LATIN TRADE BRAZIL'S CONSUMER FEVER
BRAZIL'S CONSUMER
FEVER
AND SOME HEADACHE
MAY / JUNE 2012
ALSO INSIDE: • THE RUSSIANS ARE COMING • P&C INSURANCE GROWS • EXECUTIVE EDUCATION YOUR BUSINESS SOURCE FOR LATIN AMERICA » WWW.LATINTRADE.COM
MAY / JUNE 2012
CONTENTS
M A Y /J U N E 2 0 12 V O L. 20 NO . 3
34
26 Features
42
26 Cover: Brazil Consumer Fever - and Some Headache. While executives try to make the most of the consumer boom, the cost of doing business still is much higher in Brazil than in most countries in Latin America.
28
Challenges and Opportunities for Brazil
32
Favelas: New Consumerism Booms from the Bottom
46
Special Report: Benchmarking LatAm
By Marcelo Odebrecht
18
The Russians Discover Latin America Tourists from the Russian Federation started to flock to the region, eager to enjoy beaches and glaciers.
34
Industry Report: Logistics Bigger Panama Canal Will Broaden Trade
Analyzing the best and worst countries in Latin America.
52
The $5.25 billion expansion project will bolster trade and is pushing regional ports to revamp.
Covering the risk of accidents and disasters.
58 42
Special Report: Cuba Red Flags in the Sunset A new, increasingly business-minded Cuba is emerging.
2
LATIN TRADE
MAY-JUNE 2012
Industry Report: Property and Casualty Insurance
Special Report: MBA Getting an Executive Education Latin America’s leading business schools are proving to be increasingly viable alternatives for executives from the region and beyond.
CONTENTS
72
10
76
The Scene
Tech Trends
On the Road
10 Luxury Mansions in Latin America
64 Digital Education makes its push in LatAm
72 Monterrey
Unique properties hidden in glorious places.
12 Buenos Aires The most competitive among 13 cities in Latin America.
Opinion
74 Ask the Concierge
By John Price. How immigration trends changed in the region
16 A Latin Solution to an African Problem By Marcelo Giugale
4
LATIN TRADE
MAY-JUNE 2012
Andres Santiago, from Sheraton Ambassador Monterrey, gives his tip on the city.
Events 66 CFO Miami 68 CFO São Paulo
14 The Contrarian: Go South, Joven
First hand tips for visiting the Northern Mexico industrial heart.
Kuepa’s CEO Gonzalo Pulit anticipates what is coming in education.
70 CFO Buenos Aires
Spotlight: Peru 76 Rediscovering The Identity of a Country
Editor’s Note 6
New trends in the region
EDITOR’S NOTE
THE RUSSIANS ARE COMING
The Cost of Brazil Brazil, which has surpassed the United Kingdom as the world’s sixth-largest economy, continues to show strong promise despite its many challenges, as our São Paulo correspondent Thierry Ogier points out on page 26. “While company executives try to make the most of the consumer boom, the cost of doing business still is much higher in Brazil than in most other Latin American countries because of deficiencies in transport and distribution logistics, taxes and labor laws,” he reports. According to Frontier Strategy Group, Brazilian business units of multinationals are less profitable than those in other Latin American countries. A large part of that is caused by Brazil’s cumbersome tax system and high rates.
Gone are the days when Russians in Latin America would be connected to Cold War schemes. Now they are more likely connected to cold drinks in the sun. One country that is benefiting from the boom in tourism from Russia is Mexico, which traditionally has depended on U.S. tourism. But with a shrinking U.S. market – partly driven by economic problems in the United States, and partly from fear of visiting Mexico because of the country’s drug violence – Mexico has been aggressively courting tourists from other parts of the world, including Russia. The result: Russian tourists have jumped from a paltry 1,600 in 2006 to 54,000 in 2010, with forecasts of stronger growth in the next few years. Not only that, but they are a highly attractive group since they typically spend $1,000 per day, more than twice the amount spent by American tourists, reports our Mexico correspondent David Agren on page 18. Interestingly enough, the Russians have not been scared by media headlines about the violence, Cancun-based tour operator Armina Wolpert tells Agren.
INSURANCE GROWTH As Latin America’s economies continue to grow, so do sectors such as insurance. Countries such as Brazil and Ecuador are showing growth of more than 20 percent in insurance premiums, while the rest of the region is growing between 12 percent and 15 percent, Juan Fernando Serrano, CEO of LatinoInsurance, tells Joseph Mann in his report on page 52 The auto sector alone is a major driving force, thanks to the boom in auto sales in Latin America. Brazil, for example, is now the fourth-largest market worldwide for car sales.
Joachim Bamrud Executive Editor jbamrud@latintrade.com
6
LATIN TRADE MAY-JUNE 2012
Companies striving for better results should consider how professional coaching can take their business to the next level. Joey Restaurant Group and BC Housing are the latest businesses to be recognized for their successful use of professional coaching by the International Coach Federation (ICF). Both groups received the ICF International Prism Award for demonstrating their use of professional coaching to achieve strategic business goals. Coaching helped Joey increase revenue, reduce turnover, and make the list of “Best Workplaces in Canada” by the Great Place to Work Institute two years in a row. Joey calculates a 682 percent return on investment from their coaching initiative. BC Housing has used coaching to help attract, develop, and retain top employees, as well as scale back the amount of external training purchased, resulting in significant savings. BC Housing estimates a 70 percent return on investment from coaching.
CHIEF EXECUTIVE Rosemary Winters EXECUTIVE DIRECTOR & PUBLISHER Maria Lourdes Gallo EXECUTIVE EDITOR Joachim Bamrud MANAGING EDITOR Elida Bustos ART & PRODUCTION DIRECTOR Manny Melo GRAPHIC DESIGNER Vincent Becchinelli CONTRIBUTING EDITORS Gabriela Calderon (research), Mark Ludwig COLUMNISTS Alberto J. Bernal, Marcelo Giugale, John Price CORRESPONDENTS Argentina: Charles Newbery, David Haskel, Paula Ancery • Brazil: Thierry Ogier (São Paulo), Taylor Barnes (Rio de Janeiro) • Chile: Gideon Long, Tom Azzopardi • China: Ruth Morris • Colombia: John Otis, Anastasia Moloney France: Ilan Moss Mexico: David Agren • Panama: Sean Mattson, Eric Sabo • Peru: Lisa K Wing • Spain: Guy Hedgecoe • US: Joseph Mann Jr. • Venezuela: Jose Orozco CONTRIBUTING PHOTOGRAPHERS Brazil: Paulo Fridman • Chile: Helen Hughes • Costa Rica: Juan Carlos Ulate • USA: Matthew Pace TRANSLATION: Rebecca & Valentin Farro Howard COPY EDITORS: David Wisor, Jude Webber
For more information on coaching, visit Coachfederation.org/works
EVENTS & CONFERENCES CONFERENCE PROGRAM DIRECTOR Alexia Sagemuller EVENTS EXECUTIVE Sandra Bicknell EVENTS MARKETING EXECUTIVE Natasha Valle AUDIENCE DEVELOPMENT COORDINATOR Maria Vega SALES & CIRCULATION SALES REPRESENTATIVES Miami/Pan-regional sales: Silvia Clarke, Senior Account Manager Mercedes Fernandez, Business Development Manager Special Projects Coordinator: Ana Berger Colombia/Panama: María Cristina Restrepo India: Stephen Dioneda CIRCULATION COORDINATOR Claudia Banegas LATIN BUSINESS CHRONICLE Patricia Cabarcos, Enterprise Solutions/Datarisk Director, pcabarcos@latintrade.com Rosemary Begg, Marketing Associate, rbegg@latintrade.com
Latin Trade Group 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, an affiliate of Isis Venture Partners 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.
8
LATIN TRADE MAY-JUNE 2012
Visit Latin Trade online @ www.latintrade.com
THE SCENE HOUSE HUNTING? Looking for a special place in Latin America and the Caribbean? Here is a sample of some of the most luxurious properties offered through Christie’s International Real Estate.
ESQUEL, Argentine Patagonia Ranch by the lake, 6,000 acres, $12.9 million
GEORGE’S ISLAND, Port Royal Bay, Honduras, $27 million.
PHOTOS: COURTESY OF CHRISTIE’S
THE WAVE HOUSE, Dominican Republic, $13.5 million
10
LATIN TRADE MAY-JUNE 2012
PHOTOS: COURTESY OF CHRISTIE’S
THE SCENE
CAVE CAY, Bahamas. A private island, 9.6 million sq feet, $110 million.
MAY-JUNE 2012 LATIN TRADE
11
THE SCENE
LATIN AMERICA SKYLINE TORRE COSTANERA, Santiago de Chile 1 GRAN Height: 300 m. To be finished in 2013. OCEAN CLUB, Panama 2 TRUMP Height: 290 m. Finished June 2011. MAYOR, Mexico 3 TORRE Height: 230,4 m. Finished 2003. GEMELAS DEL PARQUE CENTRAL, 4 TORRES Caracas. Height: 225 m. Finished (east tower) 1979 & (west tower) 1984. Colombia 5 COLPATRIA, Height: 196 m. Finished 1979. BUILDING ILLUSTRATIONS © BY SKYSCRAPER SOURCE MEDIA INC.’S SKYSCRAPERPAGE.COM. ALL RIGHTS RESERVED.
Most Competitive: Argentina is hardly known as the most competitive country in Latin America, but its capital, Buenos Aires, is ranked as the most competitive among 13 cities in the region, according to new research by the Economist Intelligence Unit (EIU). The research, commissioned by Citibank, looks at eight factors: economic strength, physical capital, financial maturity, institutional effectiveness, social and cultural character, human capital, environment and natural hazards, and global appeal. According to the EIU ranking, the most competitive cities in Latin America after Buenos Aires are São Paulo, Santiago and Mexico City. The least competitive among the 13 cities on the list are Porto Alegre and Guadalajara. Buenos Aires outperforms its Latin American peers in
12
LATIN TRADE MAY-JUNE 2012
global appeal, ranking 27th worldwide among cities in 120 nations, beating such cities as Dublin, Los Angeles and Dubai. The Argentine capital also leads the way in Latin America in terms of human capital, ranking 43rd worldwide, ahead of such cities as Rome, Milan and New Delhi. In physical capital, Buenos Aires ranks second (behind Santiago). Physical capital measures quality of infrastructure, public transport and telecommunications infrastructure. Meanwhile, in financial maturity, Buenos Aires shares the top score with three other cities: São Paulo, Mexico City and Rio de Janeiro. When it comes to social and cultural character, Buenos Aires ranks third in Latin America, behind São Paulo and Rio de Janeiro.
ISTOCK
Buenos Aires
Buenos Aires ranks fourth in Latin America in the category of environment and natural hazards. Monterrey ranks first in that category. And in economic strength and institutional effectiveness, Buenos Aires ranked in the middle in Latin America, ahead of such cities as Bogota, Lima and Mexico City. Institutional effectiveness includes five factors: electoral
process and pluralism, local government’s fiscal autonomy, taxation, rule of law and government effectiveness. But although Buenos Aires is the champion in Latin America, it doesn’t fare that impressively worldwide. It ranks only 60th globally – or in the middle of the EIU ranking. -Joachim Bamrud
Smooth sailing from procurement through settlement. Linking more than 150 countries, our global trade and supply chain finance solutions give you a worldwide edge. Let our expertise help you minimize risk and optimize cash flow everywhere in the pipeline.
Taking your opportunity further. That’s return on relationship.
“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured y May Lose Value y Are Not Bank Guaranteed. ©2012 Bank of America Corporation
THE CONTRARIAN
GO SOUTH, JOVEN BY JOHN PRICE TWENTY YEARS AGO, when I first headed south to Mexico to launch my Latin American career, I filled my last tank of U.S. gasoline outside of El Paso, Texas. When the station manager, an old Tejano, learned I was moving to Mexico, he quipped, “You’re going the wrong way, man. They’re all moving here.” How times have changed. If estimates are accurate, 2011 was the first year since the 1970s in which more people moved (back) to Latin America than left it. What induces people to uproot themselves and move to another country is a combination of carrot and stick. Waving the biggest official carrot is Brazil, where President Dilma Roussef has reformed an outdated and insular approach to immigration by granting record numbers of visas to highly skilled European, American and Chinese technicians, engineers, financiers and entrepreneurs. In 2011, some
We design supply chain solutions…
14
LATIN TRADE
51,353 visas were issued, up 30 percent from the previous year. Brazil is booming, and, to meet its World Cup and Olympic hosting commitments, it must build $500 billion worth of infrastructure. But Brazil’s woefully thin output of engineering graduates cannot produce enough native brain power, so talent must be imported. The refreshing show of humility behind the Brazilian policy also includes sending 100,000 Brazilian university students to study abroad for a year at the world’s leading science and engineering faculties. The timing of Brazil’s sudden embrace of foreign talent comes at an opportune moment when European (especially Spanish and Portuguese) and American skilled workers are out of work and/or frustrated by the lack of career mobility at home. Brazil’s program is designed to attract typical unmarried, 30-year-old university graduates with five to
involving every supplier, every customer…
MAY-JUNE 2012
and every other supply chain partner…
10 years of work experience. Applicants are responding en masse, but apparently more than half of them drop out of the process when confronted by the time-consuming and costly bureaucracy associated with a Brazilian visa application, including all the verification and notary-laden steps required. Brazilian leadership might be enlightened, but Brazilian bureaucracy remains a noose around the country’s neck. Economic opportunity is what moves most Latin American migrants. When two differently developed economies share a border, unskilled labor from the poorer neighbor will
then quantify the value…
execute the plan…
lease the space, staff the facilities…
LATIN AMERICA’S FAVORABLE DEMOGRAPHICS
find a way to higher-paying jobs in its richer neighbor. An estimated one mi-llion Haitians live in the Dominican Republic today, tending fields, parking cars, washing dishes. Rural Colombians continue to move, albeit in smaller numbers than before, to Venezuela, where higher wages can be found on farms. An estimated 400,000 Nicaraguans live in Costa Rica, where per-capita income levels (and wages) are four times their own. But the biggest magnet for undocumented rural labor
THE CONTRARIAN
is Argentina, where farm families are shrinking even while food production and exports rise. About 14 percent of Argentina’s population is made up of foreign-born nationals, compared with 13 percent in the United States and 1 percent in Brazil. The United States wields the stick in today’s continental migration story. In 2011, the Obama administration deported about 200,000 Mexicans, the most sent out by any U.S. president. More than half of them were
indicted criminals whose fingerprints can now be cross-referenced for residency status. Another 400,000 Mexicans went home of their own volition, a combination of seasonal laborers, frustrated young (mostly) men who cannot find decent employment in the United States, and the families and loved ones connected to deportees. The more than 600,000 Mexicans heading south virtually equals the 600,000 who tried to move north, one-third of whom were stopped by U.S. marshals at the border and sent home. That number continues to shrink in spite of increased enforcement. All told, the United States lost 200,000 more Mexican migrants than it attracted. Perhaps it’s time to make some cuts to the bloated U.S. border security budget. For all of us, this brave new world requires some brandnew thinking on everything from immigration policy to business forecasting. John Price is the managing director of Americas Market Intelligence and a 20-year veteran of Latin American competitive intelligence and strategy consulting. jprice@americasmi.com
from end to end. and deliver on time every day...
That’s about it.
In a nutshell.
Not a weak link in the chain These are the faces of UTi. They represent just a few of the thousands of professionals in over 60 countries, in every major market and industry vertical, delivering client centric supply chain services and solutions to our clients. Our people collaborate with our clients to deliver value to their businesses, competitive advantage to their supply chains, and the assurance they need, knowing that on our team, there’s never a weak link. To find out more visit us at go2uti.com.
MAY-JUNE 2012 LATIN TRADE
15
A LATIN SOLUTION TO AN AFRICAN PROBLEM BY MARCELO GIUGALE
FIFTEEN YEARS AGO, Mexico did something that, until then, only rich countries had dared to do – it began to transfer cash directly to its poor. The payments were conditional: Recipients had to help themselves by keeping their children in school and vaccinating them. Today, about 70 developing countries have followed the example, and most evaluations show that the idea worked. But direct cash transfers can be more than a smart way to deliver social assistance. In fact, they can provide Africa with a neat solution to its most urgent problem: how to handle its massive commodity bonanza. High prices and vast discoveries of oil, gas and minerals are turning the continent into a giant boom town. Big money is beginning to flow into governments’ coffers. The risk that the new money might be wasted – or stolen – is big. The best way to hedge that risk is to upgrade public institutions, such as budget, investment and anticorruption offices. But that will take time. What can be done in the meantime? Transfer part of the money directly to the people – universally and uniformly, the same sum to each person, rich or poor. Call them “direct dividend transfers.” Why would you do that? Will this not mean less money for schools, clinics, and roads? Not necessarily. In fact, direct dividend transfers can lead to less poverty, less corruption and more public services. First, poverty. If a typical African government (think Gabon’s) distributed, say, a tenth of its hydrocarbon or mineral revenues, each of its citizens could get about $100 per year. That
16
LATIN TRADE
MAY-JUNE 2012
might not be much for the well-off; they might not even bother to collect it. But it would be a huge help for poor households – a day-andnight difference in their efforts to climb out of poverty. Optimally, one would like to focus the transfer only on the poor – and away from the rich. But, in most places, that would prove politically complicated, if not impossible. And, anyway, the rich are very few in Africa. Second, less corruption. The best way to understand why direct dividend transfers can make governments less corrupt is with a hypothesis. Say that you get home tonight and your spouse is waiting for you with a surprise gift – a brandnew Ferrari. That would probably make you very happy. But soon you would ask yourself: “Where did the money come from? I didn’t know we had that kind of cash.” The same will happen to people if their government suddenly gives them, say, 10 percent of its mineral revenue – they will want to know what the government is doing with the other 90 percent! You would create a “scrutiny effect,” a popular interest in how the bureaucracy manages the national treasury. In technical parlance, you would have fostered the “demand for good governance.” (By the way, if you are getting a cut of the profit from your country’s gas industry, would you insist on its nationalization or on its efficiency? Would you want it run by politically appointed public employees or by profit-driven private managers?) Third, more public services. A big argument against direct dividend transfers is that they would leave less money for a government
to invest in “public goods” – such as primary education, basic health and crime prevention. Point taken. But whether that happens depends on how much revenue the government already is receiving. If your country is so poor that the state is unable to provide much in terms of services (think of newly independent South Sudan), you might not want to take money away from it. But how about countries in which the government has, for decades, appropriated all the revenues from commodities – billions upon billions of dollars – and has, by and large, wasted them? Will sharing part of those revenues with people reduce the quantity of public services, or will it reduce waste? Look at most hydrocarbonrich economies, and you will get the answer. So the idea of adapting Latin America’s social transfers into Africa’s dividend transfers could work in theory. But can it work in practice? After all, Africa is not Alaska, where oil dividends have been distributed to residents since the early 1980s. Well, the necessary technology is getting better and cheaper by the day – it costs only about $4 to biometrically identify someone. And with the viral growth in the use of magnetic cards and cellular telephones across the developing world, making payments is a non-issue. More to the point, about 30 African countries already operate more than 100 cashtransfer programs as part of their social policies. It is now a question of linking those transfers to the source of income from which they are paid, and of extending them to everyone. Of course, sitting governments have little or no incentive to do that – they would lose the power to decide who gets how much. More likely, direct dividend transfers will be championed by opposition politicians in democracies holding elections (“Vote for me, and the oil is yours.”). In other words, the time is coming – in Africa and elsewhere. Marcelo Giugale is the World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa, and formerly held the same post for Latin America. He holds doctorate and master’s degrees in economics from the London School of Economics. You can follow Marcelo Giugale on Twitter at: @Marcelo_WB
ISTOCK
OPINION
<m\ip `e`k`Xk`m\ e\\[j jlggfik% Dfd\ekld `ejg`i\j Xe[ `ejg`iXk`fe [i`m\j lj% N\ _Xm\ Y\\e gi`m`c\^\[ kf _\cg jlggfik jfd\ f] k_\ nfic[Ëj ^i\Xk\jk `e`k`Xk`m\j% K_\j\ `e`k`Xk`m\j gifdfk\ X jkXYc\ \Zfefdp \eXYc`e^ jljkX`eXYc\ [\m\cfgd\ek Xe[ Xccfn`e^ ]`eXeZ`Xc `eZclj`fe% :i\Xk`e^ jfclk`fej k_Xk [i`m\ k_\ nfic[%
INDUSTRY REPORT: HOSPITALITY
THE
MEXICO CITY – Armina Wolpert always saw the potential of Mexico as a tourist destination for Russians despite the lack of direct flights and long distances between Moscow and Mexico City – nine time zones, to be precise. But distance was just the beginning of her challenges in tapping a burgeoning market for potential tourists. The Cancun-based tour operator saw few results in the early years, but she continued promoting Mexico at tourism fairs and among travel wholesalers, sensing that Russians, unable to travel freely during the decades of communist rule, were eager to see the wider world. Wolpert encountered difficulties along the way: the Sept. 11, 2001 terror attacks, to name one. The tepid response from Mexican tourism officials was another. In 2006, just 1,600 Russians visited Mexico annually, according to the Tourism Secretariat, or Sectur. Then violence related to organized crime and drugs erupted in some parts of Mexico – generating gory and sensational headlines. The 2009 H1N1 viral outbreak made matters
18
LATIN TRADE MAY-JUNE 2012
worse, along with a world economic downturn that hit both the United States and Mexico especially hard. The diligence paid off, though – and handsomely. Russians now flock to Mexico in record numbers. Their presence is noticeable in Cancun and the Maya Riviera by the job advertisements soliciting Russian-speaking employees, the Russian-language classes offered to tourism industry workers and the arrival of regularly scheduled flights at the Cancun airport by Russian carriers Aeroflot and Transaero. “It’s just been crazy,” Wolpert says of the volume of business Armina’s Travel has handled during this most recent high season. The Russian tourists arriving in Mexico form part of a new boom in foreign tourism to Mexico by visitors hailing from countries with emerging economies, and they include Brazil, Peru and Colombia. The boom comes as the United States sputters as a source of tourists, making a diversification of countries of origin ever more important for Mexican tourism officials.
BY DAVID AGREN
They have set a goal of more than doubling the number of tourism visits to the country, from 22 million last year to 50 million by 2018. Tourism from countries such as Russia is important for reaching that goal, along with offsetting any decline in the U.S. market. “We want to continue being a preferred destination for Canadians and Americans, but we also want to depend less on one single market,” says Ricardo Anaya, undersecretary for tourism planning at Sectur in Mexico City, the government dependency responsible for fomenting activity in an industry representing 9 percent of the country’s GDP. “We want to open up to the whole world.” Mexico is opening to more than just Russians these days – although the numbers arriving from Russia are impressive. Sectur says 54,000 Russians visited Mexico in 2010, with the number jumping 55 percent in 2011. The visits from Brazil surged, too – 66 percent last year, driven by a strong currency and an easing of Mexican visa restrictions. The number of Peruvians and Colombians visiting Mexico last
ISTOCK
RUSSIANS
DISCOVER LATIN AMERICA
INDUSTRY REPORT: HOSPITALITY
toward what is reported in the news. “When the U.S. market says, ‘It’s dangerous,’ the Russians will say, ‘What’s dangerous for a gringo is okay for us,’ ” Wolpert says. “This is a great advantage.” She recalls never being asked about security in Mexico while giving seminars in Russia – at a time when her colleagues working the U.S. market were bombarded with such queries.
How Mexico arrived on the Russian tourism map remains uncertain, but Wolpert and others in the industry credit an aggressive push from the Mexican government, including trips to Russia by Tourism Secretary Gloria Guevara. The Mexican government helped things even more by simplifying visa applications and changing the rules in 2010 to allow anyone with a U.S. visa entry into Mexico. Mexican
year grew by 37 percent and 22 percent, respectively, and the number of Canadians flying south for vacations increased by 7 percent. These tourists are making up for a decline in the U.S. market, where the overall number of people taking foreign trips has declined in recent years, even though Anaya says Mexico is expanding its share of a shrinking market. An increased awareness among U.S. tourists that destinations such as Cancun and its environs – which include the state of Yucatan, where the low murder rate is on par with Canada’s – are far from the violence of Ciudad Juarez helps, too. Still, tourist visits by people arriving by air increased just 2 percent in 2011, and number of cruise-ship dockings dropped about 15 percent. “We believe that a breach exists between the reality and the perception,” Anaya says. Wolpert doesn’t encounter those kinds of image problems in Russia. Most Russian tourists consider Mexico “exotic” and thus attractive, and stories of violence have failed to scare them off – especially since the problems in Mexico seem less serious in comparison to the massive floods in Thailand last year and the revolutions sweeping the Middle East, Wolpert says, referring to popular destinations for Russian tourists. Russians also show skepticism
MAY-JUNE 2012 LATIN TRADE
19
INDUSTRY REPORT: HOSPITALITY
tourist visas can be obtained online and in mere minutes, Wolpert says. Russians visit destinations beyond Cancun. The Four Seasons Mexico City has welcomed a growing number of Russian leisure travelers – who, sales and marketing manager Patricia Ortiz says, come looking for the most expensive accommodations and requesting amenities such as exclusive menus and fine dining. “I wish we had even more Russian visitors,” she says. DIFFERENT KIND OF TOURIST? In many ways, the Russians, along with Brazilians and others from emerging markets, make attractive tourists. For one thing, they stay longer: 11 days on average, compared with the five days an American or Canadian tourist spends in Mexico, says Jesus Almaguer, president of the Cancun Convention and Visi-
tors Bureau. Russians spend more, too: $1,000 daily, more than double the amount spent by an American tourist. “They like to spend,” says Almaguer, adding that Russians will buy everything from mariachi sombreros to jewelry. The Russian visitor is tough to stereotype, however. Cancun resident and Canadian expatriate Kelly McLaughlin says Russians like to stray off the beaten path, and she finds them at unlikely spots, such as roadside taco stands. Many prefer high style, though. Wolpert says her clients will take SUVs to places such as Chichen Itza with a guide and spend $1,000 for the excursion. Trips to Mexico now can cost the same as a jaunt to Europe, but many Russians come with plenty of cash and can be demanding – something noticed by hoteliers in the region. “It is, along with Brazil, the most poignant emerging market,” says Sergio Serra, sales
manager at the Ritz Carlton Cancun. Serra noticed a trickle of Russians coming to the luxury hotel late in the last decade. That exploded after the visa rules changed in 2010. “That was really the catalyst that triggered all of this,” he says, adding that, since 2008, the percentage of American guests at the hotel has declined from 80 to 85 percent of the clientele to 75 today. With a little more work, that number will be lower in coming years. Wolpert already is working to make sure it happens. She is now working in Ukraine to promote Mexico – and having success, she says. She has another potential gold mine lined up, too: Kazakhstan. “Kazakhstan has a lot of potential,” Wolpert says. “Give me a year. There will be plenty of people coming from Kazakhstan.” editorial@latintrade.com
FROM SIBERIA TO THE SUNNY
DOMINICAN REPUBLIC BY JORGE PINEDA
20
LATIN TRADE MAY-JUNE 2012
Russians are drawn to the charm of the Caribbean country’s ALLWAYS SMILING INHABITANTS AND NEVER-ENDING BEACHES attraction to the Dominican Republic gets stronger every year, from 41,890 tourists in 2008 to 54,414 in 2009, and last year’s figure of 120,000. Russian visitors will likely grow to become the Dominican Republic’s fourth-largest source of tourists this year. CLOSE TO THE KREMLIN The Caribbean country aims to shore up its position in the Russian market even further by opening a new tourism
promotion office in Moscow, adding to the one already doing business in St. Petersburg, said Petra Cruz, director of the Dominican Republic’s Tourism Promotion Office in Europe. “The Russian market is of considerable importance for the Dominican Republic, as seen recently by its impressive growth,” Cruz said, noting that Dominican tourism could profit from Russia’s unrivaled size and by adding another office to promote it.
Cruz said that once the Ministry of Tourism identified Russia as an emerging and promising market, it was up to tour operators to work by setting up “fam trips” to her country for Russian travel agents and tour operators by 2006. “We organized the first charter flight to the Dominican Republic,” Cruz said. “We started with one and expanded to seven last winter season; we will have two more in the summer.”
ISTOCK
SANTO DOMINGO – Russians might seem to be taking over the Dominican Republic, but unlike previous occupations throughout the Slavic country’s long history, their presence is a godsend this time. Russian tourists choose Dominican Republic and boost its already-robust tourism industry for one big reason: hospitality. The Dominicans’ seemingly Guanajuato, Mexico. constant smiles and gregarious nature have long been the country’s top attraction. And even when Latin America in general, and Mexico’s Maya Riviera in particular, also prove a magnet for Russian tourists, they are drawn to the charm of the Caribbean country’s inhabitants. Russians’
RUSSIAN TOURISTS DISEMBARK IN THE
DOMINICAN REPUBLIC HOTELIERS UPBEAT ON UPTREND Arturo Villanueva, executive vice president of the country’s National Hotels and Tourism Association (ASONAHORES), also agrees with statistics that point to Russia as the leading emerging market. The arrival of tourists from Russia has quadrupled with virtually daily Transaero flights from Moscow, and “even some days with more than one,” he said. Villanueva said the Dominican Republic now gets more than double the number of Russian tourists that visit Cuba. Heralding the growth, the Tourism Ministry recently announced the start of four charter flights to the prime tourism region, Punta Cana, by the carrier Transaero, with planes that can accommodate 320 passengers. Adding to the numbers that flock to the more than 15 miles of prime beach resorts dotting
the Punta Cana coastline, Russians from St. Petersburg also go to Samana and Puerto Plata, on the north coast, aboard Boeing 767-300 planes of the state-owned airline Rossiya, which can accommodate 330 passengers. And, on March 31st, Dominican Tourism vice minister Magaly Toribio announced that Transaero will start weekly flights between Moscow and Puerto Plata in October. ARE THEIR POCKETS DEEP ENOUGH FOR THE OFFERINGS? According to the local trade publication republicadominicana.pordescubrir.com, in general Russian tourists “have a very high level of purchasing power.” Russian tourists also fancy innovative excursions, according to Matias Mut, an operator of a successful excursions agency in Punta Cana. “They are very special because they’ll
do whatever they want,” he said, noting that, tourism by Russians is marked by their lack of fluency in other languages. “I have a translator here just to handle the excursions with Russians.” “In general, they aren’t that savvy, although they are attracted mostly to adrenalin excursions,” he said of the 721 Russians of 13,044 total tourists who took part in his excursions, including horse rides, in 2011. “They come from all categories of hotels, and they like our Segway scooters.” Laura Vladimirova, an American who’s been working in the booming northern coast town of Cabarete, confirms the Russians’ zeal for adrenalin: “They do things they can’t in Russia, like kitesurfing and deep-sea fishing and diving.” She also noted that, unlike Americans, many of the Russian tourists travel as extended families, “with
the grandfather, grandmother, three generations tagging along.” The first large groups of Russian tourists stayed 10 to 14 days in the beach hotels in that area, and 86.2 percent of them came to the Punta Cana Airport, according to the Tourism Ministry. They usually spend from $1,300 to $1,500 in accomodation per person per day; from $250 to $400 in excursions; and $500 to $1,000 for souvenirs and other items. With roundtrip airfare of $3,500 in first class, $2,000 in business, $1,500 in tourist and the room rate, packages range from $14,500 to as high as $16,500 for a 10-day trip. Oleg Vasiliev, 58, and his wife, Tamara, 56, have visited the Dominican Republic twice in the past two years, and they are thinking of bringing their family next time.“What we liked most was the beach and the superb service,” Oleg said.
LOOKING FOR TANGO, ALSO I
rina Rubenski has lived in Argentina for 32 years, and she welcomes Russian tourists. She confirms the trend that is seen in the region and attributes it to the fact that “for so many years in the Soviet Union everything was closed, everything was forbidden, and now Russians can leave” to see the world. The Russians who travel to Argentina do so as simple tourists, and not because they have family ties. Rubenski said they prefer the Iguazu Falls or the glaciers in the far south, in El Calafate. They spend a few days in Buenos Aires, and they often travel to another South American country or to the Antarctic, even though that is an expensive trip. “Many come for the New Year, even though it is expensive. They discover Buenos Aires, and they love it,” Rubenski said. “My tourists return,” she adds with satisfaction. According to data from the Tourism Secretariat, Russian tourism has more than doubled in four years, although the numbers in the far South American nation fall short of the overwhelming number who visit the Dominican Republic. In 2007, about 3,600 tourists from the Russian Federation visited Argentina, and that number jumped to 8,093 in 2011. Sources from the industry also attribute this to the fact that the need for a visa for travel between the two countries was eliminated in 2009.
22
LATIN TRADE MAY-JUNE 2012
MAY-JUNE 2012 LATIN TRADE
23
INDUSTRY REPORT: HOSPITALITY
HILTON WORLDWIDE EXPANDING RAPIDLY IN LATIN AMERICA AS BUSINESS BOOMS
H
ilton Worldwide, with 66 properties in Latin America and the Caribbean and 20 more deals in the pipeline, is experiencing strong growth in the region, buoyed by expanding middle classes in several regional nations, generally strong economic growth and robust demand among business travelers. “This is a great part of the world for the hotel industry today,” said Danny Hughes, Hilton Worldwide’s senior vice president for the Caribbean, Mexico and Latin America. “The consumer base is growing rapidly, not just in Brazil but in Colombia and other places. “There is also great growth in air travel, and people want to see the world,” said Hughes, who heads Hilton Worldwide’s regional office in Miami. “There will be cycles and challenges, but long-term, there are great opportunities as the region develops.” Hughes spoke to Latin Trade from the new, 256-room Hilton Bogota in Colombia’s capital. “I can’t remember seeing a hotel that took off so quickly,” he said. Investor-owned and managed by Hilton, the hotel had a soft opening in
24
LATIN TRADE MAY-JUNE 2012
December 2011 and its official opening in February of this year, and it already is approaching an 80 percent occupancy rate – a very high figure for the hotel business. In contrast, the Caribbean region, more reliant on leisure travel than Latin America, is seeing somewhat slower growth, especially from the anemic economies in Europe. Keeping up with demand, Hilton Worldwide has opened nine hotels since December 2009, in Mexico, Venezuela, Chile and Panama, as well as the Hilton in Bogota. Hilton is working on 20 new properties, including hotels in Argentina, Brazil, Colombia, Mexico, Panama and Peru. The company, whose brands include
Hilton, Waldorf-Astoria, Conrad, Doubletree, Embassy Suites, Garden Inn and Hampton Inn, sees opportunities for properties across the entire range: new luxury hotels (The Panamera, a WaldorfAstoria Hotel will open in Panama later this year) full-service hotels such as Hilton and Doubletree by Hilton as well as focused-service hotels such as Hilton Garden Inn and Hampton Inn by Hilton, in cities that do not need a full-service hotel. New opportunities include airport hotels and hotels in underserved cities. In general, about 80 percent of Hilton’s Latin American bookings come from business travelers, but it varies from country to country. At Hilton’s two Costa Rica resorts, for example, 80 percent of visitors are leisure travelers. Hilton Worldwide owns and operates two hotels in the region (the Hilton Morumbi in São Paulo and the Caribe in San Juan), manages 27 for investors and has 37 franchise properties.
LATIN AMERICA’S TOP HOTELS Hotel chains ranked by total hotel rooms in 2011 Rank Rank Hotel Chain LatAm Global
LatAm Rooms
Total Rooms
1 2 3 4 5 6 7 8
1 5 8 2 9 10 3 6
32,490 30,182 21,654 18,469 16,338 15,666 15,500 15,172
658,348 531,700 78,089 643,196 42,840 41,544 633,238 322,346
9 10
4 7
9,873 7,262
613,126 165,802
182,606
3,730,229
InterContinental Hotels Group Accor Hospitality Sol Melia Marriott International Barcelo Hotels & Resorts Riu Hotels & Resorts Hilton Worldwide Starwood Hotels & Resorts Worldwide Wyndham Hotel Group Carlson Hotels Worldwide Total
COURTESY OF HILTON WORLDWIDE
BY JOSEPH A. MANN JR.
MIAMI JUNE 12-13, 2012 | InterContinental Hotel Miami 600 MILLION + NEW CLIENTS, A $4.6 TRILLION ECONOMY AND IT’S SO CLOSE TO HOME!
AN AFF AN AFFILI AFFILIATE ILIATE ILI ATE OF THE LATIN TRADE GROUP
in partnership with
If you are looking to increase trade revenues and define new business opportunities in Latin America and the Caribbean, you can’t afford to miss this event.
WHY SHOULD YOU ATTEND: • Learn how to position your SME towards growth and success in Latin America • Maximize your human and financial resources by meeting key sector and country specific government participants • Gain comprehensive insight to one of the world’s fastest growing trade markets
SPONSORS Presenting
Gold
Silver
WHO WILL ATTEND: • SME executives that are ready to expand in the region and that are doing business in Latin America and the Caribbean. • Government officials including Ministers and Trade Investment Promotion Agencies that will facilitate doing business in the region. • Multinational companies that do business with SMEs and service providers including lawyers, consultants and financial institutions.
TODAY 399 REGISTER Limited time: Expires May 31, 2012
EXHIBITORS • INVEST IN GUATEMALA
• PROMÉXICO
• PROEXPORT
• REDIEX
• PROINVEX
PARTNERS
MEDIA PARTNER
WWW.TRADEAMERICAS.COM For more information on registration, please contact Natasha Valle at nvalle@latintrade.com or 305.503.7712
COUNTRY REPORT: BRAZIL Avenida Paulista, São Paulo
ISTOCK
BRAZIL
CONSUMER FEVER - and Some Headache BY THIERRY OGIER
SÃO PAULO - It has been known for years that Brazilians are crazed shoppers – and not ashamed to be described as such. In spite of the lingering crisis environment, Brazilians frequently show up as the most optimistic consumers in Latin America, if not the world, as Credit Suisse recently pointed out in its recent survey of emerging markets. Brazilian customers are keen on smart phones and computers, absolutely love shopping malls and ocean cruises. Young couples plan to purchase baby clothes in Miami and older ones take their kids to Disneyland – sometimes several times. Recently, though, it has been the expanding middle-class that has excited marketers of fast-moving consumer goods. But some things never seem to change. While company executives try to make the most of the consumer boom, the cost of doing business still is much higher in Brazil than in most other Latin American countries because of deficiencies in transport and logistics, taxes and labor laws. This generally reflects in the price of goods – and the exchange rate. For years, São Paulo’s famed Avenida Paulista has been hosting banks and drugstores, but popular stores such as fashion chain Marisa, Renner or Hering recently have set up shop there to attract a chunk of the 1.5 million employees who pass by every day. “This is a reflection of the improvement in the purchasing power of the population and of social mobility within São Paulo,” says Marcos
26
LATIN TRADE MAY-JUNE 2012
Etchegoyen, president of Cetelem, a consumer finance company. An impressive contingent of 64 million people has climbed up the social ladder since Cetelem, owned by BNP Paribas, and Ipsos Public Affairs, began conducting consumer surveys seven years ago in Brazil. That is roughly equal to the population of Italy, Etchegoyen notes. NEW CONSUMER Tatiana Candido de Lima is a young member of the new, emerging middle class. She works at Qualicorp, a private health-services provider that launched its IPO in June 2011, and she managed to quadruple her income since she got her first job five years ago. Like many Brazilian women, she can easily go on a spending spree. Job creation and real income gains have boosted consumer confidence. The credit boom also helped: It went from a low 25 percent of GDP, when former presidente Luiz Inacio Lula da Silva came to power in 2003, to about 50 percent in less than 10 years. No wonder Brazil, which already is the world’s sixth-largest economy in nominal terms, has become the world’s third-largest market for computers and the fourthlargest for cars. Banks and retailers – such as Casas Bahia and Ponto Frio– have made the most of it. Brazil has become the largest market for Carrefour outside its home country, France, and it is the second-largest for Nestle and other consumer-goods companies.
BRAZIL
MAY-JUNE 2012 LATIN TRADE
27
COUNTRY REPORT: BRAZIL BRAVO
Home ownership, which has been encouraged by government programs such as Minha Casa, Minha Vida, also is increasing, thanks to low unemployment and long-term economic prospects after decades of domestic economic crises. Economic stabilization in the 1990s after the Real Plan meant that the mass market started to have access to chicken and yogurt. Almost 20 years later, consumer demand has become more sophisticated. Social and regional inequalities are still great, but they tend to become narrower. Economic growth has been especially strong in the northeast, the north and the center west of
Economic growth has been especially strong in the northeast, the north and the center west of Brazil Brazil. The Pague Menos drugstore chain is a good example of this. Its president, Deusmar Queiros, started the business in the northeast region 30 years ago and now it is a 500-store chain, still with a stronger presence in the northern half of the country. “Here the Bolsa Familia (government benefits to poor families) makes a big difference,” Queiros says. “And there is also a larger proportion of the population that relies on the minimum wage,” like low-skilled workers and rural pensioners in the Northeast. The Fortaleza-based chain intends to launch 100 drugstores this year, compared with 89 last year, Queiros says. The future also looks bright for companies such as the chocolate shop Cacau Show. The firm started in the late 1980s, but it has really taken off in the past five years, when its sales shot up by 45 percent per year on average (450 million reais – about $150 million – in 2011). Business has been booming, and the relaxed 41-year-old CEO, Alexandre Costa, says he has prepared a standard e-mail to decline offers from private equity investors. Indeed, consumer goods have become the main target of foreign investors in Brazil, according to Paulo Bilyk, a partner at Rio Bravo Investimentos. “There is some kind of love affair with consumer-good assets, which is reflected in the prices of shares of companies like Arezzo, Marisa and Perdigão. Private equity funds have kept a close eye on them,” says Bilyk. ‘CUSTO BRASIL’ ALIVE AND KICKING Nevertheless, exploring the expanding Brazilian market still comes at a price, and the business environment has remained remarkably difficult, if not hostile. Brazil has fared badly in the World Bank’s annual “Doing Business” survey, putting the country at a disadvantage against its main competitors worldwide. The latest survey ranks Brazil 126th among 183 countries, including a dismal 150th in the “paying tax” category. CFOs in multinationals operating in Brazil usually express a lingering concern – if not frustration – regarding tax complexity and compliance issues in Brazil, which often is described as the most critical case in the region. Almir Barbassa, CFO of Petrobras, the oil company, notes that 900 people are employed in Petrobras’ tax department. Jorge Gerdau, chairman of Gerdau, the steel group, has complained that companies in Brazil typically need 2,000 hours to comply with their tax obligations. He is now part of a presidential steering group to improve management and try to cut bureaucracy, but executives still complain
28
LATIN TRADE MAY-JUNE 2012
FORUM
CHALLENGES & S OPPORTUNITIES FOR BRAZIL BY MARCELO ODEBRECHT
B
razil has prepared itself elf in recent years to become a leading nation in the he international arena through h macroeconomic and social changes that were carried out by governments with different political orientations but a similar aim. Today, Brazil is experiencing a unique moment in its history. However, although it is essentially immune to the economic crises in more-developed economies, the country also has a unique opportunity to complete urgent reforms that will make it possible to reduce what is disdainfully known as the “Brazil cost” and to release the shackles that prevent the nation’s more rapid and sustainable development. The priority in this strategic agenda should be to attack the chronic problems of infrastructure and education. Many steps have been taken in this direction, through initiatives such as the Accelerated Development Program (PAC) and Mi Casa Mi Vida( (My House, My Life), but to be successful both the government and the private sector must invest more heavily in the construction of ports, highways, airports and railways, among other things, as well as in the development and training of individuals. In education, Brazil must go beyond quantitative goals such as universal access, focusing not only on school-age children who are not in school but also on a consistent improvement in the quality of what they are taught. Education in Brazil has evolved, but the country still lies in 115th place in the Global Competitiveness Reports ranking. On the economic front, significant progress has been made. We have managed to control inflation, we have solid macro-
COUNTRY REPORT: BRAZIL
BRAVO FORUM
Brazil is moving toward becoming a more socially inclusive, industrialized nation, in a position to contribute even more to the solutions the world seeks. economic fundamentals, and we have companies that compete internationally. However, if adequate defense measures are not taken to revert the impact of the global economic crisis, the consequences could be devastating, in particular for our manufacturing sector. One of these effects is the so-called “foreign-exchange wars,” which have a significant and negative impact on our economy, as well as putting the country on the radar of speculative investment, which does not bring any long-term structural and economic benefits. The Brazilian real is very strong against the U.S. dollar, which has a direct negative impact on Brazilian exports, as well as subsidizing imports. The Brazilian government has taken measures to control the high real, but the battle has not yet been won. Another aspect that reinforces these challenges is the Brazilian interest rate – and, in particular, the bank spreads. They are among the highest in the world, representing a high cost for the government, businesses and consumers, diverting resources and increasing the cost of investment. However, while manufacturing suffers, the Brazilian service sector has demonstrated solid growth in recent years, largely thanks to the improving income of sectors of the population previously excluded from consumption. This sector also is relatively sheltered from the “Brazil cost and the FX war” as the competition among businesses occurs on the “domestic battle field”. Brazil has a natural advantage in the
30
LATIN TRADE MAY-JUNE 2012
area of agricultural and mineral commodities, and the country has consistently demonstrated itself to be one of the main world players. Moreover, if we previously had a leading position in agribusiness and iron, we could now hold an even more prominent position on the global stage with the development of the pre-salt reserves. However, for abundant oil and gas as well as the large-scale production of other commodities to generate development, we must add value to the raw material. Here again, Brazil faces the challenges of our industry and our education system, which is responsible for producing the qualified workers the country needs. Growth in Brazilian manufacturing in recent years has been far below its potential, and what is desirable. Looking ahead, we must overcome the challenges that emerge from the opportunities that strong domestic demand and national policies impose on our companies. In this regard, the government is creating and improving industrial-sector policies and working with the private sector, understanding its needs and deficiencies, and seeking to establish the conditions that will ensure new and growing benefits for the country. However, it is essential that we progress further, in particular in the implementation of the measures that are being elaborated. We have the necessary political, economic, social and environmental conditions. The Brazilian government has record popularity. The nation has solid institutions, businessmen with a
“killer instinct” and marvelous people, as well as natural wealth and a modern and rigorous environmental legislation that protects strategic forests, natural springs and the biomass. This enormous potential, combined with the work that is already under way, means Brazil is moving toward becoming a more socially inclusive, industrialized nation, in a position to contribute even more to the solutions the world seeks.
Representing the third generation of the Odebrecht family, Marcelo Odebrecht is now CEO at the company founded by his grandfather, Norberto, in 1944. Besides holding a leading position in the engineering, construction, chemical and petrochemical sectors in Latin America, Odebrecht is also a player in the following segments: bioenergy, environmental engineering, defence and technology, real estate, transportation and logistics, oil and gas and stakes and investments. Present in 20 countries, Odebrecht brings together around 170,000 professionals of 60 different nationalities. He received a Bravo Business Award in 2011.
COUNTRY REPORT: BRAZIL
The cost of doing business in Brazil continues to climb, as Brazil has failed to address the principal elements of the custo Brasil,’ such as poor infrastructure, an onerous regulatory burden, heavy taxation and non-compensation labor costs CLINTON CARTER, Head of research for Latin America at Frontier Strategy Group (FSG)
Popular Internet Program,” TIM about the lack of tax and labor reforms. President Dilma Rousseff has told Latin Trade. pledged to cut the tax burden, but structural reforms are not on the agenda. The maximum price that the Rogerio Menezes, CFO of Akzo Nobel Pulp & Paper, is very critical company can charge for its services of what he calls “the tax monster”. He says there already have been is 30 reais ($17) per month, it says. more than 300,000 changes in the tax legislation, which results in high FSG says Foxconn is an example compliance costs. This is a drag on Brazil’s competitiveness as a whole. of best practice in Brazil. “The Taiwan-based company saw a significant At present, each of Brasil’s 26 states and the Federal District of Brasilia opportunity to serve the Brazil market but was unable to be competitive has its own tax legislation and is able to tax the so-called ICMS (a sort of without significant tax breaks. It managed to leverage its government sales tax on goods and services) at different rates. relations function and the credible promise of US $12 billion in “The cost of doing business in Brazil continues to climb, as Brazil manufacturing investments (near São Paulo) to secure tax exemptions has failed to address the principal elements of the ‘custo Brasil,’ such as that represent a 40 percent reduction in costs.” poor infrastructure, an onerous regulatory burden, heavy taxation and TRANSPORT BOTTLENECKS non-compensation labor costs,” says Clinton Carter, head of research Logistics costs also are high for domestic companies. Francisco Pontes for Latin America at Frontier Strategy Group (FSG), a U.S. business de Aguiar, the owner of the Amazon Green cosmetics company, says advisory firm. “Add to this a scarcity of skilled labor that is pushing salaries through the roof, and the result is a ‘custo Brasil’ that is climbing.” The bottom line for foreign investors is that “Brazilian business units are less profitable than those in other Latin American countries,” says Ryan Bryer, FSG’s Associate Practice Leader for Latin America. According to an FSG survey , “net margins in Brazil are 5.1 percent narrower, on average, than in the rest of Latin America, largely due to taxes.” Whereas the average corporate tax paid amounted to 48 percent of profits in Latin America, the figure reached 69 percent ACE Group is one of the world’s largest insurance and reinsurance in Brazil, FSG says. Fast-moving consumergoods companies are much more heavily taxed providers. We offer a great variety of products to clients around the than those operating in other sectors, it says. world; from large multinational corporations, to clients in local markets, TIM cites a survey from the GSM and individuals covered by personal insurance. With more than 15,000 Association in 50 developing countries, and talented and dedicated employees, ACE has a physical presence in 53 Brazil shows up as the country with the thirdcountries and commercial and individual customers in more than 170, largest tax burden in the telecommunications you can feel confident in the support offered by ACE. industry, behind Turkey and Uganda. But the company says it has been negotiating with the ACE Seguros, headquartered regionally in Santiago, Chile, includes Brazilian authorities to improve the situation. business operations in Argentina, Brazil, Chile, Colombia, Ecuador, “TIM has been reviewing with the government what kind of partnerships Miami, Mexico, Panama, Peru, and Puerto Rico. may lower the tax burden on the telecommunications sector. There is currently some ICMS tax exemption for broadband To learn more, services in the states of Para, São Paulo and visit us at aceseguros.com in the Federal district (Brasilia) through the
MAY-JUNE 2012 LATIN TRADE
31
The cost to ship a container from Manaus to the consumer market in São Paulo is three times greater than to import a container from China to Brazil FRANCISCO PONTES DE AGUIAR, Amazon Green cosmetics company
and margins are getting thinner, but they are still higher than in most other markets, and sales volume is growing, partially compensating that. Some companies that are able to do so are offshoring part of their production. The key point is that Brazil’s importance as a consumption market is growing, while its importance as a prodution market is falling. Still, 10 years ago, Brazil’s industrial production was the 10th-largest in the world. In 2009, it was seventh; in 2010, sixth; and in 2011, fifth.” The strength of Brazil’s large domestic market has indeed become one its strongest defenses against the global crisis. But doing business in there is definitely not for the fainthearted. And outsiders will have to continue to pay a high price to be able to join the great Brazilian party. “Companies have to be there and deal with the consequences – or not be there at all,” Clinton Carter says. editorial@latintrade.com
A cargo ship arriving in Rio de Janeiro
32
LATIN TRADE MAY-JUNE 2012
RIO DE JANEIRO – Few outsiders come to this favela (slum) in Rio de Janeiro’s West Zone, populated largely with recent migrants from Brazil’s traditionally depressed northeast region and controlled for years by anti-drug trafficker paramilitaries that made the favela the thinlyveiled subject of the recent blockbuster “Elite Squad: The Enemy Within.” Tucked behind a lagoon popular for boating and the wealthy condos of the Barra region, Rio das Pedras had been accustomed to residents making their few big-ticket purchases in the malls of the Barra beachside neighborhood. But a flurry of new high-end commerce here is showing that Brazil’s new middle class is starting to do its shopping closer to home. “For sound systems, they don’t buy 500-, 800-reais ones ($275-$440). They buy 2000-reais ones ($1100),” said Jorge Fiz, manager of the RicardoEletro electronics store that opened just before Christmas in 2011. The flatscreen-TV and homeappliances store was the first electronics outlet in the community, and it employs 25 salespeople. Fiz said he often sees customers who have informal work – he names waiters, bus drivers and nannies – who are unable to get credit cards but purchase the store’s largest items with cash. “The banks are slow to get in on this market, even though they have a high purchasing power,” Fiz said. Lucia Ferreira Leite, who said she had
SERGIO MORAES/REU TERS/NEWSCOM
the cost to ship a container from Manaus to the consumer market in São Paulo is three times greater than to import a container from China to Brazil. “Beyond the ‘custo Brasil,’ we have to deal with the ‘custo Amazonia,’ ” he says. All companies still have to deal with some inconsistencies: taxes on domestic cabotage (river or coastal shipping) are higher than for international cabotage. Yet, FDI has continued to pour into Brazil. In 2011, a record was set: $65 billion – and they were not all commodity-related inflows. “With developed markets stagnant, growth opportunities in Brazil become even more appealing despite the challenges. That’s why, from 2009 through 2011, Brazil rose to third from 14th FDI receptor in the world,” says Ricardo Amorim, president of the Ricam consultancy. Nissan was hard hit by the end the car free-trade agreement with Mexico and the imposition of quotas last March. But instead of protesting, its Brazilian-born CEO Carlos Ghosn says, it will now speed up plans to build its second car plant in Brazil, near Rio de Janeiro. Last year, Nissan had the fastest sales growth in the Brazilian market, partly because of cheap imports from Mexico. Chinese car manufacturers also say they intend to set up plants in Brazil to avoid paying the new rate of 30 percent of the IPI industrial tax. Amorim, who used to be an emerging-market strategist at West LB, says: “Costs are rising
washed her clothes by hand all of her life, wandered into the store to look for her first washing machine. The elderly pensioner asked if she could pay in “carnê” – a system similar to paying parceled monthly amounts automatically charged on a credit card but in which clients pay their installments in cash and in person on a paper bill. “I saw the ads. Now we’ll see if it’s worth it,” Ferreira Leite said. Although RicardoEletro is the flashiest example of new enterprise here, tucked among the juice counters and landlinephone stations for calls to other states are the pricey mattress store Ortobom, Bradesco and BMG banks, a supermarket with 25 checkout counters, and two travel agencies – all opened within the last five years, and several in 2011 alone. Margarida Duarte, manager of a travel agency that monitors airfare promotions so it can call routine clients waiting to buy tickets, said the price of a plane ticket can be only slightly higher than that of the three-day buses to the northeastern cities where her clients go to visit their families. “I believe the buses are going to close their doors soon,” Duarte said. “Someone who has traveled once by plane doesn’t want to go by bus again.” Although Rio das Pedras has little formal policing and stores pay monthly protection fees to the heavy-handed paramilitaries, favelas with the new Units of Pacifying Police program installed over the past three years have seen a rapid growth in formal commerce, especially as informal networks that provided pirated utilities and services cease functioning. Since the police invaded and occupied the massive favela of Rocinha in November, the community opened a new cable-TV store, a RicardoEletro, a Banco do Brasil and two private foreign-language courses. Before the so-called “pacifica-
tion,” the only option to learn English was with tutoring offered at an Internet cafe. The bright white walls and flatscreen TVs of the language school Skill host full early-morning and evening classes of working-age adults. English is the most popular language course, though the school also offers Spanish, Mandarin, German and Japanese. Leticia Salustino, a 22-year-old waitress in a sushi-and-pizza restaurant in tourist Copacabana, arrived early on a Saturday morning for her first private English lesson. Two hours of class a week and books costs a monthly 190 reais ($105). “Where I work, there are a lot of gringos,” Salustino said when asked why she enrolled. “People who work there live here.” Next door to Salustino’s language school is the two-story RicardoEletro, where Elvis da Silva has come to scope out the store’s top smart phones. The copy-machine operator, who works across town, said he is tired of his cheaper Nextel phone, which
doesn’t allow him to access Facebook and online chats to talk to his girlfriend during his long trips to work. Since making a local call can easily cost several dollars when made to someone using another service provider, the phones advertise having spots for two SIM cards in order to use at least two operators in one device. “Nowadays everyone listens to music in traffic on their commute,” da Silva said while choosing a 400-reais ($218) Nokia C3-00. While teams of sharpshooters and military vehicles rolled up the hills of Rocinha to reclaim it from drug traffickers, they were accompanied by another, weaponless army – more than 200 salesmen from the cable-TV company SKY. Sergio Ribeiro, commercial director of SKY TV, said the company sold more in the eight days after the pacification of Rocinha than it did in its entire previous history in the favela. “With a better distribution of income, people have better access to TV channels,” he added.
MAY-JUNE 2012 LATIN TRADE
33
INDUSTRY REPORT: LOGISTICS
BIGGER
PANAMA
WILL BROADEN Aerial overview of the new locks
34
LATIN TRADE MAY-JUNE 2012
INDUSTRY REPORT: LOGISTICS
CANAL TRADE
BY ERIC SABO PHOTOS COURTESY OF CANAL DE PANAMÁ
MAY-JUNE 2012 LATIN TRADE
35
INDUSTRY REPORT: LOGISTICS
Guanajuato, Mexico.
Work on the new locks, in constant progress
Aleman remained confident that the project will be completed on time, and the only question seemed to be which giant ship is chosen as first to steam through on the centennial anniversary of the canal’s opening.
H
aving altered shipping routes by clearing a waterway through 50 miles of jungle, the Panama Canal is two years away from doing it again. The outlines of a wider, deeper shipping lane can be seen running parallel to the canal’s original locks, which allow boats to crisscross the Pacific and Atlantic oceans. For now, the site is a hole in the ground, dominated by backhoes and dump trucks shuttling out debris. But, once completed, the $5.25 billion expansion project is expected to bolster trade by allowing more than twice as much cargo to fit on ships the size of the Empire State Building. The expansion also will accommodate larger vessels to transport commodities such as liquefied natural gas, coal and copper, opening new export routes as the costs for shipping drop. Major cities up and down the U.S. coast, the largest customers
36
LATIN TRADE MAY-JUNE 2012
for the canal, have been scrambling to prepare their ports for larger ships. So have countries throughout Central and South America, as well as the Caribbean. With all eyes on Panama, Canal Authority CEO Albert Aleman spends much of his time traveling to events to detail the progress. In Washington, speaking at an Organization of American States meeting this March, Aleman said most of the dredging to deepen the canal is finished. After a nine-month delay caused by poor-quality concrete, workers have begun to pour the foundations for a third set of locks, the most challenging and costliest part of the expansion. Aleman remained confident that the project will be completed on time, and the only question seemed to be which giant ship is chosen as first to steam through on the centennial anniversary of the canal’s opening.
SPECIAL ADVERTISING FEATURE
INDUSTRY REPORT: LOGISTICS
WORKS PROGRESS in percentages (as of February 2012) Pacific Entrance
68%
Dredging Pacific Entrance
84%
Dredging Gatun Lake and Corte Culebra
68%
Locks, Design and Building
21%
Dredging Atlantic Entrance
97%
Raising of Highest Operative Level 6% for Gatun Lake Total % Enlargement Program
35%
Source: Press Office, Panama Canal Authority
“Anything of this magnitude has bumps in the road,” McMillan said. Still, he thinks the Panama Canal will meet its 2014 target – or, at the least, “shortly after.”
Besides work on new locks, there are also improvements in dredging.
TIMELINE OCT 22, 2006
National referendum approves the channel expansion
SEPT 3, 2007
Works start
DEC 9, 2008
Financing contract with loan entities signed
JULY 1, 2011
Concrete dumping starts in new locks
OCT 19, 2011
Filling operation in the Pacific access (a 6.1 km via situated between the new locks and the existing channel) starts
OCTOBER 2014
End of building work
“We don’t know yet,” Aleman told delegates from 34 countries. “But we want it to be historic.” Robert McMillan, a former chairman of the Panama Canal Commission, said it’s inevitable for such an ambitious undertaking to face potential delays. Engineers working on the canal in the 1900s thought they could just dig a waterway straight through Panama, only to find out they would need to add a series of locks to offset the different levels between the Pacific and Atlantic oceans. “Anything of this magnitude has bumps in the road,” McMillan said. Still, he thinks the Panama Canal will meet its 2014 target – or, at least, “shortly after.” Much is riding on Panama to complete the expansion work quickly. Panamanian Finance Minister Frank De Lima has proposed that earnings from an expanded Panama Canal be set aside in a special fund, which the government could then tap to revive the economy during a slowdown. “The canal is on target to be completed in 2014 – and, more importantly, under budget,” De Lima said on a conference call with reporters in March.
38
LATIN TRADE MAY-JUNE 2012
Others might not be as lucky. A bigger Panama Canal should slash transportation costs to carry Asian goods directly to the southern and eastern U.S. states, raising alarms along the West Coast. China is the canal’s second-biggest customer, followed by Chile. With the expansion, as much as 25 percent of shipping traffic could be diverted from Los Angeles and Long Beach, California, currently the busiest ports in the United States, once larger boats can go straight to New York and Miami, according to a report by Fitch Ratings. The rerouting has to do with the higher costs of unloading cargo onto trucks and trains to journey across the United States. Cargo ships can carry a maximum of 5,000 20-foot boxes through the Panama Canal now, but the expansion will allow vessels to haul up to 12,600 boxes of freight. Shipping companies would then save up to a third from using an all-water route, according to Panama Canal Authority estimates. The potential for traffic has caused Eastern and Gulf Coast ports to unleash their own expansion projects, from dredging harbors and plans in New York to raise a bridge that is too low
TOP 10 BY ORIGIN AND DESTINATION OF CARGO Fiscal Year 2011 (Million Long Tons) Rank
Country
Origin
Destination
Total
1
US
92.7
51.7
146.2
2
CHINA
18.7
34.4
53.1
3
CHILE
14.6
14.3
28.9
4
JAPAN
4.9
17.7
22.6
5
SOUTH KOREA
9.0
10.1
19.1
6
PERU
7.4
7.8
15.2
7
COLOMBIA
9.7
4.8
14.7
8
ECUADOR
6.9
7.5
14.5
9
MEXICO
4.2
7.6
12.2
10
PANAMA
2.2
9.6
12.0
Source: Panama Canal Authority, Office of Market Research and Analysis
Ports from the US West Coast are expanding to compete. The 13 busiest US ports are spending $8.6 billions over the next few years to deepen their waters and add new storage capacity.
for bigger cargo ships. West Coast ports also are expanding to compete. All told, the 13 busiest U.S. ports are spending $8.6 billion over the next few years to deepen their waters and add new storage space, a report by Jones Lang LaSalle found. Several of those ports are in danger of falling behind, though they can make up for the loss by relying on increased traffic from smaller boats, said Aaron Ellis, a spokesman for the American Association of Port Authorities. “Not all ports need to be able to handle these ultra-large ships, since some specialize in handling specific types of cargo that don’t typically travel in such large ships,” Ellis said. The Bahamas, Jamaica and even Panama are deepening ports to attract big container lines, with a plan to shuttle goods on smaller boats to overcome cramped U.S. waterways. Although the Canal Authority has won widespread praise for the expansion – including nearly 80 percent of Panamanians who voted for it in a 2006 referendum – the choice of companies to build the new locks stoked rare controversy. Panamanian Vice President Juan Carlos Varela called the $3.1 billion contract a “disaster” after a group led by Spain’s Sacyr Villahermosa bid almost $1 billion lower than Bechtel to construct the locks. A confidential U.S. diplomatic cable, released by the anti-secrecy group WikiLeaks last year, said Varela expressed concerns about Sacyr completing the work because the company is in “deep financial trouble”.
40
LATIN TRADE MAY-JUNE 2012
In January, striking workers paralyzed construction of the locks for almost a week, demanding higher pay. Although the Panama Canal Authority received $2.3 billion in loans to expand, shipping companies could balk at higher fees needed to pay for the work and avoid the wider, deeper waterway after 2014. The canal currently charges tolls based on shipping volume, which includes the amount of cargo and the ship’s size. Ships that require less help from so-called mules that pull them through the locks are charged less. Faced with struggling world economy, the Canal Authority delayed raising shipping tolls in 2010. It has since upped the fees and has vowed to increase them further to help pay for the expansion. Big ships might have little room to complain, however, as the only option is to sail around the tip of South America, resulting in longer trips and typically higher costs. McMillan praises the Panama Canal as expertly run and says that will continue once its next administrator, Jorge Luis Quijano, takes over for Aleman in September. Quijano is an engineer who has been in charge of the expansion project since the beginning. Neither the United States nor “anyone else” could probably do a better job at managing the project than Panama, McMillan said. editorial@latintrade.com
MAY-JUNE 2012 LATIN TRADE
41
SPECIAL REPORT: CUBA
RED FLAGS IN THE SUNSET
A new, increasingly business-minded Cuba is emerging.
M
iguel Angel Morales Menendez was born in 1974. By then his grandfather, Ramon Menendez, had lost the business that made him a personal fortune. After he arrived in Havana in the early half of the 20th century from his native Asturias in Spain, Ramon Menendez launched a mom-andpop store in a colonial building in the city’s old quarter. Soon it became a coffee shop and bar. As the business grew, it launched branches, and Ramon bought buildings to rent for housing.
42
LATIN TRADE MAY-JUNE 2012
But it all came to an abrupt end after the bearded rebel army of revolutionaries marched into Havana in 1959. Ramon died in Havana, an octogenarian. “His business was all that he talked about,” recalls his grandson, Miguel Angel. Now, in the same old colonial house where his grandfather’s business began, next to the Havana Cathedral, Miguel Angel has revived it. Under the same name, La Moneda Cubana, the business has become
ISTOCK
BY RONALD BUCHANAN
SPECIAL REPORT: CUBA
The rise of small businesses has reached a critical mass
The business growth means major new industrial projects, golf courses with ambitious real-estate complexes, a blossoming of small businesses throughout Cuba, and deep-water oil exploration. Fidel Castro’s intestinal ailment has obliged him to cede power to his brother Raul. A small but rapidly growing private sector is being promoted by Raul. The aim, he says, is to “erase the notion once and for all that Cuba is the only country in the world where you can live without having to work.” It is too early to say whether Cuba will follow in the footsteps of China or Vietnam. But it surely will not follow the road that the former Soviet Union and its allies took when they collapsed two decades ago. As Raul Castro has often said, the progress of the reforms must be “without any haste but without any pauses, either”.
one of the privately owned restaurants that are prospering under Cuba’s economic reforms. By the beginning of this year, the number of small-business owners like Miguel Angel had grown four-fold since September 2010, when the law was changed. Much more timid market reforms were launched more than two decades ago, only to be reversed. Will that happen again? “Definitely not,” says Kirby Jones, whose Alamar Associates offers consultancy for U.S. companies that want to do business in Cuba. “These have been extraordinary changes.” The rise of small businesses has reached critical mass, Jones argues: “There’s no going back now to the old ways. There’s no way you’re going to get that toothpaste back in the tube.”
OIL ON THE HORIZON The pace of change might not be blinding, but it is quickening. Since last year, Cuba and the Spanish oil company Repsol have been betting on what could be the major single development in the Cuban economy. Repsol is contracting the Chinese-made, semi-submersible rig Scarabeo-9. “A well has been spudded in January,” a Repsol spokesman said. “The results will be available shortly. And there are other companies waiting their turn to use the Scarabeo once Repsol has finished. They include Gazprom of Russia and the Malaysian state company Petronas.” Jorge Piñon, a Cuban-American, is a former president of Amoco in Latin America. He now works as an academic and consultant on Cuba’s energy industry. Repsol already drilled a well in Cuban deep waters in 2004 but, though oil was found, the amount was not regarded as commercial. “But the fact that Repsol is still involved in Cuba tells me that there is a high probability of hydrocarbons,” Piñon says. By his reckoning, Repsol already has spent about $100 million in Cuba. And the U.S. government estimates that Cuba could have 4 billion to 6 billion barrels of crude reserves yet to be discovered. But Piñon adds a cautionary note: “Until you’ve drilled, you can’t really be sure about any potential reserves.” Nor would a Repsol discovery launch an instant oil boom. “It would take another three to five years to develop the reservoirs,” Piñon says. “The short-term impact of any discovery would be political rather than economic.” Politics, however, is the very name of the game in the tangled
MAY-JUNE 2012 LATIN TRADE
43
SPECIAL REPORT: CUBA
relationship between Washington and Havana. A LEVER IN MARIEL Whatever the result of the oil exploration, Cuba also is adding a powerful lever to its economy in the port of Mariel, about 50 kilometers west of Havana. The development there is likely to have a major impact on the entire region. If all goes according to plan, Mariel will be Cuba’s largest port, by far. Mariel will be run by Almacenes Universales, a Cuban military enterprise, in association with the Brazilian construction giant Odebrecht. According to Odebrecht, “A total of $957 million will be invested over four years to transform the Port of Mariel into an international container terminal, of which $682 million will be financed by the Brazilian government and the remainder by the Cuban government”. Construction began in the first quarter of 2010 and should be concluded by 2014. “More than 30 kilometers of highway will also be rehabilitated, and dredging works will be executed on the entrance channel and maneuvering basin of the future terminal, which will handle one million containers (TEU) per year. The project currently employs 2,700 workers and should create 3,000 direct jobs and some 5,000 indirect jobs.” Mariel will be one of Cuba’s “Special Development Zones,” which aim toGuanajuato, boost exports,Mexico. substitute imports, promote high-technology business and, of course, increase the number of jobs. The idea is not to recreate the state-controlled market enclaves of China in the 1980s, but rather to make the special zones outgoing springboards for integration with the surrounding economy.
GOLF AND REAL ESTATE Golf is expected to form another springboard for Cuba’s new economy, in conjunction with luxurious real-estate developments, along the lines of those in the Dominican Republic or Barbados. The current leader in the race to be Cuba’s first post-revolutionary golf-based resort is Britain’s Esencia Group, head by Alexander Macdonald of Boisdale, a Scottish aristocrat who blends salsa music with whiskey in his chain of upscale London-based restaurants. Esencia is developing The Carbonera Club in association with the Cuban state company Palmares. Golf, tennis and ocean sports will feature in 170 hectares that will offer villas and apartments for sale in what could be the first housing sales to foreign buyers since the Revolution. “The Carbonera Club is close to achieving approval by the authorities,” Macdonald says. “It’s taken rather a long time, but that’s not a problem. It’s important to get things right.” A source at the Carbonera Club said the property will be positioned to be competitive within the Caribbean region for properties of similar specifications and amenities. The launch prices will be similar to those of Dominican Republic’s Punta Cana resorts, starting at about $2,800 per square meter ($260 per square feet) and rising to $4,750 per square meter. These prices are in accordance with the views of analysts of the regional real-estate market, the source added. Macdonald says: “We expect the prices to rise in proportion with the interest from international buyers that we have received, since all know that the purchases will offer good capital-return opportunities as demand exceeds supply and Cuba regains its natural position as the jewel of the
Oil Rig in Cuba.
44
LATIN TRADE MAY-JUNE 2012
ISTOCK
THE U.S. GOVERNMENT ESTIMATES THAT CUBA COULD HAVE 4 BILLION TO 6 BILLION BARRELS OF CRUDE RESERVES YET TO BE DISCOVERED.
SPECIAL REPORT: CUBA
THE KEY Y LIES IN CARACAS Right now, the key to the Cuban economy lies in Venezuela. Trade between the two countries reached more than $6 billion in 2010, twice as much as the previous year and three times more than the $1.9 billion with China. Cuba supplies Venezuela with a wide range of services provided by 40,000 professionals stationed there. They include doctors, sports trainers, computer engineers, agronomists and security specialists. In return, Venezuela receives oil on highly preferential terms under a swap agreement. Cuvenpetrol, a joint venture by the two governments, operates a Cuban refinery at Cienfuegos that is being expanded from 65,000 barrels per day to 150,000. Another Cuban refinery is to be upgraded and a third to be built by Cuvenpetrol. Cuvenpeq plans petrochemical projects in Cuba that will involve Chinese and Japanese engineering. A regasification plant to receive liquefied natural
gas (LNG) aims to provide fuel for the nation’s power plants. Another binational company, Telecomunicaciones Gran Caribe, laid an undersea fiber-optic cable to provide speech, data and image communications between Cuba and Venezuela. The project was to have been concluded by last summer, but no news has emerged. Reports that some of the project’s executives were arrested and charged with fraud have been neither confirmed nor denied. But a big question mark hangs over cooperation between the two countries. President Hugo Chavez hopes to win re-election this year in Venezuela, but the opposition to his rule is more united than ever, and the re-emergence of his cancer casts a big doubt on his physical ability to contest the election. Jorge Piñon, a U.S.-Cuban former top international oil-industry executive, now an academic and consultant on Cuban
Caribbean.” Esencia is backed by two heavyweights of international architectural design, Rafael de la Hoz of Spain and Britain’s Conran & Partners. In addition, Esencia has a renewable energy division, Havana Energy, that features biomass projects and is led by Brian Wilson, a former British energy minister. Esencia’s travel division features bespoke tours now supported by plans for a chain of bijou hotels in a country where accommodation has long been scarce for travelers with a sense of adventure. And the company’s trading division represents Cuban products such as rum, shellfish and cigars. THE OLD GUARD OF INVESTORS Companies such as Repsol, Odebrecht and Esencia form part of a new wave of investors attracted by Raul Castro’s movement for reform. The largest foreign investor remains Canada’s Sherritt International, which produces oil and nickel -- the latter is the nation’s leading export -- as well as electricity produced by natural gas in a combined-cycle power plant. In tourism, Spanish hotel chains such as Barcelo, Blau, Iberostar, Melia and Riu operate under management contracts; the French drinks group Pernod-Ricard produces Havana Club rum; Spain’s Altadis, a unit of Britain’s Imperial Tobacco, produces and exports the legendary cigars.
energy, takes a somber view. “Cuba consumes about 150,000 barrels a day of oil and produces about 50,000,” Piñon says. Basically, Venezuela makes up the rest with exports provided in exchange for services under the swap agreement. “But for practical cash-flow purposes, Cuba receives at today’s prices about $3 billion of oil that does not impact its balance of payments,” Piñon says. “If Venezuela were to change its contractual arrangement with Cuba, there’s no doubt in my mind that the Cuban economy would collapse. That is why people on both sides of the political argument are increasingly agreeing that no obstacles to finding oil should be placed in Cuba’s ways.” “Cuba once was dependent on oil from the Soviet Union, and it is now on Venezuela,” Piñon says. “It needs to be independent.” -- Ronald Buchanan
Canada’s Cerbuco bottles beer for the local market; Switzerland’s Nestle bottles mineral water and soft drinks; and Mexico’s Altex produces flour for domestic consumers. Cuba also has formed overseas joint ventures. It has investments in the production of pharmaceuticals in Brazil, China, India and Iran; in hospitals in Algeria and China; in construction projects in Angola and Vietnam; and a hotel in China. Cuba also has invested in Angola’s oil industry and in several companies in Venezuela. U.S. EMBARGO The U.S. embargo is solid. With the exception of cash purchases of food and medicines, Cuba can’t trade with the United States. Nor can it use the U.S. dollar or welcome regular U.S. tourists. Ships that dock in Cuba are not allowed to visit U.S. ports within the next six months. The U.S. Treasury Department applies the embargo on Cuba throughout the world. Raul Castro was not allowed to stay in a Hilton hotel in Trinidad last year. Repsol opted to pull its American Depositary Shares out of Wall Street. Spain’s Telefonica and BBVA bank have been under pressure from the U.S. authorities because of their links to Cuba. And Odebrecht could be facing a problem in Florida under a local law supported by the Cuban-American lobby. - With reporting by Gerardo Arreola in Havana.
MAY-JUNE 2012 LATIN TRADE
45
SPECIAL REPORT: BENCHMARKING
BENCHMARKING IN LATIN AMERICA
Analyzing the best and worst countries in Latin America in business, entrepreneur, labor and tax environments and education, globalization, infrastructure, security, technology and tourism levels. BY JOACHIM BAMRUD BUSINESS ENVIRONMENT The Latin Business Index, which spans 28 components and 18 countries, is the most extensive index measuring the business environment in Latin America.
I
nvestors looking to enter a new Latin American market or expand into another often are faced with only limited information restricted to a specific country. Meanwhile, international rankings typically cover only a select group of countries in Latin America. To make life a bit easier for investors, Latin Business Chronicle – the digital sister publication of Latin Trade magazine – has developed 10 unique benchmarking indexes that enable executives to compare key conditions in 18 or more countries in Latin America. The indexes cover the business, entrepreneur, labor and tax environments and education, globalization, infrastructure, security, technology and tourism levels. WINNERS & LOSERS In general, two countries shine on the indexes. They are Chile and Panama. Chile tops four of the indexes (business, entrepreneur, labor and tax) and comes in second on two others (infrastructure and security). Panama tops three indexes (globalization, infrastructure and technology) while coming in second in two (business and entrepreneur). Meanwhile, Venezuela is the clear loser. It ranks last on two indexes (business and entrepreneur) and second-to-last on two others (globalization and security).
46
LATIN TRADE MAY-JUNE 2012
• Macro environment: Percent GDP growth in 2009, 2010, estimated 2011 and forecast 2012, and percent inflation for those years. • Corporate environment: taxes, labor environment, access to capital for entrepreneurs, ease of doing business and economic freedom. • Globalization and competitiveness: globalization, competitiveness, tariffs and security. • Infrastructure level: transport, technology penetration, access to water and quality of electricity supply. • Political environment: political freedom, political stability, political outlook, judicial independence, business policies of government, transparency and intellectual property rights. Chile tops the index, followed by Panama, Peru, Uruguay and Mexico. The worst countries? Venezuela, followed by Bolivia. EDUCATION LEVEL
The Latin Education Index, which covers 19 countries, is based on the following five criteria using data from the United Nations Educational, Scientific and Cultural Organization and the World Economic Forum: • Quality of primary education. • Mean years of schooling. • Expected years of schooling. • Combined gross enrollment ratio in education. • Adult literacy rate.
ISTOCK
The five key categories and their components in the latest index are:
ISTOCK
SPECIAL REPORT: BENCHMARKING
Expressway in a tunnel, Santiago, Chile
Panama has the best overall infrastructure, followed by Chile. A common standard for comparing education internationally – the Program for International Student Assessment (PISA) from the OECD – has not been included as it only encompases eight Latin American countries. Uruguay leads the way, followed by Argentina. The worst country? Haiti, followed by Guatemala. ENTREPRENEUR ENVIRONMENT The Latin Entrepreneur Index, which spans 18 countries, looks at five key factors that affect entrepreneurs: • Number of procedures for starting a business. • Time to start a business (number of days). • Cost to start a business as a percent of income per capita (including all official and legal fees). • Access to loans (ease of access to obtain a bank loan with only a good business plan and no collateral). • Venture capital availability (for entrepreneurs with innovative, risky projects). The index, which uses data from the World Bank and the World Economic Forum, shows Chile as the best country, followed by Panama. Worst for entrepreneurs? Venezuela, followed by Nicaragua.
48
LATIN TRADE MAY-JUNE 2012
GLOBALIZATION LEVEL The Latin Globalization Index of 18 countries looks at six factors that measure a country’s links with the outside world: • Exports of goods and services as a percent of GDP. • Imports of goods and services as a percent of GDP. • Foreign direct investment as a percent of GDP. • Tourism receipts as a percent of GDP. • Remittances as a percent of GDP. • Internet penetration. The index uses data from the World Bank, the United Nations Economic Commission for Latin America and the Caribbean, the International Monetary Fund, the International Telecommunications Union and the Santiago Chamber of Commerce. The most globalized country in Latin America? Panama. The least globalized? Brazil, followed by Venezuela. INFRASTRUCTURE LEVEL The Latin Infrastructure Index, which spans 18 nations, provides rankings in four key categories and 24 subcategories, using data from the World Bank, the World Economic Forum, the International Telecommunications Union and Computer Industry Almanac.
SPECIAL REPORT: BENCHMARKING
BENCHMARKING CHART Latin Business Index
Latin Globalization Index
Latin Security Index
BEST Chile Panama
BEST Panama Paraguay
BEST Costa Rica Chile
WORST Venezuela Bolivia
WORST Brazil Venezuela
WORST Haiti Venezuela
Latin Education Index
Latin Infrastructure Index
Latin Tax Index
BEST Uruguay Argentina
BEST Panama Chile
BEST Chile Paraguay
WORST Haiti Guatemala
WORST Nicaragua Paraguay
WORST Brazil Bolivia
Latin Entrepreneur Index
Latin Labor Index
Latin Technology Index
BEST Chile Panama
BEST Chile Mexico
BEST Panama Uruguay
WORST Venezuela Nicaragua
WORST Honduras Bolivia
WORST Cuba Nicaragua
All indexes, except Latin Security Index, developed by Latin Business Chronicle. Latin Security Index developed by FTI Consulting
ISTOCK
The index’s four key categories are transport, technology, electricity and water. Transport covers 16 subcategories, such as the cost, time and documents required to export and import containers; the quality of seaports, airports, roads and railway and overall logistics performance – which, in turn, includes factors such as customs efficiency, ease of arranging competitively priced shipments, competence and quality of logistical services, ability to track and trade consignments, and timeliness of shipments in reaching a destination within the scheduled or expected delivery time. Panama has the best overall infrastructure, followed by Chile. The worst? Nicaragua.
LABOR ENVIRONMENT This index looks at 18 factors that determine overall labor conditions in 18 countries in Latin America. They include: • Fixed-term contract flexibility. • Minimum wage. • Payments and restrictions for night and holiday work. • Paid annual leave. • Regulations and payments for redundancy. • Flexibility of wage determination. • Cooperation in labor-employer relations. • Brain drain.
Skyscrapers seen from city old quarters. Panama City, Panama
MAY-JUNE 2012 LATIN TRADE
49
SPECIAL REPORT: BENCHMARKING
Venezuela ranks last on two indexes,business and entrepreneur, and second-to-last on two others, globalization and security It also includes education (mean and expected years of schooling) and a health factor, such as life expectancy at birth. Chile has the best labor environment in Latin America, followed by Mexico. The worst? Honduras, followed by Bolivia – two poor countries that desperately need more jobs. SECURITY LEVEL The Latin Security Index takes into account how each country in Latin America is doing related to public insecurity, with a special focus on the business community. The index of 19 countries was developed by FTI Consulting, which polls its own multinational clients and also analyzes public crime data from police and NGOs. Costa Rica is the safest country for multinational executives, followed by Chile. The most dangerous country is Haiti, followed by Venezuela. TAX ENVIRONMENT The Latin Tax Index uses four factors – corporate tax rates, tax rates as a percentage of profits, the number of payments involved and the time required to comply – to compare both the level of taxes and the ease or difficulty of payment across 18 countries. Chile has the best tax environment, while Brazil has the worst. At 17 percent, Chile’s corporate tax rate is the second-lowest in the region, after Paraguay (10 percent). Brazil, meanwhile, is one of the three countries with the highest rate in Latin America (34 percent). Even worse: It has set a world record in number of hours necessary to comply with tax regulations (2,600 hours, or 3.6 months), the index shows. TECHNOLOGY LEVEL The Latin Technology Index provides a unique comparison of the
50
LATIN TRADE MAY-JUNE 2012
technology level of 19 Latin American countries by looking at the penetration rates of the Internet, broadband Internet, personal computers (PCs), wireless subscribers and fixed telephone lines. It uses 2010 technology data from the International Telecommunications Union, Computer Industry Almanac and the Santiago Chamber of Commerce and population data from the International Monetary Fund and the Population Reference Bureau. Panama has the highest technology level in Latin America, followed by Uruguay. The lowest level is found in Cuba, followed by Nicaragua. Thanks to continued strong growth in wireless penetration as well as a recent spurt in Internet and broadband penetration and a doubling in PC users, Panama managed to lead the index for the first time. Cuba has Latin America’s lowest wireless penetration rate: 8.9 percent, which is 10 times lower than the regional average of 101 percent. Cuba also has the lowest broadband rate (0.03 percent). That compares with the regional average of 4.7 percent. Meanwhile, Cuba also can “boast” the fifth-lowest PC penetration (9.8 percent) and Internet penetration (15.1 percent). By comparison, the Latin American average PC penetration is 16.3 percent, and the region’s average Internet penetration rate is 29.3 percent. TOURISM LEVEL The Latin Tourism Index measures the impact tourism has on a country. It looks at international tourist arrivals (as a percent of population) and international tourism receipts (as a percent of GDP). Uruguay tops the index, followed by Costa Rica. Brazil is at the bottom. No country hosted a greater share of international tourists than Uruguay. Its 2.3 million arrivals equaled 70 percent of Uruguay’s population. editorial@latintrade.com
ISTOCK
Oil rig in Monagas state,Venezuela
What do Arcos Dorados Burger King Cartier Caterpillar Chevron Continental Airlines Credit Suisse Dell DHL Express FedEX Goldman Sachs Hamburg Sud
Hewlett-Packard HSBC IDB Kraft Morgan Stanley Oracle PepsiCo SAP The World Bank Time Warner UPS Visa
have in common? They all rely on Latin Business Chronicle when doing business in Latin America and the Caribbean.
Subscribe today ahora también en español www.latinbusinesschronicle.com News, analysis and statistics available anytime, anywhere. Mention LT AD and receive a complimentary issue of Latin Trade Magazine TOP 500-July/August
TO SUBSCRIBE VISIT US ONLINE OR CALL 1.800.765.0453
INDUSTRY REPORT: TOP 100 INSURERS
PROPERTY AND CASUALTY INSURANCE COVERING THE RISK OF ACCIDENTS AND DISASTERS
ISTOCK
BY JOSEPH A. MANN JR.
T
he insurance sector in Latin America is growing briskly, buoyed by an expansion of the middle class in several countries, economic stability and generally good prospects for continued economic growth throughout the region. Property and casualty insurance (P&C) covers a wide range of risks for businesses, individuals and governments – automobile accidents, financial loss from natural disasters, fire, theft, marine and aviation accidents,
52
LATIN TRADE MAY-JUNE 2012
industrial accidents and others. In technical terms, property insurance protects individuals or businesses from the loss of property or the loss of income related to that property. Casualty insurance principally protects persons or businesses against legal liability caused by injuries to other people or damage to someone else’s property. Premiums for all types of insurance in Latin America grew by double digits in 2011, said Juan Fernando Serrano, CEO of LatinoInsurance, a market-information and consulting firm that closely follows insurance developments in the region. Serrano estimated that some countries – such as Brazil and Ecuador – had premium expansion of more than 20 percent last year, and the area as a whole grew by 12 percent to 15 percent, benefitting life and non-life products alike. “Economic stability in Latin America – supported by commodity prices and strong
demand – is important and has an impact on insurance,” Serrano said. He also expects continued premium growth in 2012. In Brazil, for example, “the middle class consumes everything,” he noted. “Goods, services … and insurance.” Insurance premiums in Latin America, including life and non-life products, represent about 3 percent of world premiums, Serrano said. Still, insurance companies – both national and international – are eager to grow their portfolios: “It’s a small market, but it offers double-digit growth in income and profits,” he said. Despite some disasters, such as the Chilean earthquakes, insurance companies are very profitable. The LatinoInsurance CEO added: “In 2010, their average ROE (return on equity) was 17 percent.” Once the large international insurance companies were allowed to have 100 percent ownership, they began buying local companies and had an important impact on the Latin American market, said Kathleen B. Smith, managing director for Latin America and the Caribbean at Marsh Inc., the worldwide insurance brokerage and risk management firm. “Before, businesses had to depend on local companies, and they had limited capacity,” Smith said. “The market is much more diverse
INDUSTRY REPORT: TOP 100 INSURERS
The Latin American countries with the most developed insurance industries today are Argentina, Brazil, Chile, Colombia, Mexico and Peru – as well as the U.S. market of Puerto Rico now, since different insurance companies and brokers brought their skill sets and new products to the region.” The Latin American countries with the most developed insurance industries today are Argentina, Brazil, Chile, Colombia, Mexico and Peru – as well as the U.S. market of Puerto Rico, Serrano said. Aside from Brazil, the largest markets for P&C insurance are Mexico, Puerto Rico, Venezuela, Argentina, Chile, Colombia and Peru. Although life insurance is leading the pack, P&C lines have strong growth potential in Latin America, according to Rafael Casas, president of MAPFRE America, the region’s largest supplier of P&C coverage. “Currently, large companies are covered by P&C insurance more than small and midsized companies,” he noted. And since the level of P&C penetration in the region is lower than in more-developed markets, the sector has strong growth prospects – especially in the current world economic context, where Latin America expects continued economic expansion and increasing acquisitive power.
developed, governments demand performance bonds from contractors. Also, builders and other investors want to cover risks associated with developing multimillion-dollar projects. • Credit insurance – a small but growing sector to protect against risk in accounts receivable. WH HO IS COVE ERE ED? Multinational companies with operations in Latin America and multilatinas – which have operations and personnel far beyond their home countries – have used a combination of international insurance companies and local companies to cover a variety of risks. In recent years, they have turned increasingly to “captives,” or self-insurance companies.
Esteban Madero, a vice president at Marsh, said Latin American and Caribbean businesses have increasingly focused on captive insurance organizations to transfer risk. Venezuela’s PDVSA has a captive insurance company, Serrano said, and Mexico’s PEMEX asks insurance companies for bids every two years. Each company has assets worth many billions of dollars. In contrast, P&C coverage among small and mid-sized businesses (SMEs) varies. Moreover, companies that have bank loans usually are obliged to obtain insurance under terms of the loan agreement. HO OW SOM ME COM MPANIES CO OVER RIS SK Big companies typically don’t like to reveal their insurance coverage. But publicly traded firms sometimes publish information on the topic. Caterpillar, which has manufacturing operations in Mexico and Brazil and other countries, also is self-insured through captive insurance companies, including Caterpillar Insurance Co. Ltd. in Bermuda, according to the company’s 10-K for 2011.
SOME EXAMPLES: According to LatinoInsurance’ Serrano these are examples where P&C coverage is growing: • Automobiles – this is one of the fastestgrowing sectors. With expansion of the middle class, demand for cars and other vehicles has increased, and loan rates are lower than in the past. More policies are being written, both for compulsory (SOAT) and non-compulsory vehicle insurance. • As trade increases, there is more demand for cargo- and transportation-related insurance. • New airports, roads, electric-power systems and other infrastructure projects require insurance from governments and private companies alike. This is especially true in areas subject to earthquakes, hurricanes and other natural disasters. • Surety bonds. When new projects are
MAY-JUNE 2012 LATIN TRADE
53
INDUSTRY REPORT: TOP 100 INSURERS
TOP100 INSURERS IN LATIN AMERICA
Ranked by Total Written Premiums in millions of US$ as of December 31st 2011 & December 31st 2010 Ranking 2011 2010 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43
1 2 3 4 6 5 8 7 9 10 11 13 14 12 16 15 17 18 24 20 21 19 22 27 23 28 25 29 33 26 32 43 35 31 40 37 41 34 30 36 44 38 47
Company (HQ) BRADESCO (Brazil) ITAU (Brazil) MAPFRE (Spain) ZURICH-SANTAND (Spain) PRINCIPAL (United States) ING (Netherlands) PORTO (Brazil) MET LIFE (United States) LIBERTY (United States) CNP (France) GENERALI (Italy) ALLIANZ (Germany) SURAMERICANA (Colombia) GNP (Mexico) HSBC (England) BBVA (Spain) AXA (France) TRIPL-S INC (D) (Puerto Rico) INBURSA (Mexico) BRASIL (Brazil) RSA (England) CHARTIS (United States) ACE (United States) CARDIF (France) HDI (Germany) MERCANTIL (Venezuela) NYLIFE (United States) CITIGROUP (United States) SANCOR (Argentina) TOKIO (Japan) QUALITAS (Mexico) HORIZONTE (Venezuela) SOMPO (Japan) RIMAC (Peru) PENTASEC (Chile) CHUBB (United States) ALTAMIRA (Venezuela) QBE (Australia) BRASIL VEICULOS (Brazil) INS (Costa Rica) PREVISORA (Venezuela) PACIFICO (Peru) CONSORCIO (Chile)
ML: Multilatins MN: Multinationals L: Latins
54
LATIN TRADE MAY-JUNE 2012
Company Type ML ML MN MN MN MN ML MN MN MN MN MN ML L MN MN MN L L L MN MN MN MN MN L MN MN ML MN ML L MN L L MN L MN L L L L L
2011 Total Written Premiums 20,703.3 10,108.6 7,509.7 6,630.6 6,366.1 6,066.9 5,117.2 4,027.0 3,741.1 3,546.8 3,087.2 2,803.6 2,693.0 2,679.9 2,610.9 2,459.7 2,279.0 1,998.1 1,760.6 1,738.6 1,623.0 1,526.5 1,400.4 1,363.8 1,359.1 1,217.3 1,208.7 1,104.7 1,060.4 1,019.0 904.4 893.0 887.5 886.6 848.0 833.0 810.7 802.6 782.7 746.6 742.9 720.1 717.7
%Δ 2010 vs 2011 30.49% 36.27% 14.77% 8.24% 29.37% 22.02% 13.95% -12.26% 20.86% 22.59% 26.96% 23.33% 21.53% 16.75% 25.92% 14.06% 10.12% 0.00% 57.13% 23.09% 24.83% 5.24% 17.40% 43.95% 19.93% 30.44% 12.11% 23.22% 42.18% -1.55% 16.27% 57.65% 24.04% 13.33% 40.06% 21.16% 39.01% 9.28% -12.51% 5.22% 34.01% 17.30% 39.66%
2011 Market Share 13.5% 6.6% 4.9% 4.3% 4.1% 3.9% 3.3% 2.6% 2.4% 2.3% 2.0% 1.8% 1.8% 1.7% 1.7% 1.6% 1.5% 1.3% 1.1% 1.1% 1.1% 1.0% 0.9% 0.9% 0.9% 0.8% 0.8% 0.7% 0.7% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
INDUSTRY REPORT: TOP 100 INSURERS
Ranking 2011 2010 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
45 54 39 53 48 42 50 49 52 56 60 62 58 46 63 59 64 55 51 57 66 65 72 61
Company (HQ) FED. PATRONAL (Argentina) HARTFORD (United States) BOLIVAR (Colombia) OCCIDENTAL (Venezuela) ATLAS (Mexico) MULTINACIONAL (Venezuela) BANCO (Uruguay) UNIMED (Brazil) MASSACHUSETTS (United States) SAN CRISTOBAL (Argentina) COLPATRIA (Colombia) SEGUNDA (Argentina) ASSURANT (France) CONSTITUCION (Venezuela) BCI (Chile) AEGON (Netherlands) PROVINCIA (Argentina) ABA (Mexico) BANESCO (Venezuela) UNIVERSAL (D) (Puerto Rico) CRUZ SUR (Chile) ALFA (Colombia) BICE (Chile) SAFRA (Brazil)
Company Type L MN ML L L ML L L MN L L ML MN ML L MN L L ML L L L L L
2011 Total Written Premiums
%Î&#x201D; 2010 vs 2011
2011 Market Share
698.0 691.4 683.6 682.2 614.2 604.2 568.0 562.5 556.1 555.7 532.9 521.1 518.7 517.7 486.8 464.3 456.8 454.0 428.8 406.5 398.7 384.2 368.4 348.3
30.90% 54.34% 12.25% 51.96% 25.24% 5.68% 19.34% 15.85% 23.30% 29.38% 34.68% 32.84% 30.01% -0.68% 34.89% 16.69% 37.10% 2.27% -5.00% 0.00% 46.12% 19.81% 52.05% -11.33%
0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2%
Tui Lifestyle has redefined the design and furniture industries; providing exceptional value and complete home design solutions that are delivered and installed in 72 hours. Tui Lifestyle is your one-stop luxury living destination with its dynamic array of in-stock luxury furnishings and decorative accessories. Transform your home into a luxury designer residence in a matter of days, not months. The designer collections are beautiful, yet comfortable and well-suited for a modern lifestyle. The highly trained Tui Lifestyle team ensures complete customer satisfaction. Tui Lifestyle has showrooms in Miami and New York, and Authorized Dealers in Atlanta, Scottsdale and Toronto. Tui Lifestyle is also now available in Las Vegas. We invite you to visit us today and start living in Tui Lifestyle luxury and style. www.tuilifestyle.com Main Showroom: 18000 State Road 9, Miami, FL 33162 305.652.0232 Miami Design District Showroom: 3886 Biscayne Boulevard, Miami, FL 33137 305.573.5411 NY Soho District Showroom: 136 Greene Street, New York, NY 10012 212.300.7046 MAY-JUNE 2012 LATIN TRADE
55
INDUSTRY REPORT: TOP 100 INSURERS
Chile-based LAN Airlines S.A., with 150 passenger and cargo aircraft and operations in many countries, said in its 2011 annual report (SEC Form 20-F) that its insurance coverage for 2011 cost $16.3 million. The publicly traded international airline has hull insurance that includes, among other things, “all risk,” war and allied risks, plus liability for spares, passengers, cargo, mail, baggage and third parties. Since 2006, LAN has negotiated common terms for hull all risk, aviation legal and spares coverage together with British Airways, Aer Lingus and their affiliates, the report said,
Ranking 2011 2010 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100
76 70 73 67 71 133 77 100 69 85 75 81 74 68 88 80 82 79 106 91 83 122 89 95 103 78 113 86 105 93 84 115 92
which gives the airlines premium reduction and coverage improvements. TH HE MOS ST EX XPE ENSIVE COV VER RAGE E... TH HAT ONE YO OU DID NOT T BU UY.... The cost for P&C insurance against natural disasters depends on the level of risk and location, Marsh’s Smith said. “One of the biggest factors in determining the cost of your coverage is your loss experience,” she noted, so even companies in risky geographical areas are judged more on their own loss experiences. Some of the most expensive insurance, she said, covers machinery
Company (HQ) ESTAR (Venezuela) VIDACAMARA (Chile) ESTADO (Colombia) PREVISORA (Colombia) EURO (Chile) ALIANÇA BRA (Brazil) MAGALLANES (Chile) NACION (Argentina) COOPERATIVA (D) (Puerto Rico) BANCHILE (Chile) GMX (Mexico) PRUDENTIAL (United States) CARONI (Venezuela) INTERACC (Mexico) NOBRE (Brazil) ALFA (Brazil) BERKLEY (United States) MITSUI SUMITOMO (Japan) SMG (Argentina) POSITIVA (Colombia) CAPEMI (Brazil) AGROAS (Mexico) OHIO (United States) WARRANTY GROUP (US) PIRAMIDE (Venezuela) INTERNACIONAL (Panama) VENEZOLANA (Venezuela) ASSA (Panama) RIVADIVA (Argentina) CATATUMBO (Venezuela) ASOCIACION (D) (Puerto Rico) LIDERAR (Argentina) TRAVELERS (United States)
Company Type L L L L L L L L L L L MN L L L L MN MN L L L L MN MN L L L ML L L L L MN
2011 Total Written Premiums 331.2 324.4 302.2 301.4 294.9 279.3 275.0 273.3 265.1 255.6 252.9 252.6 250.6 247.3 240.8 240.2 237.9 231.0 225.3 221.6 220.7 216.9 215.6 211.5 209.9 209.2 205.9 203.6 200.0 195.7 190.5 189.2 189.0
breakdowns at complex operations. In parts of the Caribbean, for example, which potentially face hurricanes and flooding each year, “there seems to be plenty of supply and demand for catastrophic coverage, but the cost is very high,” Smith said. “For insurance companies, it’s all about spreading the risk. Catastrophic models dictate how much insurance a company can write, and at what price.” But, as insurance experts say, the most expensive insurance is the coverage you don’t buy.
%Δ 2010 vs 2011 48.62% 24.86% 26.64% 12.03% 20.62% 236.83% 28.65% 71.64% 0.00% 34.31% 13.20% 28.25% 8.39% -7.87% 31.50% 21.89% 20.94% 13.40% 58.67% 26.44% 15.58% 114.90% 19.11% 23.46% 43.89% 0.00% 70.83% 7.64% 38.43% 13.11% 0.00% 59.48% 9.04%
0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
Subtotal Top 100 Insurance Groups 335 Remaining Groups
141,850.2 11,755.4
92.3% 7.7%
TOTAL REGION
153,605.6
100.0%
Compiled by: LATINOINSURANCE Sources: Written premiums by line of business figures published by the insurance regulators of each country included herein.
56
2011 Market Share
LATIN TRADE MAY-JUNE 2012
SPECIAL REPORT: MBA
GETTING AN
EXECUTIVE EDUCATION ISTOCK
BY TOM AZZOPARDI
A
fter a decade of robust economic growth, Latin America’s leading business schools are building on the region’s newly won reputation for business smarts and financial prudence. Although they might yet not compete with the big schools of Europe and North America, they are proving to be increasingly viable alternatives for executives throughout Latin America and beyond. Although courses in business administration have a veritable tradition in the United States – the Tuck School of Business at Dartmouth College began to offer the world’s first master’s degree in business administration in 1900 – the MBA truly began to become a global phenomenon only during the long post-war economic boom, when leading U.S. schools began to export their model of executive education to
58
LATIN TRADE MAY-JUNE 2012
campuses in Europe and Latin America. But while schools in Europe thrived and now rival their U.S. forebears in prestige and might, the development of business education in Latin America was checked by 30 years of economic and political instability, says Dr. Jorge Talavera, dean of the ESAN graduate business school in Lima, Peru. There were some benefits. The uncertain times “prepared people and professors to face unusual problems,” adds Armando dal Colletto, dean of Business School São Paulo. “Some creative solutions came from that time,” he adds, some of which could now apply to the debt crises and stagnant growth facing developed economies. However, times are changing. Latin America is now an important motor of the world economy – and one that has survived
the global financial crisis largely unscathed. And its business schools are beginning to pitch their claim to executives throughout the world. Chile’s leading business schools – such as Adolfo Ibanez University and the Pontificate Catholic University in Santiago – are living proof of how Latin America’s improved fortunes can benefit a school’s reputation. Twenty years after the end of the Augusto Pinochet dictatorship, Chile has ushered in its first democratically elected right-wing government in half a century, while its economic model remains largely unquestioned and its companies go from strength to strength. “Chile is an extraordinary example for the region, and the experience in Chile sells very well abroad,” says Hernan Palacios, director
SPECIAL ADVERTISING FEATURE
Teaching methods in Latin America closely mirror those used in most U.S. business schools, unsurprising given the role of U.S. universities in the development of executive education south of the border. Cleveland Clinic’s world class healthcare builds on a tradition of innovation that began 90 years ago. With a unique approach to the practice of medicine, Cleveland Clinic earned a reputation as one of the world’s most respected academic medical centers.
of the Catholic University’s MBA UC. The school environment plays a very different role at Central America’s prestigious INCAE Business School. According to Dean Guillermo Selva, the live-in experience enjoyed by students in the Global Executive MBA program sets the school apart from its competitors. Students spend one week a month studying at the school’s Francisco de Sola campus on the forested outskirts of Managua. Set up in 1964 by teachers from the Harvard Business School at the behest of U.S. President John F. Kennedy, the school usually is listed near the top of any ranking of regional MBA programs. With lodging, catering and even laundry service provided on-site, executive students can fully immerse themselves in study from Wednesday to Tuesday, including the weekend.
“They really have time to think and to dream… and to learn from the teachers and each other. This is what they remember about the course,” Selva says. Then, unburdened with homework, they return to their careers and home life to stock up on real-life experiences to share when they return to classes in three weeks’ time. Most executives planning to take time out to study, however, usually are interested in what happens inside the classroom. Teaching methods in Latin America closely mirror those used in most U.S. business schools, unsurprising given the role of U.S. universities in the development of executive education south of the border. At Peru’s ESAN, teaching staff draw heavily on case studies in the classroom, reflecting the role the Stanford Graduate School of Business played in its founding half a
Cleveland Clinic Florida is a multispecialty group practice dedicated to providing outstanding patient care in an environment of research and education. With a medical staff of over 200 physicians, representing more than 35 medical specialties, it provides treatment of medical problems that have resisted conventional treatment. The great strength of Cleveland Clinic Florida lies in the collective wisdom and shared values of its physicians, who work together in a collegial effort for the care of their patients. With a strong belief that education is the foundation for all medical practice, research and education is integrated with patient care. To that end, it plays a role in the training of more than 3,000 doctors annually from around the world, as well as offering several residency and fellowship programs. Cleveland Clinic Florida may be the first choice for routine care, or the last hope when diagnosis or treatment options prove elusive. It is considered the destination for care of complex conditions. For more information about Cleveland Clinic Florida, visit www.clevelandclinicflorida.org MAY-JUNE 2012 LATIN TRADE
59
SPECIAL REPORT: MBA
A DIPLOMA FOR THE FINANCIAL WORLD
A
specialization in international financial markets and the rapid growth of the field created a need for certification for professionals who sought to advance in their careers and to establish a benchmark for excellence and international conduct. The Institute of Chartered Financial Analysts emerged from the original Federation of Financial Analysts a decade after its
creation in the United States in 1947, and work began to organize the course. Today, the CFA Institute is a nonprofit international association of investment professionals that grants the CFA (Chartered Financial Analyst) Certificate and the CIPM (Certificate in Investment Performance Measurement). What is interesting about these certifications is that they are international, allowing those who obtain them to operate in any market
in the world. The exams are demanding, and the course is carried out through distance education, specifically to allow financial professionals the option of carrying them out without having to take a break in their careers, as is the case for the majority of master’s degrees in other specialties. In order to register, a student must have four years of qualified experience in financial markets, a university degree and must be able to speak English, the language
the course in which the course is taught. The CFA establishes two dates each year to take the exam in each country where it has representation. The program currently has a network of 135 associations in 58 countries. In June 2012, for example, the exam can be taken in more than 90 countries, including Argentina, Brazil, Chile, Colombia, Guatemala, Mexico, Panama, Peru, Puerto Rico and Venezuela.
IN LATIN AMERICA, THE FOLLOWING UNIVERSITIES ARE MEMBERS OF THE PROGRAM: • INCAE Business School (Alajuela, Costa Rica). • Insper (São Paulo, Brasil). • Instituto de Estudios Superiores de Administración (IESA) (Caracas, Venezuela). • Instituto Tecnológico Autónomo de México (ITAM) (Ciudad de México, México). • Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM)- (Monterrey, México). • Pontificia Universidad Católica de Chile (Santiago, Chile). • Pontifícia Universidad Católica do Rio de Janeiro (Rio de Janeiro, Brasil). • Universidad Adolfo Ibáñez (Santiago, Chile). • Universidad del CEMA (Buenos Aires, Argentina). • Universidad del Pacifico (Lima, Perú). • Universidad de San Andres, Facultad de Administración (Buenos Aires, Argentina). • Universidad Torcuato Di Tella (Buenos Aires, Argentina).
Business schools need to be more imaginative in dealing with new challenges century ago, Talavera says. But in other ways, Latin American schools vary in focus. INCAE, like its Costa Rica home, has developed a reputation for sustainable development, a specialization that attracted students from across Latin America and beyond. In Argentina, IAE is trying to stand out by flagging its strength on developing economies. “We want to be known as the school which knows the most about emerging markets in Latin America,” says the school’s dean, Marcelo Paladino.
60
LATIN TRADE MAY-JUNE 2012
Santiago’s Catholic University prefers to focus on the development of soft skills required by modern business executives, such as leadership and negotiation, rather than fields of knowledge such as finance or marketing. “We are looking to produce chief executives,” Palacios says. But curricula require constant updating, especially given the hair-raising turbulence seen over the past five years. At INCAE, course material has been tweaked to put greater emphasis on the globalization of the economy, as well as
on issues such as corporate ethics and sustainable development, Selva says. More external teachers are being recruited so students can better understand the threats to modern society. “Although this is experiential learning, we don’t want them to lose contact with the world outside,” Selva says. At UC in Chile, they are planning a complete redesign of the MBA program to be implemented next year to reflect not only changing circumstances but also executives’ shifting priorities. “Fifteen years ago, few MBA students
SPECIAL REPORT: MBA
thought about starting their own business; today everyone wants to be an entrepreneur. That’s been a major change,” Palacios says. But others contend that business schools need to be more imaginative in dealing with new challenges. IAE’s Paladino notes that MBAs rarely consider the impact companies have on society and vice-versa – a key issue in emerging markets. “Most business schools are totally asleep on these issues and have no answers,” he says. With change becoming ever more rapid, schools are increasingly teaching executives not how businesses overcame hurdles in the past but how to tackle new situations on their own terms. “The challenge for executives is to face new problems that are not solved by old methods and need new and innovative approaches. … Companies need to be learning organizations that adapt to their environment,” says Sao Paulo’s Dal Colletto. Although Latin America’s business schools are attracting more attention overseas, they still are not competing directly with the big U.S. and European schools. The huge difference in fees means the schools are largely angling to different markets. Schools in Latin America often lack the infrastructure and technologies enjoyed by global powerhouses. Still, there is increasing overlap. Faced with limited demand at home, European universities have become more aggressive in recruiting in Latin America,
62
LATIN TRADE MAY-JUNE 2012
A two-year course at a top business school in Latin America costs about $30,000, compared with $100,000 for a US MBA. And despite recent inflation, life in Buenos Aires, Lima or Monterrey costs much less than a year in New York, London or Paris especially leading Spanish business schools such as ESADE and IESE, because of the common language, says Dr. Laura Zapata, director of the MBA programs at Monterrey’s EGADE Business School. In response, local schools are planning to take the fight to the competition. Selva reveals that INCAE is investing in cuttingedge technologies and faster admission processes in order to begin recruiting directly in Europe and North America. And regional schools’ much lower fees could be a selling point to cash-strapped Europeans and Americans. A two-year course at a top business school in Latin America costs about $30,000, compared with $100,000 for an American MBA. And despite recent inflation, life in Buenos Aires, Lima or Monterrey costs much less than a year in New York, London or Paris, notes EGADE’s Zapata. Growing links between schools in Latin America and schools elsewhere also help
break down the barriers of geography. All the leading schools have agreements in place allowing students to obtain a double degree from a leading European or U.S. school (at a fraction of the price) or spend part of a course abroad. Such deals are likely to become more important in the future. On April 26, the Yale School of Management announced the launch of the Global Network for Advanced Management, the first MBA club to combine schools from advanced and developing economies to create business leaders for the transformed economic landscape. As well as France’s INSEAD and the UK’s LSE, the elite roll call also includes four business schools from Latin America: INCAE, UC, EGADE and Brazil’s FGV Business School. “It’s a great honor to be invited,” says INCAE’s Selva. editorial@latintrade.com
Gonzalo Pulit
DIGITAL EDUCATION MAKES ITS PUSH IN LATAM By Charles Newbery BUENOS AIRES – Schools in Ometepe, an island on the Lake of Nicaragua, received 5,000 laptop computers for primary and high school students this year, taking the national total to 25,000. Argentina has distributed 1.8 million laptops to students, Peru 900,000 and Uruguay 570,000. This brings cheer to Gonzalo Pulit. His company, Kuepa, seeks to advance digital education in Latin America by providing webbased services to schools for improving administration, communication and teaching. “There are a lot of studies showing that investment in education is paid back by economic development,” Pulit, 44, said at his office in Buenos Aires. “Governments have come to recognize this.” Brazil is stepping up its minimum investment in education to 7 percent of GDP by 2020. Colombia, Ecuador and Honduras are making reforms. More countries are handing out laptops. It’s a start. What needs to follow, Pulit said, are digital services to capitalize on the hardware to help improve exam results, lower dropout rates and graduate innovative young minds. This is where Kuepa comes in. Pulit started the company, which now has
64
LATIN TRADE
MAY-JUNE 2012
20 employees, in 2011 after years in financial and private equity consulting. Kuepa’s first product is an online platform for school management. Teachers can log in to do administrative tasks, from taking attendance to drafting class agendas and communicating with parents. Teacher evaluations and training can be done, and lesson plans and resources shared. Kids and parents can keep abreast of assignment deadlines and exam dates. This, Pulit said, simplifies administration so educators can focus on what they do best: teaching. For school principals and superintendents, the service consolidates reams of memos and reports. They can check it all out on one website to help chart the progress of their students and teachers for decisions on resource distribution. The second push for Kuepa is digital content, from animation to 3D graphics and video explanations of anything from atoms to trigonometry. The impact on teaching is just as important. Interactive multimedia lessons can be more gripping for students to grasp and remember, Pulit said. Pulit, a diplomat’s son who was educated in Argentina, Austria, Canada, Venezuela and the United States, thinks students and teachers are
more than ready for digital education. “Kids are hyper-connected,” he said. “And teachers understand that the computer is a way to catch students. It is what kids know. The question is how we can use technology to improve education and generate more interest.” Teachers are catching on, and schools are getting wired. About 37 percent of the Latin American population has connectivity. Primary students at the No. 13 “Raul Scalabrini Ortiz” public School in Buenos Aires began using laptops for the first time this year. Ricardo Sobron, the principal, and his assistant, Liliana Silva, view the laptops as another tool, albeit richer than a chalkboard and textbooks. They are packed with literature, plus logic and math games. “With the Internet, we can bring information from remote places to accelerate the process of investigation and enrich the content,” Silva said. Digital textbooks are up to 50 percent cheaper. Publishers in the region, such as Grupo Planeta, Pearson and Santillana, are entering the business, mimicking efforts in the United States. This year, Apple launched iBooks 2, an e-book application for digital textbooks. Pulit expects that the iTunes Store eventually
“There are a lot of studies showing that investment in education is paid back by economic development.” will stock digital textbooks in Spanish for the region, along with Amazon and Google. He plans to sell them on Kuepa’s website, building it into an education hub for the region. The laptops and the new methods are proving good for sales at Kuepa, the first company to take a pan-Latin American approach to digital education services, with an eye also on Spain and the U.S. Hispanic market. Schools are testing Kuepa in Argentina, Colombia and Uruguay. More deals are in the making, as are plans to open offices in key markets and to outsource sales elsewhere, Pulit said. With 570,000 schools in Latin America, much can be done.
PHOTO: COURTESY OF KUEPA
TECH TRENDS
MIAMI
LT CFO event in Miami
Kathryn Rooney Vera, Director & Managing Partner, Macroeconomic Research, Bulltick Capital Markets
lthough Latin America is not “fully decoupled,” it is “well-positioned with low debt levels and fiscal deficits” compared with other parts of the world, and concerns for the region are mostly external, according to Kathryn Rooney Vera, director and managing partner of macroeconomic research at Bulltick Capital Markets. Latin America’s GDP this year is expected to grow 3.8 percent or possibly more, Rooney said. “Currency appreciation will continue in Latin America, driven by the famous ‘carry trade’ and the developed world’s expansionist policies,” she said. Brazil’s GDP is projected to grow by 3.6 percent this year, down from higher rates in recent years, Rooney said. The country’s economy remains robust but there are concerns: the national savings rate is low, and the country needs to invest in infrastructure and requires supply-side reform. In spite of these issues, Brazil will continue to be “a story we like” over the next few years. Venezuela is facing serious challenges. The economy is in shambles, inflation is reaching 35 percent per year, and a devaluation of at least 40 percent is required. In Argentina, strong growth is expected as commodity prices remain high. Argentine debt is less risky than Venezuela’s, but inflation is running at 24-25 percent. No major devalua-
A
66
LATIN TRADE MAY-JUNE 2012
tion is expected. “Argentina continues to grow despite itself,” Rooney said. In his presentation on “Building the Enterprise Value of the Finance Function,” Michael Bremer, SVP, COO and CFO at Discovery Networks, described a “pyramid of opportunity” with four stages tracing the evolution of the CFO position. At the base are accounting, compliance and financial control. Bremer warned that these fundamental tasks must be carried out effectively to advance to the next level. The second level is financial planning, or setting targets and policing costs. The third stage – business analysis – essentially means, “Give us information to help make decisions.” Strategic partnership stands at the apex of the pyramid: “Produce knowledge that will change the business.” CFOs who reach this level should challenge concepts and drive counter-intuitive insights. Emilio Fortou, head of Visa’s LAC Multinational Program, said Visa offers multinational companies effective means for monitoring and controlling travel and entertainment (T&E) programs. Fortou, noting that Visa has assembled a series of best practices based on widespread corporate experience, suggested that companies centralize T&E expense management and ensure that T&E policies are well-communicated
throughout an organization, through daily monitoring and regular updates. In the CFO workshop, Oliver Harmann, CFO at Volkswagen Group Latin America Inc., opened a discussion on the merits of in sourcing vs. outsourcing from a manufacturing point of view. In the 1990s, he said, Volkswagen saw how Japanese automakers produced cars in half the time and with fewer suppliers than VW by outsourcing work and building cars with modules. VW moved then towards greater outsourcing in an effort to lower manufacturing time (via modules delivered to assembly lines) and lower costs. But, Harmann said, the company discovered that outsourced steering modules did not perform up to the company’s standards and customers were not happy with the autos. As a result, VW again insourced the steering module. The lesson: Outsource everything that does not belong or contribute to core competencies and processes. The next speaker at the forum, Alex Sotelo, regional controller at Yahoo! Latin America, discussed how linking the accounting and financial processes with other business units requires formal and informal relationship building, effective communication and policysetting. —Joseph A. Mann, Jr
ALEX GORT PRODUCTIONS
Building the Enterprise Value of the Finance Function
MIAMI
Salvador Torralbas, CFO, Latin America, Teva Pharmaceutical; Mark Ludwig, Contributing Editor, CFO Events, Latin Trade Group
Elsa Yep, CFO, SVP Finance & Administration, Universal Music; Carlos Estefan, Director of Finance, IT, Latin America & The Caribbean, Starbucks Company International
Salil Bapat, CFO, Latin America & the Caribbean, Yum Restaurants; Alex Sotelo, Regional Controller, Yahoo! Latin America
Rogelio Flores, Finance Director, SAS; Rodrigo Llop, Business Development Director,SAS
Michael Bremer SVP, COO & CFO Discovery Networks; Peter Stanham, Finance Director, American Airlines
Bob Lee, CFO, Newell Rubbermaid; Emilio Fortou, Head, LAC Multinational Program, Visa; Oliver Harmann, CFO, Volkswagen Group Latin America, Inc.
Although Latin America is not “fully decoupled,” it is “well-positioned with low debt levels and fiscal deficits” compared with other parts of the world. KATHRYN ROONEY VERA, Director & Managing Partner of Macroeconomic Research, Bulltick Capital Markets
ALEX GORT PRODUCTIONS
LT CFO event in Miami
Jhon Fredy Chavarria, Regional Director of Finance & Business Support, Inter-Continental Hotels Group; Alex Russell, CFO & VP of Finance, Emerson Process Alejandro Ubeira, VP Corporate Accounting & Reporting- Latin America, Emerson; Richard Burns, Chairman, Region Americas-Deutshe Post World Net, DHL Latin Trade Group
CONNECTING LATIN AMERICA’S CFO COMMUNITY MAY-JUNE 2012 LATIN TRADE
67
Latin Trade Group LT CFO event São Paulo, Brazil
Alessandro Drago, Chief Economist, Kinea Investimentos
“PEOPLE LEAVE THEIR SUPERVISORS, NOT THEIR COMPANIES ”, Pablo Edelstein razil’s insertion in the global economy means it is still exposed to a volatile external environment. Nevertheless, quantitative easing and the monetary stimulus in developed economies mean that recession probabilities have been reduced to about 50 percent, said Alessandro Del Drago, chief economist at Kinea Investimentos, who forecast an increase in commodity prices in the second half of the year. Del Drago said he was more optimistic for the performance of the Brazilian economy in the short term than the market consensus but more pessimistic in the longer term (from 2014). Following the huge stimulus provided by the Brazilian Central Bank and supportive government policies, Del Drago argued that Brazil’s real interest rates are now below their neutral level. A tight labor market – the unemployment rate is at a historical low level – and a high rate of capacity utilization also mean that inflationary pressures will keep the consumer price index above the core of the inflation target. “Market expectations are rising for 2014-15, and this is no good for investment,” he said. The current model favors domestic consumer demand rather than investment. “The government has been giving incentives to consumers and not to investors,” Del Drago said. The second part of the discussion focused on ways in which the companies can benefit
B
68
LATIN TRADE MAY-JUNE 2012
their bottom lines by improving their workingcapital strategies. Emilio Fortou, head of LAC Multinational Program at Visa, presented the main findings of a survey related to the use of credit cards. In Latin America, two-thirds of respondents are now using commercial payment cards (up 18 percentage points compared with 2008), and 78 percent are doing so in the United States. Credit-card use continues to grow, and there is more scope for expansion in terms of cross-border transactions especially, as 72 percent of respondents said they plan to use mobile payment in the next three years. Moving to an electronic format helps reduce cost, manage cash flow and increase DPO (Days Payable Outstanding), Fortou said. Marcelo Giugliano, CFO of Goodyear, presented the result of a Working Capital Management program implemented since late last year worldwide, but with a greater focus in Latin America, he said. The “negative working capital for sustainable growth” program has allowed the company to enhance its ability to manage working capital, reduce inventory and achieve its financial results. An innovative CFO workshop concluded this edition of the CFO Forum, which gathered about 30 corporate finance professionals at the Sheraton São Paulo WTC Hotel on April 24th. Milton Brandt, director of finance at
Unilever, introduced the first discussion topic: shared services. Unilever has been outsourcing its shared services since 2007, but Brandt said it is critical that the service provider finds another customer to get a critical mass. Pablo Edelstein, CFO of Dow Latin America, reflected on a different experience. A transactional-services center was set up in São Paulo in a joint venture with Tata in 2007, which covers the whole of Latin America. In spite of some initial difficulty, the experience was a positive one, but Edelstein emphasized the need to have both the expertise and the leaders to complete the process successfully. Talent management was the second issue covered during the workshop. Brandt said its company offered a mix to retain talents: opportunities to go to the top level of the company, remuneration and regular feedback sessions. At Dow, Edelstein said 10 percent of executives have high potential and require special treatment. They need to be challenged and motivated. “People leave their supervisors, not their companies,” he said. Furthermore, Cristiano Furtado, CFO at Marsh, said some staff members are being trained abroad (in the United States and elsewhere in Latin America) and that an emphasis has been placed on variable remuneration to keep staff members motivated. However, he said this might work for some time, but not forever.” –Thierry Ogier
ALESSANDRA ALVES, AVSC - AUDIOVISUAL SAN CORPORATION
CFO of Dow Latin America
SAO PAULO
Marcelo Giugliano CFO Goodyear
Milton Brandt, Director of Finance, Unilever
Diego Rodriguez, Head Commercial Solutions, LAC Visa; Mark Ludwig, Contributing Editor, Latin Trade Group; Alessandro Drago, Chief Economist, Kinea Investimentos
Pablo Edelstein, CFO, Latin America, Dow Brasil, Latin America Headquarters
William Calvache, VP of Finance, Latin America World Fuel Services; Alexandre Carvalhal, CFO, SAP Brazil
Claudio Akihama, Director, Controller, Sky Brasil Serviços Ltda.; Federico Bove, Director, Datarisk Global; Rogério Menezes, Director of Finance, Akzo Nobel Ltda. (Papel e Celulose)
“I waited for 42 years for Brazil to be an interesting place to be. And now Brazil is a good place to be.” MARCELO GIUGLIANO, CFO, Goodyear
Marcelo Giugliano, CFO, Goodyear; Diego Rodriguez, Head Commercial Solutions LAC, Visa
ALESSANDRA ALVES, AVSC - AUDIOVISUAL SAN CORPORATION
Cristiano Furtado, CFO, Marsh
Milton Brandt, Director of Finance, Unilever; Sandro Freitas, Director of Finance, Discovery Networks Brazil; Rosemary Winters, Chief Executive, Latin Trade Group; Rogério Menezes, Director of Finance, Akzo Nobel Ltda.
CONNECTING LATIN AMERICA’S CFO COMMUNITY MAY-JUNE 2012 LATIN TRADE
69
BUENOS AIRES
Claudio Fiorillo, Socio Director Financial Services Industry, Deloitte & Co. SRL; Felix El Idd, CEO, Datarisk Global; Emilio Fortou, Head of LAC Multinational Program, Visa; Alvaro Garcia, Director - Representative CAF Argentina; Miguel Angel Broda, Founder & CEO, Estudio Broda & Asoc; Mark Ludwig, LT CFO, Contributing Editor, Latin Trade Group; Rosemary Winters, Chief Executive, Latin Trade Group
Kathryn Rooney Vera, Director & Managing Partner, Macroeconomic Research, Bulltick Capital Markets
CFO’s role is a work in progress – new challenges are emerging all the time, requiring today’s CFOs to have skills far beyond the old number-crunching abilities. Having a strategic outlook, being able to do long-term planning, fully understanding their markets opportunities and pitfalls, being effective team players and helping make decisions on key issues such as mergers and acquisitions or disinvestments are but some of the skills in demand. As if all this were not daunting enough, CFOs in Latin America, and in Argentina in particular, face the added difficulty of wearing all those hats in an environment where governments can seize major companies (as just happened with the recent expropriation of Argentina’s oil producer YPF from Spain’s Repsol), where cost and prices can go through the roof, and where legal security cannot be taken for granted. “The role of today’s CFO is actually that of a deputy CEO,” Jose Manuel Vazquez, CFO at leading Argentine dairy producer SanCor, told dozens of fellow corporate leaders who took part in an LT CFO Forum in Buenos Aires, summarizing a consensus view. SanCor, a cooperative that in 2010 had US$1 billion in sales, accounts for 90 percent of Argentina’s dairy exports. Deloitte managing partner Claudio Fiorillo agreed. “In the past, CFOs used to be ac-
A
70
LATIN TRADE MAY-JUNE 2012
countants who made their entire careers in one single company. No more,” he stressed. Today, leadership, teamwork, big-picture thinking and an ability to adapt quickly to changing scenarios are a must, he said. Accordingly, at Deloitte they are redefining the CFOs’ role. To the traditional skills, new aptitudes must be added, including those of strategist and of “catalyst” or “evangelizer,” developing the ability to convert others to his or her cause. Proficiency in those areas is putting CFOs in the direct succession line to the position of CEO, Fiorillo said. Economic guru Miguel Angel Broda warned forum participants that doing business in Argentina is not for the faint of heart – after several years of strong growth, the country is heading into dire straits. Heavy government intervention in economic affairs comes hand in hand with what he sees as GDP growth of only about 2.0 percent in 2013 and 2014 and rampant inflation as high as 30 percent. Yet, Broda remains optimistic for the long term. And he has one piece of advice for Argentine politicians : Look within the region for examples of how to conduct business. But not all is an uphill struggle. Visa can come to the rescue by helping CFOs and corporate travel managers cut costs, add transparency and automate, monitor and standardize expenses and transactions, said Luis Emilio Fortou, the Latin America and Caribbean
Region representative of Visa’s Global Commercial Expansion Team. “The Visa card is just one element in our integral solutions,” he added. When company officials use a corporate card to make business payments and transactions or while on the road, that information is automatically fed into the company’s enterprise resource planning (ERP) system and other cost-monitoring tools, giving CFOs more elements, time and leeway to focus on strategic thinking. Another way to cut costs and increase processes efficiency is through shared services, said Pablo Morales, Global Financial Services Center Director at Nalco, which recently merged into Ecolab to create an $11 billion turnover, 40,000-employee company that has become the global leader in water, hygiene and energy technologies and services. Since its implementation in 2004, the company has been saving millions of dollars in recurring expenses because of labor cost arbitrage and increased specialization and scale, along with other improvements and indirect benefits, Morales said. Yahoo Argentina’s Gabriel Patalano shared with colleagues from larger operations the experience of what it is like to be the finance manager of a small operation – particularly if, like him, one comes from a much larger setup, such as IBM. —David Haskel
MARCELO SARMIENTO, ESTUDIO 2UO , FOTOGRAFÍA INSTITUCIONAL Y PUBLICITARIA
The role of the CFO is being redefined and now in the direct succession line to the position of CEO
BUENOS AIRES
Miguel Angel Broda, Founder & CEO, Estudio Broda & Asoc.
MARCELO SARMIENTO, ESTUDIO 2UO , FOTOGRAFÍA INSTITUCIONAL Y PUBLICITARIA
LT CFO event in Buenos Aires
Pedro Arnt, CFO, MercadoLibre Argentina
Jose Manuel Vazquez, CFO, SanCor
Raul Francos, CFO, Aeropuertos Argentina 2000
Claudio Fiorillo, Socio Director Financial Services Industry, Deloitte & Co. SRL; Ademir Santos, CFO, Philips Argentina
Pablo Morales, Director Global Financial Services, Nalco
Dario Bursztein, CFO, XEROX
CONNECTING LATIN AMERICA’S CFO COMMUNITY MAY-JUNE 2012 LATIN TRADE
71
ON THE ROAD
MONTERREY, MEXICO Fundidora Park
Monterrey: First-hand tips for visiting Mexico’s northern business hub.
Latin Trade: What do you like most
about traveling to Monterrey? Carlos De Leon: Monterrey is a fastpaced metropolis that combines all the conveniences of a modern city – excellent shopping; all types of cultural expressions, such as concerts, art exhibitions, sports, theater and gorgeous museums ranging from Mexican history to modern and contemporary art; and a wide variety of eco-tourism activities. The whole city is surrounded by mountains. Jose Luis Anaya: Monterrey is a nice, modern city with a lot of options for accommodations, depending upon where your business is located. Near the hotels are plenty of restaurants and shops, and business centers where businessmen can rent an office for a meeting for hours or a day or two. Mark Ackerman: Living in Mexico City, traveling to Monterrey gives me the opportunity to see another part of Mexico. I always enjoy listening to a northern Mexican accent. “Regios,” as people from Monterrey are called, take their beef seriously, as most northern Mexicans do, so the dining is very good unless you´re a vegan. Above all, as Mexico´s industrial city and due to its proximity to the U.S., the tempo of the city is a notch or two above Mexico City in the business environment. LT: What do you like the least? De Leon: As at any large urban center, I do not like the rush-hour traffic. If I could advise something, plan ahead and you will not waste your precious time. If you rent a
72
LATIN TRADE
MAY-JUNE 2012
car, review your routes with your concierge before you leave the hotel. Anaya: In summer, the climate is uncomfortable. It is hot; traffic is heavy especially in rush hours, and it takes a long time to get anywhere. Ackerman: Summers can be brutally hot. LT: What are your preferred hotels
when visiting Monterrey on business? De Leon: The Habita Hotel and Safi Royal Luxury Valle. But if I need to stay close to downtown, then the Sheraton Ambassador (a true classic) and the Gran Hotel Ancira. Anaya: What’s good is that there is a range of acommodations to suit every budget, from Holiday Inn Express to luxury hotels such as the Quinta Real and Ancira Hotel downtown. Ackerman: Camino Real, Quinta Real, Safi and, if you are into old-style hotels, the Ancira, in downtown. LT: What restaurants do you recommend? De Leon: A must-visit is San Carlos (great traditional Northern Mexico and Mexican food), which has two locations (Monterrey and San Pedro - Valle); Pangea in the elegant Del Valle zone is one of the best; and also a couple of great options nearby are El Granero (a business must) and the Hawaii. If you want to blend in with the locals, you must try La Nacional, a traditional cantina with great dishes and a refined bohemian atmosphere.
ISTOCK
Insights and advice from Carlos de Leon, general manager of Hotel Catedral in Puerto Vallarta and a Monterrey native; Jose Luis Anaya, the Guadalajara-based owner of Photofolio, a store in Monterrey; and Mark Ackerman, national sales manager for Hertz Corporation in Mexico City. Anaya: Typical regional food can be found at El Papalote (there are several of them, moderate price range); Hawaii (international menu, more expensive); cabrito (baby goat, a specialty of Monterrey) can be found at El Rey Del Cabrito (can be grilled, served with sauces, baked; expensive price range). Ackerman: El Gaucho and El Mirador, but there are many more. The traditional local dish is cabrito al horno, or roasted goat. LT: What practical advice would you give to someone who is visiting Monterrey for the first time on business? De Leon: Stay close to the area where you will be attending your meetings. Monterrey is a large city. Therefore, managing your distances will benefit your entire stay. The locals are service-oriented, and they will provide you with detailed information if you ask for instructions. If you are driving, do not forget to carry a map. Also, If you have some free time, there are lots of adventure-nature tours and activities. Anaya: Finding English-speaking business people is not a problem; like in any big city, avoid non-tourist areas; all taxis are metered and safe. You can change money in hotels or at the many money-exchange places. Ackerman: Mexico is very much a relationship country. Be friendly; demonstrate an appreciation of the city and country. If you have some downtime, try some of the better restaurants, walk around the Macroplaza downtown where locals congregate. —Mark Chesnut
& BRAVO BUSINESS AWARDS
SAVE THE DATE October 26, 2012 BUILDING THE NEW LATIN AMERICA THE COMPANIES, THE LEADERS, AND THE PARADIGMS FOR SUCCESS The Latin Trade Symposium is the leading forum for discussion and debate about the Americas for the business and government community in the Region. PAST SPEAKERS INCLUDE:
Policy Makers: •Luis Alberto Moreno, President, Inter-American Development Bank (IDB) • Celso Amorim, Foreign Minister of Brazil • Laurence Golborne, Minister of Public Works, Chile • Bruno Ferrari, Minister of Trade and Investment, México • Álvaro Uribe Vélez, Former President, Colombia Corporate Leaders: • Marcelo Odebrecht, CEO, Odebrecht, Brazil • Alberto Alemán Zubieta, CEO, Panama Canal Authority, Panama • Germán Efromovich, Chairman, Synergy Group, Colombia • Daniel Servitje, CEO, Grupo Bimbo, Mexico • Gerardo Mato, CEO, Global Banking for the Americas, HSBC Social Entrepreneurs: • Luanne Zurlo, President and Founder, Worldfund • Pilar Nores de García, President, Instituto Trabajo y Familia • Rebeca Villalobos, Founder, ASEMBIS, Costa Rica
LA TIN TRADE
Don’t miss this opportunity! For more information on registration or sponsorship opportunities, please contact Natasha Valle, Events, nvalle@latintrade.com
www.bravo.latintrade.com LATIN TRADE SYMPOSIUM IN PARTNERSHIP WITH:
PLATINUM:
SPONSORS GOLD:
MEDIA PARTNER:
SILVER: CNN PR COMMUNICATIONS:
REPUBLICA
ON THE ROAD
MONTERREY, MEXICO
Ask the Concierge Sheraton Ambassador Monterrey Hotel
What restaurants in Monterrey would you recommend for a professional lunch or dinner? I definitely recommend the award-winning restaurant Los Vitrales, considered one of the best in town – open 24 hours a day, seven days a week. Also, El Tio, El Gran San Carlos and La Nacional are great places to have dinner. What kind of cuisine should I try during my visit? As a typical northern state, the most famous and delicious dishes are made from meat such as baby goat, barbecues and discada (pork and beef mixed with tomato sauce). Beer is the most famous drink, due to the fact that the biggest breweries are in the northwest, with several kinds to taste, dark and light. I have 24 hours in Monterrey. What itinerary would you recommend? A walking tour in historic Monterrey, the Santa Lucia river walk, Horno3, the art museum MARCO and Mexican National History Museums. Sheraton Ambassador is located in
74
LATIN TRADE
MAY-JUNE 2012
COURTESY OF STARWOOD HOTELS
The 229-room Sheraton Ambassador Monterrey Hotel is centrally located near the Macroplaza, one of Monterrey’s main geographic hubs. The property has a health club, outdoor pool, tennis and racquetball courts, plus 11 meeting rooms and a Grand Ballroom that accommodates 750 people. Concierge Andres Santiago offers his tips for making the most out of a trip to Monterrey.
downtown Monterrey, so it is an excellent location to start the route. Santa Lucia river walk is a great way to spend a special day where you will learn about the history and culture of Monterrey. Either by boat or on foot, the twokilometer route is full of unique artworks, delicious restaurants, cafés and shops. Can you suggest one or two places to shop? Galerías Monterrey and Valle Oriente Malls, just 15 minutes away from Sheraton Ambassador. They are the most fashionable in town, where shops such as Liverpool, Levis, LOB, Mango, Zara, Adidas, Nike, Marti and many others are available, as well as services like travel agencies and banks. Morelos Ave. is located in the Monterrey historic district, where several boutiques, jewelers, music and video games stores, local and fast food restaurants, and art and crafts markets are located — there are even live music and urban shows are on this major avenue.
Where are the must-buys? The most popular items that visitors take home are handmade arts and crafts. What safety measures do you recommend? We suggest using common precautions as when traveling to any foreign country. We recommend our guest be always accompanied if they are doing activities outside of the hotel, take cabs arranged by the hotel, take a reasonable amount of cash for their daily expenses, use safety boxes in the room and leave their passport, visa, jewelry and credit cards inside. I have many meetings in the city. What is the best way to get around? A taxi hired at the hotel. The cost per hour is 200 pesos ($15). What is the appropriate amount to tip a taxi driver and in restaurants? Taxis: 20 pesos per tour ($1.5). And from 10 percent to 15 percent of the check in restaurants.
Intelligent and relevant.
THEN • NOW • ALWAYS cnn.com/international
/cnninternational
@cnni
SPOTLIGHT PERÚ FOR PERU FROM PERU
REDISCOVERING THE IDENTITY OF A COUNTRY
Medium: Television/Cinema/Internet Agency: Young & Rubicam Peru Client: PromPeru Product: Country brand Executive Creative Director: Flavio Pantigoso Production: Cine70 Films Director: Ricardo Maldonado
O
ne of the toughest advertising challenges is to develop a country brand, and the Peruvian Promotion Commission (PromPeru) turned to Young & Rubicam Lima to carry out the task. “The challenge was to make the country brand known among Peruvians themselves,” said Flavio Pantigoso, executive creative director of Y&R. “Later would come the international campaign.” The funny thing is that the first Peruvians involved in the campaign were … North Americans. In the United States, Nebraska has a town of 600 residents called Peru. As a result, its residents were a group of Peruvians who didn’t know what that meant. So, Y&R sent them a group of 12 Peruvian celebrities from Latin America: chefs, actors, an AfroPeruvian dance troupe, a folkloric singer, a lyric singer, two world surf champions and a television host. After 50 hours of filming the residents of Peru becoming Peruvian, a 15-minute commercial was put together. As well as serving typical food and drink, singing, dancing and playing, and giving the Nebraska inhabitants typical gifts such as ponchos, small statues known as ekekos and chullos (woolen hats with ear flaps and pompons), the Latin group even had the Peruvians from Nebraska try surfing. This was done by spreading out a blue sheet of plastic on the floor and inviting the natives to cross it on a skateboard, while the South American Peruvians lifted up one side of the plastic and formed a wave. “We could have gone for the same old solution and done the zillionth
76
LATIN TRADE
MAY-JUNE 2012
institutional, solemn commercial about Machu Picchu, the Incans and everything else for Peruvians who are tired of that theme. The key was to treat Peru like a brand and not like a state,” Pantigoso said. “The brief itself gave us the key: Wouldn’t it be tragic if there was one single Peruvian on the earth who didn’t know who marvelous it is to be Peruvian?” Educating the Peruvians of Nebraska, on the other hand, was a type of reverse colonization that allowed Mario Vargas Llosa’s compatriots to finally let go of a long-held belief that “their country didn’t give them enough reasons to feel proud.” The Peruvians of Nebraska were initially suspicious but later delighted with the discoveries they made – for example, hearing the waltz “La Flor de la Canela” in the voice of the tenor Juan Diego Flores. The advertisement piece received several prizes and, according to a local rating company, earned 97 percent approval and support. However, perhaps the best indicator of its success was how fast it went viral in the Internet. “The documentary was more viewed on the web than the TV and for several days was the second-most-watched YouTube video in the film category,” Pantigoso said. And the greatest gratification, in the words of the creative mind behind the venture, was that the result became not only a resounding “lovemark” but also an instrument of national cohesion. —Editorial@latintrade.com
COURTESY OF YOUNG & RUBICAM LIMA
BY PAULA ANCERY