier in the world to offset its emissions by helping to conserve a plot of 500 acres in the southwestern Osa Peninsula and by increasing fuel efficiency. Mapache, an independently owned car-rental agency, claims it has been able to mitigate its impact through the purchase of carbon-neutral credits. Earth University, an agricultural-sciences school on the Caribbean slope, said it emits 1,154 tons of carbon dioxide each year, but reforestation efforts more than offset its footprint, absorbing as much as 6,324 tons of emissions. The coffee cooperative CoopeDota R.L. — or Dota — has taken significant steps toward becoming the first carbon-
Walkers cross a stream in the rainforest in La Paz Costa Rica
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neutral producer, slicing emissions in half through such innovations as wastewater treatment and conversion of waste products to energy at its facilities, where it operates a wet mill, a roaster and a café. But the commitment has mainly been among the high-end, specialty producers that have something to gain, Jiménez said. “Consumers are not likely to buy carbon-neutral rice or sugar. It will be the coffee and the chocolates that benefit from the carbon-neutral branding,” he said. The plan has lacked coordinated leadership from the central government, said Juan Carlos Barahona, a professor at the INCAE business school who addressed the management challenges of carbon-neutral initiatives. One hurdle for the public and private sector: Costa Rica has not been releasing updated statistics about its carbon emissions. The last figure, which shows Costa Rica emitted 12 million tons of CO2 equivalent and absorbed 3.5 million tons, was calculated in 2005. “If we are going to move toward carbon neutrality, we need more transparent numbers, even if it shows Costa Rica in regression,” Barahona said. According to William Alpízar, director of climate change for the Costa Rican government, such studies are expensive. He expects the country to release the next benchmark in 2012. He admits advancements have been delayed, mostly due to the challenges in raising outside funds as a “middle class” country, the turnover in administration and costly national emergencies that divert funds that might otherwise go to carbon-neutrality initiatives. “Last year, the country spent $400 million repairing roads and bridges after the rainstorms,” Alpízar said. “The situation exposed us to how vulnerable Costa Rica is to climate change, both in its threat to our economy and infrastructure. It also underscored the importance of doing what we can to mitigate it.” Jiménez, who attended task force meetings with enthusiastic carbon-neutral entrepreneurs back in 2008, says much of the original excitement has faded. He said that, while carbon neutrality might be technically possible, it is economically challenging. “Politically?” he asked. “It’s impossible.” “There are too many politically powerful actors, such as leaders in the transportation industry, making any type of limit difficult to impose,” he said. However, Jimenez does see a silver lining. “Setting high aspirations has done one thing. It has made people think differently about the way they go about their daily lives.” INCAE’s Professor Barahona takes a more optimistic view. “Costa Rica was a pioneer in ecotourism,” he said. “To seek carbon neutrality is a natural next step. Costa Rica lacks many things to arrive at neutrality, but it has many of the ingredients.”
NEWSCOM / RICK DALEY
ENERGY
Join us April 14-15 Montevideo, Uruguay
Network with potential global services clients and partners; learn about current global trends; and identify new business opportunities.
The first Latin American and Caribbean Outsourcing and Offshoring Summit Space is limited. Register today at www.outsource2lac.com Speakers include: Antonio Gil, President, BRASSCOM | Gigi Virata, Executive Director, Business Processing Association of the Philippines | *Harsh Manglik, Chairman, NASSCOM | Bobby Varanasi, Head of Marketing & Branding, Outsourcing Malaysia Executive Committee | Warren Gallant, President & Founder, Sourcing Board | Gabriel T. Rozman, Executive VP, Global Delivery Network, Tata Consultancy Services | Michal Zálešák, Executive Director, Central and Eastern European Outsourcing Association * Speaker to be confirmed
FRANCHISING
Franch Good Times for
Strong local economies and greater consumer purchasing power, along with real-estate development trends, are fueling growth for franchised brands in a range of sectors. BY ANASTASIA MOLONEY AND MARY SUTTER
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FranchisesFRANCHISING — whether stand-alone operations or in shopping centers and airports — are proliferating in Latin America.
i ses
For our members, Brazil is number one.” — Scott Lehr, vice president, International Franchise Association
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FRANCHISING
BOGOTA — Real-estate company Century 21 ventured into the Colombian market with its first franchise in 2006. The times were changing — and the timing was right. “We could see the positive changes happening in Colombia about five years ago,” said Dennis Pysz, the head of operations for South America at Century 21. “The economy picking up; the stable political climate; and the increasing number of loan products, including mortgages available, were good reasons to be in Colombia.” Century 21 has since grown to 24 franchises in Colombia, with eight to 10 more planned for 2011. Other newcomers to the Colombia market over the same period include retailers Swarovski, Mango and Calvin Klein; service provider Mail Boxes Etc.; and quickservice restaurants, such as Subway. At the end of 2010, Colombia had as many as 400 franchised outlets, roughly half of which are foreign brands, up from an estimated 100 in 2002, according the American Group of Franchises, a franchise-consultancy firm based in Bogota. “About five years ago we saw the start of an important boom,” said Julio Seneor, head of the American Group of Franchises. “Unlike many other Latin American countries, Colombia has big populations living outside the capital. … That makes Colombia a very attractive place to set up franchises.” But Colombia is not the only market where franchising is on the rise. Activity has been accelerating around the region as national and international chains seek new, growing markets and local business owners and entrepreneurs look for opportunity with tested concepts. Strong, stable economies have produced more middle-class consumers who are enjoying greater purchasing power. Now that Colombia has emerged from years of instability and drug- and guerrilla-related violence, some industry experts say it is benefiting from investment that might otherwise have gone to Venezuela or Mexico. “Venezuela and Mexico are seen as risky places to expand franchises, and Colombia is reaping the rewards. People are now looking at option B and C in South America, and that includes Colombia,” said William Le Sante, head of Le Sante International, an international franchising consultant. Colombia boasts a population of 45 million, surpassing Argentina and making the Andean nation the second-largest market in South America.
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Economic prosperity also fuels real-estate development that in turn supports franchise development. The proliferation of shopping malls in and around Bogota was a key factor that prompted Spanish retail giant Inditex to expand its presence in Colombia. In addition, “Colombian customers are very fashionoriented,” a company spokesperson said. The group, with stores worldwide, began with its flagship Zara clothing store in 2007, later followed by the trendy, youth-oriented Bershka and Stradivarius stores. The more upscale boutique Massimo Dutti debuted in 2009. Industry consultant Seneor predicts that some 500 new franchises, both Colombian and foreign, will open in the country by year-end 2012. Those new to the market include the first Taco Bell (part of Yum! Brands), which opened in Bogota in November. Although quick-service restaurants and clothing chains from the United States and Spain dominate the foreign-franchise sector, Seneor sees future growth in Colombia in the health and beauty sector and in hotels. Colombia is already experiencing a surge of hotel development targeting the business and leisure markets in its cities and vacation destinations. Ribbon-cuttings in 2010 in the capital ranged from the elegant and luxurious JW Marriott to Accor’s budget-oriented ibis. As the Caribbean coastline draws more vacationers, local and foreign, construction continues. An InterContinental, a Holiday Inn, a Meliá and a Sheraton are among confirmed international-brand hotel projects in and around the city of Cartagena alone. Another franchise segment that benefits from business and vacation travel is car-rental agencies. Dollar Thrifty is close to announcing new franchisee agreements in Colombia, as well as in Ecuador, St. Lucia and Turks and Caicos, said Fernando Intriago, executive director, Caribbean & Latin America Operations, Dollar Thrifty Automotive Group. The countries “experiencing robust growth are Brazil, Panama and Costa Rica,” Intriago said. Restaurant/fast-food outlets and hotels historically lead the way in franchising, said Scott Lehr, vice president, U.S. and international development for the International Franchise Association. The Washington, D.C.-based group represents 1,200 franchise systems, most of them U.S. companies. Some 70 percent already have operations outside the United States, he said, and foreign operations are increasing. “Given what happened in the United States’
FRANCHISING
Brazil Takes Off
BRAZIL’S FRANCHISING BOOM REVENUE
FRANCHISES
R$ 80 1700 R$ 60
1500 1300
R$ 40
1100 R$ 20 900 R$ 0
700 2005
2006
2007
2008
NUMBER OF FRANCHISES
The sheer size of Brazil means huge potential. And Brazil wants a bigger franchise market, Lehr said. He noted that he met with visiting Brazilian government officials in Washington last year, whose members asked him, “What can we do to make it easier for U.S. brands to invest in Brazil?” The Brazilian franchise sector is already booming, largely on the strength of local brands. Some 92 percent of the franchises operating in Brazil are Brazilian — up from 80 percent in 2009, said Ricardo Camargo, president of the Brazilian Franchise Association (ABF). “Brazilian companies kept growing, and the foreign companies didn’t come as we expected,” Camargo explained. “One of the inhibiting things for foreign franchises is that interest rates, although they have fallen, are still high. High interest rates and taxes make it hard to start a business here.” The sector nonetheless grew to 1,643 franchises in 2009, a 19 percent increase from 2008 and a 70 percent increase from 2005, according to data from ABF. Total revenue in the sector reached 63.1 billion reais (US$36.2 billion) in 2009, an increase of 14.7 percent from 2008 and a 76.2 percent increase from 2005. Camargo estimates the sector grew by double-digits in 2010 and will see similar growth this year. Behind those numbers are several factors, Camargo said. Credit is still widely available. More Brazilian women hold jobs now, and they are the ones splashing out on food and drink, clothes, accessories and health and beauty, precisely the areas that are among the fastest-growing for franchises. Offering advanced beauty treatments like Botox injections, Onodera is a chain of 53 locations across Brazil. “We’ve expanded at between 25 and 30 percent over the three years,” company head Lucy Onodera said. The firm started in Sao Paulo in 1981 and in 2000 began to expand through franchising. “We think it will be the same this year.” The initial investment in an Onodera franchise is 340,000 reais (about US$203,000), which includes equipment. As in other franchise sectors, franchisees undergo extensive training before they can open shop.
The nature of Onodera’s services requires rigorous quality control. The main office routinely sends undercover clients to evaluate the franchisees’ performances. The company operates a unit dedicated to testing products before introducing them to the chain. “We’ve been here for a long time and were one of the first people to do what we do, so we have a good structure in place,” Onodera said. Future expansion will largely be realized outside Sao Paulo, where Onodera believes the chain is reaching its limit. “There are many other areas, such as Rio de Janeiro, Minas Gerais and the Northeast, where there is plenty space to grow,” she said. “Brazil is going through a great period economically, and we want to take advantage of that.”
REVENUE IN BILLIONS OF REAIS
economy over the last three to four years, U.S. brands have been looking to international markets for more opportunity,” Lehr said. “And for our members, Brazil is number one.”
2009
Source: Brazilian Franchise Association (ABF)
While Onodera caters to an affluent clientele, most franchise brands target a broader customer base. And in Brazil, social mobility is positive for franchises at large. “This year, around 45 percent of Brazilians will be in the Class C and that should rise to around 50 percent,” said Camargo, of the Brazilian Franchise Association. “These people have more money, and they are earning at above inflationary rates. …They have money to spend at franchises.” In addition to being consumers, the Class C has its own would-be entrepreneurs who are drawn to an emerging sub-sector called the micro franchise, Camargo said. These small businesses demand a smaller investment — of up to 50,000 reais — and range from after-school tutoring to dog walking, gardening and
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FRANCHISING
small-appliance repair. He noted that Brazilians still eat out less frequently than in other developing nations, so he believes the food sector will continue to grow. However, he noted that the segment is broadening and diversifying. “It’s not just pizzas and hamburgers and pasta,” Camargo said. “Now it’s Asian food and healthy sandwiches and yogurt.” The growth of the middle classes in Latin America is bringing more customers to Yum! stores, said Frederic Levacher, general manager for Latin America and the Caribbean at Yum! Brands, the corporate parent of 1,700 franchised restaurants — 900 KFC, 700 Pizza Huts and 100 Taco Bells — throughout the region. The company has a presence in all major markets in the region except Argentina and Bolivia. Crucial factors to the success of quick-service restaurants in any market are value and affordability, Levacher said. “We cover every level of the socio-economic spectrum,” Levacher said. “At a Pizza Hut in Central America, you can go out to lunch for about $5 — with a pizza, a salad and a drink, for instance — and you can also enjoy a full casual-dining experience in the same restaurant.” Its youngest brand in Latin America, Mexicaninspired Taco Bell, serves a range of inexpensive items and can draw customers for a snack, lunch or bigger meal, he added. To date, Yum! has had a limited presence in Colombia and Brazil, a situation likely to change. “There is obvious momentum in those markets. We are looking at our footprint,” Levacher said. In Brazil, “we only have about a hundred stores compared to the potential there. We are only on the ground floor of growth.” Education, including language schools, is another fast-growing segment in Brazil, Camargo said. He attributes the increase in demand for language skills to the hosting duties of the World Cup in 2014 and Rio Olympics in 2016 and “as the country becomes more international in its outlook.” Brazil anticipates that thousands of international visitors will come for those events. The country’s national business-travel and tourism markets are also growing, with hotels and other services springing up around the country. “We expect Brazil to continue its fast-pace growth for years to come, alongside the overall investment and development the entire country is experiencing,” Dollar Thrifty’s Intriago said. Bolstering the overall franchise market in Brazil is the ongoing construction of modern shopping malls
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that create locations for franchises and bring in potential customers. Most franchises are located in shopping centers and lots of new shopping centers are being built in Brazil, Camargo said. And not just in Brazil.
Peru: Strong Growth “The shopping-mall construction boom over the past five years has been key to the proliferation of franchises in Peru,” said Javier Bustamante, general manager of Starbucks Coffee in Peru, a subsidiary of Delosi S.A, the country’s largest international fast-food franchise operator that runs a handful of U.S. franchises in Peru, including KFC, Burger King, Pizza Hut, Pink Berry and Chili’s Grill & Bar. “Franchises, including our own, are taking advantage of the shopping malls that are sprouting up throughout various points inside and outside of Lima.” The fact that Peru still has one of the region’s lowest shopping-mall ratios per capita, with a little over two dozen malls in the entire country — versus about 100 in Argentina and well over 60 in Chile — shows that there is still a “tremendous opportunity” to expand retail businesses via franchising, particularly those related to food and clothes, Bustamante said, noting that Delosi has aggressive expansion plans for all its brands. Food franchises were the first to enter the Peruvian market and still remain the dominant franchise business in the country, comprising close to 80 percent of the total registered franchises. Clearly, Peru’s booming economy and growing middle class represents a good business opportunity not only for international franchises looking to expand but also for local franchises wanting to grow their businesses locally and internationally, notes Arnold Wu, general manager of Pardo’s Chicken, one the country’s first local franchises and one of the first to cross the border. “Franchises are a good option if you want to reduce your capital expenses yet continue to grow,” said Wu, who owns and runs the rotisserie chicken casual-dining establishment. “We were able to create a leading restaurant chain in Lima through franchises.” Over the next four years, Wu expects to more than double the total number of Pardo’s Chicken estalishments from 22 to 50 through franchises and ownedand-operated locations. Pardo’s already has a presence in Chile and in the United States in Miami, a city it plans to use as a launching pad for entering other U.S. markets.
FRANCHISING
Latin American brands have made the leap into the United States and elsewhere. Mexico’s Sushi Itto has established restaurants in Spain, Central America and the United States. The Guatemalan fried-chicken restaurant Pollo Campero is a successful global chain and has an outlet in Shanghai. But Deloisi’s Bustamente sees plenty of potential business at home in Peru, in the capital and in the provinces. “Peru’s franchise business is still virgin— there still exist many investment opportunities,” he asserted.
Mexico: Mature Market Mexico is a more mature franchise market, but the secondary cities and towns may present the opportunities for growth. More than half of the population lives outside the metropolitan areas of Mexico City, Guadalajara and Monterrey, yet fewer than 20 percent of Meixco’s franchise outlets are in those areas, said lawyer Eduardo Poblete, whose firm, Poblete & Cabrera Asociados in Mexico City, specializes in franchising. Companies — foreign and domestic — are currently franchising approximately 1,400 brands in Mexico and the industry represents 6 percent of GDP, Poblete said. The most recent report from the U.S. Commercial Service calculated an 8-percent increase in franchising in Mexico in 2009 — an impressive rate given the severe downturn that year. The report further projected that the industry would register 10 percent growth in 2010. However, some local executives express caution about the future. Costs have increased and prices are failing to keep pace, diminishing profit margins, said Jorge Aguilar, president of Holding del Golfo, which owns and operates KFC, Pizza Hut and Applebee’s restaurants, Blockbuster video stores and Dairy Queen ice-cream shops across a region that stretches from Chiapas to the Gulf Coast to Mexico City. Piracy and a lack of brand protection also concern the industry veteran who opened his first franchise, a KFC outlet in the southern state of Tabasco, two decades ago, as does saturation in some cities. “It’s no longer the case that there’s a phenomenon of a [foreign] brand arriving and opening 100, 200 or 400 stores,” Aguilar said.
The federal government has aimed to foster the sector. In 2007, the Economy Secretariat launched the National Franchise Program, which provides loans interest-free for up to three years for franchisees. Even the recession spurred interest in franchises as laid-off workers who had received severance packages looked to open their own businesses, said Dan Liberman, director general of MBE Mexico. MBE (Mail Boxes Etc.), which provides mail, packaging and copying services, has grown to 52 outlets since entering Mexico in 2004. “Mexico has always been a strategic market for U.S. brands,” said Lehr, of the International Franchise Association. “Historically it has been the first country [in Latin America] for U.S. brands.” A perfect example is CKE Restaurants, the U.S.based franchisor of the Hardee’s, Carl’s Jr., La Salsa and Green Burrito chains. The company entered the Mexican market about 18 years ago and today has 128 franchised restaurants there. “We had real dramatic growth over the last five years when we opened 15 to 20 restaurants per year,” said Ned Lyerly, executive vice president, Global Franchise Development, at CKE. And excellent results. “Our free-standing stores have higher volume and higher comparable sales versus our U.S. restaurants.” CKE is now entering a new era. It has franchise deals in place or signed letters of intent for five new Latin American markets: Brazil, Ecuador, Costa Rica, Panama and the Dominican Republic. Of the 55 restaurants in the CKE international pipeline this year, more than half are in Latin America. “Our company is channeling more resources into the international arena,” Lyerly said. “Last year, we established a Latin American business office in Miami dedicated to developing our brands in Latin America.” Finding the right business partner is crucial. “Franchisees need business acumen and the local capacity to secure capital and real estate,” he said. Despite the push into these new markets, CKE believes it can double its presence in Mexico, its first Latin American market. “We view the development potential of more than 300 restaurants,” Lyerly said. “We still have a long way to go.”
Peru’s franchise business is still virgin.” — Javier Bustamante, general manager of Starbucks Coffee in Peru
David Agren in Mexico City, Andrew Downie in São Paulo and Lisa K. Wing in Lima contributed to this report.
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COUNTRY REPORT
FERNANDO BIZERRA JR/EFE/NEWSCOM
Brazilian President Dilma Rousseff
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COUNTRY REPORT
Brazil:
Latin America’s Superpower Brazil comes into its own. Despite a wide range of challenges, local and foreign executives are bullish about the country’s business outlook. And new President Dilma Rousseff is getting high marks thus far. BY JOACHIM BAMRUD
When Luiz Inácio Lula da Silva left Brazil’s presidency in January he did so with a record 83 percent approval rating. His eight-year administration had generally received high marks from local and foreign investors. His successor, Dilma Rousseff, may become even more popular among business executives. “President Rousseff has demonstrated, in her short period in office, that she will be undertaking some complex and somewhat unpopular reforms to support Brazil´s continuous growth,” said Pablo Di Si, CFO of Fiat Auto Latin America. Inflation appears to be a top priority, while Rousseff is also working to limit the minimum wage to 545 reais ($326) per month and to cut 50 billion reais ($30 billion) from the federal budget, he points out. “These decisions are a clear shift in policy making, compared to her predecessor, President Lula, and a means to start reducing inflationary pressures and improve the quality of government spending,” Di Si argued.
Rodrigo Abreu, Brazil country manager for U.S.-based Cisco Systems (the world’s largest provider of networking equipment), is also cheering. “First signs are encouraging,” he said. “It should not be taken [lightly] that the president, on the first day of [her] mandate, announced that the passenger infrastructure at major airports will likely be privatized. One would probably not [have expected] that in the past, and it is a clear sign of change and understanding that some things need the speed and agility and entrepreneurial capacity of the private sector, in collaboration with policy and regulatory support from the public sector.” Some skeptics are less leery. “I’m not as worried as I was [before Rousseff assumed office in January],” said John Welch, New Yorkbased Emerging Markets Strategist and Managing Director at Australian investment bank Macquarie Capital. He praises Rousseff ’s budget cuts and the plans to privatize some airport operations. “I’m still skeptical but encouraged by the little steps we’re seeing.”
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COUNTRY REPORT
The Race to the Finish Line After years of widespread complaints about its infrastructure, Brazil is forced to make significant improvements.
A
nand Hemnani, the São Paulo-based senior vice president of consultancy CG/LA Infrastructure, has seen no progress since he wrote a paper two years ago arguing for 10 infrastructure projects that needed to be implemented. “None of them have moved forward,” he said. Number five on his list? Modernization of Guarulhos airport in São Paulo and the Galeão — Antonio Carlos Jobim International Airport in Rio de Janeiro. The problem with that lack of progress is that the clock is ticking: Brazilian authorities need to prepare over the next five years for two of the world’s top sporting events, the 2014 FIFA World Cup in soccer and the 2016 Olympics. “We don’t have a lot time,” Hemnani warned. Infraero, the government entity in charge of airports, is widely criticized for being inefficient and unable to deal with a surge in passenger and cargo traffic in recent years. São Paulo airport was ranked as the worst among 26 airports in Latin America for business travelers in the latest Latin Trade reader survey. “We cannot imagine an event the size of a World Cup or Olympics with our current airports or transportation networks,” said Rodrigo Abreu, Brazil country manager for Cisco Systems. Pablo Di Si, the CFO of Fiat Latin America, concurs. “There is no doubt that airport, transportation and hotel availability deficiencies are concerns that need to be addressed right away to better prepare the country to host these major sporting events,” he said. The federal government needs to work alongside private companies to address infrastructure bottlenecks, Di Si argues. So can Brazil meet the deadline? “They will pull it off,” predicted John Welch, New Yorkbased Emerging Markets Strategist and Managing Director at Australian investment bank Macquarie Capital. But “will they pull it off well?” he asked. “Certainly the infrastructure is awful, roads are bad, stadiums are bad, airports are a problem. [But] in the end, you have a World Cup that adds business.” Brazilian media have reported plans by President Dilma Rousseff to award concessions for aiport terminals at Guarulhos and Viracopos airport in Campinas in the state of São Paulo. However, infrastructure consultant Hemnani says that there is simply not enough time for such a solution before the World Cup. The tournament matches will be held in 12 cities around Brazil. “If you concession at this stage of the game, you are too late,” he said. “You have to run a competitive bid, streamline [rules for appeals by the losers and] negotiate environmental permits.”
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He argues that the only option is to improve Infraero by capitalizing on it through the capital markets, like state oil company Petrobras has done. Infraero will be able to green-light all permit issues, he said. “We can get airports built along a private turnkey project,” Hemnani said. Cisco System’s Abreu asserts that Brazil will ready itself through several major sporting events scheduled before the 2014 World Cup. They include the Military World Games in Rio de Janeiro in July of this year, in which more than 6,000 athletes will participate, and the June 2013 FIFA Confederation Cup, a prelude tournament to the World Cup. “I believe [these] games will be a great driver for development, as they bring with them something that always prompts us to execute well: a deadline,” Abreu said. “The games call for a very tight execution of investments, as they cannot wait for delays. In itself, this helps to focus our ability to deliver projects, regulatory changes, political alignment and other requisites that otherwise could take too long to happen.” Beyond the challenge of the airports being able to handle the expected boom in passengers in 2014 and 2016, Brazil’s sea ports, roads and railway network are all in poor shape. Given Rousseff’s plans to cut 50 billion reals ($30 billion) from the federal budget, Hemnani expects public-infrastructure investments to suffer. “Brazil doesn’t allow you to cut staff, so you have to curtail investments,” he said. Highways will suffer most, while railways will likely see some improvements, but at a slower pace than hoped for, Hemnani predicts. “One of the constraints we’re going to see is a reduction in the speed that rail and highways are being built by the federal government,” he said. “I don’t think the government will move forward with private concessions.” Brazil’s 14 private port terminals will likely continue to invest even if the state sector doesn’t follow through with its promised share. Welch thinks that liberalizing Brazil’s trade system, which discriminates against imports and favors local manufacturing, could help boost infrastructure. “If you open up trade … that will force even more [of] a push for infrastructure,” he asserted. Hemnani disagrees. “I have yet to see a direct correlation,” he said. “It’s more about permits and capital markets and trade per se.” In the meantime, the clock keeps ticking towards June 2014, when the World Cup starts.
—Joachim Bamrud
ADVERTORIAL
Welch believes the new president will move toward more deregulation, despite opposition within the ruling Workers Party (PT). “There’s a romanticism of the 1970s’ [protectionist policies] that PT has even though it’s a failed model,” he said. He praises some of Rousseff ’s key appointments, such as Alexandre Tombini as Brazil’s central bank president. “He’s tough [and] a very competent guy,” he said. He singles out Antonio Palocci, who served as Lula’s first finance minister, for the key role he plays as chief of staff. Palocci had been a highly regarded minister until he was forced to resign in a corruption scandal. There is also growing hope that Rousseff will reform Brazil’s infamous tax system. “I firmly believe that economic policy will be maintained and that President [Rousseff ] will make the necessary corrections so far not implemented [such as] the tax reform,” said Miguel Dau, the chief operating officer of Azul Linhas Aéreas Brasileiras, the national low-cost carrier formed in 2008 by JetBlue founder David Neeleman. “I also [believe] the current government will be more committed to the necessary measures to maintain growth, controlling inflation and reducing poverty in our country. We will have a government that will focus on results.” Welch is also changing his tune on prospects for tax reform, which he had seen as unlikely before Rousseff became president. Now he says: “She may do it.”
BELINDIA, INGANA OR SIMPLY BRAZIL? For decades, Brazil was often nicknamed “Belindia” — a phrase coined by economist Edmar Bacha in the 1970s to describe a country that had an upper class similar in size to that of Belgium and a poor mass similar to that of India. Bacha thinks the term is outdated and supports a new phrase by another local economist, Delfim Netto: “Ingana” — a country with the taxes of the United Kingdom (“Inglaterra” in Portuguese) and the public services of Ghana (“Gana” in Portuguese). Independent of whether you call it Belindia, Ingana or Brazil, the South American country has seen enormous progress over the past decade and is now not only Latin America’s undisputed economic super-
power but also a global powerhouse. The $1.9 trillion economy accounts for 41 percent of Latin America’s total GDP. It surpassed Mexico’s economy in 2005 (after lagging for four years). But while Brazil’s economy was just 4.8 percent larger that Mexico’s in 2005, it was twice as big — 101.5 percent — last year. Brazil replaced France as the world’s fifthlargest economy, as measured by GDP in 2010, according to the investment banking firm Goldman Sachs. PricewaterhouseCoopers (PwC) predicts that Brazil’s GDP, expressed in terms of purchasing power parity, will pass that of Germany in 2025 and Japan in 2039. By 2050, the advisory and consulting firm calculates that Brazil will be the fourth-largest economy in the world, behind China, India and the United States. PwC also projects that São Paulo — Brazil’s top business hub — will become the sixth-largest city economy in 2025 behind Tokyo, New York, Los Angeles, London and Chicago. That compares with its rank as the 10th-largest in 2008. Gone are the days of missed opportunities and jokes about being the country of the future. “I think we always dreamed about it,” said Rodolpho Cardenuto, a Brazilian native who runs the Latin America division of Germany-based SAP, the world’s largest business-software company. “We always said Brazil was the country of the future, but the future never came.” Local business executives and economists credit the reforms and policies implemented by former presidents Lula (2003-2011) and Fernando Henrique Cardoso (1995-2003). In fact, some trace the start of Brazil’s recent success to the 1994 Real Plan introduced by Cardoso in 1994 when he was finance minister. The plan, which counts the economist Bracha as one of its architects, managed to successfully reduce high inflation — an issue for years — with stable and low rates through restrictive fiscal and monetary policies and the introduction of a new currency, the real. “I was not surprised by the good result of the economy over the last decade,” airline executive Dau said. “The success of the last decade was made possible by maintaining an economic policy adopted in 1994, when the ‘Plano Real’ was implemented.”
Luxury Hotel Market
B
razil’s luxury hotel market is underserved, according to Ricardo Suarez, vice president, Acquisitions and Development Latin America Starwood Hotels & Resorts. “Strong economic growth has resulted in increased leisure and business travel,” he said. “But there is still a large gap in the quality of Brazil’s hotels relative to other markets in the region.” Currently, more than 80 percent of the nation’s existing room supply is in the three-star/ limited service segment, Suarez said. “Given the growth of Brazil’s middle class and general prosperity, there is room for improved lodging product in many cities across the country.” Brazil’s domestic travelers and foreign visitors are increasingly focused on technology, attractive facilities, and the consistency and reliability of service provided by world-class brands, he added. Suarez expects a flurry of hotel development leading up to the 2014 FIFA World Cup and 2016 Summer Olympics. “Brazil is front and center in Starwood’s global growth strategy,” he added. “We’ve been in the country for nearly 40 years and will continue to build on our long history with new developments.” Starwood brands like Westin, Four Points by Sheraton, and Le Meridien are well known in Brazil, Suarez said. “But we see immediate potential for exciting brands like W, Aloft, and Westin in various markets, and are now negotiating several unique projects.” In 2011, Starwood will be opening six new hotels in Latin America, reaching nearly 70 hotels in 13 countries by year’s end. That includes four new Westin properties in Peru, Panama, Costa Rica and Mexico, the Aloft Bogota Airport in Colombia and Villarica Park Lake Hotel & Spa, a Luxury Collection hotel in Chile.
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How Brazil Compares Although Brazil dominates Latin America’s economy, it lags all or many of its neighbors when it comes to factors such as tax and labor climate, tourism impact and globalization, according to the benchmarking indexes from Latin Business Chronicle, the Latin Trade Group digital publication with market intelligence on Latin American business.
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BUSINESS ENVIRONMENT: Brazil ranks 7th in Latin America (Panama is No. 1). GLOBALIZATION: Latin America’s second-least globalized economy after Venezuela (Panama ranks as most global). INFRASTRUCTURE: Brazil ranks 13th in Latin America on the transport infrastructure subindex (Chile is No. 1). LABOR ENVIRONMENT: Brazil ranks fourth worst in Latin America (Chile is ranked the best).
> TAX ENVIRONMENT: Brazil ranks as the worst country in Latin America (Chile is ranked the best).
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TOURISM IMPACT: Brazil ranks last in Latin America for the impact of foreign tourism on its economy (Uruguay ranks first). SECURITY: Brazil ranks as the seventh most dangerous country in Latin America for multinational executives (Costa Rica is ranked the safest). TECHNOLOGY LEVEL: Brazil ranks fifth in Latin America in overall technology penetration levels (Uruguay ranks first). Sources: Latin Business Index 2010, Latin Globalization Index 2010, Latin Infrastructure Index 2010, Latin Labor Index 2010, Latin Security Index 2011, Latin Tax Index 2010, Latin Technology Index 2010. All indexes, except the Latin Security Index, are from Latin Business Chronicle, a unit of the Latin Trade Group. The Latin Security Index is developed by FTI Consulting for Latin Business Chronicle.
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Cisco System’s Abreu agrees. “Brazil moved away from having successes based on conjunctures, to enter a development phase based on structural conditions, in a process that started in fact some 15 or 16 years back, when we achieved economic stability to begin with,” he said. Cardoso implemented further economic reforms, including liberalization of the economy and major privatizations, like of mining company CVRD, now Vale, and the telecom sector. Lula subsequently added several social programs, such as Bolsa Familia, which provides financial aid to poor families if their children attend school and are vaccinated. “Former President Lula instituted wise government programs combined with real wage gains for most social classes, which led to strong GDP growth among all business sectors,” Fiat’s Di Si said. “Additionally, the increased availability of credit has allowed new consumers to enjoy financed products such as housing and longer-term automobile credit.” Last year, Brazil’s economy grew by 7.5 percent, its best result in 25 years. During Lula’s eight years in office, the economy grew an average of 4.1 percent annually. That compares with an annual average of 2.3 percent the previous eight years, according to a Latin Trade analysis of International Monetary Fund data. Meanwhile, foreign direct investment exploded. Last year it reached a record $48.5 billion, an 86.8 percent increase from 2009, which was marred by the global crisis. Even when 2009 is included in a five-year overview, the results are impressive. From 2005 through 2010, Brazil received a yearly average of $34.6 billion in FDI. That’s almost twice as much as the $19.2 billion average in the previous fiveyear period, according to data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). In addition to impressive economic growth, Brazil has succeeded at significantly reducing poverty and expanding its middle class. “If you think about the number of people who were economically included in our middle class in the last five years, we are talking about the emergence of a consumer group the size of Spain, over 40 million people,” said Abreu, of Cisco Systems. “These people are starting to consume goods and services which were unthinkable to them before — consumer durables, varied foods, entertainment, communications, you name it. We are not yet at the end of this process, and likely there is more to come.” The emergence of that middle class — referred to as Class “C” in Brazil — has been responsible for the current growth of the economy and allowed Brazil to overcome the recent financial crisis, Dau argues. “It is a reality in our country, [but] many companies [still] do not know how to deal with it,” he said. While the global economy shrank by 0.6 percent in 2009, Brazil’s GDP fell by 0.2 percent. “[When] we had the debacle of the financial crisis in 2008 and 2009, with Lehman Brothers and the domino effect, what happened in Brazil? Nothing,” said Cardenuto, of SAP. “You had a strong financial system.” In 2009 Brazil became a net lender to the IMF, contributing $10 billion in a move partly aimed at boosting its influence. That marked a stark contrast to 1999 and 2002, when the IMF provided massive credits to the South American nation. Lula also successfully lobbied for the 2016 Olympics, which
RIKA/NEWSCOM
COUNTRY REPORT
COUNTRY REPORT
will be held in Rio de Janeiro, marking the first Olympics for South America and only the second in Latin America since Mexico City hosted the 1968 games. Brazil recorded a series of other milestones in recent years, including the $70 billion sale of shares (the world’s largest stock sale ever) in state oil company Petrobras in September 2010 and massive oil discoveries in the Tupi area offshore (the biggest discovery of oil reserves in the Western hemisphere in 30 years).
WORLD CLASS Cardenuto, who lives in the United States, is impressed by the changes in his home country over the past decade. But what has most made an impression is not the economic boom but the change in the business environment. “The things we are doing with Vale, Petrobras, Pão de Açúcar, Votorantim,” he said, mentioning some of Brazil’s top companies. Vale is the world’s largest iron-ore producer, while Petrobras ranks as Latin America’s largest company in terms of revenues, profits and market capitalization. And much of the growth today is spearheaded by Brazilian executives. Before, “we had to import people to run the companies,” Cardenuto said. “Now I talk to these companies, I visit these companies, and every single
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company [has] Brazilians running all divisions.” Today, Brazilians are also running global companies such as Belgiumbased AB InBev, the world’s largest brewer, and U.S.-based Burger King, the world’s second-largest fast-food chain. Brazil has also become a leading global market for everything from cars to wireless phones and PCs. Brazil ranks as the fourth-largest market worldwide for auto sales. The market will likely grow from 3 million vehicles in 2009 to 4.4 million by 2018, according to Oliver Harmann, chief financial officer of the VW Group Latin America. The German auto giant is investing 2.3 billion euros ($3.1 billion) during the next four years to expand production capacity in the South American country. Brazil currently ranks as the sixth-largest PC market but will likely reach fourth place in the next two years, according to Roberto Palmaka, a Brazilian native who is senior finance director for Latin America for U.S.-based Microsoft. In terms of wireless phones, it now ranks among the top six markets worldwide.
BENEFITS Brazil’s main attraction for foreign companies, of course, is its sheer size. But Brazilian executives emphasize that Brazil offers many other advantages.
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Nicaragua . . . . . . . . . . . . . .505-2255-7981 Panama . . . . . . . . . . . . . . . . .507-204-9555 Puerto Rico . . . . . . . . . . . . . .787-253-2525 Uruguay . . . . . . . . . . . . . . . . . . .0800-8278
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COUNTRY REPORT
THE MACRO NUMBERS GDP and inflation in Brazil GDP
8%
INFLATION
That’s the highest number in Latin America (six times 6% higher than the regional aver5% age) and the worst among 149 countries worldwide analyzed 4% by Latin Business Chronicle. 3% “One of the main chal2% lenges is the different states 1% have different tax regulations,” said Nabil Malouli, Regional 0% Trade Lane Manager for Latin -1% America-North Asia Pacific 2007 2008 2009 2010 2011 for German logistics provider DHL. The process has comSources: IMF, Central Bank of Brazil, Latin Business Chronicle plexities inherent to the country’s bureaucratic processes and diverse regional regulations, he said. “We have seen in the market that this complexity represents a “We have some strengths that are unique to Brazil, [and] once we roadblock for some companies at the time they plan an expansion start leveraging those strengths, we can start growing at China-like to enter the Brazilian market,” Malouli said. “One of our custom[rates],” Cardenuto said. In addition to the large GDP and population, Brazil offers improving ers who bought a company in the northeast of Brazil is facing [the] challenge [of ] understanding the different tax regulation GDP per capita, relatively low external dependency and a large internal [processes] as they are operating in different states.” consumer market, a large landmass, vast natural resources, energy selfThe appreciation of the real and rising inflation have helped sufficiency, ample renewable energy sources, good demographics (young propel living costs. São Paulo is now the most expensive city in the and active and almost 90 percent urban), political stability, macro-ecoAmericas for multinational executives, according to the latest cost of nomic stability, good foreign reserves, no territorial or religious conflicts living survey from Mercer. São Paulo is more expensive than New and a multicultural society, Abreu said. “Wow,” he said. “Talk about York and cities like Rome; Bern, Switzerland; Sydney; and Vienna, positive structural conditions.” Austria. Brazil’s political environment is in many ways less divisive than the Education and public-sector efficiency are also major challenges. United States, with a large centrist consensus on the need for some gov“I see the key issues we still have to face in the long term as being ernment role in the economy, Cardenuto points out. “Brazil is much less the improvement of our education system, being more efficient in polarized than the United States [and] less dogmatic,” he said. both the private and mainly the public sector and all of its services,” Brazil’s car industry is 100 percent hybrid. “Any car in Brazil can run Abreu said. on ethanol and gasoline,” Cardenuto said. “They have today the most green and recyclable fleet in the world.” 7%
CHALLENGES However, for all its progress, Brazil still is hurt by a number of factors that curtail economic growth, both business executives and economists argue. “Inflation, a high tax burden and an appreciated currency are some of the factors that need to be addressed appropriately to maintain the country’s strong GDP growth of 4 to 5 percent per year and its strong manufacturer industrial base,” Di Si said. Brazil’s tax environment is the worst in Latin America, according to the Latin Tax Index from Latin Business Chronicle. The index measures the overall tax climate in a country by looking at four factors: corporate tax rates, tax rates as a percent of profits and the number of payments and hours spent to pay taxes yearly. Brazil requires a whopping 2,600 hours (or 108 days) to pay taxes per year, according to The World Bank.
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Brazil Fast Facts > > > > > >
Population:
193.3 million
GDP:
$1,910.5 trillion (2010 estimate)
Currency:
Real
GDP Growth:
7.5% (2010)
Inflation:
5.9% (2010)
Exports: > Imports:
$201.9 billion (2010) $181.6 billion (2010)
Sources: Central Bank of Brazil, International Monetary Fund, Population Reference Bureau, Latin Business Chronicle
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COUNTRY REPORT Another major concern among foreign investors is that Brazil is still seen as a closed economy when it comes to promoting twoway trade. “It’s still a very protectionist economy,” said Welch, of Macquarie Capital. Unlike Mexico, which started opening up its economy in the 1990s as part of the North American Free Trade Agreement, Brazil typically punishes imports to promote local manufacturing. “It means Brazilians pay 40 percent more for cars than most others,” Welch said. Despite recent years’ growth in two-way trade, especially in exports to China, Brazil still lags Mexico when it comes to overall commerce. Despite having a GDP twice the size of Mexico’s, Brazil’s total trade is 30 percent lower, according to a Latin Trade analysis of trade data for 2008 and 2009. In fact, when measured as a percent of its total GDP, Brazil has the lowest trade rates in Latin America. Its exports are the equivalent of only 12.8 percent of its economy, while imports account for 13.3 percent, according to 2009 data. As a result, Brazil ranks as the second-least globalized economy in Latin America after Venezuela, according to the 2010 Latin Globalization Index from Latin Business Chronicle. There has also been some growing concern about the state role in the economy. During Lula’s second term as president, officials increased their push for a greater state role in the economy and talked about reviving Telebras, the state telecom that was privatized by Cardoso in 1998. Meanwhile, the government boosted its stake in Petrobras from 40 to 48 percent as part of the company’s share sale last fall — a move that some analysts like Welch call a “behind-
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the-scenes renationalization.” “The expansion of the size of the government … has definitely crowded a bigger private-sector role,” Welch said. Recent legislation, such as the “Buy Brazil Act,” mandates a preference for Brazilian firms or goods produced in Brazil in government procurement, according to Marcus Freitas, a professor of law and international relations at Fundação Armando Alvares Penteado in São Paulo and expert advisor to consultancy Frontier Strategy Group. The Federal Administration expects foreign companies interested in the Brazilian public-procurement market to establish a presence and invest directly in the country, he points out.
OUTLOOK Brazil’s GDP will likely expand by 6.5 percent this year, estimates U.S.-based investment bank BCP Securities. FDI will likely reach $45 billion, Brazil’s Central Bank estimates. “Brazil has established itself as a serious political and economic reality,” Fiat’s Di Si said. “Credit availability, upward movement of social classes and infrastructure projects already under way will be strong drivers in the future growth of the economy. “ Brazil’s economy is expected to grow an average of 4.2 percent in the five-year period of 2011-15, according to a Latin Trade analysis of IMF projections. That compares with 2.8 percent in the United States and 1.7 percent in the Euro area. Said SAP’s Cardenuto: “I am strongly optimistic about the future of Brazil.”
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From policymakers and ratings agencies to entities like the World Economic Forum, the consensus is building that this will be “Latin America’s Decade.” BY JOACHIM BAMRUD
Despite a long history of boom and busts, Latin America is increasingly looking like one of the world’s shining stars. “Our region is growing in global strategic importance while remaining a region of diverse opportunities and challenges,” said Marisol Argueta de Barillas, senior director and head of Latin America for the World Economic Forum (see sidebar, page 44). There is a growing consensus that the coming years will be “Latin America’s decade.” “Strong economic growth, coupled with ambitious goals to build on recent successes is just one example as to why Latin America is poised to see its best decade yet,” Susan Segal, president and CEO of the Americas Society/Council of the Americas, writes in a column in this issue (see page 20). Behind that optimism is sustained economic growth in recent years, a surprising ability to withstand the worst of the recent global crisis (in sharp contrast to past crises), political stability (in most countries) and a positive economic and political
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outlook. Except for the crisis year of 2009, Latin America’s GDP has grown at higher rates than the world average of the past seven years. From 2011 through 2015, the International Monetary Fund (IMF) estimates that Latin America’s economies will grow an average of 4 percent annually. That compares with an estimated 2.7 percent in the United States and 2.1 percent in the EU during the same five-year period. “There is a greater consensus on fundamental policies,” said Joydeep Mukherji, senior director of Latin American Sovereign Ratings at Standard & Poor’s, during a webcast entitled Will 2011 Be The Dawn of The Latin American Decade? “That’s positive for us [as] we’d like to see consistent policies, not sharp turns.” A combination of better fiscal policies, flexible monetary policies and lower levels of external debt have given Latin America a greater isolation from outside shocks, according to Mukherji. Meanwhile, the region now boasts five investment-grade countries. Over the past three years, Brazil, Peru and Panama
joined Mexico and Chile in receiving the coveted rating, which helps reduce financing costs and helps attract investors. Another key factor behind Latin America’s performance during the crisis was sustained, high demand from China for natural resources from countries like Brazil, Chile, Peru and Argentina. That helped offset falling demand from traditional markets like the United States and Europe. In fact, Asia is now Latin America’s second-largest trade partner ahead of the European Union, according to Latin Business Chronicle. In several countries, including Brazil, China managed to pass the United States as the top export market. Last year, Brazil’s exports to China reached $30.8 billion (up 46 percent) compared with $19.5 billion to the United States (an increase of 23 percent), according to Brazil’s Ministry of Commerce. Strong demand from the Chinese is expected to continue. China’s GDP will likely expand by an average 9.5 percent over the next five years, according to IMF. The recent sustained economic growth
WORLD ECONOMIC FORUM LATIN AMERICA
and large inflows of private local and foreign investments, in turn, have helped reduce Latin America’s chronically high poverty rates from 48 percent in 1990 to 32 percent last year, according to the United Nations Economic Commission for Latin America and the Caribbean. Yet the reduction in poverty rates has been in large part fueled by government programs. “Countries such as Peru, Mexico, Chile and Colombia continue to usher in more of its citizens into the middle class and into the formal sector because of these programs, in turn fueling demand for goods and services providing for even more economic growth,” Segal said. Another major factor behind the poverty reduction has been the reduction of inflation, argues Lisa Schineller, director of Latin America sovereign ratings and Latin America economist at Standard & Poor’s. The lower and stable rates compared to the past have helped bring more people into the formal economy, she said during the webcast with Mukherji.
in Latin America, the region still lags spending in Asia, experts point out. Latin America lacks a unified infrastructure strategy, said Anand Hemnani, the Sao Paulo-based senior vice president and chief investment officer at CG/LA Infrastructure. “We need to interlink our economies,” he said. “We need to enhance our transport infrastructure, water, energy generation and logistics.” Also needed is enhanced city-level infrastructure, including urban rail systems. Last, but not least, Latin American governments need a long-term vision, such as that of Chile, Hemnani said. While the region overall fairs poorly, there are big differences from country to country. When it comes to transport infrastructure, Chile and Panama rank best, while countries like Brazil and Colombia are among the bottom seven countries, according to the Latin Infrastructure Index from Latin Business Chronicle.
CRIME INFRASTRUCTURE However, not all is rosy. Latin America still faces major challenges, including poor infrastructure, high levels of crime and corruption and a weak education system. Insufficient infrastructure drives up transaction and transportation costs, and that impairs competitiveness, according to Juan Cento, president of FedEx Express Latin America. Although Latin America benefits from its proximity to the United States, that edge is quickly eroded by an insufficient network of roads, ports, railways and airports, according to the Organization for Economic Co-operation and Development. A 10 percent reduction in freight costs in nine Latin American nations would allow exports to the United States to soar 39 percent on average, while transportation costs on Latin America’s imports would fall about 20 percent if the region improved its port efficiency to U.S. levels, according to a report from the InterAmerican Development Bank. Meanwhile, despite increased infrastructure spending
Then there’s the security issue. “The most important current short-term challenges faced by most of the countries in the region are related to insecurity, drug trafficking and organized crime,” Argueta said. Crime costs companies and governments billions of dollars each year. With weak law enforcement in most countries in Latin America, many private companies have to invest significantly in private security. Insecurity is also affecting the talent pool, as many of the best and brightest Latin Americans emigrate to safer countries in North America or Europe. According to an executive survey from the World Economic Forum, El Salvador ranks as the worst country in Latin America in terms of costs related to organized crime and shares the last place with Guatemala when it comes to cost of crime and violence. In terms of the impact of organized crime on business, El Salvador ranks last among 133 nations worldwide; it ranks as the second-worst worldwide (along with Guatemala) in terms of the costs to businesses of crime and violence. Only South Africa is worse, the WEF survey shows.
Multinational executives also face danger. According to the Latin Security Index from FTI Consulting Ibero America and Latin Business Chronicle, Haiti and Venezuela are the most dangerous countries in the region, while Costa Rica, Chile and Uruguay are the safest. FTI analyzes crime statistics and polls its client base of Fortune 500 companies on security incidents among their people and assets and incorporates those results into the ranking. Venezuela is suffering from Latin America’s highest level of brain drain and is also one of the worst worldwide, according to a Latin Business Chronicle analysis of an executive opinion survey from the World Economic Forum. The survey asked executives in 139 countries to what degree their country retained and attracted talented people, on a scale of 1 to 7. The highest score, 7, would indicate that there are many opportunities for talented people within the country. A score of 1 would indicate that the best and brightest leave to pursue opportunities in other countries. Venezuela received a score of 2.1. Only seven countries in the world got a lower score, signifying that the brain drain in Venezuela is worse than in countries like Bulgaria, Macedonia and Algeria.
OTHER CHALLENGES Corruption is another persistent challenge. According to Transparency International, the Germany-based watchdog, Latin America has made little progress when it comes to corruption. Its average score has gone from 3.4 in 2006 to 3.5 last year, according to a Latin Trade analysis of Transparency International data. Education is another major challenge facing companies in Latin America. Overall, the region suffers from weak public education from primary to university level. As a result, many companies have to invest billions of dollars in additional training. The scarcity of well-skilled labor and low productivity in Brazil, for example, limits the country’s potential growth, according to Michael McKenzie, the São Paulo-based managing director of treasury and securities services at J.P. Morgan.
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LATIN AMERICA: GROWING STRATEGIC IMPORTANCE
Latin Trade: What are the key threats to this becoming “Latin America’s decade”? Argueta: Despite the considerable similarities, the region encompasses countries with very different characteristics, and the opportunities offered by this decade will be seized
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Why was Brazil chosen for this year’s World Economic Forum Latin America? Argueta: Brazil is not only the largest Latin American economy, but its political stability, together with the economic and social achievements of the past decade and the promising outlook under the leadership of the first woman president, Dilma
Rousseff, offers an outstanding array of opportunities. Brazil has overcome the economic crisis in part because of its diversified economy and trade, and responsible fiscal and monetary policies allowed it to take countercyclical measures. Markets perceive the risk of investing in Brazil as lower than that of many developed economies, and incentives to encourage more investment in longer-term instruments are being provided in order to manage the abundant flows of incoming capital while tightening financial and monetary conditions and keeping an eye on the inflation rate. While concerns are rising regarding the price-index increase, the inflation target regime includes a floating exchange rate, accumulation of foreign reserves and well-adjusted public finances. The strategic international positioning that Brazil has managed to attain through an active leadership and an effective foreign policy has placed the country at the center of global interest. Brazilian businesses [are] taking leading regional and global roles, and the capacity of Brazil to host the World Cup in 2014 and Rio de Janeiro the Olympics two years later will further enhance Brazil’s already positive image.
POSITIVE TREND FDI Grows
Poverty Falls
$100
50%
$80
45%
$60 40% $40 35%
$20 $0
30% 1990
2002
2009
Source: Foreign direct investment and poverty figures from ECLAC
Poverty rate %
Latin Trade: What are the key factors that can make this “Latin America’s decade”? Argueta: Latin America is home to over 600 million people with a very positive demographic bonus, a growing middle class and, due to significant efforts to reduce poverty, 40 million people have … benefited from targeted government programs and better jobs. Our region is growing in global strategic importance while remaining a region of diverse opportunities and challenges. Most of the countries in the region now have reliable political and economic frameworks that include democracy and responsible macroeconomic, monetary and fiscal policies. Economic growth has been sustained in the past decade, with more than a 6 percent average economic growth in 2010 and a projected 4 percentplus for this year. The region’s economic stability and resilience were proven by the positive performance in resisting the effects of the recent economic crisis. Moreover, Latin America has 15 percent of the world’s oil reserves, large stocks of minerals, a quarter of its arable land and a third of its fresh water — all these vast resources of strategic and vital importance offer the opportunity for Latin America to develop its potential to become the world’s provider of food, energy and water.
only by those countries that are prepared and committed to make the necessary strategic adjustments. Despite the significant success of poverty-alleviation programs, inequality still remains in general [and is] an obstacle for development and integral social progress. However, the most important current shortterm challenges faced by most of the countries in the region are related to insecurity, drug trafficking and organized crime. Longer-term objectives should also be adequately addressed; these include the improvement in the quality of education and technical training, the enhancement of its competitiveness and productivity through the introduction of innovative technology and the modernization of infrastructure. Overall, Latin America would stand a better chance of success if a pragmatic regional integration process was effectively implemented.
FDI in US$ billions
Marisol Argueta de Barillas, senior director and head of Latin America for the World Economic Forum, tells Latin Trade why this will be Latin America’s decade.
WORLD ECONOMIC FORUM LATIN AMERICA
LATIN AMERICA 2011: FAT, HAPPY & UNCOMPETITIVE BY JOHN PRICE
In 2011, every economy in Latin America will expand and the region will grow an impressive 4.5 percent, according to International Monetary Fund estimates. Latin America weathered the financial crisis with its banking system intact, a thriving democracy and a resilient, if not expanding, middle class. Brazil basks in the accolades of financial investors, attracting record investment into Latin America. So what is all the fuss about regional competitiveness? Does competitiveness matter when historical levels of wealth are being created in Latin America? Latin America is the world’s most globalized regional economy. Its economic fortunes are more influenced by the external economy than domestic policy. In 2009, in spite of superb economic management policies and decision making, Mexico’s economy contracted almost 7 percent, thanks to a severe drop in U.S. demand for its exports, a collapse in oil prices, falling remittances, declining tourism and the collapse of bank lending as the country’s foreign owned banks rapidly deleveraged. In contrast, Argentina grew 9 percent in 2010, in spite of the Kirchner era’s poor reputation for regulatory inconsistency. Even though foreign investment is a fraction today of what it was in the past, Argentina’s economy is solvent and expanding, thanks to strong food, mineral and energy exports and low global interest rates. In the 2011 Doing Business report published by the World Bank, Mexico ranks 35th and Argentina ranks 115th. From 2003-2008, as Latin America enjoyed a favorable international climate of low interest rates and high commodity prices, Mexico’s competitiveness improved slightly while Argentina’s worsened dramatically. Yet Argentina consis-
tently outgrew Mexico during this period. If Latin America’s economic destiny is at the mercy of China’s central bank or U.S. consumer sentiment, what incentive is there for Latin American political leaders to brave the second rounds of reforms (labor, pension, tax, judicial, education, customs, legal) that face stiff resistance from powerful domestic interests? Apparently not much. After setting the world on fire with dramatic macroeconomic reforms and privatizations in the 1990s (a decade of low commodity prices), Latin America has become the world’s slowest reforming region, losing ground to emerging markets such as Eastern Europe, North Africa, the Middle East and East and Southeast Asia. Saudi Arabia, not long ago characterized as a nepotistic and inefficient economy, is now ranked 10th in the World Bank Doing Business ranking and 16th in the IFC global competitiveness ranking, higher in both cases than any Latin American economy including Chile. Latin America can be proud of its open economies, independent central banks and thriving democracies, but its inability to embrace micro-economic reforms as well as tackle legal, judicial and security issues threatens to deindustrialize much of the region, squeeze the middle class and undo the region’s newfound economic stability. In 2010, Brazilian commodity exports outpaced manufactured-good exports for the first time since the early 1980s. The demise of its manufacturing sector could trigger rising unemployment as labor-intensive industries like footwear, electronics and auto parts close production. Laidoff assembly workers might find jobs in Brazil’s booming retail industry, but those jobs pay less and require less training and education. The flood of Chinese imports reaching Brazil even threatens the liveli-
hood of Brazilian domestically oriented manufacturers as the country’s uncompetitive industrial sectors have lobbied, successfully, for a growing number of protectionist actions. In December 2010, Brazil initiated three trade-remedy actions designed to slow Chinese imports: a 15 percent increase in the tariff rate of imported toys (90 percent of which come from China); two anti-dumping investigations into imports of Chinese seamless steel pipes and non-stainless steel household vessels; and an investigation targeting Chinese citric acid. Brazilian manufacturers are not alone in their complaints about rising currency rates. Chilean wine producers worry they will lose share abroad, Peruvian clothing makers are losing contracts to Asia and Colombian farmers fear the ratification of the U.S.-Colombian trade agreement. The expansion of capital-intensive energy, mineral and mechanized farming industries at the expense of labor-intensive manufacturing and service industries will lead to labor unrest and increasing protectionist actions that threaten to undermine two decades of international trade treaty development. A decade of tit-for-tat trade actions between Brazil and Argentina has made a mockery of the Mercosur trade agreement. The list of reforms that countries like Brazil, Colombia, Argentina and Mexico must embrace is long. In every Latin American country, the rule of law does not stand up well to powerful economic interests. This leads to the flight of ideas as Latin inventors choose to register their patents, look for financing and launch their creative start-ups outside of Latin America, often in the United States. MIT (and four other U.S. universities) is home to more new patent registrations each year than all the patents registered across Latin America.
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WORLD ECONOMIC FORUM LATIN AMERICA
The disproportionate spending of public-education budgets at the university level leads to subsidized education for the wealthy, whose private high school educated kids are the only ones who can get into top public universities. Underfunding at the secondary level leads to massive drop-out rates and masses of underskilled and undereducated young men, many of whom seek economic hope in Latin America’s enormous illicit economy. Across Latin America, joblessness and unreformed policing and judicial bodies have colluded to create a massive organized-crime problem that stretches from Rio to Ciudad Juarez. Public insecurity over the decades in Central America, Colombia, Peru and now Mexico and Venezuela has stunted the region’s ability to attract tourists and investments as well as driven offshore Latin America’s most educated and talented people. Today, according to estimates of Merrill Lynch,
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$2.5 trillion in Latin American savings resides outside of the region instead of being invested at home. One of the drivers of this phenomenon is insecurity. Business-reform achievements across Latin America are mixed. In Chile, Peru and Mexico, starting a business is relatively easy and the tax code is manageable. In Brazil, and to a lesser degree Colombia, excess red tape and too many taxes choke small business and/or drive them underground. Labor rates and rules in Brazil and Mexico remain too costly and too rigid. Each year, dozens of M&A deals are cancelled when the buyer realizes how much it will cost to restructure a company. Legislated severance costs for a 20-plus-year employee can be equal to two years’ salary. If Latin America does not rediscover its passion for reform, it risks more than a protectionist backlash. As global inflation creeps upward, thanks to global
quantitative easing, central banks across Latin America will be forced to raise interest rates — putting a stop to the consumer-led boom in the region. The anticipated slowdown of the Chinese economy as it tackles its own inflation issues combined with massive new investments in energy and mineral production worldwide will bring down commodity prices in 2011 from their recent peaks with continued pricing declines in 2012. Suddenly, the benevolence of the global economy could turn ugly and Latin American competitiveness could be dramatically tested. John Price is the managing director of Americas Market Intelligence, a member of the Global Intelligence Alliance.With Dr. Jerry Haar, he co-edited “Can Latin America Compete?: Confronting the Challenges of Globalization”, published by Palgrave Macmillan in 2008.
DAVID R. FRAZIER/DANITADELIMONT.COM/NEWSCOM
Mexico, pictured here, is one of the few countries in the region where starting a business is relatively easy, maintains commentator John Price.
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RIO DE JANEIRO MEANS BUSINESS The 2016 Olympics and expansion of homegrown companies like Petrobras and Vale are helping Rio to emerge from the shadow of São Paulo. RIO DE JANEIRO — Brazil’s beachfront city of Rio de Janeiro has long been a lure for tourists who are drawn to miles of beaches and a relaxed outdoor lifestyle. But perceptions about Rio are changing — as is the reality. “The city of Rio de Janeiro has the greatest concentration of opportunities per square meter of any city in the world,” said Cristiano Prado, manager of infrastructure and new business at industrial trade group Firjan. Many of the opportunities are related to Rio’s central role in the 2014 World Cup and the 2016 Summer Olympics, two of the world’s biggest sporting events. The opening and final matches of the soccer tournament will be played at the famous Maracana soccer stadium, which is currently under renovation and will be just one of the venues in 2016 when Rio hosts the Olympiads. In addition to generating billions in publicsector investment alone, these international events are helping to push Rio out from under the shadow of São Paulo. Although São Paulo is home to the country’s banking sector, the stock exchange and many corporate headquarters, the two largest companies in Brazil — state oil company Petrobras and mining giant Vale — call Rio de Janeiro home. Rio is also the base for Brazil’s telecommunications and media industries. Mayor Eduardo Paes wants to use the run-up to the World Cup and Olympics as a springboard for attracting more business to the city. To that end, the mayor created Rio Negocios — a city agency designed to attract and facilitate business investment. “Rio de Janeiro is the only Brazilian city to establish a platform to promote business,” said Marcelo Haddad, executive director of Rio Negocios. The agency helps educate businesses about the changes under way in Rio while providing market intelligence and local knowhow to assist in securing necessary licenses and setting up financing.
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The agency also serves as a barometer of Rio’s business climate, bringing to the attention of government officials any issues or challenges to investing companies encounter, Haddad said. Activity may be heating up, yet Rio still needs to overcome the negative reaction many executives and would-be investors have to the metro area’s outdated infrastructure and their concerns about safety. Brazilian companies have for years complained about aging infrastructure, with ports and rail lines unable to handle the vast amounts of agricultural products and commodities like iron ore and steel destined for export. The electrical grid has also suffered some spectacular failures in recent years, including a blackout in 2009 that left about one-third of Brazil’s population — Rio de Janeiro included — in the dark. Rio de Janeiro will receive about $32 billion in infrastructure investments through 2015, largely focused on improvements ahead of the World Cup and Summer Olympics, according to Rio Negocios. The investments include upgrades to Rio’s port and international airport and improvements to the city’s transportation grid. The metro will be extended into the city’s southern beach zone, while train service to the northern suburbs will be upgraded and expanded. “The city will go through a process of total transformation over the next five years,” Rio Negocio’s Haddad said. A transformation is also taking place in the hillside slums that also ring Rio de Janeiro. Once home to lawlessness and drug trafficking, city officials have implemented community policing units that have forced drug gangs out of the city’s poorest areas. The fight against the criminal gangs reached a peak in November 2010, when shocking images of burned-out buses and machine-gun carrying criminals were broadcast around the globe. As questions about Rio’s ability to guar-
antee safety during the World Cup and Summer Olympics resurfaced, government officials sent federal troops into one of the city’s largest favelas to clear out the gang members and restore order. So far, the measures have shown promise. Some statistics indicate that crime rates are dropping, while the government has been adding social and other services and reaching those that need them most. Rio built new police data and intelligence centers and increased training and salaries for street officers. The community police units inside in the city’s favelas will be staffed with officers specifically trained for the task to build deeper ties with residents. Already drug gangs have been apparently staying away, and residents are more likely to report problems to the police. The community policing efforts “have already increased the perception of safety in Rio de Janeiro, which will help bring even more businesses to the city,” said Firjan’s Prado. Other projects are under way that underscore the long-term prospects for Rio beyond the sporting events. The city plays a key role in international trade, especially for iron ore, oil and steel—and many of those sectors are expanding to meet growing global demand for raw materials. Petrobas is investing heavily—to the tune of $224 billion through 2014—to develop the massive offshore oil deposits that are buried deep under layers of salt. The fields, off the coasts of Rio de Janeiro and São Paulo states, may contain more than 50 billion barrels of crude, according to government estimates. Rio de Janeiro is already Brazil’s largest oil-producing state, with more than 85 percent of crude oil from Brazil produced in the Campos Basin off Rio’s rugged coastline. Rio Negocios estimates that two-thirds of the oil and natural-gas industry calls Rio home—and that tally will likely grow farther as the latest oil discoveries are expected to push Brazil into the top five of global oil producers. —Latin Trade Staff
WORLD ECONOMIC FORUM LATIN AMERICA
TRAVEL: THE EVOLUTION OF RIO The booming local economy and upcoming international sporting events bring new investments and an increasingly cosmopolitan flavor to this ‘marvelous’ beachside city. BY LUCRECIA FRANCO
Copacabana beach in Rio De Janeiro
© NOBLEIMAGES / ALAMY
R
io de Janeiro makes good on its civic anthem, “Marvelous City,” thanks to a trio of geographic blessings: verdant mountains, a sparkling bay and miles of beaches. But Brazil’s second-largest metropolitan area is buzzing with activity as public- and private-sector investments tied to the 2014 World Cup and the 2016 summer Olympic games beget real-estate developments and new companies and enterprises. Cariocas, as Rio’s 6 million residents are known, are taking the near-term inconveniences of all this activity in stride as they see the benefits in the form of new and refurbished hotels, Class-A offices, more sophisticated dining choices and expanded entertainment and shopping options. “We are proud of the Carioca way of life, meaning samba, sun and fun,” said Felipe Góes, Rio de Janeiro City Secretary for Development. “But with the recent boom in the oil and gas industry, the rocketing growth in the tourism sector and the prospects of the international events the city will host, Rio is becoming more and more business-oriented.” Most visitors spend their time in the Zona Sul, or the southern zone, with its beachfront districts of Copacabana, Ipanema and Leblon. If you don’t have time for a swim, stroll along the patterned sidewalks for a taste of Rio’s famed outdoordriven lifestyle. Don’t be fooled by the preponderance of sunbathers and joggers: Among the crowd are local executives,
talking deals and doing business on smart phones. Copacabana has the higher concentration of entertainment options and tourist lodgings like the historic Copacabana Palace hotel, opened in 1923; the sleek JW Marriott Rio de Janeiro; and the 525-room Windsor Atlantica, a former Le Meridian that has been renovated and has had a soft launch under the new affiliation since late 2010. At one end of this beach is the Forte de Copacabana, the military base that contains the Museum of the History of the Army, as well as the Café do Forte, a popular spot for breakfast, snacks or coffee with great views. Ipanema and, to an even greater extent, Leblon have a higher percentage of residents. Just one or two blocks from the beach are some of the most elegant places to shop and dine. In Ipanema, swimwear boutique Lenny and sportswear retailer Osklen have helped put Brazilian fashion on the map. Dozens of trendy restaurants can be found along Dias Ferreira Street in Leblon. In Arpoador beach, where Ipanema and Copacabana meet, the restaurant Azul Marinho offers one of the most beautiful sunset views in Rio along with drinks and dinner. For more casual fare, open-air juice bars are found on most every corner in these areas, serving up refreshing local flavors like açaí berry along with made-to-order sandwiches. Coffee is closely tied to the history and culture of Brazil, and Cariocas consume small cups of coffee throughout the day. The cafezinho — a small, intense and highly sugared java shot — is
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Above: A whimsical sign advertises Brazil’s signature cocktail, a mix of lime juice, sugar and cachaça, a spirit distilled from fermented sugar cane. Right: The Museo de Arte Contemporanea, whose design by architect Oscar Niemeyer draws comparisons to a space ship, is outside Rio in the city of Niteroi but easily reachable by car or via a ferry ride across Guanabara Bay.
the classic accompaniment for pão de queijo, the cheese-infused roll that melts in your mouth and is traditionally eaten for breakfast. For fresh-baked breads, delicious almond petit fours and other treats, Garcia & Rodrigues in Leblon operates an outstanding bakery and serves great breakfasts in its café. Also in Leblon, the Academia da Cachaça in Leblon is arguably the best place for Brazil’s signature cocktail, the caipirinha, and people-watching in the evening hours. Further south is Barra de Tijuca, a district that has attracted many corporate offices such as Shell and Nokia. Its combination of clean beaches, modern shopping malls, nightclubs and branches of famous Rio restaurants has drawn comparisons to Miami. Hotel options include the Sheraton Barra Hotel & Suites, the Windsor Barra and Bourbon Residence Barra Premium. Although the city is expanding southward, downtown remains Rio’s financial and government center. State run-companies like Petrobras and Eletrobras are headquartered here, as is mining giant Vale. Many consular offices are in the centro, which is adjacent to the Santos Dumont Airport. Among the many business-oriented hotels is the new Novotel Rio de Janeiro Dumont, opened in 2010. Downtown is where you find Rio’s most venerable cultural institutions, such as the Centro Cultural Banco do Brasil, the Teatro Municipal and the Biblioteca Nacional. However, take 20 minutes to cross Guanabara Bay by ferry to the city of Niteroi to discover the Museum of Contemporary Art, which is as famous for its innovative space-ship design by architect Oscar Niemeyer as it is for a collection that showcases Brazilian artists. A new
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museum devoted to Niemeyer opened nearby in December. Many artists and galleries have gravitated to the bohemian Santa Teresa neighborhood, which is a window on old Rio with its winding streets and century-old mansions. A tram travels to the top of the hillside district along a colonial-era aqueduct. The opening in 2008 of the Santa Teresa Hotel, a five-star hotel and spa inside a restored fazenda, has fostered further interest in the area. Nearby is Lapa, a once-marginalized neighborhood that has a wide variety of bars and restaurants and one of the liveliest nightlife scenes in the city. The sounds of samba and chorinho spill out from the clubs where crowds dance and drink beer or caipirinhas until dawn. For a peaceful respite, visit the Jardim Botanico, in the Zona Sul, founded by Joao VI in the early 19th century. A massive park, more than one-third of which is forest, contains the botanical gardens, a renowned research institute and botany library. Also within city limits is the Tijuca Forest, the world’s largest urban forest that is home to the iconic Christ the Redeemer statue, from which you can enjoy spectacular vistas. Or ride the cable car to the Pão de Açúcar, or Sugar Loaf, mountain for other views. If you are pressed for time, helicopter tours allow you to take in all of Rio’s major sites in less than 30 minutes. Rio remains a city of contrasts, but residents are excited about its efforts to evolve into a modern metropolis and business hub. The works under way represent a major transformation for Rio, which has not experienced such a shift in centuries.
CAIPRINHIA: © DAVID CRAUSBY / ALAMY; MUSEO DE ARTE CONTEMPORANEA: © ROBERT HARDING PICTURE LIBRARY LTD / ALAMY
WORLD ECONOMIC FORUM LATIN AMERICA
WORLD ECONOMIC FORUM LATIN AMERICA
LT Guide: Rio de Janeiro HOW TO GET THERE: Most regional and international carriers offer direct service from major cities to Galeão – Antonio Carlos Jobim International Airport. Many domestic flights land in Santos Dumont airport, which is adjacent to downtown.
WHERE TO STAY Caesar Park Rio de Janeiro – Ipanema: Classic décor on the beach with amenities that include butler service. Avenida Vieira Souto 460, Ipanema Tel: (55) 21-2525-2525 caesar-park.com Copacabana Palace by Orient-Express: A landmark hotel with a storied past. Avenida Atlantica 1702, Copacabana Tel: (55) 21-2548-7070 copacabanapalace.com
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Garcia & Rodrigues: One of the best breakfast cafes and bistros in town with an outstanding bakery. Avenida Ataulfo de Paiva, 1251, Leblon Tel: (55) 21-3206-4109 garciaerodrigues.com.br
JW Marriott Hotel Rio de Janeiro: A newer luxury property in Copacabana with great views from the rooftop pool. Avenida Atlantica 2600, Copacabana Tel: (55) 21-2545-6500 marriott.com Novotel Rio de Janeiro Dumont: The hotel opened in 2010 to serve visitors with business downtown. Rua Marechal Camara 300, Centro Tel: (55) 21-3506-8500 novotel.com
Fasano Hotel: Modern luxury in Ipanema designed by Philippe Starck with a hip and trendy scene at the rooftop pool deck. Avenida Vieira Souto 80, Ipanema Tel: (55) 21-3202-4000 fasano.com.br
Sheraton Barra Hotel & Suites: Every room has a private balcony at this beachfront property that is convenient to many corporate offices. Avenida Lucia Costa 3150, Barra da Tijuca Tel: (55) 21-3139-8000 starwoodhotels.com/ sheraton/
Hotel Santa Teresa: A former plantation manse converted into a chic 5-star boutique hotel in a bohemian, historic district. Rua Almirante Alexandrino 660, Santa Teresa Tel: 55-21-3380-0200 santa-teresa-hotel.com
Windsor Atlantica: The 545 room hotel, a former Le Meridien, has been renovated and reflagged by Windsor, a leading local chain. Avenida Atlantica 1020, Copacabana Tel: (55) 21- 3873-8888 windsorhoteis.com.br
LATIN TRADE 03-04/2011
Café do Forte: Breakfast, snacks or coffee with a view of Copacabana Beach. Praça Coronel Eugenio Franco, Copacabana Tel: (55) 21-3201-4049 confeitariacolombo.com.br/ site/cafe-do-forte
InterContinental Rio: This beachside resort was ranked the No. 1 hotel in Rio in Latin Trade’s annual survey of business travelers. Av. Aquarela Do Brasil, 75 São Conrado Tel: (55) 21-3323-2200 ichotelsgroup.com
WHERE TO DRINK AND DINE 66 Bistrô: Cozy surroundings and authentic French cuisine, along with varieties of risotto. Avenida Alexandre Ferreira 6, Lagoa Tel: (55) 21- 2266-0838 Web: www.66bistro.com.br Academia da Cachaça: A place to be seen and imbibe some of Rio’s best caipirinhas. Two locations. Rua Conde Bernadotte, 26, Leblon Tel: (55) 21-2529-2680 Av. Armando Lombardi, 800 Loja 65 L, Barra Tel: (55) 21-2492-1159 academiadacachaca.com.br Azul Marinho: A great spot for drinks and dinner with beautiful sunset views. Avenida Francisco Bhering, Praia do Arpoador, Ipanema Tel: (55) 21-2513-5014 cozinhatipica.com.br
Hotel Cipriani Restaurant: Sophisticated and elegant Northern Italian dishes, at the Copacabana Palace hotel. Avenida Atlantica 1702, Copacabana Tel: (55) 21-2548-7070 Le Pré-Catelan: Contemporary French fare with elegant atmosphere inside the Sofitel Rio. Avenida Atlantica 4240, Copacabana Tel: (55) 21-2525-1232 Sushi Leblon: This ultra-chic Japanese restaurant attracts a high-profile clientele. Rua Dias Ferreira 256, Leblon Tel: (55) 21-2512-7830 sushileblon.com Terral at the Sheraton Barra Hotel: Mediterranean fare, with a Thai touch, at the oceanside resort. Address: Avenida Lucia Costa 3150, Barra da Tijuca Tel: (55) 21-3139-8000
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SPECIAL REPORT: MBA
BUSINESS-SCHOOL BY ANASTASIA MOLONEY AND ADAM JACOBSON
MBA programs in Colombia are seeing an uptick in enrollment as demand in the Andean nation for better-trained professionals grows and as curricula are retooled to compete with world-class universities.
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over the past few years, implementing changes designed to put the school on par with the world’s leading universities and in response to student demand. “We now offer the eight basic core courses all of the major universities in the world have,” Elsin said. A popular recent addition is a workshop on environmental policy and understanding bioecology and its ties to economics, one that also piques the interest of prospective executive MBA students as Colombia has emerged as a hub of environmentally targeted global economic development. At least one course in each module is
Record levels of foreign investment and stable economic growth in Colombia have fueled the growth of MBA programs on offer across the Andean nation and brought a steady rise in enrollment at business schools in recent years. Spurred on by improved security around the nation, increasing numbers of multinationals from the banking sectors like Citibank and Spain’s Santander, along with international mining and oil giants from Canada, India and Australia, are doing business in Colombia. This in turn has led to demand for a local workforce with well-honed management and administration skills.
to secure senior-management posts and promotions,” Montoya said. Another segment of the MBA population at EAFIT: doctors and dentists. Some of the medical professionals are seeking managerial positions in big hospitals; others plan to open private clinics and are keen to learn how to make management decisions and have a better understanding of finance in general. The MBA program at EAFIT is tailored to senior managers who are combining their studies with full-time employment. “The two-year program is part-time involving eight hours of study a week, with a flexible timetable offering
LONG HISTORY
“Colombian employers are increasingly looking for executives who are better trained and prepared. Also, having an MBA is becoming more of a requisite to secure senior-management posts and promotions.” — Angela Maria Montoya, EAFIT University
Among the institutions reaping the rewards is EAFIT University in Colombia’s second-largest city, Medellin. EAFIT says it was the first private institution in the country to offer MBA programs, starting back in 1973. “The number of MBA students continues to grow, for example from 305 students in 2006 to 400 this year. We expect a five to 10 percent growth in student enrollment over the next several years,” said Angela Maria Montoya, coordinator of EAFIT’s business school MBA program. The majority of EAFIT’s MBA students are engineers, lawyers and middle managers already employed by Colombia’s leading firms, who are looking to improve their management and decision-making skills and gain a competitive edge in a tough job market, Montoya said. Colombia’s biggest and most prominent companies also have higher expectations for potential employees. Bancolombia, the country’s largest bank, and the state-owned oil company, Ecopetrol, are known to seek potential hires that already have MBA educations. “Colombian employers are increasingly looking for executives who are better trained and prepared. Also, having an MBA is becoming more of a requisite
classes in the evenings and on Saturday,” Montoya said. Universidad de los Andes, in Bogota — Colombia’s leading private university — launched an executive MBA program, specifically designed for the executive who already has years of on-the-job and other practical experience, in 2000. The number of applicants in the most recent academic year was up by about 60 percent compared with the 2003-2004 academic year. As a result, Uniandes has become more selective, choosing the strongest students from a pool that is not limited to Colombian nationals but that attracts business people from around the region. “We are an academically strong university that has built its reputation over many years,” said Luisa Fernanda Elsin, director of Uniandes’ Executive MBA program. “We now have Triple Crown accreditation and earned AACSB status last year. This continues to add to our prestige.” Uniandes has revamped its curriculum
taught in English, an essential part of the Uniandes program, given the high interest in perfecting the language. “This will allow our students to compete in the global environment,” Elsin said.
GLOBAL EDGE Furthering the international marketability of the programs are international partnerships. Over the past decade, EAFIT has partnered with such foreign institutions as the Leipzig Graduate School of Management in Germany and France’s Université de Strasbourg to offer joint MBA degrees, an initiative that has become a key selling point for executives looking to acquire much sought-after experience abroad. Uniandes offers a Global MBA and Master’s of Global Management in cooperation with IESA in Caracas, ITAM in Mexico City and Tulane University in New Orleans in the United States. Participating students travel with an international group and study togethContinued on page 59
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SPECIAL REPORT: MBA
MBA PROGRAMS ADAPT TO A GLOBALIZED FUTURE What is the overall outlook for your program in 2011 and beyond? We … have more students starting in Mexico every year than from any other country — 80 students at one of our three campuses with the Tec de Monterrey. We also have campuses [all in partnership with the Tec de Monterrey] in Costa Rica, Peru, Colombia and in Panama. We will be opening up in Argentina this year. Jay Bryant, Director of Admissions and Recruitment, Thunderbird School of Global Management (Glendale, Arizona) Peru, Colombia and Chile continue to be strong markets for Kellogg from an application standpoint. In addition, professionals in Europe are increasingly applying to our program, and several current students are commuting from London. Another positive trend is related to growth in the number of female applicants. The 2011 Executive MBA January cohort has the highest percentage of female students in the Miami Campus to date. Carolina Piña, MBA Associate Director - Miami Campus, Kellogg School of Management The University of Miami Spanish-language Global Executive MBA program continues to [draw] strong interest from applicants who reside in Mexico, Colombia and Venezuela. However, we definitely market in pan-regional and other markets, as it is extremely important to have a significant cross-section of all of Latin America in the classroom in order to offer a dynamic and diverse student experience. The English Executive MBA program attracts participants who are now living in the United States. Anuj Mehrotra, Vice Dean of Faculty Affairs and Graduate Business Programs, University of Miami School of Business Administration We expect a 10 percent growth in our executive education activity. Custom programs are growing because companies are allocating their development budgets in highly customized programs, which tackle their strategic company needs. We expect to maintain steady growth, especially in our short, specialized courses. Joaquín Uríbarri, Director of Marketing & International Development, Executive Education, IE Business School (Madrid)
Over the past few years, we have seen an increase in students from Asia and Europe. Our program is held almost every Saturday, so the majority of our students live and work in South Florida. They do come from all over the world, many from Latin America. Sarah Perez, Executive Director, MBAs for Executives and Professionals, Florida International University (Miami, Florida)
Where do you see the most or growing interest on the part of students? Short workshops focused on hot topics for companies in today’s situation, such as developing strategic vision for uncertain times, building customer-centric organizations, reinforcing leadership skills for the key talent, etcetera. IE’s Uríbarri We are seeing more applicants from the healthcare sector — primarily medical doctors eager to obtain a stronger foundation in business practices. Kellogg’s Piña Our EMBA students will now have the opportunity to participate in an international consortium of EMBA programs where they can choose from three different locations—in Brazil, Moscow or Bologna — to attend a one-week executive-education-style seminar. Topics will depend on the host school; however, the theme is business innovation in a global context. FIU’s Perez Students are increasingly interested in focusing more heavily on particular business areas, such as marketing, finance and international business. For this reason, the University of Miami recently added electives to the Executive MBA program. Prior to the elective terms, all students vote from among more than 40 electives and those that are in most demand — up to 16 — will be offered. From those, each student will select six electives to be taken over the two elective terms. We are also seeing increased interest in our Executive MBA in Health Sector Management and Policy Program. In 2009, applications to this program increased over 60 percent and class enrollment in the past two years has remained strong. University of Miami’s Mehrotra Interviews were conducted by Adam Jacobson and Mary Sutter and were edited and condensed for space and clarity.
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SPECIAL REPORT: MBA Continued from page 56 er in Colombia, the United States and Mexico, in addition to France and China. The courses emphasize international leadership and business strategies. Even though more local Colombian universities have MBA programs, few are accredited by leading international bodies. And for many Colombian executives, completing an MBA degree in the United States, and to a lesser extent Europe, is considered more prestigious and valuable than enrolling in homegrown programs. To bridge that gap, experts say, Colombia will need to significantly boost the numbers of its internationally accredited MBA programs, focus on promoting good quality research and foster more partnerships with foreign universities. However, for many students, the cost of going abroad is prohibitive. Although most students are self-financed, Montoya says that up to 25 percent of MBA students at EAFIT have received
some form of financial support or assistance from employers in the private and, in some cases, public sector. “As part of their growing commitment to social responsibility, there’s been more interest from big Colombian private companies and even several medium-sized companies to support their employees not only in economic terms but also to allow them time off and flexible working hours to research and study for their MBA,” Montoya said. Uniandes’ Elsin maintains that her program offers excellent value compared to other top business schools worldwide. “We stand at the top of our competition in Latin America when it comes to student cost, but London School of Economics is more than twice as much as our program,” Elsin noted. The executive MBA program has attracted students from such global giants as phone company Nokia and Brazilian state
oil company Petrobras. Its faculty has welcomed visiting professors from institutions like Georgia Tech, McGill University and Harvard Business School, who bring expertise— and prestige — to the Bogota program. And the university has established a “business executive in residence” program, which brings seasoned executives and industry experts into the business school. Among the executives in residence is Jaime Bueno Miranda, a former president of KPMG Colombia who headed the company from 1984 to 2007. Elsin says Uniandes will continue to innovate and develop its curriculum. “We’re working toward having our students acquire more strategical viewpoints. Good decision-making will make our students stand apart,” Elsin said. Moloney reported from Bogota; Jacobson from Miami.
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MEET ME IN LATIN AMERICA With a growing number of hotel rooms and event venues, cities around the region are promoting themselves as desirable destinations for conferences, trade shows and expos. BY MARK CHESNUT 60
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ACAPULCO DESTINATION MARKETING OFFICE
The Acapulco International Convention Center in the Mexican PaciďŹ c coast city continues to hold events but is slated for a remodeling and conversion into a retail-entertainment complex once construction of a new convention facility, immediately adjacent to the existing structure, is completed.
SPECIAL REPORT: CONGRESSES AND CONVENTIONS
In addition to the government-operated convention center in Cartagena, Las Américas Resort and Convention Center is one of two hotels in the Colombian city that can host large gatherings. More hotels with extensive meeting space are in development there.
As meeting planners consider staging events in Latin America, they are being courted by an increasing number of suitors. Investments have poured into key business hubs, making them more attractive for conferences, trade shows and expos. Expanded infrastructure and aggressive marketing have placed new cities on planners’ maps. Depending on whom you ask, the increased competition for the lucrative market known as MICE (Meetings, Incentives, Conventions and Exhibitions) may push prices down or it may burnish the sales pitch for the entire region. The growth spurt in real estate, primarily in South America, has been a boon for the meetings markets, resulting in new rooms, meeting spaces and event venues, industry experts say. “Brazil has just been huge in terms of both their growth and average room rate as well as their overall revPar [revenue per available room],” according to Bob Gilbert, CEO and president of the Hospitality Sales and Marketing Association International, an organization of sales and marketing professionals. Average room rates soared 42 percent in Brazil and 23.6 percent in Santiago de Chile from 2009 to 2010, even as the number of total hotel rooms continued to increase, Gilbert said. “From a meetings perspective, there’s going to be a direct correlation between how much capacity the industry has for corporate and leisure business compared to what they can accommodate on the meetings side.” A potentially telling indicator of growth
in the meetings sector is the ICCA ranking, a number determined by the International Congress and Convention Association, based how many international meetings a given destination hosts during a one-year period. Brazil, for example, had risen from the 19th position in 2003 to No. 7 in 2009. Marcelo Pedroso, director of products and destinations at Embratur, the Brazilian government tourism organization, attributes Brazil’s jump in that ranking in part to private- and public-sector investment in new convention centers. “In 2003, we had 22 cities in the [ICCA] ranking that received at least one international event per year,” he said. “Last year [2010] we had 48 cities.” Convention centers have been springing up in cities large and small, from the Mexican resort city of Acapulco, to Santos, Brazil, home to the most important port in Latin America. And more are on the way. “Bogota, Cartagena and Panama City are going to be fighting to be in the first five places in Latin America” in terms of ICCA rankings, predicted Alexandra Torres, executive director of the Bogota Convention Bureau.
PRICE PRESSURES The pipeline of new hotel openings will put pressure on both room rates and fees for meeting facilities, Torres asserts. She says that hotels, event venues and tourism offices will need to respond with savvy marketing.
“Bogota has been in a very comfortable position, with occupancy rates in the 71 percent range,” she said. With more options now in the market, hotels will “need to be more competitive price-wise … [also] Colombia has to invest more in technology.” Indeed, technology is a crucial and keygrowth factor in the meeting and convention market. Meeting planners increasingly demand dedicated websites and the ability to submit requests for proposals (RFPs) electronically. They also use attendance-building tools like e-mail blasts and electronic marketing assistance to stay in touch with potential attendees. Government agencies have responded. The Mexico Tourism Board’s Website, www.visitmexico.com, now features a section called Meetings Online, which allows planners to submit electronic RFPs and to research properties and destinations. The Cartagena de Indias Convention Bureau offers electronic RFP options and e-mail blasts and provides advertising and promotional materials to planners. The Rio Convention & Visitors Bureau intends to revamp its website this year, with electronic RFPs and fresh content for planners among the expected offerings. For all the technological advances, private and public organizations are spending more time and money on face-to-face marketing and sales calls. The Cancun Convention and Visitors Bureau, for example, not only hosts “Webinars” to educate meeting planners and travel agents about the destination. It has also stepped up the number of familiarization trips
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it offers to planners and agents, according to Fernando Cervantes, groups and conventions director at the Cancun CVB. “It used to be eight to 10 a year,” he said. “Now we do at least 14 fam trips.”
OFFERING INCENTIVES In some cases, financial incentives are part of a destination’s plan to attract MICE business. “Every country has its own strategies,” said Alberto Cortez, meetings and conference director at the Latin American and Caribbean Air Transport Association, which has previously organized conferences in Cartagena and is planning events in the Bahamas, Mexico City and again in Cartagena. “There are some countries that offer their own incentives. They say, ‘If you bring the conference to our country, we will sponsor X, Y and Z.’ Others will not charge you for taxes or will facilitate everything for customs and immigration.” The Mexico Tourism Board offers what is likely the region’s most sweeping discount program: a zero-percent value-added tax for
foreign meeting planners, which saves groups 10 or 15 percent in taxes. “I think the tax incentive is by far one of the most important attributes to attracting foreign meetings,” said Sergio Serra, director of sales and marketing at Hilton Cancun. In Panama, foreign planners receive a complimentary event at the Atlapa convention center when booking a group of more than 500 rooms for a minimum stay of three nights. The incentive further extends to complimentary airplane tickets and hotel accommodations for three speakers, plus a welcome reception and live entertainment — a package that Panama’s tourism office values at up to $100,000.
A BIGGER PIE? Destinations and suppliers may be upping the ante with new convention centers, fresh technology and price breaks. But many observers don’t see it as a competition that’s hurting anyone. “The region seems to be so strong, I don’t think the new markets are knocking down the
old markets,” said John Licence, vice president of sales and marketing for the Caribbean and Latin America at Marriott International. Event planners — who certainly won’t turn down a good deal — don’t necessarily consider cheaper prices to be the most attractive result of increased competition. “The discounts can only be so deep before ... the [destinations] can’t compete,” said Lisa Meller, president and CEO of Irvine, Calif.-based Meeting Perspectives, which has organized multiple events in Mexico. Rather, she said, competition should ideally mean that destinations, hotels and meeting facilities provide better service to planners. “It’s about being better partners,” she said. The concept of partnering extends to the idea that ostensibly competing destinations can work together on a global level, according to Eduardo Chaillo, executive director for the meeting industry at the Mexico Tourism Board. “A regional perspective is important,” he said, noting that Mexico can exchange leads with other countries, “promoting the region instead of just promoting one country.
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SPECIAL REPORT: CONGRESSES AND CONVENTIONS
Competition is always competition, but I think we can play perfectly in that arena and we can share leads.” This is particularly useful, Chaillo noted, for meetings and events that rotate among various destinations from year to year. “Once they’ve been [to one city], they won’t go back the next year,” he said. “We work together to share the international piece of the business.” “There will be events that will continue to rotate around Latin American markets, and all of a sudden there may be a new destination now that’s in their rotation that wasn’t before,” agreed HSMAI’s Gilbert, although he believes the end result may be fewer bookings. “So perhaps instead of going to Mexico City every three years, they’re now going to go every four years because there’s a new destination in that cycle.” New supply will generate new demand for a particular market, but that demand has to come from somewhere, unless the market is growing, Gilbert said. Noting that similar
conditions have occurred in other parts of the world, he added, “when tons of new gaming and convention supply opened in Asia/Pacific, particularly in Macau and Singapore, it pulled business out of Las Vegas, there’s no question about that.” Suppliers and destinations nonetheless appear to be aware of the benefits of a unified effort, according to Arturo Garcia Rosa, president of HVS Argentina and president of the South American Hotel & Tourism Investment Conference and senior partner of HVS Global Hospitality Services. “It’s difficult to go to Asia, to Europe and say, ‘come to Panama City’ or ‘come to Rio.’ If you put it all together and say ‘come to the Caribbean or come to South America,’ it’s easier and more efficient in terms of efforts and investment,” he said. As evidence of this trend, Garcia noted that representatives from Colombia, Peru, Brazil and Argentina were planning to go — as a team — to the International Hotel Investment Forum conference in Berlin in March. “Of course we will have a more competi-
TOP MEETING MARKETS in Latin America CITY MEETINGS CHANGE Buenos Aires 90 -1.1% Sao Paulo 79 11.3% Rio de Janeiro 62 51.2% Santiago de Chile 41 -10.9% Mexico City 33 -25% Source: International Conference and Convention Association NOTES: Number of meetings in 2009; percentage change versus 2008. The ICCA data only cover meetings organized by international associations that take place on a regular basis and that rotate between a minimum of three countries.
tive market, mainly for Latin American and Ibero-American events,” Embratur’s Pedroso said. “It’s good for us, because it changes our market, makes it bigger, and we can try to bid more international events. We have a good platform in South America, but we need a bigger platform. Together, all of us in South America can compete.”
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SPECIAL LATIN TRADE SUPPLEMENT
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THE MOOD AT THE SUMMIT BY SANTIAGO GUTIERREZ
“President Martinelli never sleeps. He answers letters and emails regardless of whether it’s one o’clock in the morning, or six in the morning,” says one of the closest associates of 58-year old businessman Ricardo Martinelli Berrocal, who has been president of Panama since July 1, 2009. And the president’s work ethic may be one of his most salient characteristics. But certainly not the only one. He doesn’t put too much stock in formal protocol. In downtown venues he sits at the regular tables, in spite of the fact that the head table has been reserved for him. He appears without a tie at events that until recently wouldn’t have been accessible without one, and has even been seen driving his own presidential vehicle. His style has a lot to do with his entrepreneurial vein. Martinelli cares more about the speedy execution of his decisions, than about the slowly grinding gears of formal bureaucracies. Another aspect we could highlight is that the president does not collect a salary, it is donated to charities with a social purpose. His attitude has already resulted in some changes in the government. One such change, perhaps the most notable, was to the staff. “Businessmen make up a majority of all new appointments to public office,” says Mayra Arosemena, Chief of Staff of the Ministry of Commerce and Industry. This new “corporate cabinet” has, in turn, resulted in a different public service culture. “Things have to get done,” explains the government employee. That’s why, for example, the procedure for opening a business in Panama, which a year ago used to take 15 days, now takes 45 minutes, and can be done over the internet from any location. There’s also a new perception regarding the importance of setting goals and attaining them. The government set the goal of paperless operation by 2012. No detailed instructions or
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comprehensive national plan to achieve this objective were issued. The president’s directive was enough, and now each ministry must work with the Presidential Secretariat of Innovation to fulfill it. This attitude is refreshing and leaves room for innovation. At the Palacio de las Garzas, the Panamanian presidential palace, the use of the phrase “because it has always been done that way” as justification for any procedure is now taboo. And this is exactly the attitude that the government of this country of 3.5 million inhabitants needs, having set a goal of doubling its US$25 million economy and joining the ranks of developed countries over the next 10 years. This will not be so difficult to achieve, considering that Panama has been the clear champion in Latin America with regard to GDP growth for the past two decades and that it has enormous potential in logistics, the financial sector, tourism, construction, agriculture, and mining. The efforts to develop it are well coordinated in the 2010-2014 Strategic Government Plan, drawn up by the Ministry of Economy and Finance, with the help of the McKinsey consulting firm. Given the current conditions, Panama takes us by surprise. It is without a doubt the star of the Americas. A country with immense potential, Panama has decided to make impatience a virtue in order to accelerate its development. And it is succeeding.
For more information, visit www.proinvex.gob.pa.
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THE ECONOMY, THE BEST PLACE TO START Latin America has certainly become one of the most interesting places in the world to do business in the coming years. And Panama meets many of the criteria for becoming the next economic miracle, the next Chile, ahead of Peru or Uruguay. The country has four key advantages. First, the speed at which it is growing. The Panamanian economy has had more sustained growth than its neighbors. Between 1990 and 2000, while the average Latin American GDP grwoth was 3.8%, Panama’s was 5.4%. Between 2000 and 2010, when the Latin American average growth was 3.4%, Panama’s was nearly double at 6.4%. In 2010 it is expected to grow around 7%. The second advantage is the evenly-distributed production structure. The Panamanian economy is not dependent on the availability of natural resources and is extremely well balanced. “No single sector accounts for over 9% of the GDP. Not even the Canal, which accounts for no more than 6%,” explains economist Marco Fernández, a partner of the economic advisory firm INDESA. The third key advantage is the best set of macroeconomic indicators in the neighborhood. With regard to fiscal policy, by law the public deficit may not exceed 2.5% of the GDP. Only in the last few months, to address the problems created by an extremely adverse climate, the deficit was temporarily allowed to reach 3%, but as explained by Vice Minister of Foreign
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Trade, José Domingo Arias, it will not reach that figure. In fact, the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) estimates that in 2010 the non-financial public sector will show a surplus equal to 1.0% of the GDP, in contrast to a 1.0% deficit in 2009. It also forecasts a current account deficit of 3.5% of the GDP in 2010, and unemployment at 6.5%, showing a slight drop of 0.1 percentage points with regard to the previous December. Lastly, the year ended with an inflation rate of 3.5%, which is high for Panama, but certainly moderate by international standards. The fourth key advantage that will become even more important in the future is that the most rapidly expanding sectors involve modern activities that clearly have the potential for years of growth: ports, warehousing and tourism. While the logistics and transport industry increased its share of the Latin American GDP by 1.9 percentage points between 1990 and 2010, it gained 4.1 points in the Panamanian GDP during the same period. The hospitality industry gained 0.2 points in Latin America and 0.5 in Panama, once again more than double. As such, the economy is well positioned to guarantee accelerated growth in 2011 and the following years. ECLAC predicts that in 2011 Panama will grow 7.5%, “thanks to the continued massive execution of both public and private projects.”
SPECIAL LATIN TRADE SUPPLEMENT
2010 was another good chapter in Panama’s history of economic success. The highlight of the year was that Panama’s credit rating was raised to investment grade by Fitch, Moody’s and Standard and Poor’s,” according to the Minister of Economy and Finance, Alberto Vallarino. “The positive effects of the country’s improved credit rating have already been felt in increased direct foreign investment and the fact that our reputation in the international capital markets continues to grow,” he adds. Alberto Vallarino, Minister of Economy and Finance
Much more conservative, Antonio Fletcher, president of the National Council of Private Enterprises (CONEP), believes that in 2011 the country will grow over 6% based on the boost it will receive from the logistics, export business and tourism sectors, in addition to investments in infrastructure. The council leader believes that Latin America’s economic recovery will generate greater exports to Europe and Asia, resulting in greater use of the Canal, and ultimately increased income for the country. He also believes there will be increased demand from Peru, Ecuador, Bolivia and Colombia for exports from the Colon Free Zone. He also expects that the tourism sector, which grew nearly 9.6% in 2010, will maintain this growth rate because Panama has successfully
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linked its airports with its highway infrastructure and hospitality areas. Lastly, he believes that the government’s investment in infrastructure will play a key role in the coming years. “In the first quarter of 2011 alone, over US$3.5 billion is being invested on projects beginning in 2011 for completion between 2012 and 2014,” he says. In addition to continuing the expansion of the Panama Canal, the list of projects includes building a subway system as part of the plans for modernizing the transportation system in Panama City, completing several hydroelectric, hotel development and low-income housing projects, city and bay cleanup and building the “government citadel,” among others.
SPECIAL LATIN TRADE SUPPLEMENT
Structural reform
P
anama is in good fiscal condition. Although the primary surplus has gradually decreased from a tremendous 7% of the GDP in 2007 to 1% in 2010. The country’s primary position should improve as a result of recently passed tax reforms that will raise fiscal revenues above 25.3% of GDP level. The first of the two phases of tax reform took effect last year. “It transferred the weight placed by fiscal policies on the middle classes to extremely strong sectors with high profit margins that were not paying enough taxes,” according to Roberto Henríquez, Minister of Trade and Industry. Taxes were assessed on the aeronautics sector, casinos, the banking sector, tobacco industry, and a few in the Colon Free Zone. The second phase went into effect in July 2010 with an increase in the consumption tax rate from 5 to 7%, while still remaining one of the lowest in the Americas. Foodstuffs, medicines,
school supplies, and fuel are exempt under the new policy. The government plans is using the additional revenue for social programs. One such program is the “100 for the 70s” which provides US$100 per month to elderly individuals without social security, providing relief to the households who support them. The government also established a Universal Scholarship fund which will give families $US20 per month for every child who attends school and maintains an average of 3 or above, or in other words, is earning passing grades. In January 2010 there was a 20% increase in minimum wage, the highest in the past 50 years. It now stands at US$375 and US$400.
No president in the past 50 years has been able to maintain such popularity levels. Considering that we are making changes and changes often produce reactions. This is really astonishing.” Roberto Henríquez Minister of Trade and Industry
Minister Henríquez attributes President Martinelli’s 72% popularity rating to the government’s social action. “No president in the past 50 years has been able to maintain such popularity levels. Considering that we are making changes and changes often produce reactions. This is really astonishing,” he says.
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The most competitive in Latin America
C
ompetitiveness is a serious business in Panama. Improving competitiveness is the primary task of the Ministry of the Presidency’s Economic Secretariat, which coordinates all institutions involved. The World Economic Forum classified the country as the second most competitive country in the region, after Chile. The goal is clear. “We want to be the most competitive economy in Latin America,” says Trade
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and Industry Minister Roberto Henríquez. In order to reach that goal, the Ministry of Education is reforming the national school curriculum and distributing laptops, to each elementary and high school student in the country. It also increased resource allocations to the National Institute of Professional Training for Human Development (INADEH). In April the government will implement another aspect of its
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plan, a bankruptcy and corporate restructuring law. The law will provide temporary shelter from creditors to businesses who present a rescue plan. Another step forward is the Panama Emprende portal which allows new enterprises to issue operating permits online in 45 minutes. The next step is to link this portal with Social Security, Customs and other agencies involved in corporate establishment or development.
SPECIAL LATIN TRADE SUPPLEMENT
LOGISTICS: THE POWER OF THE CANAL The widening of the Panama Canal will change the shape of the country and maritime transport worldwide. This is no exaggeration. As of late 2014, when the expanded canal is scheduled to open, cargo ships from Asia will have unrestricted access to the east coast of the United States.
The arrival of multinationals in Panama has to do with a joint effort by the government and the private sector. “Thanks to the current connectivity of the country, through the Hub of the Americas, companies can, not only reach the regional markets in which they operate faster, but also reduce their operating expenses and response times for their clients and executives. Because of this, Copa Airlines’ growth strategy remains aligned to this vision of maintaining our contribution to the development and promotion of Panama, both as a tourist destination, and as a logistics hub and meeting point.”
This will mean a big change for the Panama Canal and for many US ports on the Atlantic. Ports like Manatee and Miami, Florida, and Wilmington and Morehead City, North Carolina, are making investments to accommodate post-Panamax vessels. At the same time, they all signed memoranda of understanding with the Canal to jointly encourage vessels to reach their ports through the Canal. This will be a new way to market sea traffic. Panama will certainly take advantage of this shift in the international trade’s center of gravity. In fact, the Panamanian Government’s 2010-2014 Strategic Plan places logistics as the most powerful engine driving the country’s development. The goal is ambitious. “Panama seeks to become the logistical Hub of the Americas. I don’t mean just Latin America, but all of the Americas,” emphasizes Roberto Henriquez, Minister of Trade and Industry. Panama’s current port system already gives it an advantage in accomplishing this goal. “Panama has the most modern port system in
Latin America and the 11th most modern in the world,” according to Vice Minister of Foreign Trade José Domingo Arias, one of the members of the new “corporate cabinet.” The ports of Colon, Balboa and Manzanillo are among the 10 largest in Latin America and Panama’s seven ports moved over 5 million TEUs (twenty-foot equivalent unit containers) in 2010. This is a huge volume considering that the largest port in Latin America, Port Santos in Brazil, moved just over 2.6 million TEUs in 2010. But Panama’s logistical development is not just about its ports. “No other place in this hemisphere has an interoceanic canal, interoceanic railroad, the largest free zone in the Western Hemisphere with US$20 billion in movement and a banking sector without a single bankruptcy during the financial crisis, all within space of just a few miles,” said Minister Henríquez. To efficiently coordinate all these elements, the government has devised a two-prongued strategy. The first is to expand and modernize existing logistical assets and the second is to interconnect them. With regard to the former, the ports will be improved so as to be able to serve vessels with almost triple the capacity of the current ones. “At this time, vessels traveling through the Canal can handle 4,600 TEUs, but following the expansion, cargo ships carrying up to
Pedro Heilbron CEO of Copa Airlines
PROINVEX: Panama’s Investment Promotion Agency
“The
investment promotion agency Proinvex is another strategy created by the Panamanian development plan,” explains Foreign Trade Vice Minister José Domingo Arias. The intention is to gather all the information investors need under one roof. And it couldn’t have chosen a
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better moment to begin. Panama has the second-highest level of direct foreign investment per capita in the world. Last year FDI grew 33% in comparison to 2009. Proinvex has secured office space to open offices in Rotterdam in the Netherlands and in Madrid, to be closely followed by offices in Singapore and the United States, says Proinvex Director Michele Selhorn.
LATIN TRADE / MARCH • APRIL 2011
Proinvex is also in charge of the Panama Invest event, which this year will take information on business opportunities to the financial capitals of the world, starting with London.
SPECIAL LATIN TRADE SUPPLEMENT
13,000 TEUs will be able to go through,” explains José Domingo Arias. The Tocumen International Airport will also be expanded, another 6 airports remodeled, and 6 new airports will be built. As for the second part of the strategy, the Panama City-Colon Highway will be completed and extended to link the Free Zone with the ports, to the Tocumen International Airport and the Panama Pacific area. This way, it will be able to expand its services as a cargo consolidation location and “warehouse” for all of Latin America. It has already served this purpose for Colombia, Venezuela, and Central America for
many years, but now it will be able to do so more efficiently for the United States and other countries in the hemisphere. In managing the logistics program, the Panamanian government worked with Georgia Tech University, as the governments of Singapore, Shanghai and Chilean winegrowers had already done. The goal is to optimize the entire logistics system. “We’re going to measure how long it takes to move the containers and compare it to international metrics,” says Vice Minister Arias. This way, we can reduce and shorten the volatility time of merchandise in transit.
The service and advantages offered by the Panama Canal route will be boosted by the expansion of this waterway, which, starting in 2014, will double its response capacity, allowing the transit of larger size ships, to respond to the increasing demands of international trade. This will have an impact on multiple aspects of the global economy, and will consolidate Panama’s role as the logistics hub for the continent.” Alberto Alemán Zubieta CEO of the Panama Canal Authority
Trade integration strategy
P
anama takes a pragmatic approach to its international trade alliances. “We seek large or small partners who can provide us with real, tangible benefits in goods or services,” says Francisco Álvarez de Soto, Vice Minister of International Trade Negotiations. That is why Panama already has free trade zagreements in place with all the countries in Central America,
Singapore, Taiwan and Chile. And in this sense, the International Trade Negotiations Office’s agenda is diverse and hectic. An FTA with the US is expected to be ratified, another with Canada is set to take effect in the first quarter of 2011. In late January negotiations began for a partial agreement with Trinidad and Tobago which is expected to be signed in the first semester of 2011.
A third round of talks with Peru will begin, and negotiations with Korea will begin in the second quarter. A trade agreement with EFTA members is also underway, and meetings have been scheduled for March. In addition, there are a few bold actions being taken in the medium term. “We are interested in Vietnam and the Gulf Cooperation Council,” says the Vice Minister.
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SPECIAL LATIN TRADE SUPPLEMENT
THE HEART OF THE LATIN DOLLAR The second pillar of growth through 2014 is the financial sector because it has a sustainable competitive advantage. The Banking Center consists of 19 Panamanian and 60 foreign institutions, whose approximately 20,000 employees manage US$70 billion in assets and nearly US$29 billion in domestic deposits.
With the ratification of the 12 agreements to prevent double taxation Panama has already signed, and a tax information exchange treaty with the United States, full certification of the Banking Center by the OECD is on the horizon.
MIGRATIONS: PEOPLE POWER “The banking sector is very solid and it has had an enormous impact on Panama’s image, and financing our growth, and it is an essential component of our development strategy,” according to the Minister of Trade and Industry, Roberto Henríquez. It is the source of fast-track financing for the private sector and support for the US$13.6 billion investment plan for the next five years, of which US$9.6 billion will be allocated to the infrastructure, nearly twice the cost of the Canal expansion. The International Banking Center may also expand, because it is of crucial importance to the region. As the Minister explains, it serves Latin America as the heart of the Latin Dollar movement. The relevance of this fact was demonstrated during the 2009 financial crisis. That year, the assets of banks in Panama increased. “Our banking center is stable. Our country is seen as a refuge of stability. That is an important asset,” he says. The highest growth in the financial sector occurred during the seventies when Panama decided to establish an international banking sector. Nowadays growth may be slower, but it accounts for 8% of GDP, according to the Comptroller General’s Office, while in the rest of Latin America it is barely half that, at 4.4%.
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On any given Thursday night at 10:00 p.m. it is difficult to get a table at any of Panama City’s ten best restaurants. Such tables are always the scene of animated discussions and ever more sophisticated dishes. It also quickly becomes apparent that the language most often used is accented Spanish. There are English and European accents, and also Mexican, Venezuelan, and Colombian. Like Canada, Panama is being built with waves of immigration, which are better handled each time. The first wave was rather spontaneous; Colombian immigrants in the seventies who in some cases brought investments, but mostly supplied cheap labor for some of the country’s needs. Then came another wave of Venezuelan investors which, according to Marco Fernández of INDESA, was one of the factors that prevented the country from entering a recession in 2009. Now there is a new wave of employees of multinational corporations, as a result of Law 41 of 2007, which offered tax advantages to companies who established regional headquarters offices in the country. Now there are 44 such companies in the country, including Procter & Gamble, Mars, HP, SabMiller, BMW, and Roche.
SPECIAL LATIN TRADE SUPPLEMENT
The arrival of the new immigrants has had a profound effect on sectors such as real estate. In 2006, the growth in construction was driven by the expected arrival of a large group of US retirees who would spend part of the year in Panama and would require vacation homes and apartments in Panama City. As a result of the US economic disaster, this group failed to arrive and the sector’s development came to a halt. With the passage of Law 41 in 2007, demand returned and prices once again began to rise.
In fact, market experts are already starting to see something happening. Panama City is bristling with buildings with 70 or more floors. Construction is everywhere and the billboards advertising the projects bear the names of investors from Spain, the US, South America, France and Belgium, providing clear evidence of international capitalists’ interest in this city of 1.2 million inhabitants.
SURPRISING COUNTRY According to Osvaldo Marchena, president of the Panamanian Association of Real Estate Brokers and Promoters, the momentum provided by multinationals is even more solid than that of the retirees. The retirees only bought residences, whereas the transnationals also need commercial and office buildings. He’s conservative in his projections for this year. He expects the sector to grow 7%, a growth rate similar to that of the GDP. However, he thinks that beginning in 2012 there will be a new construction boom ahead of the completion of the Canal expansion in 2014. “The inventory we are currently handling will supply the residential and commercial needs for two more years, but once the Canal expansion is finished, maritime trade is going to be completely reconfigured and a Panamanian Hub is going to become more attractive,” he says.
But it’s not all about logistics, banking and construction. Panama’s mines are surprisingly rich, and opportunities abound in the agricultural sector as well. “Panama lies on a bed of copper and gold,” says Panamanian Minister of Trade and Industry Roberto Henríquez. “The Petaquilla gold mine’s export sales already exceed those of bananas, Panama’s star export a few years ago. But there is also another project on the way which, if begun, would require an initial investment of nearly US$5 billion and would be operated by a subsidiary of the Canadian Inmet Corporation”, says Trade and Industry Vice Minister, Ricardo Quijano. It could produce 255,000 tons per year, making it one of the largest deposits in the world. The largest underground mine in the world, “El Teniente,” located in Chile, produces 400,000 tons per year.
Hewlett-Packard chose Panama as a strategic location for its investments, due to the tremendous advantages the country offers. Located in the heart of the Americas, it is the ideal hub for doing business in the region, because it has direct flights to many key destinations and access to a robust and reliable infrastructure that lets us always stay in touch,” said Greg Betz, CEO of HewlettPackard Panama. “There is a great sense of business opportunity in the country, with the Panamanian government constantly working with companies to facilitate our success. We are very proud of our history in Panama,” he adds. Greg Betz CEO of Hewlett Packard Panama
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The agricultural sector also offers interesting opportunities. Panama has 1.7 million head of cattle and produces 170 million liters of milk in over 40,000 farms, says Garardino Batista, president of the National Livestock Association (ANAGAN). Around 85% of such farms are small, with fewer than 100 head. The potential to consolidate this business is clear. A plan has just recently begun to improve pastureland and livestock genetics, for which purpose preferential loans are made available to cattle farmers for herd and cattle farm improvements. The efforts to develop the rural sector make enormous strategic sense. Although agricultural activity represents only 5% of the GDP, that is not much less than the Latin American average of 5.2%. Moreover, the agricultural sector employs 14% of the Panamanian workforce. In 2009 the government also implemented a tax incentive program known as the Certificates of Promotion of Agricultural Exports (CEFA), in full compliance with WTO standards, explains International Trade Negotiations Vice Minister, Francisco Álvarez De Soto, which are usually issued for 10% of the sale value of non-traditional export products. It also has special incentives for high-margin products such as melon, watermelon, pineapple and specialty coffees, the market for which is increasing abroad. Panama is an interesting country in which to invest. In addition to a good market, it boasts legal, political and currency
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stability. The proof is that data shows that investments grew approximately 33% in 2010, the highest rate of increase in the Americas and even exceeding that of Asian economies. Panama City has the typical problems of a developing city. There are problems with waste management, and traffic flow organization problems which generate monumental traffic jams. There are even customs that make life difficult for foreigners, such as the impossibility of locating places by their address. No one can get anywhere in Panama without directions, not even professional taxi drivers. But many of these things, including the customs, may evolve, as has happened in other capitals around the world. Such a process will take place over time and has already begun. Panama is even taking steps to eradicate such widespread “tropical diseases” as corruption, with the Transparency Act and corporate social responsibility and corporate ethics mechanisms. The road seems well-paved. A good macroeconomy, the golden opportunity offered by its location at one of the best maritime crossroads in the world, a well-conceived and wellfinanced strategic plan, and the firm determination to become a developed country in a little under a generation. With all of this, it is no accident that in the worldwide economic firmament, Panama is destined to be the star of the Americas.
SUPLEMENTO ESPECIAL DE LATIN TRADE
Come to Panama What’s new in the Panamanian tourism industry? The General Administrator of the Panamanian Tourism Authority, Salomón Shamah, answers this question. How are the tourism projects on the Panamanian coasts coming along? Late last year the National Land Authority (ANATI) was established, in part to promote the titling of coastal land hotel projects included thereby encouraging investment in these areas. We are also pushing the new tourism act which, among other things, seeks to continue to encourage investment in tourism all over the country.
What advantages are there for tourism investors? What about for visitors? The country offers various tax advantages and incentives for investors. As of January this year, 30-day tourist insurance against accidents and illness is now offered to travelers arriving at the Tocumen International Airport. Panama is one of the few countries in the world that offer these advantages to visitors.
What kind of progress is being made in convention and conference tourism? We have succeeded in positioning ourselves as one of the most important destinations in the region in the meeting, conference and convention segment. For 2011, the Tourism Authority and the private sector have attracted over 40 new conferences and conventions, and 2012 is shaping up to be even better.
What strategy will the country use to take advantage of its biodiversity? Over 40% of our territory is protected as national park land. Panama is aware of this national asset and has been backing a series of laws and regulations to preserve our flora and fauna, encouraging the creation of low-impact tourism products in these areas, to promote more sustainable tourism.
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SPECIAL ADVERTISING FEATURE
Chevron has invested more than $40 million in its Bahia Las Minas terminal facility in Panama. Panama has the potential to become a global petroleum hub that will contribute to energy security throughout the region.
Private Sector Invests in Panama’s Future By Richard Westlund
W
ith its prime location at the crossroads of world trade, Panama is increasingly becoming a strategic hub for multinationals doing business in Latin America. For example, Caterpillar recently moved its Latin America training center from Miami to Panama, in part due to the relative ease of entry. As the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines, Caterpillar invested more than US$30 million in its center in the Panama Pacifico Special Economic Zone. Hewlett-Packard selected Panama for a new global delivery center in 2007 because of the nation’s well-developed information technology infrastructure, large pool of skilled workers, and government and university support. Dell operates its Latin American financial, marketing and human resources administration from Panama, along with its largest contact center in the region.
According to benchmarking indexes from Latin Business Chronicle, Panama has Latin America’s best infrastructure and secondhighest technology level. In addition, Panama has been first in the region in terms of the exports and imports as a percent of gross domestic product (GDP) for the past five years, based on Latin Business Chronicle’s Latin Globalization Index.
In the energy sector, Chevron is investing in Panama’s future with a key strategic infrastructure project and community engagement initiatives. “Chevron is committed to serving the needs of Panama, which has strong potential for continued growth thanks to its central location in the Americas, and its pro-enterprise environment,” said Damon Echevarria, area manager for Colombia and Central America Products at Chevron. In the past several years, Chevron has invested more than $40 million in its Bahia Las Minas terminal near Colon, converting a former refinery to a state-of-the-art storage facility. “Chevron believes this project provides important support for Panama’s goal of becoming a regional hub for communications, trade and commerce,” said Echevarria. “It has the potential to become a global petroleum hub that will contribute to energy security throughout the region.” Chevron is also committed to being a good corporate citizen of Panama, added Echevarria. Chevron is supporting Panama’s education system through its “Energy for Learning” program. Based in San Ramon, Calif., Chevron Corporation is one of the world’s leading integrated energy companies with subsidiaries that conduct business across the globe. For more information: www.chevron.com.
TECH TRENDS
BY PAUL LEFTON
Car tech
Automakers bring connectivity to the driver’s seat. Previously celebrated features like Bluetooth wireless technology and GPS navigation systems have become old hat. Automakers and aftermarket manufacturers have been scrambling to develop the next big thing, a fully interactive driver experience that marries connectivity, entertainment and practicality while also paying mind to safety considerations. Here are three picks from some of the hottest in-vehicle technologies that were unveiled at the 2011 Consumer Electronics Show in Las Vegas, a leading global showcase for all things tech. Toyota Entune is the Japanese carmaker’s promising multimedia infotainment system that will be available as an option in select models
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this year, starting in the United States. Entune uses a mobile phone to create an interactive experience that is driven by voice commands and in-vehicle touch controls, enabling you to keep your eyes on the road rather than the phone. After downloading the Entune mobile app to a Bluetoothpaired phone, the user has instant access to a variety of useful applications, such as Bing navigation and Internet or satellite radio. Entune also boasts location-based services, such as real-time traffic reports, fuel prices, stock prices, weather and sports scores. The idea of social networking behind the wheel might sound a little scary, but you knew it was only a matter of time. Enter the Aha Radio Mobile App
from electronics manufacturer Pioneer, which links your Apple iPhone to an in-dash Pioneer GPS navigation head unit. Once connected, drivers can listen to Facebook and Twitter updates via text-to-speech technology, a feature that is activated via voice commands for added safety. When you’re tired of tweeting, the Aha Radio app lets you tune into podcasts, RSS feeds and Internet radio. The first two Aha Radio-equipped in-dash units will be available in March, starting at $800. With the launch of the 2012 Ford Focus, the automaker is commencing the global rollout of MyFord Touch, its integrated navigation and entertainment system. MyFord Touch displays information using two 4.2-inch color
LCD screens on the driver instrument panel along with an 8-inch touch screen built into the dashboard. The driver controls everything through a combination of touch-sensitive steering wheel buttons and voice commands. MyFord Touch is integrated with and expands the capabilities of SYNC, the Microsoft-powered infotainment system introduced by Ford in 2007. Features include voice-activated climate control, access to advanced smart-phone features, interactive navigation, HD and satellite radio, and SYNC apps for news, weather and sports. Throughout the Americas, MyFord Touch includes EcoRoute, an application that calculates the most fuel-efficient route for your journey.
FOUR SEASONS HOTEL MIAMI
ON THE ROAD
Ask the Concierge The Four Seasons Hotel Miami opened in 2003 in what is the tallest building in the southern United States. The 70-story skyscraper sits at the southern end of Miami’s Brickell Avenue business district and houses residences, offices and a 50,000-square-foot gym in addition to the hotel. The Four Seasons’ lobby is situated on the seventh floor as is its swimming pool, which is surrounded by lush tropical plants and offers bathers a bird’s-eye view of the city skyline. The Brickell neighborhood has evolved over the past decade, putting Four Seasons guests within walking distance of not only major banks, corporate offices and consulates but also a plethora of restaurants, cafes and shops.
PHOTO COURTESY OF FOUR SEASONS HOTEL MIAMI
INTERVIEW WITH CARLOS IVAN AYALA
What restaurant would you recommend for a professional lunch or dinner? Il Gabbiano (Tel. 305-373-0063) serves traditional Italian dishes in a dining room with floor-to-ceiling windows overlooking Biscayne Bay. This downtown Miami restaurant is a staple of the local business elite. For a completely different ambiance and style, Zuma (305-577-0277), also downtown, offers contemporary Japanese cuisine in a high-energy environment that attracts a sophisticated, professional clientele.
Can you suggest one or two places to shop? Bal Harbour Shops is a must. This elegant open-air mall on Collins Avenue in the beachside town of the same name features the upscale department stores Saks Fifth Avenue and Neiman Marcus and a broad range of exclusive boutiques, such as Bulgari, Chanel and Tod’s, plus restaurants and cafes. Miami’s Design District is emerging as a shopping destination, featuring art, design and clothing by hard-tofind brands such as Y3, Martin Margiela and Tomas Maier.
I have 24 hours in Miami. What itinerary would you recommend to impress a client? Start the day poolside with some of our signature amenities like an Evian Spritz and frozen-fruit brochettes while browsing the day’s newspapers on an on-loan Kindle. Now one of the country’s top art destinations, Miami has a number of galleries and exhibition spaces that merit a visit. The Bernice Steinbaum Gallery in the Wynwood neighborhood represents some top local artists, including Edouard Duval-Carrié, whose work is also on display at the hotel. For dinner, a table at either Prime One 12 in South Beach or Il Gabbiano downtown is always a good option. People watching in Miami Beach is a great way to end the evening. Take a seat at an outdoor table at the Nespresso Café on Lincoln Road, a pedestrian-only street, order a cortadito and enjoy your coffee while watching the world go by.
What are the must-buys in Miami, if I were to bring something home? A custom-made guayabera is always a great option. What safety measures do you recommend people take when they visit Miami? Miami is quite safe, but one should always be aware of one’s surroundings as in any other city in the world. Always ask the concierge of the hotel for a guide and directions. I have many meetings in the city. What is the best way to get around? Order a chauffeured-service vehicle. Construction, traffic and signage can confuse even lifelong residents who know the short cuts and alternate routes. Most hotels are affiliated with a reputable company, but be aware that all require a minimum of three hours.
What is the appropriate amount to tip a taxi or other driver and in restaurants? Tipping is voluntarily but is expected by cabbies and restaurant servers. Ten percent of the fare is the general rate for taxis and 18 percent for restaurants. What is the most unusual request that you have received from a guest? Arranging a wedding with just a few days notice. A guest wanted to marry his longtime girlfriend, who had thought he would never ask. I arranged for the priest and musicians and served as the ring bearer. Needless to say, the bride had the biggest surprise of her life.
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MADE IN
Chile Wine
Annual Exports
Top Markets
Year 2005 2006 2007 2008 2009
Country 1. United Kingdom 2. United States 3. Canada 4. Brazil 5. The Netherlands
Value $746 million $825 million $1.08 billion $1.164 billion $1.139 billion
Source: Wines of Chile. All figures in U.S. dollars.
LATIN TRADE
Value $172.52 million $171.44 million $67.87 million $61.665 million $59.31 million
For bottled wine during the 10-month period ended October 2010
Bottled wine only
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Top Exporters
03-04/2011
Company 1. Concha y Toro 2. San Pedro 3. Cono Sur 4. Santa Rita 5. Santa Carolina
Value $215 million $70.69 million $69.826 million $43.57 million $30.657 million
Of bottled wine, during the 10-month period ended October 2010
ISTOCKPHOTO
O
industry has set a goal to reach $3 billion in bottled-wine exports ne of Chile’s most vibrant export by 2020. The United States, the United Kingdom and Canada are industries — wine — has proven among the most important markets for Chilean wine producto be resilient after a destructive ers. Brazil has emerged as a leading consumer of wine from earthquake and has set out Chile, whose winemakers claim one-third of the importan ambitious plan to fill ed-wine market and where imports have been gaining more glasses around the ground against local Brazilian wines. world. Consumption in the United Kingdom reportedly Chilean winemakgot a boost in October when Britons toasted with ers had enjoyed two decades of virtually uninterChilean wines the dramatic rescue of the miners rupted annual growth until the global economic trapped in the Atacama Desert. crisis and a local natural disaster. In 2000, exports Cabernet sauvignon accounts for nearly one-quarter were valued at $495 million. By 2008 they had Wine cultivation of current exports, but producers are looking to expand more than doubled to $1.2 billion. Even with key in Chile dates to sales of whites like sauvignon blanc and one of the markets like the United States suffering in 2009, country’s signature specialty reds, carménère. the wine continued to flow; exports of Chilean the mid-16th The global push will be twofold. While continuwine edged down only slightly to $1.1 billion century. The Maipo ing to raise production levels at home and with it the that year, representing 2.6 percent of all national Valley supplied the overall volume of exports, wine producers will promote exports. More than 100,000 people are directly first wine boom. higher-priced wines to consumers in its main export employed by the industry. markets and will cultivate new drinkers in emerging The earthquake that struck on Feb. 27, 2010, markets like Korea, Japan, Hong Kong and China, destroyed 125 million liters of bulk, bottled and where wine represents a small percentage of overall aged wine, equivalent to 12.5 percent of 2009 consumption of alcoholic beverages but where the production output and valued at $250 milpotential is enormous. lion, according to the industry group Wines of In 2010 there are 23 million Chinese consumers Chile. Some wineries, especially in the harder-hit who can afford to purchase imported wine and 14.3 Colchagua Valley, suffered damage to their facilimillion who drink imported wine, Wines of Chile ties in addition to the loss of wine. estimates. The group plans to open an office in Asia The setbacks are temporary. Chile still boasts this year. ideal growing conditions for a broad range of varietals, and the winemakers are looking to secure a bigger share of the global wine market. The —Mary Sutter
LATIN AMERICA: TAKING ITS PLACE ON THE WORLD STAGE PORTADA'S 2011 LATIN AMERICAN ADVERTISING AND MEDIA SUMMIT GROUNDBREAKING SPEAKERS AND PANELISTS
JW MARRIOTT MARQUIS, MIAMI, JUNE 1-2, 2011 A STRONG PROGRAM FOCUSED ON EXPLORING, UNDERSTANDING AND BENEFITING FROM A PROMISING DECADE AHEAD: > BELÉN AMATRIAIN, Global Marketing Director, Telefónica
> > >
DAVID ANON, Channel Marketing Director Latin America, Research In Motion
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Country Focus - Brazil: What International Advertisers need to know about the Brazilian Juggernaut Ad - Categories: IT-Electronics: How Nokia, Blackberry and Sony are marketing to the emerging Latin American middle class Speed Dating: Meet Panregional and Latin America based buyers Digital Content Innovation: What the World can learn from Latin America Ad-Categories: CPG: Latin American Marketing between the poles of the Centralized, Multilocal or Local model. ROI-Case Study: Best Practices in Panregional Media Buying and Planning Plus Portada's Latin American Advertising and Media Awards!
DIEGO CARVAJAL, Content Manager and Digital Operations Manager at Casa Editorial El Tiempo, Colombia
SPOTLIGHT ON PRIVATE EQUITY/VC:
for Opportunities ng ti e Ventures Targ n ti Global La Audiences
CONFIRMED SPONSORS MATÍAS COMELLA, Manager, B2B Online Marketing, Latin America & Caribbean, Symantec
Leader Sponsor Plus
Distinguished Sponsors
ADDITIONAL SPEAKERS INCLUDE Rebecca Barba, Manager, Global Marketing & Communications, Royal Caribbean Cruises | Asier Bollar, Caribbean Marketing Manager, Cisco | Gabriel Cabrera, Director, E-Commerce, Sony | María Carrasquillo, Marketing Director Latin America and US Hispanic, Oster | Martin Pombo, Activation & Customer Marketing Manager, Nokia | Roberto Ricossa, Marketing Director, Américas, Avaya ...and many more to be announced soon!
Take advantage of the early bird rate and register now at http://www.portada-online.com/conference/registration.aspx?cid=9 or call 1-800-397-5322