LATIN TRADE
ALSO INSIDE: THE REGION'S BEST-PERFORMING COMPANIES
BEST OF LT SYMPOSIUM & BRAVO BUSINESS AWARDS
COLOMBIA: THE NEXT BIG THING NOVEMBER / DECEMBER 2011
COLOMBIAN STAR How Juan Manuel Santos' Colombia is Becoming the NEXT BIG THING YOUR BUSINESS SOURCE FOR LATIN AMERICA » WWW.LATINTRADE.COM
NOVEMBER / DECEMBER 2011
86%
of CFOs, Government Policy Makers and Energy Professionals
Agree that energy assessments should be mandatory for companies that use the most energy.
Energy
The financial, environmental and reputational benefits of energy efficiency are evident: businesses gain from lower energy bills, lower pollution and CO2 emissions – reducing the risk of suffering penalties from regulators – and better relations with employees, customers and other stakeholders. An energy assessment can spur a business into making positive changes, through optimizing energy use, acquiring new equipment and adopting new habits. Our survey found that 86% of respondents favored mandatory energy assessments for energy hungry industries, showing how seriously they view the need to become more energy efficient and boost productivity.
2011 ENERGY SURVEY Produced by Bloomberg Businessweek Research Services in partnership with ABB. For more Information visit www.abb.com/betterworld
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CONTENTS
N OV E M BE R/D E C E M BE R 2011 V O L. 19 NO . 6
56 69
26 Features
26 Country Report: Colombian Star Foreign investors are rushing to Colombia, lured by attractive regulations and a growing market. 32
Country Report: FTA Boosts Business
39
Industry Report: Insuring Growth Latin America’s insurance industry is benefiting from the region’s economic growth, but also faces some major challenges.
45
49 50
Mexico: Room to Grow Mexico lags Brazil and the rest of Latin America in insurance penetration.
50 51
56
Special Report: Shipping Weathers the Global Slowdown
52
Port and infrastructure improvements and tighter logistics to keep trade in Latin America growing.
53 54
69
Latin America’s Best Companies A special report on the region’s top 100 performers with more than $100 million in revenue. #1 Shougang Hierro Peru: A Chinese company benefits from demand for iron ore at home. #2 Duratex: The Brazilian supplier to the construction industry rides a building boom. Santos Brasil: The port terminal operator led the best performers in revenue growth. APSA: The Argentine shopping center developer leads Latin America in profit growth. The Rest of the Very Best: Profiles, in brief, of the companies listed No. 2 through 10 on the ranking.
Chart of the top 10
Special Event Coverage: BEST OF BRAVO 2011 Highlights from the Latin Trade Symposium and the 17th BRAVO Business Awards gala celebration.
COVER PHOTO BY CESAR CARRION/OFFICE OF THE PRESIDENT OF COLOMBIA
8
LATIN TRADE
NOVEMBER-DECEMBER 2011
COLOMBIA: COURTESY OF PROEXPORT COLOMBIA; SHIP: COURTESY OF HAMBURG SÜD; PRESIDENT LEONEL FERNANDEZ AND ALBERTO ALEMAN: ALEX GORT PRODUCTIONS.
The U.S.-Colombia free trade agreement is expected to help boost Colombia’s economy further.
LEGACY ACY WHAT WHA HA AT T THE HE HE PR PRESIDENT LEAVES BEHIND
MARCH/APRIL 2010 YOUR BUSINESS INE NE ESS ES SS SOURCE S FOR LATIN AMERICA » WWW.LATINTRADE.COM ( ) ECHINT 6 PETROBRAS DISTRIBUIDORA 7 COMISIÓN MISIÓN FEDERAL DE ELECTRICIDAD 8 PEMEX GAS Y PETROQUÍMICA BASICA 9 ODE OD O BRASIL 12 GRUPO VOTORANTIM 13 TELEFÔNICA BRASIL 14 GRUPO ULTRA S.A. SA 1 RECHT S.A. 10 CODELCO 11 VOLKSWAGEN DO ALSO IN THIS ISSUE: BILLIONAIRE PHILANTHROP PHILANTHROPY Y ENERAL MOTORS MÉXICO 16 MINERA ESCONDIDA 17 BRASIL 18 TELEMAR PARTICIPAÇÕES 19 20 NIS NDIDA DA 17 SHELL TELEMAR 19 FIAT AUTOMÓVEIS AUT TO AN MEXICANA 21 ENAP REFINERÍAS 22 ENAP P (EMPRESA NACIONAL DEL PETRÓLEO) 23 ARCELORMITTAL BRASIL ASIL 24 C CARREFOU ARREFOU OMÉRCIO E INDÚSTRIA 25 GRUPO BAL 26 FORD FINANCIERO BBVA-BANCOMER 2 D MOTOR (MÉXICO) 27 PETROECUADOR 28 GRUPO FINANCIER NCIERO CIERO ERO RO O BBVAB BB BV AMARGO CORRÊA 32 COCA-COLA BRASIL 33 BODEGA EGA GA A AURRERÁ AURRE AURR AUR AU URR ASAS BAHIA 30 NESTLÉ BRASIL 31 GRUPO CAMARGO (NUEVA WAL-MAR 4 VOLKSWAGEN MÉXICO 35 GENERAL MOTORS AGRICOLA 38 FORD MOTOR (BRAZI S DO BRASIL 36 BUNGE ALIMENTOS 37 CARGILL ILL LL L AGR A AGRI G GRI 9 ESSO BRASILEIRA DE PETRÓLEO 40 SAM’S CLUB 41 CLARO 42 WAL-MART SUPERCENT SUPERCENTER NTE TER ER R 43 43 GRUPO MODELO 44 PEMEX PETRO UÍMICA 45 CORREIOS E TELÉGRAFOS 46 ALBERTO BRASIL ERTO PASQUALINI-REFAP 47 CHEVRON N BR B BRA R RAS RA AS 48 HEWLETT PACKARD DE MÉXICO 4 ASI ATERPILLAR BRASIL LTDA. 50 CONSTRUTORA FRÁVEGA A NORBERTO ODEBRECHT 51 FRÁVE EGA A5 52 GRUPO SALINAS 53 COMPANHIA BRASIL ANA DE ENERGIA 54 UNILEVER BRASIL 55 EXTRA RA HIPERMERCADOS 56 ARCELORMITTAL ARCELORM RM MIIT MIT TTA AÇOS LONGOS 57 COMPAÑIA LUZ Y FUERZ TT EL CENTRO 58 ARCELORMITTAL TUBARÃO 59 MET-MEX PEÑOLES 61 OXXO (FEMSA COMERCIO) 62 CEME 9 USIMINAS IPATINGA 60 MET-M MEX EX PE P PEÑ E OR R PDVSA? PD PD DVS DV V 64 FORD ARGENTINA S.A. 65 CELULOSA AR MÉXICO 63 GLOBO COMUNICAÇÃO E PARTICIPAÇÕES X AÇÕES IS THE PARTY OVER FOR C (CELCO)) 66 MOVISTAR (TELEFÓNICA MÓVILES VENEZUELA) 67 GRUPO PO OP EP EPS PS AUCO PEPSICO 68 ANDRADE GUTIERREZ 69 CARGILL 70 U. OMMERCIAL 71 CST-ARCELOR BRASIL 72 HONDA M ONDA AUTOMÓVEIS DO BRASIL BRAS AS SIIL SIL L 73 73 TELEFÓNICA (ARGENTINA) 74 CIA. MINERA DOÑ NÉS ÉS DE COLLAHUASI 75 COTO 76 BELGO SIDERURGIA RURGIA CHILE'S VELASCO O WOOS WOOS OOS INVESTORS 77 PETRÓLEOS DEL PERÚ 78 FURNA ENTRAIS ELÉTRICAS 79 GENERAL ELECTRIC VOTORANTIM 81 GRUPO FINANCIERO HSBC 82 REPSO EN N C DO BRASIL 80 VOTORAN NTIM CIMENTOS NT C PF LALA 87 GRUPO BERTIN 88 NESTLÉ CHILE S.A P F PERÚ 83 ALPEK 84 PEQUIVEN 85 MINERA A ANTAMINA 86 GRUPO INDUSTRIAL IN NDU UST ST NESTLÉ DE MÉXICO 90 MINERA MÉXICO 91 SANMINA-SCI HAS THE W 9N WASHINGTON WA ASHIN AS CONSENSUS FAILED? SYSTEMS DE MÉXICO 9 N D E MÉXICO 95 GRUPO A J VIERCI VIER RCI CI C 96 TELEFÓNICA CHILE 97 MINERAL LOS PELAMBRE NDESA BRAZIL 93 ARCOS DORADOS 94 MABE CENCOSUD AUXILIARES 101 GRUPO IUSA (INDUSTRIAS UN 8C ENCOSUD ARGENTINA 99 ELETRONORTE 100 AEROPUERTOS Y SERVICIOS SER RVIC VIC VI OF F BRAZIL AND INTO IN IN NT T TO O AFRICA AF 104 LOUIS DREYFUS COMMODITIES BRASIL S.A AS) A AS S S)) 102 CPFL PAULISTA 103 QUEIROZ GALVÃO OUT O C CO OIN INBRA) NBRA) 105 METLIFE METLIFE MÉXICO MÉXICO ÉXICO 106 BUNGE ARGENTINA 107 IBERDROLA IBERDR BERDRO OLA MÉXICO MÉ COINBRA) S.A. DE C.V. 108 GE INTERNATIONAL MÉXICO 10 RUPO FINANCIERO SCOTIABANK INVERLAT 110 NADRO S.A. DE C.V. 111 SIEMENS LTDA. ENERGY SECTOR DOMINATION 112 SAM UNG ELECTRÔNICA AMAZÔNIA 113 ARCELORMITTAL INOX BRASIL 114 ALMACENES COPPEL 115 GRUPO NACIONAL PROVINCIA GNP) 116 ANGLO AMERICAN SUR 117 BRAZIL WANTS IN ON THE BIG OIL CLUB HOME DEPOT MÉXICO 118 TELEFÓNICA (PERÚ) 11 ROCTER & GAMBLE DE MÉXICO 120 ROBERT BOSCH LTDA. 121 CHESF (COMPANHIA HIDRO ELÉTRICA DO SÃO FRANCISCO) 12 MAKRO ATACADISTA REPSOL YPF INCHES OUT OF ARGENTINA 123 TENEDORA NEMAK 124 ARTHUR LUNDGREN TECIDOS S.A. 12 OPERSUCAR 126 FLEXTRONICS MANUFACTURING 127 PHILIP MORRIS INTERNATIONAL 128 KRAFT FOODS BRASIL S.A. 129 GRUP ANBORNS 130 VOLVO DO BRASIL 131 GRUPO XIGNUX 132 MASTELLONE HERMANOS 133 GRUPO CONDUMEX 134 VOLKSWAGE ARGENTINA 135 MOVISTAR 136 INTEL CHILE'S SONDA SEEKS THE SAFE & SOUND 137 TELEFÓNICA (COLOMBIA) 138 QUATTOR PAR ICIPAÇÕES S.A. 139 NESTLÉ ARGENTINA S.A. 140 MARTINS DISTRIBUIÇÃO 141 EXXONMOBIL DE COLOMBIA 142 MOVISTAR ARGEN INA 143 QUATTOR QUÍMICOS BÁSICOS 144 CONSORCIO AEROMÉXICO 145 GENERAL MOTORS-COLMOTORES 146 SODIMAC 147 ESS ARGENTINA) 148 ALCOAALUMÍNIO 149 ITAIPÚ BINACIONAL 150 PIRELLI PNEUS 151 PHILIPS MEXICANA 152 COMUNICACIONE EXTEL DE MÉXICO S.A. DE C.V. 153 GRUPO ARCOR 154 CTI 155 GRUPO MEXICANA DE AVIACIÓN 156 TOYOTA MOTOR SALES MÉXIC 57 SHELL CAPSA 158 ANCAP 159 AUTORIDAD DEL CANAL DE PANAMÁ 160 DUPONT DO BRASIL S.A. 161 DEACERO 162 RECOPE (RE INADORA COSTARRICENSE DE PETRÓLEO) 163 RHODIA BRASIL 164 BASF S.A. 165 MEGA 166 SIGMA ALIMENTOS 167 RENAULT D RASIL 168 COMPANHIA BRASILEIRA DE ALUMÍNIO (CBA) 169 PSA PEUGEOT CITROËN ARGENTINA 170 HOLCIM APASCO 171 GER AU AÇOMINAS 172 GRUPO TACA 173 SENDAS 174 WHITE MARTINS-PRAXAIR 175 NEXTEL TELECOMUNICAÇÕES 176 CANDELAR 77 MAGAZINE LUIZA S.A. 178 CIGATAM 179 BRIDGESTONE FIRESTONE DE MÉXICO 180 AGROSUPER 181 CAVALLARO HERMANO 82 SANTA ISABEL 183 GRUPO EMPRESARIAL ANGELES S.A. DE C.V. 184 GRUPO COMEX 185 ARCELORMITTAL VEGA 186 GRUP ILLACERO 187 CONSTRUÇÕES E COMER. CAMARGO CORRÊA 188 DOW BRASIL 189 SCHNEIDER ELECTRIC MÉXICO 190 CPFL PIRA ININGA 191 DISCO S.A. 192 NOVARTIS BIOCIÊNCIAS 193 NOKIA MÉXICO 194 ACEITERA GENERAL DEHEZA S.A. 195 COMPREBE 96 CONSTRUTORA ANDRADE GUTIERREZ 197 GRANDES SUPERFICIES DE COLOMBIA - CARREFOUR 198 QUINSA 199 JUMBO 20 ALUNORTE - ALUMINA DO NORTE DO BRASIL S/A 201 BAYER 202 COAMO 203 LG 204 BUNGE FERTILIZANTES 205 SEARS ROEBUC 06 SAMARCO MINERAÇÃO 207 BANDEIRANTE ENERGIA 208 TRANSPETRO 209 ALUMÍNIO BRASILEIRO S.A. (ALBRAS) 210 GRUP ABRIL 211 AVON 212 DANONE 213 DOW QUÍMICA 214 GRUPO ICE 215 EMPRESA NACIONAL DE MINERIA 216 EPM ENERGIA 217 VITR NVASES 218 WHIRLPOOL MÉXICO 219 GRUPO OMNILIFE 220 RENAULT ARGENTINA 221 ELECTROLUX DO BRASIL 222 ENTEL PC 23 CHEVRON PETROLEUM CO. 224 HONDA MOTORS DE MÉXICO 225 OXY-OCCIDENTIAL PETROLEUM CORP. 226 MERCEDES BEN ARGENTINA) 227 CEMENTOS CRUZ AZUL 228 DOE RUN PERÚ S R L 229 LIQUIGÁS DISTRIBUIDORA 230 NOKIA DO BRASIL 231 GRU O ISA 232 CERVECERÍA CUAUHTÉMOC MOCTEZUMA 233 SOTREQ 234 INFRAERO 235 SOCIEDAD CONTRACTUAL MINERA EL ABR BR R 36 GRUPO SALUDCOOP 237 CAMARGO CORRÊA CIMENTO 238 SIEMENS MÉXICO 239 MOSAIC FERTILIZANTES LTDA. 240 BLACK LAC CK CK ECKER DE MÉXICO 241 BASF DE MÉXICO 242 MWM INTL. IND. DE MOTORES DA AMERICA LATINA DO SUL 243 MINERA YANACOCH NAC AC C CH Y ELECTRO TRO 44 TIENDAS OUR ANNUAL LIST OF LATIN AMERICA'S LARGEST COMPANIES 247 HEWLETT PACKARD BRASIL 248 SONY ICOS DE MÉXICO S.A. DE C.V. 249 UNILEVER DE MÉXICO 250 “IMCOPA - IMPORTAÇÃO, EXPORTAÇÃO E INDÚSTRIA DE ÓLEOS S.A.” 25 LEO EO EOS OS S OS .A.” 2 .A IO GRANDE ENERGIA (RGE) 252 MINERA BARRICK MISQUICHILCA S.A. 253 COMPANHIA ULTRAGAZ 254 VOTORANTIM NTIM TIM M METAIS METAIS 25 ME AYER DE MÉXICO 256 PARIS S. A. 257 C V G INDUSTRIA VENEZOLANA DE ALUMINIO CA 258 COMPAÑÍA MINERA ZAL ZALDIVAR ZA AL A LD LDI DIV IVA VAR SCM 25 BARBOSA COMERCIAL LTDA 260 SUPERAMA 261 DANONE 262 ADM ARGENTINA 263 OLÍMPICA S.A. 264 ALIANÇCA ANÇ NÇ NÇC ÇC Ç ÇCA CA AN NA NAVEGAÇÃO OGÍSTICAYOUR 265 UNILEVER DE ARGENTINA 266LATIN GRUPOAMERICA COIMEX 267»GRUPO SCHINCARIOL 268 GRUPO JULY/AUGUST ANDREUG MAGGI GUS GU UST UST ST 2009 2269 COMPANH BUSINESS SOURCE FOR WWW.LATINTRADE.COM RASILEIRA DE METALURGIA E MINERAÇÃO 270 SUPERMERCADOS INTERNACIONALES H-E-B 271 COSTCO DE MÉXICO 272 MOV
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THE STOR STORY STO ORY OF OR OF T THE H MAKING OF A MODERN MULTILATINA
BRAVO A O BUSINESS AWARDS W
HAVI
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LATI N CO CHOW CH MMO O S DOW DITIE N ON S, CH THE INA REGI NOW ON'S COM PANI ES
YOUR BUSINESS SOURCE FOR LATIN AMERICA » WWW.LATINTRADE.COM
MAY MA / JUNE 2011
YOUR BUSINESS S SOURCE S SO OU OU URCE R FOR LATIN AMERICA » WWW.LATINTRADE.COM
Andrés Velasco - Innovative Leader of the Year Enrique García - Financier of the Year Daniel Servitje - CEO of the Yea Y r Year Lorenzo Mendoza - Social Responsibility CEO of the Y Year Year Federico Restrepo Posada - Pioneering CEO of the Year Laércio Cosentino - Technology CEO of the Year Y Douglas Tompkins - Environmental Leader of the Year Yea Y r Rebeca Villalobos - Humanitarian of the Year
JANUARY / FEBRUARY 2011
YOUR BUSINESS SOURCE FOR LATIN A AMERICA » WWW.LATINTRADE. WWW.LATINTRADE.COM A COM
The Best of Latin Ame America eric er i a Readers’’ Choice Choice:: Hotels, Airports, Restaura Restaurants ra ants tss a an and d More
SPLIT TW WITH THE TH HE PAST
SABMILLER S SAB SABMI SABM SA ABM BMIILL LL L BREW REW EW EW WS SA BREWS LAT TIN AMER TIN AME MER ERIIC ER ICA C CA A LATIN AMERICAN ST STR STRAT TRAT TRA RAT A EG EGY EGY STRATEGY
EL E LS SALVADOR'S MAURICIO FUNES AND SA PANAMA'S RICARDO MARTINELLI VIE TO BE THE PANAM MA MA A'S A' 'S 'S RI R I FACE OF LATIN AMERICAN POLITICS NEW N EW F
BOMBA B OMBA M ARDIER IER ER E R: BOMBARDIER: NEW NE EW JET JET SE ET IN SET MEXIC M E EXICO MEXICO
LATIN L ATIN AMERICAN M&A
DEALS D EALS OF THE Y EAR YEAR
THE IDB DB 50 5 0: AT 50:
ITAÚ-UNIBANCO'S IT TAÚ-UNIBANCO'S
ROBERTO R OBERTO S ETÚBAL SETÚBAL S PEAKS OUT SPEAKS
PRESIDENT LUIS AL A ALBERTO L LB BERTO MORENO'S BE REFLECTIONS ON THE BANK N LEADING LEADING LEA LE E TU URB URB UR RBU RBULENCE IN TIMES OF TURBULENCE
HAITI H AITI
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YOUNG Y OUNG GIANTS G IANTS
40 UNDER 40 EMERGING CAPTAINS T OF INDUSTRY R
YOUR BUSINESS SOURCE FOR LATIN A AMERIC AMERICA A » WW W WWW.LATINTRADE.COM WW.
JANUARY/FEBRUARY 2009
YOUR Y OUR BUSINESS SOURCE FOR LATIN AMERICA » WWW.LATINTRADE.COM WWW W.LATIN LATI AT ATI
JANUARY/FEBRUARY 2010 YOUR BUSINESS SOURCE FOR LATIN AMERICA MERICA » WWW.LATINTRADE.COM
100 BEST WORKPLACES IN LATIN I N AMERIC IN AM AME A AMER M MER E R IC I C A 2008
ALSO: BUSINESS SUCCESS SEEDS PHILANTHROP A
PLUS: P LUS: LT's Top T 400 Financial Companies in Latin Amer America rica
GREEN IS GOOD
CSR PROGRAMS ADDRESS SUSTAINABILITY
AIRLIN ALLIANCE GIVE CARRIER A LIF
SHIPS AHOY
EMERGING MARKETS LEAD REBOUND IN GLOBAL TRADE
The eP Peace eace e D ividend d Dividend
Y O U R B U S I N E S S S O U R C E F O R L AT I N A M E R I C A » W W W . L AT I N T R A D E . C O M
FRAIL STATE FRAYED RELATIONS:
MEXICO XICO THE UNITED TE ED STA STATES TATES HE E AND THE DRUG DRU RU UG WARS W AR ARS AR
HOW OW W COLOMBIA CO CO WENT FROM A “F FA AILE AIL AI ILED STATE” ST TATE”TO ” TO “FAILED AN A N INVES TMENT BOOM INVESTMENT
ÁLVARO Á LV LVARO URIBE VÉLEZ • RUBÉN BLADES BLADES HENRIQUE MEIRELLES H ENRIQUE DE CAMPOS MEIREL LLES • ENRIQUE CUETO PLAZA SUBRAMANIAM S UBRAMANIAM RAMADORAI • LUIS FERNANDO SANTOS MARCELO M ARCELO ARGÜELLES • VIVIAN N PELLAS • RICHARD HANSEN
NOVEMBER/DECEMBER NOVEMBER/DECEM MBER BER R 2009 2 20 200
Brazil‘s Banking Powerhouse Powerhou use
Latin Am America meric Boosts Bank Profits
Plus: LT's LT s Rankings Ran anking of the Top Banks in the Region
GLOBA INVESTMEN BANKS PURSU SOUTHERN STRATEG
BRAVO B RAVO BUSINESS B USINESS AWARDS A W WARDS
SEPTEMBER/OCTOBER SEPTEMB SEPTEMBE EPTEM PTE ER PTEM ER 2009
ALSO IN THIS ISSUE: BEST WORKPLACES IN LATIN L ATIN LA A TIN T AMERICA AM A ME ME
B TTLE LINES BATTLE BAT LIN NES NES A RE ED RAW AWN WN F OR ARE DRAWN FOR THE R TH EGION ON O N'S S REGION'S LAR L ARGE EST ES LARGEST COM OMP MPAN MP AN NIE I S COMPANIES
BRAVO B BR R C CO OU COUNCIL
Petrobras Tops A nnual List Annual
START-UPS S TART TA ART-UPS PS AND AND SPI SPIN-OFFS PIN N-O OFFS COME COM ME OF F AGE AGE
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JULY / AUGUST AU UGUST 20 20
MEXICO'S CINÉPOLIS BECOMES GLO M GLOBAL OBAL AL S ST T
YOUR BUSINESS SOURCE FOR LATIN AM A AME AMERICA MERICA ME M » WWW.LATINTRADE.COM
MAY / JUNE 2010
LATIN AMERICA'S DECADE: CADE CADE: ADE DE E: W WOR WO WORLD ECO ECONOMIC NOMIC FORUM REPORT
PANAMA‘S P OUTLOOK
YOUR BUSINESS SOURCE FOR LATIN A AMERICA CA A » WW W WWW.LATINTRADE.COM WW.
MARCH / APRIL 2009
LATIN L LA A TRADE SYMPOSIUM SPECIAL ISSUE • TOP BANK
CONTENTS
16
The Scene
Opinion
On the Road
16 The World of Eike Batista
22 The Contrarian
64 Lima
What the Brazilian billionaire, Latin America’s second-wealthiest man, keeps close to his heart.
John Price, managing director of Americas Market Intelligence, says that Latin America’s embrace of protectionism is misguided.
18 Boosting British Ties The British government is expanding its presence in Latin America, and the U.K. Minister of State for the region is bullish on expanding trade ties.
20 Bold Plans for Rio’s Port Zone A makeover aims to transform a downtrodden district, akin to the revitalization of port areas in Barcelona and Buenos Aires.
24 The Bottom Line Alberto Bernal-Léon of Bulltick Capital Markets outlines where Latin America falls short compared to emerging Asian nations.
Tech Trends 63 Latin America’s Technology Leaders How Panama replaced Uruguay as Latin America’s technology king.
A practical guide for the business traveler visiting the Peruvian capital.
65 Ask the Concierge Advice from Angela Ayala of the Westin Lima Hotel & Convention Center.
Made In: Nicaragua 80 Rum For years better known for its revolutionary politics, Nicaragua is gaining global attention for its Flor de Caña rum.
Editor’s Note 12 Colombian Star
10
LATIN TRADE
NOVEMBER-DECEMBER 2011
LIMA: CARLOS IBARRA / PROMPERÚ; BATISTA: NEWSCOM; RUM: COURTESY OF FLOR DE CAÑA
64
80
Client commitment. Global solutions. Total connectivity. Taking your opportunity further. That’s return on relationship.
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EDITOR’S NOTE
Colombian Star While Brazil will continue to garner most of the foreign direct investment going to Latin America the next few years, many companies are increasingly looking at another market for strong growth and relatively big numbers: Colombia, the largest Latin American market by population outside of Brazil and Mexico.
Bogota, Colombia
A new J.P. Morgan survey shows Colombia as the second-most promising country in Latin America for investments the next three years. Unlike Brazil, Colombia welcomes imports without protectionist barriers. It also offers a far easier business environment. The World Bank’s Doing Business 2012 report ranks it as the third-best country in Latin America versus 14 for Brazil. The Latin Business Index, from our sister publication Latin Business Chronicle, ranks it as the sixth-best in Latin America versus 11th place for Brazil. As we show in this issue of Latin Trade, Colombia is seeing a boom in mining and energy and is expected to continue growing strongly (see page 26). From January 1 through October 15, 2011, it managed to attract $11.5 billion in foreign direct investment, beating the record year of 2008, when it received $10.6 billion in investments. Obviously Colombia does have its share of challenges. Infrastructure and education are still lagging and poverty is still too widespread. Meanwhile, security is also still an issue, despite progress during the administrations of former President Alvaro Uribe. But thanks to its strong potential, investment grade and solid economic policies of President Juan Manuel Santos, Colombia is set to be a star for many more years.
Jose Antonio Rios, chairman of Global Crossing Latin America, is right on in pointing out that China helps Latin America more than it hurts it. “Some have criticized our relationship with ....China,” he told the Latin Trade Symposium. “Let’s face it: Thank you, China!” China’s strong demand for Chilean copper, Brazilian and Peruvian iron ore and Argentine soy has clearly helped those economies grow significantly. Argentina, for example, is expected to post the strongest GDP growth this year, according to a Latin Business Chronicle analysis of projections from the International Monetary Fund. Meanwhile, Shougang Hierro Peru, which mines iron ore in Peru for China-based Shougang Group, tops the ranking of Latin America’s 100 best companies from Latin Business Chronicle (see page 49). Latin American manufacturers complain about the growing competition from cheaper Chinese products. But as Latin Trade
12
LATIN TRADE NOVEMBER-DECEMBER 2011
columnist John Price points out in this issue: “The root of the problem lies in Latin America’s lack of competitiveness” (see page 22). Meanwhile, the growing number of free trade agreements with China (Chile, Costa Rica, Mexico and Peru) also mean growing opportunities for Latin American manufacturers to sell to the Chinese market. So, to echo Rios: Thank you, China!
Joachim Bamrud Executive Editor jbamrud@latintrade.com
BOGOTA: COURTESY OF TIFONIMAGES
Thank You, China!
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LATIN TRADE
USERS OF LATIN BUSINESS CHRONICLE SAY:
EXECUTIVE DIRECTORS ROSEMARY WINTERS MARIA LOURDES GALLO EXECUTIVE EDITOR JOACHIM BAMRUD MANAGING EDITOR MARY SUTTER GRAPHIC DESIGNER SELVIN CHI
Your news helps us stay abreast and, in some cases, even stay ahead of our competition in significant small ways.” NAI Global “ It’s an easy system to use for those of us who have little time on our hands.” Intelsat “Latin Business Chronicle [is] rapidly becoming required reading for anyone interested in Latin America.” Foreign Policy
CONTRIBUTING EDITORS GABRIELA CALDERON (research), MARK LUDWIG CORRESPONDENTS Argentina: Charles Newbery • Brazil: Thierry Ogier (São Paulo), Taylor Barnes (Rio de Janeiro) Chile: Gideon Long • China: Ruth Morris • Colombia: John Otis France: Ilan Moss • Mexico: David Agren • Panama: Sean Mattson Peru: Lisa K Wing • Spain: Guy Hedgecoe • Venezuela: Jose Orozco CONTRIBUTING PHOTOGRAPHERS Brazil: Paulo Fridman • Chile: Helen Hughes Costa Rica: Juan Carlos Ulate • USA: Matthew Pace TRANSLATION: Alejandra Labanca, Douglas Rojas-Sosa COPY EDITORS: Nancy Dahlberg, Julio Llerena, David Wisor
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THE SCENE
The World of
Eike Batista Mercedes-Benz Benzz SLR McLaren en A luxurious $1.2 million Mercedes-Benz SLR LR McLaren literally sits in the lounge of Batista’s Jardim m Botanico mansion in Rio de Janeiro. (He e also presented his son Thor with a 420,000 reall X6 pick-up truck.)
Pershing 115 Luxury Yacht As a former sp speed-boat racing champion, Batista now owns Pershing 115 luxury yacht. In the Rio Gloria a $19 million P “Pink Fleet” yacht can be rented for parties. marina, his “P
The X Factor Superstition is a big part of Batista’s personality. Apart from his obsessions with the letter X letter (most of his companies’ names are initials, including the letter X as a symbol of multiplying wealth) and the number 63, Batista also displays crystals, cinnamon sticks and other items to keep bad fate at bay. He is also famous for drinking a cocktail of anti-aging vitamins and for following feng shui practices.
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LATIN TRADE NOVEMBER-DECEMBER 2011
BATISTA: BLOOMBERG/EL TIEMPO DE COLOMBIA/NEWSCOM; MERCEDES-BENZ SLR MCLAREN: ISTOCK; PERSHING 115: COURTESY OF PERSHING
What the Brazilian billionaire, Latin America’s second-wealthiest man, keeps close to his heart.
THE SCENE Mr.. Lam Mr. Lam is an upscale Chinese restaurant taurant co-owned by Sik Chung Lam, a chef, f, and Batista. The restaurant has a view w of the Rio lagoon and serves a classic, c, Beijing-inspired menu.
MR. LAM: COURTESY OF MR. LAM; HOTEL GLORIA: ARQUIVO / AGÊNCIA O GLOBO; ANGRA DOS REIS: SPLASH NEWS/NEWSCOM
Hotel Gloria Eike Batista bought the Hotel Gloria, a Rio landmark, in 2008 for $50 million when the property was clearly falling apart. The historic hotel (shown here in this archive photo) opened in 1922 and guests have included Albert Einstein and several heads of state. A refurbishing is underway and is expected to be complete in 2013.
Angra dos Reis Mansion Despite his ambition to become the richest man in the world, Batista is not conspicuous about his wealth and avoids showing up at social occasions (especially after his failed marriage to Carnival star Luiza Brunet). He’d rather chill out at some of his properties, such as his mansion in the resort area of Angra dos Reis in the southern part of Rio de Janeiro state.
—Thierry Ogier in Sao Paulo
NOVEMBER-DECEMBER 2011 LATIN TRADE
17
THE SCENE Quoted “We want to have a part of [Latin America’s] success story.”
“The one who sells doesn’t have it and the one who buys doesn’t want it.” Dominican President Leonel Fernández, calling for the regulation of food and energy price speculation, at the Latin Trade Symposium.
British Minister of State for Latin America, Jeremy Browne
“We are colonizing the people who colonized us.”
J
eremy Browne, the U.K. Minister of State for Latin America, is bullish these days. While the news out of Greece, Europe and the United States continues to be gloomy, his area of focus is going from strong to stronger. “Economies are all growing at [a] faster rate than Europe,” he tells Latin Trade. “We want to have a part of that success story.” The British government is boosting its presence in Latin America, expanding its offices in São Paulo, Mexico City, Bogota and Santiago. “We are increasing our staff in all our main hubs across the continent,” Browne says. That increase comes as the British government is cutting back in general to face the economic slowdown. “We are going to have to grow our economy through trade and focus on where there are growth areas like Asia and Latin America,” he says. U.K. trade with Latin America jumped 35.3 percent in 2010 to 16.1 billion euros, according to Eurostat. That made it the fifth-largest partner from the EU for Latin America, according to Latin Business Chronicle. Latin America exports nearly twice as much to the U.K. as it buys from the European nation. While Latin American exports grew 39.8 percent to 10.2 billion euros, U.K. exports to Latin America grew
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LATIN TRADE NOVEMBER-DECEMBER 2011
28.1 percent to 5.9 billion euros. The new free trade agreements between the European Union and Colombia and Peru should help boost U.K. trade with those countries and Latin America, Browne predicts. “We are very optimistic that we will increase trade,” he says. U.K. companies are already increasing their focus on Latin America, especially Brazil, Mexico, Colombia and Peru, but also countries like Chile, Panama and Costa Rica, Browne says. “There’s most interest in Brazil because they have the biggest economy and largest population,” he says. Browne has one clear message for Latin American companies: Use the U.K. as your gateway for Europe. The U.K. offers a unique combination of business-friendly regulations, an advanced financial center and central location, he points out. So far, several Latin American companies have set up operations in the U.K. They include: Brazilian oil giant Petrobras; Mexican cement giant Cemex; Mexican chemical and petrochemical giant Mexichem; and Mexicobased Gruma/Mission Foods. Mexico-based Fresnillo, the world’s largest primary silver producer, is listed on the London Stock Exchange.
—Joachim Bamrud
“We have a triple-play principle. Financial, social and environmental.” Juan Pablo del Valle, chairman of Mexican chemical giant Mexichem, at the Latin Trade Symposium.
“Thank you, China.” Jose Antonio Rios, chairman of Global Crossing Latin America, on how China is helping Latin America by buying its raw goods, at the Latin Trade Symposium.
“Entrepreneurs think that crises are opportunities.” Martin Migoya, CEO of Globant, at the Latin Trade Symposium.
“The sensationalism we see in the press about violence in Mexico is misleading.” Ronald Denom, president, SNCLavalin International, at the Latin Trade Symposium.
“We can start to think that the next Google, the next Facebook, will come from Latin America.” Martin Migoya, CEO of Globant, at the Latin Trade Symposium.
MARTIN ALIPAZ/EPA/NEWSCOM
BOOSTING BRITISH TIES
Paolo Giacomini, executive director, treasury services advisory Latin America, J.P. Morgan, on Latin American companies’ growing acquisitions in Europe, at the LT CFO Event in Miami.
IV International Excellence Convention
Starting up and Growing in difficult times 10 success stories and 10 keys to achieve it
Mr. José María Aznar Former President of Spain
Mr. Tim Harford Economist and British columnist
Mr. Mario Alonso Puig Expert on leadership, creativity and change management
Mr. Luis Huete International management consultant and recognized successful writer.
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THE SCENE Bold Plans for Rio’s Port Zone
TAYLOR BARNES FOR LATIN TRADE
A makeover, akin to those of Barcelona and Buenos Aires, aims to transform a rundown district.
Demolition and construction are already underway in some parts of the Zona Portuária.
RIO DE JANEIRO — Hundreds of thousands of Africans came through what was then a slave port. Today, ruins of the 19th-century wharf are still unearthed next to the thickly polluted waters of the Guanabara Bay. The tourists who might pass by are likely to glimpse only the graffiti-scrawled colonial buildings en route from the international airport to the elegant beachside neighborhoods farther south. But the Zona Portuária (port zone) is where Rio de Janeiro development officials see the most potential to attract visitors and well-to-do locals to the dilapidated downtown. The revitalization effort gained momentum in June, when the city sold the rights to exceed zoning height restrictions for about 3.5 billion reais (US$1.9 billion) to the federal government’s Caixa Econômica, which is marketing the permits to investors. Permit proceeds will finance the public works and services in the zone, which covers 5 million square meters (about 2 square miles). “The motive is really simple — it’s an area of privileged location,” says Jorge Arraes, a civil engineer and
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LATIN TRADE NOVEMBER-DECEMBER 2011
president of the Rio Port Development Company (CDURP, its Portuguese acronym), a city-led entity with public and private funding. CDURP envisions new parks, plazas and greenery to foster pedestrian activity, akin to the port makeovers of San Francisco, Buenos Aires and Barcelona. Buildings at the historic entrance, the Praça Mauá, are slated to be turned into Museu de Arte Rio de Janeiro, one of two museums planned in partnership with the Fundaçao Roberto Marino. “It will not be [high-rise] buildings like on the Copacabana beach,” Arraes says of future construction. The goal is to complete the overhaul by 2016, when Rio hosts the Olympics. CDURP also aims to increase the residential population in one of Rio’s poorest neighborhoods, from an estimated 20,000 currently to 100,000, through new construction. “I don’t believe that it will be luxury enterprises. It will be for hotels, commercial establishments and homes for the middle class,” says Alexandre Sampaio, president of the Brazilian Hospitality and Food Federation. Rio’s master plan for the port zone
calls for the demolition of the Perimetral elevated highway, which runs along the waterfront, and replacing it with a tunnel. Urban planners blast the idea, saying the busy road is an efficient link in an already-congested area. But Helena Orenstein de Almeida, Brazil country director of the NGO Institute for Transportation and Development Policy, applauds the tunnel initiative for creating open spaces and supporting the creation of a live-work environment that will help stem the population shift to far-flung suburbs. Others counter that the plan will displace residents, in addition to those in the historic favela Providência, whose buildings will give way to a cable-car system. An aide to city councilman Eliomar Coelho, a vocal opponent of the portzone project, predicts that most current residents will be squeezed out. “Even those families that aren’t [directly] removed end up not having the means to sustain themselves in that region,” says the aide, Jorge Borges, a geographer.
—Taylor Barnes
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THE CONTRARIAN
Protectionism returns to South America BY JOHN PRICE Once sheepish about protecting select industries, South American governments are growing bolder in their attempts to slow the pace of imports. High commodity prices have empowered South American currencies, a boon to consumers. At the same time, traditional manufacturers of auto parts, textiles, electronics, shoes and other labor-intensive assemblies cry foul in light of strong currencies and plead for protection. By employing thousands of working-class voters, these industries can exercise political clout and demand policy changes.
cantilist in its practices. Guido Mantega, the Finance Minister, described Brazilian consumption as “being appropriated by imports” as he announced a whopping 30 percentage point increase in the nation’s industrial product tax on cars — excluding those assembled in the Mercosur bloc. This measure follows a decision to waive employment taxes in four labor-intensive industries. In both Argentina and Brazil, legislation is in place or afoot to limit foreign purchases of rural land. High food prices have enticed many institutional investors to purchase
Instead of wine makers in Chile, clothing makers in Colombia and auto-parts makers in Brazil blaming the Chinese for their woes, they might ask themselves how their counterparts in Australia, Italy and Canada, respectively, continue to export competitively in these sectors. Argentina stands out as the most protectionist government in the region. In January 2011, the government announced that 600 industries would require import licenses, a method used to both slow imports and limit their number. A limit on phone imports led RIM, the maker of the BlackBerry, to open an assembly plant in Tierra del Fuego, where labor costs are more than 10 times that of China. Unauthorized imported goods are stacked warehouse-high in Buenos Aires, thanks to the enforcement of the licenses. According to Global Trade Alert, Argentina now imposes more trade limitations deemed “harmful” than any country except Russia. Some of Argentina’s targeted sectors hardly seem strategic. In 2010, the Cristina Kirschner government imposed a $5-perunit tariff on hand irons made in China in an industry where 97 percent of demand is supplied by foreign-made products (mostly from China), and the remaining 3 percent is produced by a single Argentine hand-iron maker. Brazil, which has tried to be more diplomatic and strategic with its protectionist tactics, at the end of the day is no less mer-
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LATIN TRADE
NOVEMBER-DECEMBER 2011
vast tracks of land in both countries, where agriculture is highly competitive. The rapid accumulation of land by foreigners has ignited a deep sense of nationalism that now is being exploited politically. BLAME THE CHINESE The bogeyman this time is China. In 2004, President Hu toured the region, promising vast increases in trade and investment. The trade numbers materialized even faster than forecast, but investment monies took time to arrive. In the meantime, China has rapidly boosted the export to South America of its own brands of consumer goods, often employing dumping practices. China’s 2004 charm offensive led several South American governments to recognize the market economy status of China, thereby taking away its ability to unilaterally impose countervailing tariffs on dumped Chinese products. Chinese exports of cheap products to South America have climbed at a record pace and hurt several uncompetitive industries in South America. The political rancor against the Chinese has reached a feverish pitch, and politicians no longer can ignore the outcry.
The root of the problem lies in Latin America’s lack of competitiveness. Since 2000, when today’s commodity boom began, every Latin American country tracked by the World Economic Forum has seen its competitiveness ranking drop. Latin America, with few exceptions, has splurged a decade of commodity windfall on keeping its consumers (and a few corrupt bureaucrats) fat and happy, instead of instituting higher levels of savings and investing in modernizing and streamlining its moribund infrastructure and bureaucracy. After a decade in the 1990s of impressive reforms to its currency systems, trade rules, foreign investment and banking system, Latin America’s policy-modernizing efforts in the region have languished, and often reversed in the face of mounting political pressure against globalization. According to the Doing Business guides published by The World Bank, Latin America has trailed all six other regions of the world in the pace of economic and business reform since 2000. Instead of wine makers in Chile, clothing makers in Colombia and auto-parts makers in Brazil blaming the Chinese for their woes, they might ask themselves how their counterparts in Australia, Italy and Canada, respectively, continue to export competitively in these sectors. Now that the U.S. Congress has finally passed its trade agreements with Colombia and Panama, it would appear that Washington has rediscovered the political benefits of free trade just as its South American partners embrace the realpolitik of protectionism.
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.
THE BOTTOM LINE
The three vertices of Latin America BY ALBERTO J. BERNAL-LEÓN
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LATIN TRADE
NOVEMBER-DECEMBER 2011
Asia is like a BMW, says World Bank economist Augusto de la Torre, who likens Latin America to a Russian-made Lada. The third vertex of the triangle is the growth potential. This is where Latin America has failed to make the “leap” that emerging Asia, for example, already has. This is the most important barometer that supports the World Bank’s analysis. Brazil’s economy is currently overheated, even though the country’s GDP grew by an annual average of only 4 percent over the past eight years. Argentina suffers from the same problem as Brazil, with wages increasing by 30 percent year over year. Venezuela clearly is in a total state of stagflation. Dr. de la Torre describes the concept of low potential growth in colloquial terms as: “Latin America is like a Lada, while Asia is like a BMW.” The Lada is overheating at 80 kilometers an hour while the BMW can go as fast as 230 kilometers an hour without problem. The BMW is a better car. And Asia’s economic system is better than Latin America. What is the main reason behind this incontrovertible fact, according to the World Bank? Simple: The quality of education is very poor. Children do not learn enough math, and therefore the region does not graduate enough engineers. The
second reason is the bureaucracy, with many processes greatly increasing the cost of doing business. To change the “Lada” to a “BMW,” the region needs to grow at least 2 percentage points faster (on average). It needs to increase the rate from 4 percent to 6 percent, at least. Those two additional percentage points are worth gold. Suffice it to say that in the game of numbers, if a country grows by 4 percent, it will take 18 years to double real GDP. If it grows at an average of 6 percent, GDP will double every 12 years. Achieving such a growth acceleration will depend on the political will of the current leaders. It’s not so hard. More and better math. More international trade. And a lot less red tape and bureaucracy. Simple, really…
Alberto J. Bernal-León is head of research at Bulltick Capital Markets. Follow him on Twitter @AlbertoBernalLe.
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A few weeks ago I had the pleasure of sharing the lectern in Bogota with Dr. Augusto de la Torre, the World Bank’s chief economist for Latin America, at the Universidad de los Andes’ School of Government, which is led by Colombia’s former energy minister Carlos Caballero Argáez. As always, and as was to be expected, Dr. de la Torre presented clear and incontrovertible ideas on the current situation — and the future — of Latin America. The current economic and social situation of Latin America, certainly one of the most benevolent in the region’s recent history, is based on great advances made in two of the three vertices of a hypothetical triangle, Dr. de la Torre said. The first vertex is macroeconomic stability. The countries of Latin America, perhaps with the exception of Venezuela and, to some extent, Argentina, subscribe to the basic concept that without the implementation of strong macroeconomic policies, economies — and therefore countries — simply cannot move forward, Dr. de la Torre explained. Low inflation and the control of public-sector deficits, tied to more flexible management of the exchange rate and monetary policy, have without question helped increase the region’s growth potential. The second vertex is the social situation. With few exceptions, the region has reduced poverty in a concrete way over the past 10 years. The World Bank estimates that 60 million Latin Americans moved out of poverty during the decade. This decrease in the ranks of the poor is largely because of higher raw-material prices, the implementation of better macroeconomic policies, and the adoption of public policies focused on reducing abject poverty, such as “Families in Action,” the “Head of Household Plan” or the famous “Bolsa Familia” in Brazil.
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COUNTRY REPORT
Colombian Star Foreign investors are rushing to Colombia, lured by attractive regulations and a growing market.
O
n a recent visit to New York, Colombian President Juan Manuel Santos sounded like a cheerleader as he raved about his country’s impressive economic performance. “We are at a moment when we can all puff out our chests and feel proud to be Colombians,” Santos said. “The country is on the right path.” Many business executives agree. Over the past decade, improved security and political stability have led to billions in foreign investment, a boom in oil and mining, and steady, if not soaring, economic growth. Executives call the Santos administration the most business-friendly government in Latin America. “Everybody is talking about Colombia,” says Jaime Bermudez, a former Colombian foreign minister and now president of the Colombia office of MBA-Lazard, an investment banking firm.
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LATIN TRADE NOVEMBER-DECEMBER 2011
“It is a totally new country in terms of reputation and opportunities. This may be our best moment since independence.” Thanks to five second-tier cities, 45 million people and potential to grow, a new J.P. Morgan survey names Colombia as the second-most-promising country in Latin America for investment over the next three years. “Colombia is viewed as being earlier in its growth cycle and ‘more emerging’ than many other countries in the region,” the survey says. “Thus, investors see more potential upside in Colombia than in some more developed Latin American countries as it ‘catches up’ and further develops its economy.” But in this process of catching up, it sometimes seems that Colombia’s institutions, infrastructure and labor force are not ready for prime time. Education levels remain low, and com-
COURTESY OF PROEXPORT COLOMBIA
BY JOHN OTIS
COUNTRY REPORT panies complain of a lack of fluent English speakers. The agricultural sector is stuck in first gear. Trade between Colombia and fast-growing Asia lags far behind the rest of the region. There are nagging concerns about security and the yawning gap between rich and poor. Highways, ports and airports require billions in upgrades, yet many projects have been delayed by cost overruns and corruption. One of the best spots to track Colombia’s growing pains is El Dorado International Airport in Bogota. The airline counters often are overwhelmed, the waiting rooms jammed. For international arrivals, the line for immigration can start almost immediately upon deplaning. Two new passenger terminals are going up that will allow El Dorado to comfortably handle 16 million passengers annually. But the blueprints already are out of date. Last year, nearly 19 million passengers squeezed through the airport. Colombia, in the words of Avianca Airlines CEO Fabio Villegas, “is suffering a bit from the consequences of so much economic growth.” Given the country’s recent history of violence, Colombia will gladly take its current predicament. In the 1980s, 1990s and early 2000s, guerrillas, paramilitaries and drug traffickers killed
and kidnapped thousands, including many businesspeople. It was too dangerous to drive from Bogotá to Medellín. At one point, guerrillas occupied the town of La Calera, just 15 miles from Bogota. Companies found it hard to recruit foreign executives. Rebels bombed oil pipelines. The tourism industry was on life support. In 1999, the ratings agencies yanked Colombia’s investor-grade status. But a decade-long military offensive has reduced the number of guerrilla fighters by half, and kidnappings have plummeted from a high of 3,000 per year to a few hundred. Vast stretches of the countryside, once considered red zones, can now be accessed for agriculture, oil and mining. “Improved security has led to a growth in confidence, which, in turn, has led to a growth in investment,” says Marcelo Modai, country manager in Colombia for Standard Chartered Bank. Further enticements, enacted between 2002 and 2010 by then-President Alvaro Uribe, included major tax breaks for businesses. Relative labor flexibility compared with neighboring countries also is seen as a plus. Unlike Colombia, “if I expand in Peru and hire a lot of people and then the business flags, it’s very complicated to lay off workers,” says Yolanda Auza
Thanks to five second-tier cities, 45 million people and potential to grow, a new J.P. Morgan survey names Colombia as the second-most-promising country in Latin America for investment over the next three years.
COURTESY OF PRESIDENCIA DE COLOMBIA
Executives call the adminstration of President Juan Manuel Santos, seated fourth from left with members of his cabinet, as the most business-friendly government in Latin America.
NOVEMBER-DECEMBER 2011 LATIN TRADE
27
COUNTRY REPORT: COLOMBIA
COLOMBIA FAST FACTS Population............................ GDP...................................... Currency.............................. GDP Growth......................... Inflation............................... Exports................................ Imports................................
45.5 million $289.4 billion Peso 4.3 percent 2.3 percent $39.8 billion $40.7 billion
Note: All figures for 2010. Sources: International Monetary Fund, DANE, Population Reference Bureau, Latin Business Chronicle
Oil production is expected to top 1 million barrels per day by the end of the year, nearly double the output of 2005. Colombia is the No. 1 supplier of coal to the United States, and production jumped to 76 million tons last year. Gómez, general manager for Unisys in Latin America and the Caribbean region. Colombia also enacted reforms to promote the mining and oil industries. As the price of oil crept up, many other producers, such as Venezuela, changed their laws to give their governments a greater share of the petrodollars. But in Colombia, foreign companies were allowed to own 100 percent stakes in oil ventures, and government royalties were reduced. Now, Colombia is seeing the payoff. The hydrocarbon sector is growing by 10 percent annually and accounts for about 60 percent of foreign investment. Oil production is expected to top 1 million barrels per day by the end of the year, nearly double the output of 2005. Colombia is the No. 1 supplier of coal to the United States, and production jumped to 76 million tons last year. Gold output also is surging. The resulting influx of cash has created some new wrinkles, such as the strengthening of the Colombian peso, and sparked fears of “Dutch Disease” (the phenomenon in which an overpriced local currency can make the country’s other exports — such as flowers and textiles — less competitive). To avoid this problem, the Santos government has set up an international “rainy day” fund to park some of that money outside the econo-
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LATIN TRADE NOVEMBER-DECEMBER 2011
Colombia ranks third in Latin America on the World Bank’s Doing Business rankings (ahead of Mexico), and it ranks as the eighth-most competitive economy in Latin America, according to the Global Competitiveness Index from the World Economic Forum. These two rankings were among the factors behind Colombia’s sixth place on the Latin Business Index from Latin Business Chronicle. Meanwhile, when it comes to the labor environment and technology levels, Colombia also is among the best countries in Latin America. However, when it comes to the tax environment, it is among the worst, and its tourism impact is still among the lowest in the region — in part because of real and perceived security problems. Then there is infrastructure. Although Colombia ranks average in overall infrastructure (largely because of the technology and electricity infrastructure), it’s among the worst in transport infrastructure. Business Environment: Colombia ranks in sixth place on the Latin Business Index (Chile is ranked best). Globalization: Colombia is the sixth-worst country on the Latin Globalization Index (Panama is best). Infrastructure: Colombia ranks 14th in Latin America on the Latin Infrastructure Index (Panama leads), but as the fourth-worst in the transport infrastructure subindex (Chile is No. 1). Labor Environment: Colombia ranks sixth on the Latin Labor Index (Chile is ranked the best). Security: Colombia ranks as the ninth-most-dangerous country on the Latin Security Index (Costa Rica is ranked the safest). Tax Environment: Colombia ranks as the fifth-worst country on the Latin Tax Index (Chile is ranked the best). Technology Level: Colombia ranks eighth on the Latin Technology Index (Panama ranks first). Tourism Impact: Colombia ranks as the second-worst on the Latin Tourism Index (Uruguay ranks first). Sources: Latin Business Index 2011, Latin Globalization Index 2010, Latin Infrastructure Index 2011, Latin Labor Index 2011, Latin Tax Index 2011, Latin Technology Index 2011, Latin Tourism Index 2011 (all from Latin Business Chronicle, a unit of the Latin Trade Group); Latin Security Index 2011 (developed by FTI Consulting for Latin Business Chronicle); World Economic Forum (Global Competitiveness Index).
COURTESY OF PROEXPORT COLOMBIA
HOW COLOMBIA COMPARES
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96%
Cumplimos con las medidas de calidad nacionales.
COUNTRY REPORT: COLOMBIA my. Meanwhile, a new law aims to distribute royalties more evenly throughout the country. “The big challenge is to manage well these resources while trying to keep other sectors of the economy competitive,” says Roberto Steiner, director of the Bogota economic think tank Fedesarrollo. As it turns out, prudence has been a guiding philosophy for Colombia’s economic planners for the past 30 years. The resulting lack of booms and busts is a key attraction. “There are clear rules, and you have a good idea about what will happen with economic growth,” Auza says. “We don’t have dramatic bonanzas, but we do have stability. So people know that it’s difFree-trade zone in Bogota ficult to lose huge sums of money in Colombia.” Still, the current 5 percent pace of annual GDP growth will have to pick up for Colombia to reduce poverty and narrow the gap between rich One sector that’s taking off is tourism. Since 2004, cruise ship and poor. “I think we should aspire to becoming a high-income passenger traffic through Cartagena has grown four-fold while country,” Steiner says. “To reach the next level, we need 7 to 8 international airline passenger arrivals to Colombia have doubled percent growth for the next 10 years. But among our great merto more than 2 million. Thanks to generous tax breaks for develits is that we haven’t pushed for huge and unsustainable growth opers, there’s a hotel construction boom going on in Cartagena, that has led other countries to crisis.”
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LATIN TRADE NOVEMBER-DECEMBER 2011
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COUNTRY REPORT: COLOMBIA Bogota and other cities involving chains that once shied away from Colombia. Over the next decade, tourism is expected to expand 3.8 percent annually, according to a new report on tourism and travel competitiveness by the World Economic Forum. “The government is providing a great many fiscal incentives, which is the fuel behind the hotel expansion in Colombia,” says Alvaro Diago, the InterContinental Hotel Group’s chief operating officer for Latin America and the Caribbean. “Colombia has turned the corner.” Diago recently attended the opening of a new Holiday Inn in Cartagena, the group’s eighth hotel in Colombia, and plans are in the works for at least four more hotels in Bogota, Cartagena and Barranquilla. But like Avianca’s Villegas, Diago says airport facilities and connections need to improve. There are still just a handful of direct flights between the United States and Cartagena, one of the country’s main tourist destinations. The World Economic Forum tourism report ranks Colombia a middling 77th out of 139 countries. Colombia faired especially poorly in categories ranging from hygiene and the availability of rental cars to airport exit taxes and the quality of the country’s roads. Aside from very good telecommunications and electricity, infrastructure is constantly mentioned by executives as Colombia’s Achilles heel. Traditionally an insular country divided by three Andean mountain ranges, building a coherent national highway system was never a top priority — especially in the 1990s and early 2000s, when insecurity in the countryside forced many people to fly rather than travel overland. Today, the country’s highway system is so bad that it costs more to truck cargo from Bogota to port cities than to ship that cargo to the other side of the world. Several high-profile projects, including the El Dorado airport expansion and the upgrading of a major highway to vacation spots just south of Bogota, have been plagued by either delays or accusations of corruption. These bottlenecks will likely haunt Colombia, especially after the U.S. free trade deal between the two countries is implemented. “Our roads are a disaster,” says Camilo Angarita, the Andean Countries manager for UPS Supplies and Solutions. “There’s a lot of work to do throughout the coun-
ty in order to handle increased volumes of goods, which is what we expect if the trade agreement is signed.” Colombia already has signed trade agreements with Canada, Mexico, Chile, Peru, Guatemala, Honduras, El Salvador, Switzerland and Norway. The Santos government is currently negotiating pacts with the European Union and South Korea. But Modai, of Standard Chartered Bank, says Colombia should focus on strengthening trade ties to Asia, which is expanding faster than the U.S. and Europe. Only about 5 percent of
NOVEMBER-DECEMBER 2011 LATIN TRADE
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PHOTO: SPRC
COUNTRY REPORT: COLOMBIA
Port activity in Cartagena is expected to increase with the passage of the FTA with the United States. Tourism is also thriving: Cruise ship passenger traffic has increased fourfold since 2003 and the historic city is enjoying a hotel construction boom. Colombia’s trade involves Asian nations, compared with 12 percent for Peru, 18 percent for Brazil and 25 percent for Chile. Much of South America’s trade with Asia involves agricultural products, which is another area where Colombia must improve. The agricultural sector, which has been affected by the poor road system as well as corruption scandals, is growing by only about 2 percent annually, the poorest performance among major Latin American nations, according to Steiner. Rural areas are the most impoverished parts of Colombia and are home to guerrillas and criminal bands that continue to operate even though they’re far less of a threat than they were 10 years ago. In recent months, guerrillas have been targeting oil workers and infrastructure, prompting President Santos to announce new security measures to protect petroleum companies in the southern oil-producing regions of Meta and Caquetá. A surge in crime and rebel activity prompted the resignation of Defense Minister Rodrigo Rivera in August. “We still face serious challenges in terms of security. It has certainly not improved [under Santos], and there are serious indications that things have become a bit worse,” says Bermudez of MBA Lazard. “We haven’t gone back to where we were five or 10 years back. But we cannot just relax.” The countryside also is struggling with underdevelopment, partly because of the lack of good schools and lopsided land-holding patterns. A recent U.N. report noted that 52 percent of the productive
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land in Colombia is held by less than 2 percent of the population. “We have created two societies: one of insiders and one of outsiders, who are the people without skills and no formal employment,” Steiner says. “That’s a big worry. It’s a drag on productivity and a factor of social tension.” Indeed, protests over labor conditions targeting Torontobased Pacific Rubiales Energy, the country’s largest private oil company, have shut down production on two occasions. For all of these reasons, Bermudez says Colombia’s reputation as a safe, stable country to do business may be somewhat overblown. “My impression is that some years back we were seen as a worse place than we really were,” he says. “Today, my impression is that we are seen as a better place than we really are. This is still a very weird country.” Modai says Colombia will have to invest about $20 billion in the next few years to improve roads, ports and airports, and much of that money is expected to come from abroad. And that will stimulate economic growth. President Santos listed infrastructure — along with housing, education, agriculture and hydrocarbons — among the five “locomotives” of future growth. “In some sectors, things have been done so badly,” Steiner says, “but that means big business in the future.” Should Santos’ locomotives pick up steam, the Colombian president and his people will have even more to boast about. editorial@latintrade.com
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COUNTRY REPORT: COLOMBIA
FTA Boosts Business The U.S.-Colombia free trade agreement is expected to help boost Colombia’s economy further. Union next year, Villegas believes the U.S.-Colombia FTA will especially help the South American country face the challenges of a slowing global economy. The U.S. Congress approved the FTA with Colombia in October – nearly five years after it had been signed and five and a half years after it had been concluded. The delay, which had caused widespread frustration among U.S. companies, cost U.S. exporters nearly $4 billion, according to the Latin Trade Coalition. The approval came after Colombia had already implemented an FTA with Canada. The Canadian accord had been signed in November 2008 (two years after the U.S. FTA) and was implemented in August 2011. The U.S.-Colombia FTA will likely come into effect during 2012. Meanwhile, Colombia reached an FTA with the European Union in May 2010, which was signed in April 2011 and is now pending ratification. Colombia is the fourth-largest trading partner in Latin America for the United States, according to a Latin Business Chronicle analysis of data from the U.S. Census Bureau. Meanwhile, the United States is Colombia’s top trade partner, accounting for 33.8 percent of the country’s total commerce, according to a Latin Business Chronicle analysis of 2010 data from Colombian statistics agency DANE. Last year U.S.-Colombian trade grew 33.3 percent to $27.7 billion, according a Latin Business Chronicle analysis. That was the fourth-highest increase in Latin America. During the first half of this year, trade reached $17.7 billion, a 13.1 percent increase from the first half in 2010, according to another Latin Business Chronicle analysis. That was again the fourth-best result in Latin America. In both cases, Colombian exports to the IMPORTS United States are growing faster than U.S. exports to Colombia. In 2010, Colombian exports jumped 38.2 percent to $15.6 billion, while U.S. exports grew 27.4 percent to $12 billion. During the first half of 2011, Colombian exports grew a whopping 46.4 percent to $10.7 billion. That was the second-highest increase in Latin America. During the same six-month period, U.S. exports to Colombia increased 19.5 percent to $7 billion. Colombia’s trade with the United States last year grew faster than with the European Union (up 18.1 percent) or Canada (up 2 percent), but it trailed trade with China (up 75.3 percent), according to Latin Business Chronicle. —Joachim Bamrud
Peter Wiegandt, Latin America president for U.S. computer giant Dell, expects to see more sales in Colombia as a result of the U.S.-Colombia free trade agreement. “The economy will be more open and grow more,” he tells Latin Trade. Although Dell and other technology companies generally have benefited from attractive conditions for exporting to Colombia, Wiegandt foresees the main benefit coming from the growth in demand that the FTA will likely create — from both local and foreign companies operating in the South American country. Dell had actively supported U.S. congressional approval of the FTA with Colombia. “Everything that boosts competitiveness is an important achievement,” says Martin Alvarez, executive director for Dell’s Multi Country Latin America division. Luis Alberto Moreno, president of the Inter-American Development Bank and a former Colombian ambassador to the United States, predicts the accord will foster more business overall as well as give a real boost to foreign investment. “I expect to see a lot more investment in Colombia,” he tells Latin Trade. The FTA “gets business focused on opportunities.” Moreno estimates that the FTA will help Colombia increase foreign direct investment to $10 billion annually. In 2010, FDI reached $6.8 billion in Colombia, but the country had managed to attract $10.6 billion in 2008 and $9 billion in 2007. Luis Carlos Villegas, president of Colombia’s main business organization ANDI, hopes the FTA will put pressure on Colombia to quickly improve its infrastructure, institutional competitiveness, judiciary, agricultural sector and transparency. Although Colombia already has FTAs with Canada and Switzerland and is set to sign one with the European
U.S.-COLOMBIA TRADE Billions of U.S. dollars EXPORTS
Source: Latin Business Chronicle
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LATIN TRADE NOVEMBER-DECEMBER 2011
SPECIAL ADVERTISING FEATURE
Argentina opens its doors to international events
Argentina has risen from 40th to 18th place in the ranking of countries hosting the most international conferences
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With 5 million visitors per year, Argentina is the country with the highest number of tourists in South America. A melting pot of cultures, races and traditions combine to form a country that is one of the 8 largest in the world, and whose generous borders contain glaciers, waterfalls, and national parks chosen by UNESCO as World Heritage sites. Buenos Aires, the capital, is known as the city that never sleeps, with its pubs, theaters and restaurants renowned for offering the very best meat, surpassed only by the fame of the tango, the music that arose out of the Buenos Aires “barrios.” Argentina’s six tourism regions offer more than 30 destinations set up to accommodate all types of international events and incentive travel,
each with its own unique character, but with one common denominator: excellent service and hospitality. Iconic events such as the Dakar Rally, the Americas Cup, the International Tourism Fair (FIT), the Summit of the Americas, the Davis Cup, the World Forestry Congress, the World Meat Congress, among others, are all representative of Argentina’s increased attraction of international events that are positioning it as a premiere destination.
INPROTUR IS POSITIONING THE COUNTRY AS A TOURIST DESTINATION In 2005 the Argentine government created the National Tourism Promotion Institute (INPROTUR), with the mission of positioning Argentina as an international tourist destination.
The INPROTUR Meeting Tourism Coordination division is in charge of organizing conferences, fairs, trade shows, sporting events, plus incentive and corporate travel. The Meeting Tourism Coordination division has a Strategic Marketing Plan providing for facilities to attract events, including financial support, travel tickets, promotional materials, and even the support of Argentina’s Embassies and Consulates abroad. This Marketing Plan has the support of key public and private players in the tourism industry. As a result of this plan, Argentina has risen in the international ranking of countries hosting the most international conferences published by the ICCA (International Congress and Convention Association), from 40th place in 2008 to 18th in 2010.
SPECIAL ADVERTISING FEATURE
human resources that can sustain the growing number of events it is attracting. The country has 23 international airports, 25 seaports, (four that can accommodate cruise ships) and over 24,000 miles of national highways connecting it to the region. “New, more frequent flights are being added to link Argentina with the rest of the world more quickly, even without layovers, which is something organizers often look for when choosing a destination. There are 30 international airlines that offer direct flights to Argentina from 40 cities on the 5 continents, for a total of 800 flights per week,” explained Boto. International event organizers value perks such as the discounts offered by Aerolineas Argentinas to this industry.
IN 3 YEARS, ARGENTINA HAS ATTRACTED 180% MORE INTERNATIONAL CONFERENCES The Republic of Argentina is positioning itself as a key player in the international conference market, and is now one of the premier destinations in the Americas. “In just three years, Argentina has attracted 180% more organized international events. It went from 60 conferences in 2007 to 172 in 2010,” according to Leonardo Boto, Executive Secretary of the National Tourism Promotion Institute (INPROTUR). Boto added that in the Latin American Region, Argentina is in second place behind Brazil in attracting the most international events. “The growth has been unmatched,” he said. “Buenos Aires is the city between Alaska and Tierra del Fuego hosting the largest number of international events,” added Mr. Boto, who explained that “Argentina’s increased attraction of events was also reflected in the interior of the country.”
“For the first time, destinations such as Cordoba, Mar del Plata, Rosario, La Plata, Bariloche, and Salta appear in the ICCA international ranking of cities hosting more than five international conferences per year,” said the INPROTUR official. “In 2009 we overtook Mexico with regard to the number of international conferences, and we are far ahead of countries that have been developing this segment for years,” Boto emphasized. “Argentina ranks 4th among the 30 countries in the Americas,” he noted.
Other perks include the favorable exchange rate and the excellent cost-benefit ratio Argentina offers, in addition to the VAT exemptions granted to foreigners and participants in international events. “Today we are not only competing for international events with countries in the region, but also with highly developed European, US, and Asian destinations,” concluded Leonardo Boto, Executive Secretary of INPROTUR.
According to Boto, this growth is the result of implementing and executing the Meeting Tourism Marketing Plan promoted by INPROTUR, with the approval and support of all Argentine tourist destinations. Argentina has a logistical infrastructure, and availability with regard to hotels, meeting halls, convention centers and fairgrounds, in addition to qualified
CONTACT FOR EVENT ORGANIZATION INCENTIVES E-MAIL: psismanian@argentina.travel
INDUSTRY REPORT
INSURING
GROWTH Latin America’s insurance industry is benefiting from the region’s economic growth, but also faces some major challenges. BY THIERRY OGIER AND LISA K. WING
SÃO PAULO — Swiss-born insurance executive Werner Stettler has spent almost a quarter of a century in Brazil, but he says he has never had it so good. Stettler is now a vice president for the local subsidiary of Zurich Financial Services, which has been in Brazil for 30 years. Most important, Zurich recently paid $1.6 billion for a 51 percent stake in a joint venture agreement with Spain-based Santander to sell insurance contracts jointly across Latin America (except for car insurance). “Brazil was a decisive factor to sign the deal,” says Stettler, as Zurich, which traditionally has had a focus on corporate customers, now has access to a 3,500-branch network to sell insurance contracts to individuals for 25 years. “Brazil definitely became one of the seven largest markets for Zurich in the world,” he says. LATIN AMERICAN GROWTH Neither Stettler nor Brazil are isolated cases. In most countries in Latin America, the insurance sector is growing significantly, thanks to economic growth and demand for insurance. “In general, most Latin American countries are going through a process of strong growth, and the insurance industry by excellence replicates what is happening in the economy,” notes Diego Nemirovsky, vice president and senior analyst for Moody’s Latin America Insurance Group in Argen-
tina. “Moreover, there is great growth opportunity within the sector because penetration is still very low in many countries.” Of Latin America’s 100 largest insurers, only 17 saw declines in their premiums last year, according to a ranking developed by LatinoInsurance for the Latin Trade Group. Brazil-based Bradesco continues to lead the way in total premiums in Latin America. Last year Bradesco’s premiums reached $14.7 billion, a 29.6 percent increase. That was almost as much as No. 2 and No. 3 combined. Brazil-based Itaú came in second, with $7.8 billion in premiums, which marked an increase of 9.8 percent. Meanwhile, U.S.-based Principal replaced Spain’s Mapfre as Latin America’s third-largest insurer because of a 64.1 percent increase in premiums last year, to $7.1 billion. Mapfre came in fourth with premiums of $6.5 billion, an increase of 9.7 percent. The top 10 also includes Brazil’s Porto, Spain’s Santander, U.S-based Liberty and France-based CNP. WINNERS & LOSERS Measured in percentage changes, Vida Camara (Chile) was the clear winner, with a 158.4 percent increase in premiums last year. Other winners include Brazil’s Safra (122 percent), Peru’s Interseguro (106.1 percent), Chile’s Cruz Sur (101.5 percent) and Brazil’s Virginia (80.1 percent).
Venezuelan insurers were the big losers, led by Horizonte (down 59.3 percent). Venezuelan companies accounted for 13 of the 17 losers on the top 100 ranking. The key reason was the 100 percent devaluation of the Bolivar last year, says Juan Fernando Serrano, executive president of LatinoInsurance. The key losers also include Segura Inbursa in Mexico, which saw a 39 percent decline in premiums last year. Inbursa has the Pemex account, which is written every 22 months and the Mexican regulator requests to register in the books the two-year premium during the year of renewal, Serrano points out. “For this reason, whoever has this policy will have a similar behavior,” he says. CHALLENGES Despite the positive outlook throughout most of Latin America, new government regulations passed this year in Brazil and Argentina restricting companies from reinsuring risks abroad are raising concerns among industry observers. Another key factor that can’t be ignored — and that will continue to affect the overall insurance industry well beyond this year — is the risk of natural disasters. As noted by Alejandro Pavlov, vice president and senior analyst at Moody’s Latin America: “The industry’s biggest threat to Colombia’s insurance industry has been lower yields on financial investments and
NOVEMBER-DECEMBER 2011 LATIN TRADE
39
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problems with natural disasters, which are more and more frequent. It is essential to manage these catastrophic risks.” Although natural disasters will certainly raise costs for insurance and reinsurance companies — and in turn their policyholders — increased competition to capture clients in the region’s growing economies will ultimately benefit the end user in the long term by expanding coverage and reducing costs, industry observers say. The life and health insurance sector, in particular, is expected to fare well regionwide. The privatization of pension systems and healthcare, as well as the increased incomes of skilled wage-earners — which turn to new healthcare and life products — will continue to drive the sector in many economies throughout the region, notes Roberto Walker, president of Principal Financial Group Latin America. In another move to capitalize on the region’s underserved insurance market, companies in Chile and Colombia have allocated significant resources to integrate insurance and healthcare services. This is catching on in Peru, where the two largest insurance companies are investing heavily to incorporate healthcare services into their portfolios. Pacifico Seguros, Peru’s second largest insurance company, earlier this year acquired Doctor +, a company that provides house-call services, and also is developing medical centers and acquiring clinics in Lima and the provinces. David Saettone, the company’s CEO, says this is part of a long-term strategy to invest in Peru’s rapidly growing and largely underserved healthcare market. “The first things people spend on when their purchasing power improves is healthcare, thus the demand for these services has increased tremendously in Peru,” Saettone says. “With these strategic moves, we want to build a strong, private national network to satisfy this demand and to improve the quality of our services and make healthcare accessible to all.” Meanwhile, Rimac Seguros, Peru’s largest insurer, also announced plans to invest close to $60 million to expand its health business and expand its medical centers in Lima and the provinces over the next five years, according to company reports.
Despite this outlook, nothing is set in stone. Some companies are bowing out of the sector — and the region — such as Dutch group ING, which in July agreed to sell most of its Latin America insurance operations to Colombia’s Grupo de Inversiones Suramericana (Grupo Sura) for $3.7 billion. BRAZIL But Brazil is clearly the star. Apart from Zurich, many other foreign investors have rushed to the fast-growing market, which, in spite of its restrictive regulations and bureaucratic rules, has become the focus of strong attention in recent years. “The market has grown by 20 percent on average since 2005,” says Leonardo Santos, a director at Austin Asis, a financial research firm in São Paulo. Such spectacular growth is the result of economic growth (except for 2009), and real income gains. A buoyant job market has meant that a large number of companies now offer private health and/ or pension plans to retain the best talents. Meanwhile, the emergence of a new middle class has led to the opening of millions of new bank accounts. “This has favored the development of new insurance products for this new type of consumer,” Santos says. Consumer credit-related insurance and extended guarantees, which started from a very low base, have become popular. The real estate boom has also favored the insurance market, as such contracts [seguro habitacional] are required by banks when a customer wants a mortgage. “We have been active on all fronts, whether it is life insurance or pension plans. We have to make the most of Brazil’ s current economic performance,” Stettler of Zurich says. The insurance market growth has been phenomenal, yet it still has a lot of potential to grow further. According to Austin Asis, the insurance market accounts for only 3.5 percent of the Brazilian GDP against a global average of around 8 percent. Santos says the Brazilian market is due to increase to about 5 percent in the medium term, thanks to investment in the oil industry, infrastructure and special events, such as the 2014 soccer World Cup and the 2016 Olympics in Rio de Janeiro. Yet in the meantime, the current slow-
INDUSTRY REPORT : INSURANCE down in economic activity and the new bout of inflation are bound to curb the pace of growth in the Brazilian insurance market in the short term. “When inflation is high, people have less incentive to save or invest in insurance contracts, as there is less disposable income” Santos says. “It would be too optimistic to think of sustaining a growth rate of 20 percent.” He also raises other issues related to capital intensive projects. “There are a series of challenges, like how the government will deal with public spending regarding large infrastructure works,” he says. “Brazil does not have a very good record in terms of implementation of infrastructure works.” Market sources say nine of the 10 largest insurance companies in Brazil now have foreign shareholders. Besides the Zurich/ Santander joint venture, other large deals included a 1 billion reais (US$574 million) partnership between Mapfre, the Spanish insurer, and Banco do Brasil (BB), the statecontrolled financial group, in life insurance
and basic risks last year. BB also sells car insurance on behalf of Sul America, one of the leading insurance companies in the country. [ING is currently negotiating the sale of its 35 percent stake in Sul America — Axa and Zurich are among the contenders]. Moreover, insurers that do not have a branch network have also made agreements with banks, such as Porto Seguro and Itaú, to benefit from stronger distribution channels. Large foreign firms have also taken a closer look at the promising Brazilian market after authorities put an end to the state monopoly on the reinsurance market three years ago. “When the markets opened up to private competion, IRB [Instituto Brasileiro de Resseguros, the former state-owned monopoly] lost a significant quantity of contracts. This was not well received [by the Brazilian authorities],” Stettler says. Huge contracts are soon due to be awarded in the oil industry, as Petrobras and others plan to set up dozens of offshore platforms to explore new oil reserves, as well as big infrastructure works
(two large dams have already been built on the Amazon River, and a third one is due to be set up in the coming years). But foreign reinsurance firms have been taken aback by the conditions imposed by the Brazilian government. After intense lobbying, some restrictions were maintained: 40 percent of the amount of any reinsurance contract has to go to a local company; moreover, local subsidiaries of foreign groups can transfer only up to 20 percent of the risks to their headquarters. Supporters say this will help keep more reinsurance business onshore, thus benefitting the local market, but critics argue that limiting companies’ risk placements will decrease options and drive up costs for companies and policyholders. Moreover, observers argue that these restrictions could harm important future investments — such as those expected to accompany the 2014 World Cup and the 2016 Rio Olympics in Brazil — by limiting national risk exposure and therefore harming the insurance industry as a whole.
SHERATON HOTELS LAUNCHES SIGNATURE FITNESS OFFERING ACROSS LATING AMERICA Part of Sheraton brand’s $120 Million Global Roll-out of Revolutionary Health and Fitness Program – Sheraton Fitness Programmed by Core Performance To Celebrate Sheraton will Host two major Fitness Events in Buenos Aires and Rio de Janeiro with Local Celebrities and Fitness Experts 7LIVEXSR ,SXIPW 6IWSVXW ;SVPH[MHI XSHE] ERRSYRGIH XLI SJ½GMEP PEYRGL SJ MXW WMKREXYVI ½XRIWW TVSKVEQ MR 0EXMR %QIVMGE ¯ ±7LIVEXSR *MXRIWW 4VSKVEQQIH F] 'SVI 4IVJSVQERGI ² 7LIVEXSR ,SXIPW ERH MXW S[RIVW EVI MRZIWXMRK QMPPMSR XS VSPP SYX MXW RI[ ½XRIWW TVSKVEQ XLEX PIXW KYIWXW YWI XLI WXVEXIKMIW HIZIPSTIH F] XLI PIEHMRK I\TIVXW MR TVS EXLPIXI XVEMRMRK XS FIGSQI XLI YPXMQEXI VSEH [EVVMSV -R GIPIFVEXMSR SJ XLI RI[ ½XRIWW SJJIVMRK 7LIVEXSR´W +PSFEP &VERH 0IEHIV ,S]X ,EVTIV [MPP LSWX X[S ½XRIWW IZIRXW EX XLI 7LIVEXSR &YIRSW %MVIW ,SXIP 'SRZIRXMSR 'IRXIV ERH XLI 7LIVEXSR 6MS ,SXIP 6IWSVX ERH [MPP FI NSMRIH F] VIRS[RIH ½XRIWW I\TIVX ERH XST EXLPIXIW ERH QSHIPW 'SVI 4IVJSVQERGI HIZIPSTIH F] %XLPIXIW´ 4IVJSVQERGI XLI KPSFEP PIEHIV MR TIVJSVQERGI XVEMRMRK RYXVMXMSR ERH TL]WMGEP XLIVET] ERH 7LIVEXSR EVI TVSYH XS ERRSYRGI XLI 0EXMR %QIVMGE VSPP SYX SJ ±7LIVEXSR *MXRIWW 4VSKVEQQIH F] 'SVI 4IVJSVQERGI ² 8LMW EPPMERGI QEVOW XLI ½VWX XMQI XLEX 'SVI 4IVJSVQERGI MW TEVXRIVMRK [MXL E LSXIP GSQTER] XS GVIEXI GYWXSQM^IH XVEMRMRK ERH RYXVMXMSR TVSKVEQW JSV XVEZIPIVW %W TEVX SJ XLI FVERH´W FMPPMSR KPSFEP VIZMXEPM^EXMSR QSVI XLER LSXIPW JIEXYVI XLI RI[ ½XRIWW SJJIVMRK %PP 7LIVEXSR ,SXIPW EVSYRH XLI [SVPH [MPP JIEXYVI 7LIVEXSR *MXRIWW F] IRH SJ ±;I EVI XLVMPPIH XS PEYRGL SYV RI[ ½XRIWW TVSKVEQ EGVSWW 0EXMR %QIVMGE ² WEMH ,S]X ,EVTIV ±*MXRIWW ERH XVEZIP KS LERH MR LERH ERH [I LEZI LIEVH JVSQ SYV KYIWXW XLEX [SVOMRK SYX MW E TVMSVMX] [LIR XLI] EVI SR XLI VSEH 3YV GSPPEFSVEXMSR [MXL 1EVO :IVWXIKIR SJJIVW E FIZ] SJ TVSKVEQW ERH WIVZMGIW XS LIPT KYIWXW IRLERGI XLIMV SZIVEPP ½XRIWW VIKMQIR ERH TIVJSVQERGI FIJSVI HYVMRK ERH EJXIV XLIMV WXE] ² New Program Meets Travelers Fitness Needs on the Road 8LI WXEXMWXMGW EVI GSRGPYWMZI 8VEZIPIVW VIUYMVI TVSKVEQW WTIGM½GEPP] HIWMKRIH JSV XLIMV LIEPXL ERH ½XRIWW RIIHW SR XLI VSEH TIVGIRX SJ FYWMRIWW XVEZIPIVW I\TIVMIRGI TL]WMGEP WXVIWW [LMPI ¾]MRK TIVGIRX SJ FYWMRIWW XVEZIPIVW WOMT FVIEOJEWX 0EGO SJ WPIIT LEW PIH SJ XVEZIPIVW XS JEPP EWPIIT MR E QIIXMRK ERH XS QMWW E QIIXMRK SV E ¾MKLX 8VEZIPIVW [LS I\IVGMWI EVI QSVI EPIVX ERH TIVJSVQ EX E LMKLIV PIZIP ;MXL XLIWI WXEXW MR QMRH 1EVO :IVWXIKIR *SYRHIV SJ 'SVI 4IVJSVQERGI ERH %XLPIXIW´ 4IVJSVQERGI HIWMKRIH E LSPMWXMG TVS KVEQ I\GPYWMZIP] JSV 7LIVEXSR KYIWXW [LMGL MW HIVMZIH JVSQ XLI WEQI XVEMRMRK QIXLSHSPSK] YWIH F] TVSJIWWMSREP EXLPIXIW 8LI TVSKVEQ LIPTW XVEZIPIVW XVEMR ERH IEX LIEPXL] SR XLI VSEH EW [IPP EW VIJVIWL VIGLEVKI ERH VIJSGYW XLIMV QMRHW ERH FSHMIW 7S [LIXLIV ]SY [SVO SYX IZIV] HE] SV NYWX [ERX XS XEOI EHZERXEKI SJ XLI RYXVMXMSR TVSKVEQW ERH LIEPXL XMTW ±7LIVEXSR *MXRIWW 4VSKVEQQIH F] 'SVI 4IVJSVQERGI² [MPP LIPT KYIWXW JIIP ERH TIVJSVQ FIXXIV www.starwoodhotels.com
NOVEMBER-DECEMBER 2011 LATIN TRADE
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INDUSTRY REPORT : INSURANCE “Sure, this is protectionism. It is always like this. It actually depends from which point of view you look at things,” says Stettler, as Zurich injected 100 million reais in its local reinsurance company to satisfy the demands of the Brazilian government. Swiss Re, one of the world’s largest reinsurance companies, also has opted to file for local status to offer “optimal support, service and capacity” to its clients in Brazil, according to Ivan Gonzalez, head of Latin America for Swiss Re Corporate Solutions. “These regulatory changes are still rather new, so it’s difficult to forecast long term what the outcomes will be — but clearly those operating locally get the advantage of being offered a percentage of business before eventual or occasional reinsurers,” he notes. Foreign reinsurance companies have joined forces in a common pressure group, which seeks more concessions from the government as parts of the current legislation are considered anticonstitutional. Insurance experts single out Peru as a strong market with great potential. GDP
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LATIN TRADE NOVEMBER-DECEMBER 2011
growth continues to be one of the region’s highest, and insurance penetration is at a mere 1.5 percent of GDP. Indeed, the country’s stable economic and political conditions and open government policies are helping attract investments, and the insurance sector is no exception. “Due to regulation in Peru’s insurance sector, competition has significantly increased over the past five years, resulting in higher returns for insurance companies and cheaper and more varied services for customers,” says Saettone of Pacifico Seguros. “It’s a win-win situation.” In just five years, he notes, the sector’s annual profits have surged from $15 million to $250 million today. “The impact of these higher returns is that risk management has become more technical and professional,” Saettone says. “Additionally, new product development and distribution channels have increased the accessibility of health insurance to a broader customer base.” Chilean insurer Cruz del Sur is among the top growth winners in Latin America.
Its premiums jumped 101.5 percent last year to $272.8 million, according to LatinoInsurance. Measured in Chilean pesos and adjusted for inflation, the value of its life insurance premiums — which account for well more than half of total premiums — jumped 79.4 percent in 2010, more than double the average rise in Chile of 37.4 percent. That allowed the company to increase its market share from 3.9 percent to 5.1 percent. “Cruz del Sur has traditionally been in the second division among insurers, with medium term sales,” says corporate vice president Andrés Lehuedé. “But we now have a business plan in place to correct that.” That plan involves strengthening traditional areas of business but also broadening the array of services the company offers. Efficiency savings also were part of the company’s success. As a percentage of premiums, the company’s administration costs dropped to below 11 percent from above 20 percent in 2009. The industry average in Chile remains above 20 percent.
INDUSTRY REPORT : INSURANCE Lehuedé says he expects the value of premiums to grow handsomely in 2011, too. “In the first half of this year, we sold around $200 million in premiums, and we expect total sales for the year of around $450 million,” he says. OUTLOOK The new crisis hitting Europe and the United States will affect the insurance sector in Latin America in 2012, albeit to a smaller degree than the 2009 global crisis did, warns Serrano of LatinoInsurance. “This is due to the price reduction of most of the commodities sold by [Latin American] countries and a reduction in the volume of purchases of these and other industrialized products from the first-world countries,” he says. The compounded average growth rate for the 2000 decade was 12 percent, and Brazil with 18 percent, Peru with 16 percent, Ecuador with 15 percent, and Colombia and Chile with 14 percent outperformed this average. “The question is, can they keep growing at the same rate with this new crisis?” Serrano says. Meanwhile, the insurance sector in Latin America will face several key challenges spurred by local conditions. Serrano singles out these three: • Higher inflation that will affect the cost of claims, mainly in motor vehicles and health. • Reduction in the percentage of new cars insured, if governments start increasing sales taxes for new cars and if bank reduce their car loans. • New regulations in some countries, which will require higher capital from the owners of the insurance companies. Life lines of business (life, accident and health, and pensions and workers compensation) are slated to grow at least 50 percent more than non-life lines of business in 2012, Serrano predicts. As for country markets, he expects that Argentina, Colombia, Ecuador and Panama will see increases of 13 percent to 18 percent. The biggest stars? “I see three countries growing over 18 percent, [namely] Brazil, Peru and Uruguay,” Serrano says. Ogier reported from São Paulo, Wing from Lima. With additional reporting by Gideon Long in Santiago.
MEXICO: Room to Grow Mexico lags Brazil and Latin America in insurance penetration. BY DAVID AGREN
MEXICO CITY — Motorists in this sprawling city of 21 million residents bring bad reputations for discourteous and aggressive driving to the Mexican capital's clogged roadways — and most of them obtained their licenses through a system involving no exams. Yet, analysts estimate that only one in four motorists has liability insurance as Mexico remains one of only a handful of countries to not enforce rules making the purchase of such policies mandatory. The situation highlights several of the biggest challenges bedeviling the Mexican insurance industry: a national culture of not taking adequate precautions against risk and a general lack of financial education. Insurance industry analyst José Ángel Montaño of Moody's in Mexico City cites another challenge: a lack of purchasing power. But he recognizes that other countries in Latin America with similar economies have surpassed Mexico, where the insurance penetration rate is just 1.83 percent of GDP — not even double the rate of 1.08 percent of GDP in 1990, according to the National Statistics and Geography Institute (Inegi). "If you compare Mexico to similar economies in Latin America -- Brazil, Chile, Argentina -- the penetration of insurance is much lower," Montaño says. "We're at the level of El Salvador or Honduras." The Mexican insurance industry is characterized by strong companies, which offer a broad array of products and services and fiercely compete with one another. The competition is expected to grow even fiercer in coming years as long-anticipated regulatory changes bring about a wave of mergers. But for the Mexican insurance market to grow, average consumers need to learn the value of its products. Montaño says the industry and government
regulators understand the challenge and are taking proactive steps. Companies such as BBVA Bancomer hold regular "financial education" events to teach the value of purchasing insurance coverage. Others among Mexico's more than 100 insurance companies have broadened their product offerings to include "micro policies," which charge premiums as low as 50 pesos per month for life coverage. The challenge is big, since buying insurance usually isn't done voluntarily in Mexico. Many of those with life insurance receive coverage through their jobs, while home insurance often is purchased because of the requirements necessary to get a mortgage. The violence currently gripping some regions of Mexico also might spur growth — with people seeking protection — but it remains somewhat of an unknown variable for the sector. Premiums already have increased for automobile insurance because of an increasing number of thefts. Still, signs of product acceptance have emerged. Sales of life insurance policies grew by 10.7 percent in the first quarter of 2011, Mexican Insurance Institutions (AMIS) reports. Montaña expects the trend to continue. “The penetration of these products is low ... but there's great potential for growth,” he says. Consolidation is expected in the coming years, too. New regulations known as Solvencia II are expected to be implemented by 2014 — although that date is a moving target — which would require companies to be better capitalized and better able to assess risks. "The big companies ... they have all the resources available to apply Solvencia II." Montaño says. "Many small players may have to exit the market."
NOVEMBER-DECEMBER 2011 LATIN TRADE
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INDUSTRY REPORT : INSURANCE
Top 100 Insurers Ranked by written premiums in millions of dollars as of Dec. 31, 2010, and Dec. 31, 2009. RANK
COMPANY (HQ)
COMPANY TYPE
2010 2009
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 44 45 46 47 48 49 50
44
1 2 4 3 6 5 9 7 8 10 14 13 16 12 11 15 17 19 21 26 28 18 24 29 27 30 22 38 31 34 35 36 33 37 41 43 44 46 39 42 25 20 32 48 51 52 47 56 55 57
BRADESCO (Brazil) ITAU (Brazil) PRINCIPAL (United States) MAPFRE (Spain) ING (Netherlands) METLIFE (United States) PORTO (Brazil) SANTANDER (Spain) LIBERTY (United States) CNP (France) GENERALI (Italy) ALLIANZ (Germany) HSBC (United Kingdom) GNP (Mexico) BBVA (Spain) AXA (France) ZURICH (Switzerland) SURAMERICANA (Colombia) CHARTIS (United States) RSA (United Kingdom) ACE (United States) INBURSA (Mexico) NYLIFE (United States) HDI (Germany) TOKIO (Japan) CARDIF (France) MERCANTIL (Venezuela) SANCOR (Argentina) CITIGROUP (United States) BRASIL VEICULOS (Brazil) RIMAC (Peru) QUALITAS (Mexico) SOMPO (Japan) INS (Costa Rica) QBE (Australia) CHUBB (United States) PACIFICO (Peru) FED. PATRONAL (Argentina) BOLIVAR (Colombia) ALTAMIRA (Venezuela) MULTINACIONAL (Venezuela) HORIZONTE (Venezuela) CONSTITUCION (Venezuela) HARTFORD (United States) CONSORCIO (Chile) SAN CRISTÓBAL (Argentina) AEGON (Netherlands) UNIMED (Brazil) BANCO (Uruguay) PENTASEC (Chile)
LATIN TRADE NOVEMBER-DECEMBER 2011
L ML MN MN MN MN ML MN MN MN MN MN MN L MN MN MN ML MN MN MN L MN MN MN MN L ML MN L L ML MN L MN MN ML L ML L ML L ML MN L L MN L L L
2010 TOTAL WRITTEN
ANNUAL CHANGE
PREMIUMS
2010 vs. 2009
14,728.6 7,820.3 7,067.0 6,133.5 4,974.0 4,741.9 4,530.6 4,509.2 3,142.4 2,940.8 2,415.6 2,304.0 2,269.4 2,267.0 2,145.2 2,069.7 2,027.9 1,989.2 1,365.8 1,194.8 1,121.7 1,120.5 1,078.1 1,046.2 1,035.1 958.3 933.1 925.9 896.5 894.6 782.4 777.9 716.0 711.5 705.0 690.7 627.6 614.2 609.0 583.2 571.7 566.5 519.0 513.6 512.8 502.5 497.9 480.0 475.9 471.8
29.6% 9.6% 64.1% 10.3% 25.2% 16.7% 54.5% 33.5% (2.3%) 30.2% 25.9% 17.2% 22.8% 13.3% (0.4%) 9.0% 10.1% 31.2% 4.6% 30.5% 32.0% (32.9%) 12.7% 30.2% 15.6% 30.1% (28.4%) 53.1% 27.0% 34.7% 18.0% 18.9% 7.2% 15.2% 26.4% 25.3% 20.8% 28.9% 2.0% 4.6% (39.6%) (59.3%) (26.1%) 22.5% 38.2% 37.1% 11.0% 34.3% 32.8% 38.2%
INDUSTRY REPORT : INSURANCE
RANK
COMPANY (HQ)
COMPANY TYPE
2010 2009
51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 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
49 40 45 54 58 53 76 63 69 62 71 66 93 64 113 74 75 72 61 70 85 80 79 92 88 81 96 90 84 86 103 105 111 67 91 68 82 94 125 59 118 98 97 112 83 100 101 50 114 108
ATLAS (Mexico) BANESCO (Venezuela) OCCIDENTAL (Venezuela) ABA (Mexico) SEGUNDA (Argentina) PREVISORA (Colombia) SAFRA (Brazil) PROVINCIA (Argentina) CORPVIDA (Chile) COLPATRIA (Colombia) ASSURANT (France) BCI (Chile) CRUZ SUR (Chile) INTERACC (Mexico) VIDA CAMARA (Chile) ESTADO (Colombia) EURO (Chile) BICE (Chile) CARONI (Venezuela) ESTAR (Venezuela) MAGALLANES (Chile) BERKLEY (United States) INTERNACIONAL (Panama) ALFA (Brazil) MITSUI SUMITOMO (Japan) PRUDENTIAL (United States) NACION (Argentina) BANCHILE (Chile) ASSA (Panama) NOBRE (Brazil) OHIO (United States) SMG (Argentina) INVITA (Peru) ALFA (Colombia) TRAVELERS (United States) CATATUMBO (Venezuela) UNIVERSAL (Dominican Rep.) RIVADIVA (Argentina) INTERSEGURO (Peru) NUEVO MUNDO (Venezuela) VIRGINIA (Brazil) RENTA (Chile) NOTREDAME (Brazil) LIDERAR (Argentina) PIRAMIDE (Venezuela) MERCANDINA (Argentina) BRISTOL (Argentina) CARABOBO (Venezuela) SECURITY (Chile) AZTECA (Mexico)
L ML L L L L L L L L MN L L L L L L L L L L MN L L MN MN L L ML L MN L L L MN L L L L L L L L L L L L L L L
2010 TOTAL WRITTEN
ANNUAL CHANGE
PREMIUMS
2010 vs. 2009
453.8 451.4 449.0 443.9 434.4 426.2 408.9 400.1 391.0 388.9 361.9 360.9 272.8 268.4 259.8 257.7 244.5 242.3 231.2 222.9 218.2 212.6 209.2 202.9 201.0 200.3 194.5 190.3 189.2 185.3 181.0 178.5 178.3 175.1 173.3 173.1 171.6 170.7 167.7 167.3 164.8 161.6 155.4 151.9 145.9 142.8 141.2 139.1 133.7 133.2
15.7% (23.5%) (13.0%) 23.5% 27.3% 17.5% 122.0% 40.8% 61.8% 35.1% 50.7% 36.1% 101.5% (4.2%) 158.4% 22.1% 24.9% 5.9% (22.4%) (7.5%) 39.7% 25.0% 21.9% 49.0% 38.1% 19.7% 61.5% 34.7% 19.6% 21.5% 58.3% 58.4% 73.8% (31.8%) 26.9% (29.6%) 4.1% 36.2% 106.1% (46.5%) 80.1% 36.1% 29.4% 49.3% (9.8%) 23.7% 22.7% (63.4%) 38.5% 26.2%
Notes: Written premiums by line of business ямБgures published by the insurance regulators of each country included herein. MN = Multinationals: insurers with global international operations. ML = Multilatinas: Insurers with operations within Latin America only. L = Latinas: Insurers with operations limited to their respective country of origin. Source: Latinoinsurance for Latin Business Chronicle. NOVEMBER-DECEMBER 2011 LATIN TRADE
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SPECIAL ADVERTISING FEATURE
From left: Grahame Gibson, COO, G4S plc and CEO of the Americas; Nick Buckles, CEO, G4S plc; Trevor Dighton, CFO, G4S plc
SECURITY: A C-SUITE PRIORITY G4S plc is a global security solutions group that has been serving public and private sector clients in Latin America since the 1960s. Here G4Sâ&#x20AC;&#x2122;s three most senior executives discuss the need for security as a corporate strategy: CEO, Nick Buckles; CFO, Trevor Dighton; and Grahame Gibson, COO of G4S plc and CEO of the Americas region.
G4S looks at the key issues facing business in Latin America Businesses in Latin America face new security challenges daily, whether they be shrinkage at a manufacturing plant, warehouse or retail facility or broader threats to their prosperity and welfare from organized crime. Increasingly, executives have to look at the part that security plays in protecting their business, not just at a transactional level but at a strategic level. Businesses need to address how they build processes where every relevant department or function is engaged and working together to improve security and the performance of the business. Whether security is the responsibility of the Chief Security 2IĂ&#x20AC;FHU RU DQRWKHU IXQFWLRQ LW PXVW EH DGGUHVVHG KROLVtically, across all business functions. Some international FRPSDQLHV DUH VHHLQJ WKH EHQHĂ&#x20AC;W RI HOHYDWLQJ VHFXULW\ WR the level of strategic decision-making in the organization. Why are they doing this? Security is a complex issue. In many companies it may
impact core business processes, in others, it contributes to the image and brand that the company wants to project. For many, security can touch on infrastructure, facilities, risk, safety, employee engagement, customer satisfaction, and other aspects that are not traditionally associated with security. ´2QH RI WKH EHQHĂ&#x20AC;WV RI JHWWLQJ D SURIHVVLRQDO UHYLHZ of the entire security picture is that you see things from an end-to-end basis, resulting in innovative solutions and an overall reduction in costs,â&#x20AC;? says CEO Nick Buckles. For many countries, and the corporations working within those countries, security is a necessity, not an added service. With drug cartels moving deeper into South America, there are threats to people, property and business across the region. Government and the private sector have to work together to address this problem. â&#x20AC;&#x153;Government regulations are increasingly forcing private
SPECIAL ADVERTISING FEATURE
enterprises to take greater responsibility for the business environment. That makes it essential to incorporate security measures into every aspect of a companyâ&#x20AC;&#x2122;s operations,â&#x20AC;? says Grahame Gibson, COO of G4S plc and CEO of the Americas region. With governments in Latin America looking at how to improve their critical national infrastructure via privatesector partnerships, the role of security is even more critical. Security is often at the heart of these long-term contracts (often 25-year operating concessions) for such infrastructure as airports, prisons, ports and toll roads or PD\ UHSUHVHQW D VLJQLĂ&#x20AC;FDQW SDUW RI WKH RSHUDWLQJ FRVWV The ability to take a holistic and cost-effective view of security and its inter-relationship with facilities operations and management at the highest level is essential. â&#x20AC;&#x153;Security is also essential to the economic development and the prosperity of communities throughout Latin America. Again, it takes a broad, coordinated approach between the public and private sector to make this happen,â&#x20AC;? says CFO Trevor Dighton. In countries where the private sector has designed, built, PDQDJHG DQG Ă&#x20AC;QDQFHG SULVRQV JRYHUQPHQWV UHSRUW LPproved standards as well as a 20- to 25-percent reduction in costs. In addition, other public safety projects that do not involve infrastructure, such as electronic monitoring of offenders, cost a fraction of that of imprisonment.
Many Latin American-based businesses are becoming key global players in their industries, with companies such as Petrobras, Cemex, Gerdau, Vale and Familia expanding beyond their national borders and Latin America to other regions. Many global businesses are also investing heavily in Latin America, their interests largely driven by the strong economic growth prospects. Some of the international businesses investing in Latin America are driven by regulatory or legal regimes, which dictate levels of conformity or standards compliance. For the multilatinas investing outside Latin America, new regulations may drive levels of standardization not previously required. The challenges for the multilatinas and the multinationals are very similar: how to achieve consistency across an internaWLRQDO IRRWSULQW ZKLOH VWLOO UHĂ HFWLQJ WKH ORFDO FXOWXUH DQG business practices of the countries in which they operate. This drive for standards, consistency and the resulting competitive advantage means that many businesses are looking at multi-national or global companies to help them with their security and related challenges. One of G4Sâ&#x20AC;&#x2122;s customers in Latin America is a global FMCG manufacturer, for which the company is providing security as well as transportation/logistics optimization services. â&#x20AC;&#x153;When it comes to transportation and logistics, applying consistent security measures across multiple sites invariably leads to better outcomes than taking
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LATIN AMERICA’S
Companies The Latin 500 shows the 500 largest companies in Latin America based on revenues. But which ones are performing best and not just in one specific year? The ranking of Latin America’s 100 Best Companies has the answers. Our sister publication, Latin Business Chronicle, analyzed 779 publicly-traded companies in the region using data from Economatica and then narrowed it down by looking at companies with more than $100 million in annual revenues. On the following five pages, Latin Trade takes a closer look at the top 10 companies as well as the three-year revenue and profit winners.
The ranking uses these six metrics to measure economic performance: Revenue growth in 2010
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Profit growth in 2010
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Profits as a percent of revenues in 2010
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Average revenue growth the past three years
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Average profit growth the past three years
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Average profits as a percent of revenues the past three years
ISTOCK
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BEST COMPANIES
#1 SHOUGANG HIERRO PERU A CHINESE COMPANY OUTPERFORMS ALL OTHERS IN LATIN AMERICA THANKS TO STRONG DEMAND FOR IRON ORE IN CHINA. BY LISA K. WING
LIMA – While the demand for iron ore — driven by the demand for steel and steel products — has clearly helped boost Shougang Hierro Peru’s profits and revenues over the past few years, the company’s continued investments to expand production also have contributed to its spectacular growth, according to industry leaders. The company, which is part of Chinese Shougang Group, one of China’s largest steel companies, placed first in Latin Business Chronicle’s second annual ranking of Latin America’s 100 Best Companies. Last year, revenues of Shougang — which specializes in the exploration, exploitation, processing and commercialization of iron ores — grew 123.9 percent to $700 million while profits jumped 456.1 percent to $292 million. “A rise in commodity prices has resulted in additional revenues, which mining companies have reinvested to expand their operations,” notes Pedro Martinez, president of Peru’s National Society of Mining, Petroleum and Energy (SNMPE). “For Shougang, this has led to increased production levels.” According to Peru's Ministry of Energy and Mines, iron ore production rose 40.71 percent in July — a figure attributed solely to Shougang, the country’s only iron ore operation. Mining execs note that the company also has been able to keep operational costs down — and profits up — by running a vertical operation, in which it oversees the production, processing and commercialization of its products.
Shougang’s location on Peru’s southern Pacific coast also is key to cutting costs, namely those related to transportation, as it not only owns its own port but also is near the end of a planned highway to Brazil, notes SNMPE’s Martinez. Although the mine already has a small electricity operation, the company recently announced plans to build a natural gas-fired power plant, which has been put on hold until it is able to secure a steady supply of gas for the plant, according to local news reports. “Reaching self-sufficiency in electricity is a common goal among mining operators,” says Fitch’s Djemal. “When you have energy self-sufficiency, you are not at the whim of rising fuel costs — or at the mercy of volatile energy prices — which helps keep a lid on costs. Moreover, if you generate excess electricity, you can sell the surplus to the grid.” The “insatiable demand” of iron ore from China is the top reason why producers of this metal have had record profits over the past few years, as mining industry insiders such as Jay Djemal of Fitch Ratings note. The Chinese are seeking to reduce their dependency on the so-called Big 3 Iron Ore miners, a fundamental factor that has contributed to the outstanding results of Shougang Hierro Peru, the country’s sole iron ore mine. “The overall combination of a robust demand for commodities from China and Peru's relatively friendly mining framework have had the greatest impact on the country’s mining sector,” notes Djemal, the analyst responsible
for metals and mining companies across the region on the Latin America corporate team at Fitch. “Peru is a low-cost producing country with abundant reserves. And Chinese steel mills, which are operating at full capacity, are continually looking for high-grade ore internationally to make their mills more profitable — and Peru’s iron ore is high-grade.” Despite Shougang’s stellar performance over the past few years, things haven’t been smooth sailing for the company, which has been battered by social conflicts and labor disputes for many years. Most recently, Shougang’s 1,000-plus workers went on strike in August, demanding higher wages and better working conditions. Indeed, social conflicts are the biggest hurdle for Shougang — and for other mining companies in Peru, for that matter. “We must work on strengthening dialogue among the state, companies and communities, and in general on changing the negative perspective people have towards mining,” says SNMPE’s Martinez. Shougang also faces other challenges. Three new mining laws passed by Peru’s new leftwing President Ollanta Humala create a windfall tax that aims to raise $1.1 billion a year over the next five years. The law requires companies to pay an additional tax on profits, money that is to be allocated for social programs in the communities where mines operate. editorial@latintrade.com
#2 DURATEX BRAZIL CONSTRUCTION BOOM BOOSTS DURATEX, RANKED AS BRAZIL’S BEST COMPANY AND LATIN AMERICA’S SECOND-BEST COMPANY. BY THIERRY OGIER
SAO PAULO — Duratex is a rather discreet company. In spite of its fast growth performance and a spectacular marketing campaign that recently scattered 60 fiberglass rhinoceroses in the streets of Brazilian cities to celebrate
50
the company’s 60th anniversary, its executives keep a low profile. Yet, Duratex emerged as No. 2 in Latin Business Chronicle’s annual ranking of Latin America’s 100 Best Companies — and, indeed,
LATIN TRADE NOVEMBER-DECEMBER 2011
the best Brazilian company. Brazil is the company’s home market for wood panels, china and metal fittings, with sales of $1.6 billion in 2010. Duratex ranked only 190th on the Latin 500 — Latin Trade’s
BEST COMPANIES annual list of Latin America’s biggest companies, ranked by revenues — but it placed in the top 10 in terms of revenue growth. “Only strong brands last more than 60 years,” trumped the multicolored rhinocerosbased marketing campaign. The rhino is the company’s logo for its various brands (including Durafloor, Deca and Hydra) and is designed to reflect strength. Duratex emerged from a small office in downtown São Paulo in the early 1950s and now has 14 plants in Brazil and one in Argentina. More recently, the company also has taken advantage of a very supportive environment in the domestic housing market. Henri Penchas, the CEO of Duratex, has acknowledged that the construction boom and social mobility (the fact that parts of the new middle class had a first access to home ownership) were extremely positive factors. The company also exports to more than 35 countries. Duratex has some powerful shareholders. Itausa, the holding company that controls the Itaú Unibanco financial group, is one, besides Companhia Ligna de Investimentos. Duratex, like Itaú Unibanco, has long invested in the Brazilian market potential, and it has managed to make the most of the recent high growth
period. “We are looking forward to the future, and we are confident that the economic expansion cycle is sustainable in the long run,” Flavio Donatelli, CFO of Duratex, tells Latin Trade. “The demand for housing and durable consumer goods has increased a lot in recent years, thanks to the rise of the C-class [new middle class], and there is a lot more to come.” Still, Donatelli has acknowledged some slowdown in the first half of the year “due to the government’s macro-prudential measures” to curb inflation. The acquisition of Satipel in 2009 allowed Duratex to boost its position in the so-called medium density fiberboard (MDF) segment beyond its traditional presence in medium density particleboard (MDP). Duratex, which owns its own forest and is supplied with certified timber, later decided to invest 1.2 billion
reais (about $700 million) within five years in two other MDF plants, where margins are higher. Those are due to be launched in 2012 and 2014, which should support Duratex’s medium-term growth. Meanwhile, Duratex also will “feature among the world’s top five in sanitary ware,” says Donatelli, thanks to an investment of 400 million reais in its Deca division, which makes the ceramic plumbing fixtures. The company’s metal-fittings division already is No. 1 in the Southern Hemisphere. editorial@latintrade.com
COURTESY OF DURATEX (TOP IMAGE) AND SANTOS BRASIL (BOTTOM I MAGE)
SANTOS BRASIL BRAZIL SANTOS BRASIL OUTPERFORMS LATIN AMERICAN COMPANIES IN REVENUE GROWTH. BY THIERRY OGIER
SANTOS — If you think some things will never change in Brazil, such as infrastructure, the experience of Santos Brasil is an invitation to think again. If you think there is little behind Brazil’s success besides commodities, again the leading Latin American container and car terminal tells another story. Beyond Santos, Brazil’s busiest port, where it enjoys a 51 percent market share in container trade, the company has expanded south (in Imbituba, in the state of Santa Catarina) and north (in the port of Vila do Conde, in the Amazonian state of Pará). Furthermore, Santos Brasil has diversified its business away from the port itself and now handles logistics and distribution for Mercedes-Benz and other large multina-
tional companies, such as Colgate-Palmolive and Kimberly-Clark. True, Santos Brasil has surfed on the waves of international trade in recent years. “We have been lucky that correct investment decisions were made, and we were lucky to be ready to take advantage of this period of economic growth,” says Mauro Salgado, commercial director of Santos Brasil. The company registered the strongest revenue growth in Latin America last year, according to the ranking of the region’s 100 Best Companies from Latin Business Chronicle, the digital sister publication of Latin Trade. Santos Brasil continued to register a spectacular performance during the first half of 2011, when its gross revenues increased
NOVEMBER-DECEMBER 2011 LATIN TRADE
51
BEST COMPANIES by 48 percent (including a doubling in carhandling activities), and its profits shot up by 236 percent to 83 million reais compared with the same period last year. Logistics, thanks to the acquisition of the formerly family-run Mesquita company in Santos and the investment in new distribution centers, now account for 20 percent of the company’s business. Strolling around the state-controlled Tecon in the port of Santos some 15 years ago was a bit like taking a walk on the wild side. From a business point of view, it was a depressing site. But now it is a bustling terminal where human presence is dwarfed by the imposing presence of 14 cranes (only two were operating when the company was privatized in 1997) and piles
of multicolored containers from various origins and destination. “Shareholders have already injected some 2 billion reais in the Tecon Santos,” Salgado says. This was after a consortium led by controversial investor Daniel Dantas won the concession to operate the terminal in 1997 in a landmark privatization during the government of Fernando Henrique Cardoso. In 2006, Santos Brasil completed its IPO on the São Paulo stock exchange. Productivity gains tell a large part of the story. In the once-sluggish port of Santos, where old cranes and strike-prone stevedores struggled to move 20 containers per hour in the late 1990s, Santos Brasil set a record at 80 per hour last August.
Santos Brasil is now on the look out for new deals. “[The rest of ] Brazil and South America are on our radar screen,” says Salgado, who mentions Argentina, Chile and Colombia as possible targets for the São Paulo-based company, which has expanded from its Santos birthplace in recent years. Meanwhile, the company is certainly concerned about the impact of the current crisis on international trade. “It is going to have an impact. Our greatest concern is related to China,” Salgado says. “But we believe that the impact will be mitigated by the strength of the [Brazilian] domestic market.” editorial@latintrade.com
ALTO PALERMO ARGENTINA THE ARGENTINA SHOPPING-CENTER DEVELOPER LEADS LATIN AMERICA IN PROFIT GROWTH.
BUENOS AIRES — Alto Palermo, the biggest shopping mall operator in Argentina, is expanding as a consumer boom boosts profits. The company, controlled by Argentine real estate developer IRSA, saw revenue soar 56 percent to 659 million pesos ($155 million) in the fiscal year ended June 30, 2011. Net profit more than doubled for the year, to 261 million pesos. A revved up economy helped. After a 2009 slump, GDP expanded by 9.1 percent in 2010 and 8 percent in 2011, the fastest
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LATIN TRADE NOVEMBER-DECEMBER 2011
rates in Latin America. The growth is generating new jobs and higher salaries, while government programs are reducing poverty. The unemployment rate fell to 7.4 percent in 2010, down from the 2001 crisis level of 24 percent. Poverty hit 54 percent in 2003 but at year-end 2010 stood at 8.3 percent. Inflation is high, at 25 percent annually, driving some spending as consumers accelerate purchases and buy more on credit to stretch out payments — and get goods cheaper, in terms of future prices. Low savings rates at banks also underpin the 30 percent rise in mall sales this year. Alto Palermo is courting shoppers by stepping up its marketing efforts, expanding centers and building new ones, put-
ting some in poorer neighborhoods where buying power is increasing. Alto Palermo currently operates a dozen centers, eight in the Buenos Aires area, home to a third of the country’s 40 million people, with others in the smaller cities of Cordoba, Mendoza, Rosario and Salta. “We plan to continue growing and expanding, even beyond our current portfolio,” says institutional relations manager Carolina Lascano. “This is a sector that still has great potential for development and a long road to travel.” Alto Palermo and its rivals aim to secure a bigger slice of the retail pie. Malls generate only 18 percent of retail sales in Argentina, versus 23 percent in Chile and 31 percent in Brazil. This year, Alto Palermo launched a humorous TV commercial that illustrates how malls have been incorporated into Argentine culture. In the spot, a young man in plain clothes watches shoppers stroll by in Alto Avellaneda, a mall on the southern outskirts of Buenos Aires. “Is everything a brand in our lives?” he asks. He concludes that it might be better if there were no
COURTESY OF ALTO PALERMO
BY CHARLES NEWBERY
BEST COMPANIES brands. “It’s something to think about,” he says before he turns and walks away, revealing an Adidas logo on the back of his jacket. Developers including Alto Palermo will collectively invest $700 million to expand the roster from 94 covered indoor malls as of 2011 to 120 by 2013, according to the Argentine Chamber of Shopping Centers. Construction is spreading across the country, from Rafaela in the western province of Mendoza to Ushuaia at the southern tip of Argentina. Alto Palermo is responding to the increasingly competitive environment with discounts, loyalty programs, marketing and promotions. It has staged an opera inside its properties with singers dressed as ordinary shoppers as well as a confessional where shoppers can admit to their addictions and show off their latest purchases on camera. The videos are uploaded automati-
cally to Facebook and YouTube. Tenants are as cheery about the future, with occupancy rates running at nearly 100 percent at its centers. Lascano attributes Alto Palermo’s success in part to location. Its centers are in residential neighborhoods that offer easy access by car, public transport or on foot. Cafes, movie theaters and restaurants keep traffic steady, she says. Not all is bright, however. Economic growth likely will decelerate to 4.6 percent in 2012 as a global slowdown reduces demand and prices for Argentina’s exports. The local economy may get more sluggish. In November, after the government stepped up capital controls and reduced public spending — moves that could dampen consumer confidence — economists downgraded their 2012 forecasts for
GDP growth to as low as 3 percent. Even so, popular brands like Billabong, Levi’s, Nike, Rip Curl and others have been demanding more space for their mall-based stores, prompting mall owners to scale back the size of food halls and entertainment venues to make room. Alto Palermo also plans to diversify by entering the fledgling outlet business, betting that brands will seek such opportunities to sell off excess stock, she added. Then there’s the rest of the country, where malls are far less common. “We believe that one of our challenges is to explore markets” in the interior of the country, in cities of more than 300,000 people, Lascano says. “We believe the retail sector will remain solid.” editorial@latintrade.com
OTHER STARS A BRIEF LOOK AT THE TOP 10 OF THE BEST COMPANIES RANKING. BY MARY SUTTER
#3 EcoRodovias, Brazil EcoRodovias is one of Brazil’s leading infrastructure and logistics companies, and its success reflects the booming national economy. It was founded in 1997 as the highway concession division of engineering and construction firm Grupo CR Almeida, which retains a majority interest. EcoRodovias today operates five major roadways, including the AnchietaImigrantes System that links the São Paulo metropolitan region with Santos, the country’s most important port. In addition to operating toll roads, the company has a minority stake in Serviços e Tecnologia de Pagamentos, which operates electronic toll and parking-lot fee collection systems nationwide. EcoRodovias also has a growing intermodal logistics division, which consists of specialized port terminals; customs, warehousing and terminal services; transportation services; and distribution centers. In 2010, EcoRodovias expanded its logistics business via the acquisitions of Columbia, a company with roots in the coffee and cotton sectors; and of EADI
Sul, whose coverage extends into the other member nations of Mercosur.
the year, and profits as a share of revenue averaged 22 percent from 2008 to 2010.
#4 Ferbasa, Brazil The global commodity boom is keeping mining companies busy, including 50-year-old Ferbasa. The company was founded in Brazil’s Bahia state in 1961, then with a focus on chrome ore. Today its operations also include reforestation and metallurgy. It is Brazil’s largest producer of ferrochrome alloys, which are used to produce special steels, such as corrosion-resistant varieties; high alloys, used by automobile manufacturers; and stainless steel, which is primarily used by the consumer-goods industries. Ferbasa’s reforestation activities are guided by both its business needs and sustainability efforts. It manages eucalyptus plantations on the northern coast of Bahia that are its primary source of charcoal used in its ferrosilicon factory, which Ferbasa says is the only such green factory in the world. Although revenue increased 56 percent in 2010, profits surged nearly 300 percent for
#5 Vale, Brazil The Brazilian mining giant dwarfs the other companies in the top 10 of the 100 Best Companies, in terms of revenue and profits. The second-largest mining company in the world, Vale also is the third-largest company, by revenue, in Latin America, according to Latin Trade’s Latin 500 ranking. Vale’s core product is iron ore, which has been in high demand for projects around the world, including China, and the sale of which generates approximately 60 percent of revenue. Vale also has extensive logistics operations, originally built to support its own mineral activities, but has invested heavily in its capacity, fostering economic and export growth in Brazil, the company says. Its rail lines and proprietary railroads carry agricultural products, wood and paper products, fuels and chemicals, steel productions and construction materials within Brazil and to Vale-owned port terminals for international export.
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BEST COMPANIES #6 Milpo, Peru Mining is one of Peru’s most robust industries, and Grupo Milpo has been enjoying high demand for its output. Via five operating units, the company is involved in the extraction of copper, gold, silver, lead and zinc in Peru as well as in neighboring Chile. To support future growth, Milpo says, it conducted extensive exploratory drilling in 2010, focusing its efforts on advanced prospects and projects. In the first quarter of 2011, the company again reported robust revenue growth, driven by higher mineral prices and by increased treatment capacity at its Cerro Lindo plant. Peru’s entire mining industry faces higher costs going forward after President Humala raised royalty rates on the sector. And like the rest of the sector, Milpo’s financial performance will be closely linked to the prices for the metals it extracts. #7 CAP, Chile CAP Group traces its history back six decades, having opened its first steel plant in 1950. Today the Chilean holding company operates three principal units: CAP Mineria, which produces iron ore and pellets in northern Chile via Compania Mineria del Pacifico and its subsidiaries; CAP Acero, which operates via Compañía Siderúrgica Huachipato and produces steel products; and CAP Soluciones en Acero, which supplies the construction, industrial and infrastructure sectors in Chile and abroad through Novacero and a number of subsidiaries, including companies in Peru and Argentina. The
massive earthquake that struck Chile in 2010 forced the group to suspend steel production for four months after a key facility was heavily damaged. At a group level, the company nonetheless reported higher revenue in 2010 and reported a record US$590 million in profits for the year, compared with a net loss for the year in 2009. #8 Cia. Hering, Brazil Cia. Hering has a long history in Brazil, founded in 1880 by a German immigrant who came from a weaving family. The company began as a small weaving mill in Blumenau, in the southern state of Santa Caterina, and was a successful textile business before expanding into finished garments and apparel sold under the brand names Hering, which makes both men’s and women’s fashions, and the children’s lines PUC and Hering Kids. In 1993, the company opened its first stores as franchises and now claims to have brand recognition among 90 percent of Brazilians. Cia. Hering’s growth strategy focuses on international retail expansion. Hering stores are currently in four markets outside Brazil: Bolivia, Paraguay, Uruguay and Venezuela. The company remains controlled by the family. #9 Modasa, Peru With mining and other key industries driving Peru’s economic growth, Motores Diesel Andinos is keeping those sectors moving. The company produces, assembles and sells commercial vehicles, genera-
tors, chain saws, spare parts and other industrial and automotive equipment and components. It licenses such brand names as Volvo and Perkins. The operation has become increasingly profitable, with net income averaging 119 percent growth from 2008 to 2010. But last year, Modasa saw revenue increase by 185 percent, to $192 million, compared with 2009, and profits surged 412 percent. #10 Compania Minera Autlan, Mexico This Mexican mining company, majorityowned by Grupo Ferrominera, specializes in the extraction and production of manganese ore (used in steel) and ferroalloys. The company says its Molango mine, in the northern state of Hidalgo, contains one of the world’s largest deposits of metallurgical-grade manganese, with several decades’ worth of reserves. The company reported huge increases in revenue and profits in 2010. However, it has subsequently noted that revenue and profits in 2011 are affected by lower prices for manganese ore and ferroalloys, coupled with higher prices for electricity. During the third quarter of 2011, Minera Autlan’s parent company inaugurated the Atexcaco hydroelectric facility, which it says will meet 25 percent of its power-supply needs. Ferrominera plans to invest more in hydroelectric as well as wind power to generate a higher percentage of its own power needs. Minera Autlan also is exploring a product diversification to include lightweight carbon materials for industrial applications.
Latin America's 100 Best Companies Revenues and profits in millions of U.S. dollars. RK
Company, Country
2010 R
Change
Avg. 3 Year
2010 P
Change
1 2 3 4 5 6 7 8 9 10
Shougang Hierro Peru Duratex, Brazil EcoRodovias, Brazil Ferbasa, Brazil Vale, Brazil Milpo, Peru CAP, Chile Cia. Hering, Brazil Modasa, Peru Cia. Minera Autlan, Mex
$700 $1,646 $857 $404 $49,949 $587 $1,992 $608 $192 $350
123.90% 99.30% 48.80% 56.00% 79.30% 46.20% 43.70% 46.90% 185.10% 107.90%
133.60% 121.50% 36.20% 24.60% 18.10% 25.20% 13.10% 46.80% 72.00% 41.20%
$292 $280 $354 $80 $18,047 $142 $590 $127 $21 $42
456.10% 398.20% 220.60% 292.20% 206.60% 208.40% 4072.80% 93.40% 412.30% 608.60%
Av. 3 Yr 244.30% 165.70% 93.80% 183.40% 50.60% 112.50% 1331.10% 151.30% 119.90% 175.30%
2010 P/R 41.70% 17.00% 41.30% 19.90% 36.10% 24.20% 29.60% 20.90% 11.00% 11.90%
Av. 3 Yr 29.80% 12.80% 25.40% 22.00% 29.10% 13.50% 14.50% 14.70% 8.50% 6.60%
Notes: R = Revenues. P = Profits. Change = annual change 2010 versus 2009. Av. 3 Yr = average change over the three years (2008, 2009 and 2010). P/R = Profits as percent of revenues Ranking includes publicly traded companies. Source: Latin America’s 100 Best Companies/Latin Business Chronicle.
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LATIN TRADE NOVEMBER-DECEMBER 2011
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SPECIAL REPORT
SHIPPING
WEATHERS GLOBAL SLOWDOWN
BUENOS AIRES – Despite the international economic crisis, shipping in Latin America is on the rise. “From a trade perspective, Latin America has outperformed most of world, and a lot of that is driven by China,” says Richard Wainio, CEO and port director of the Tampa Port Authority and a former planning director for the U.S. agency that ran the Panama Canal until 1999. “Latin America itself is a mixed bag. But Brazil, Peru and Colombia will continue to perform above the rest of the region.” Though Europe remains depressed, trade and shipping between the United States and Latin America — a region that already buys nearly a quarter of U.S. exports — is expected to increase after the U.S. Congress in October approved free trade agreements
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LATIN TRADE NOVEMBER-DECEMBER 2011
with Colombia and Panama. While shipping in Latin America fell in 2009 with the global economic slowdown, it recovered robustly in 2010 as the region quickly shook off the 2008-09 crisis. Its GDP grew 6.1 percent in 2010 even as the European and U.S. economies receded, according to International Monetary Fund data. Central America’s and South America’s exports shot up 25 percent to $581 billion in 2010 from $464 billion in 2009, while imports rose 32 percent to $578 billion from $439 billion over the same period, the latest World Trade Organization data shows. Latin America is expected to grow 4.5 percent this year and 4 percent in 2012, faster than most developed countries, as Europe grapples with a sovereign debt crisis and the
United States remains sluggish. “There is more confidence that Latin America is not as vulnerable anymore to global crises,” says Ferdinand Kurt, who runs Central American and South American operations for Kuehne + Nagel, a global logistics company based in Switzerland. For years a bastion of financial volatility and political instability, Latin America got its finances in order in the 2000s. Governments stepped up spending on social programs to cut poverty. This expanded the consumer base, encouraging a rise in farming and manufacturing capacity that coincided with a rise in global commodities prices. There are warning signs, though. Brazil’s economy is slowing as it strives to keep a lid on inflation by depreciating its
SPECIAL REPORT SPECIAL REPORT: SHIPPING
Port and infrastructure improvements and tighter logistics help to keep trade in Latin American growing.
COURTESY OF HAMBURG SÜD
BY CHARLES NEWBERY AND JOHN OTIS
currency. This is hitting its largest trade partner, Argentina. “Generally speaking, the region is not immune to the outside world,” says Kurt, who has run the region for four years out of Buenos Aires following three years in Canada and 10 in Mexico. Yet with more financial discipline, governments have reduced exposure to the vicissitudes of the global economy to keep their output and trade on the rise. Argentine soy oil and Chilean copper are shipping to China and India to meet demand from the growing middle classes there, and importers are selling more to Latin America to make up for slower business in developed countries. Asian trade to Brazil, the region’s biggest economy, likely will expand 10
percent this year and possibly the same in 2012, Kurt says. The economy in Brazil “is softening a bit, but it’s not going to be a major drop,” he says. Argentina, the third-biggest economy in Latin America, could see a slowdown in imports on rising trade restrictions, a depreciating currency and weakening financials. But Chile, Colombia, Peru and Central America are strong, and Mexico is diversifying trade away from the North American Free Trade Agreement, Kurt says. COLOMBIA Though Europe remains depressed, trade and shipping between the United States and Latin America — a region that already buys nearly a quarter of U.S. exports — is expected to increase after the U.S. Congress
in October approved free trade agreements with Colombia and Panama. “U.S. exports to Colombia [should] pick up significantly [with the] trade agreement,” Wainio says. “The last few years have been difficult, but wherever trade agreements have been signed, trade and shipping have increased significantly. Trade between the U.S. and Chile [which signed a trade agreement in 2003] has just boomed.” A U.S.-Colombia trade agreement also should mean more business for Hamburg Sud, which operates its largest hub in Cartagena. In fact, Hamburg Sud accounts for about 40 percent of all container traffic passing through the port. “Hamburg Sud has its biggest hub Hamburg Sud vessels in the port at Cartagena. NOVEMBER-DECEMBER 2011 LATIN TRADE
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SPECIAL REPORT: SHIPPING
Port of Cristobal, Panama
in the world in Cartagena,” says Poul Hestbaek, senior vice president for Hamburg Sud North America Inc.,“We have 11 services that interconnect on a weekly basis, so we can cover all major destinations via Cartagena.” For example, cargo leaving the U.S. west coast bound for Europe or goods heading from Australia to the U.S. east coast all pass through Cartagena. Cartagena last year moved 1.6 million TEUs (twenty-foot equivalent units, the industry standard to measure container traffic). That was an increase of 27.8 percent from 2009. Cartagena is Latin America’s fifth-largest container port, according to a ranking of the region’s top 50 ports from Latin Business Chronicle. The “Sud” in the German company’s name refers to South America, which has been its focus for the past 140 years. “It’s our biggest single market,” Hestbaek says. “We have a strong focus on the container trade to and from Latin America. For us, the entire Latin American region is very important. It is the core of our business.” Hestbaek says Hamburg Sud prefers to invest in ships and container equipment and has not invested in the physical port facilities in Cartagena. However, terminal operator SPRC in Cartagena is gearing
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up for new challenges and competition as work to widen the Panama Canal continues so the waterway can accommodate post-Panamax ships. To make room for these larger vessels, operators are installing bigger cranes and are dredging to secure deeper drafts. Cartagena competes with ports in Kingston, Jamaica; Cristobal, Panama; and Caucedo in the Dominican Republic. But even when the canal expansion project is completed, Hestbaek says, “I don’t see any shift in competitiveness between the above container hub ports.” VALE EXPANDS Brazil-based Vale SA, the world’s secondlargest mining company, is boosting its capacity for exports of iron ore to China. It told shipyards to “supersize me” when it ordered seven massive ore carriers, known as VLOCs, from Daewoo Shipbuilding & Marine Engineering Co. in South Korea. The largest dry bulk ships in the world, they measure 362 meters in length — that’s longer than three football fields, or the largest cruise ships docking in Fort Lauderdale — and each can carry 400,000 tons of cargo. Vale took delivery of its first VLOC this year and christened two more in September. Vale also ordered 12 of the mega-ships
from the Rongsheng Shipbuilding and Heavy Industries shipyard in China, for an investment of $1.6 billion. Like other companies, the mining giant placed its orders more than two years ago, when freight costs were sky-high. But as shipyards bustled, freight rates took a nosedive. Rates for capesizes, which carry about 170,000 tons of cargo, fell roughly 90 percent during the global financial crisis. Peter Sand, chief shipping analyst at the Baltic and International Maritime Council, known as BIMCO, likened the decline to “going from the Himalayas to the plains of the Netherlands” in a few short weeks. Sand notes that “the order book was already very swollen” when Vale added its own purchase of mega-ships. Sand calculates that Vale’s new vessels account for 1.3 percent of the world’s current fleet, although they travel one of shipping’s most important and profitable routes, linking the world’s biggest iron-ore producer to its biggest customer, China. Freight costs are especially important to Vale because its competitors, BHP Billiton Plc and Rio Tinto Group, export iron ore to China from Australia. Compared with the distance Vale’s cargo must travel, that’s just a hop and a skip. “The biggest problem confronting the
COURTESY OF PANAMA PORTS COMPANY
Ports in and outside of Latin America are gearing up for new challenges and competition as work to widen the Panama Canal continues so the waterway can accommodate post-Panamax ships.
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SPECIAL REPORT: SHIPPING
The growth is presenting challenges in a market with limited infrastructure, excessive red tape and a fragmented logistics industry. Ferdinand Kurt, Kuehne + Nagel
industry is too much capacity and not enough demand,” says Janet Lewis, a Hong Kong-based analyst at Macquarie Capital Securities Ltd. With freight rates so far below 2008 peaks, she noted that the launches of Vale’s new super-sized ships are behind schedule. It’s not clear if Vale is requesting
Argentina . . . . . . . . . . . . . . .0810-999-8500 Aruba . . . . . . . . . . . . . . . . . . .297-58-55300 Bahamas . . . . . . . . . . . . . . . .242-377-8300 Belize . . . . . . . . . . . . . . . . . . . .501-207-1271 Brazil . . . . . . . . . . . . . . . . . .0800-701-0099 Chile . . . . . . . . . . . . . . . . . . . .56-57-575627 Costa Rica . . . . . . . . . . . . . . .506-257-3434
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Curacao . . . . . . . . . . . . . . . .599-9461-3089 Dominican Rep. . . . . . . . . . .809-333-4000 El Salvador . . . . . . . . . . . . . .503-2339-7799 Grand Cayman . . . . . . . . .1-866-478-3421 Guatemala . . . . . . . . . . . . . .502-2277-9070 Honduras . . . . . . . . . . . . . . . .504-238-4726 Mexico . . . . . . . . . . . . . . . . .1800-021-2277
been easing off its economic accelerator as part of a plan to keep inflation in check and cool down real estate markets. CHALLENGES The growth is presenting challenges in a market with limited infrastructure, excessive red tape and a fragmented logistics industry, Kurt says. Importers are seeking to speed up deliveries at lower costs to Latin America with end-to-end logistics services that coordinate deliveries with marketing rollouts. They want goods pushed along the entire supply chain from carrier to terminal and over the last mile of overland bottlenecks to customers, not just port-to-port services, Kurt says. So do exporters. That’s not easy yet. Argentina might
Nicaragua . . . . . . . . . . . . . .505-2255-7981 Panama . . . . . . . . . . . . . . . . .507-204-9555 Puerto Rico . . . . . . . . . . . . . .787-253-2525 St. Lucia . . . . . . . . . . . . . . . . .758-451-6159 Turks & Caicos . . . . . . . . . . .649-946-4475 Uruguay . . . . . . . . . . . . . . . . . . .0800-8278
COURTESY OF KUEHNE + NAGEL S.A.
Ferdinand Kurt
delays or whether there are problems executing the orders on time. In June, Vale’s first VLOC failed to access Chinese ports on its maiden voyage and was diverted to Italy — a glitch the company attributed to commercial factors. Analysts note, though, that China’s largest shipping companies have been lobbying the government to protect market share for their own fleets. Vale told Reuters in September that it was open to leasing or selling its new giant carriers as they leave the shipyard. On the bright side for Vale, iron-ore prices have more than tripled in the past three years. Vale has said it’s not seeing any slowdown in demand for the steel ingredient in the global market. China, Brazil’s largest trading partner, has
L ATIN T R A DE
THE 18TH LATIN TRADE SYMPOSIUM &
BRAVO BUSINESS AWARDS
NOMINATIONS OPEN The deadline for nominations is March 15, 2012 The BRAVO Business Awards recognize achievement and excellence in the Americas. Nominate outstanding political leaders, CEOs, bankers and financial leaders, humanitarian leaders and environmentalists. Past award categories have included: • LIFETIME ACHIEVEMENT • LEADER OF THE YEAR • INNOVATIVE LEADER OF THE YEAR • FINANCIER OF THE YEAR • CEO OF THE YEAR • PIONEERING CEO OF THE YEAR • SOCIAL RESPONSIBILITY CEO OF THE YEAR • INTERNATIONAL CEO OF THE YEAR • TECHNOLOGY LEADER OF THE YEAR • EMERGING CEO OF THE YEAR • ENVIRONMENTAL LEADER OF THE YEAR • HUMANITARIAN OF THE YEAR • DISTINGUISHED SERVICE IN THE HEMISPHERE
www.bravo.latintrade.com
Port of Balboa, Panama
have farms near ports, but Brazil has to truck soybeans and other crops miles over poor roads, slowing exports and driving up costs. Colombia suffers higher container transport costs because of a lack of roads, and narrow bridges. “It is cheaper to ship a container from Asia to Cartagena than to move that container from Cartagena to Bogota because of the inefficient road system,” Hestbaek says. “In general for Colombia and most other Latin American countries, governments have a large task in front of them to improve the road infrastructure. There is a lack of infrastructure to deal with increased demand, and this leads to congestion in the ports.” Wainio says huge sums can be invested in fixing docks, deepening harbors and buying cranes. But port efficiency is just one link in a long chain. “That helps,” he says. “But don’t forget that good ports are just one link, and if you don’t have good road and rail connections, the system is still not going to be very efficient.” What’s more, upgrading ports and roads are costly, time-consuming tasks. “You need decades to sufficiently deal with infrastructure,” Hestbaek says. “It’s only now that you are seeing some of the Latin American governments getting windfall prices on commodities and having the financial capacity to start big infrastructure projects.” One of those countries is Brazil. In the 1990s, for example, Brazil was unable to compete with U.S. soybean exports because of the cost of getting agricul-
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tural commodities from inland regions to Santos and other Atlantic ports. “Ten or 15 years ago, Brazil could produce soybeans for half the price of U.S. farmers. But by the time they got soybeans to the port, Brazil was no longer competitive due to the extra cost,” Wainio says. “That has changed. Brazil has made huge strides. They are spending a small fortune to upgrade port and infrastructure. That’s one reason why Brazil has become a powerhouse.” Some ports have improved, though. “Chile is very efficient,” Kurt says. “You don’t need port management there because unloading already takes a day.” Dubai Ports World, Hong Kong-based Hutchison Whampoa and other companies have improved ports with investments, Kurt says. Peru’s ports have become more efficient, and Hamburg Sud is building a private port in Itapoa, Brazil, where the first portion opened this year. “The aim is to find a way to get around the bottlenecks” with port improvements, Kurt says. That’s not true for Venezuela, where ports are “a nightmare,” he says. Venezuela nationalized ports, slowing the processing of containers. To get goods through faster, logistics companies have set up private warehouses, he added. Kurt expects more port improvements and better infrastructure to come on rising demand to get containers to the final destination “as quickly as possible and with the least cost,” he says. “This comes by improving the supply chain.” Another trend is for importers to seek regional solutions in Latin America, helping
to ease the deployment so products reach shelves as planned in marketing strategies. Importers increasingly are pooling volumes for the entire region to get better pricing than by shipping to each market individually, he says. The same trend is taking hold for exports, with commodities driving the business — in particular to Asia. China is expected to grow 9.5 percent this year and 9 percent in 2011, according to the IMF. Exports to China as well as India are helping sustain economies in the region, yet could pose a challenge for some countries. There is concern that Brazil could sacrifice manufacturing growth by focusing on exporting commodities to China and importing back finished goods. Argentina is seeking to prevent this by putting up trade restrictions and offering tax incentives for companies to build factories in places such as Tierra del Fuego, at the southern tip of Patagonia. No matter, fiscal discipline and falling poverty likely will continue to help build the consumer market in Latin America, boosting demand and manufacturing to drive economic growth and trade. “Poverty is a threat or an opportunity,” Kurt says. “If these regimes find ways to invest more in educating people and creating opportunities, this could really drive the growth of the economy.” And that’s good news for the shipping sector. Newbery reported from Buenos Aires, Otis from Bogota. With additional reporting by Ruth Morris in Shanghai. editorial@latintrade.com
COURTESY OF PANAMA PORTS COMPANY
SPECIAL REPORT: SHIPPING
ON THE ROAD
LIMA
Firsthand tips for visiting Peru’s capital. Insights and advice from Andrea Bertone, president of Duke Energy International; Rodolfo A. Baquerizo, director of Paz Centenario Global; and Manuel Sanchez Alvarez, M-I Swaco-Schlumberger’s senior counsel global.
mornings in San Isidro during my morning run around the golf course, the service at the Country Club Hotel (and its good taste and decoration), the elegant Peruvian women, the good food, the spirit of the whole nation, and the Pacific coastline.
Latin Trade: What do you like most about traveling to Lima? Andrea Bertone: I like the people and the food. It’s a vibrant city with a mix of modern and historical components; great shopping, art, restaurants and historical sites to visit. Rodolfo Baquerizo: Peru is growing at a strong rate with legal certainty. This translates into some of the best business conditions in South America. On a personal note, Peru offers the most amazing tourist destinations, fantastic hotels, and probably the best cuisine in the region. Manuel Sanchez: The affinity with the culture, visiting my friends and their families, the colors of the buildings, the
LT: What do you like least? Bertone: The airport is not customer friendly and the traffic is scary. Baquerizo: I have visited Peru extensively over the last seven years, and it only gets better and better. If I could change anything, however, it would probably be traffic, which gets really bad during rush hour. It can take you more than half an hour to get from major hotels in San Isidro and Miraflores to San Isidro’s Business District. So make sure to plan ahead when driving to a meeting. On a business note, I wish there was more land suited for development with access to water. Lima is the second largest city in the world built on a desert, after Cairo!
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Sanchez: The farewells—every time I leave Peru it hurts a little bit. Sometimes traffic can be overwhelming, but nothing too crazy. LT: What are your preferred hotels when on business? Bertone: The JW Marriott is comfortable and has shopping within walking distance. I also like the Country Club for its historical charm. I’m looking forward to staying at the Westin, which I understand is fantastic. Baquerizo: For business, our executives prefer the Novotel in San Isidro. Sanchez: By far, the Country Club. However, the Miraflores Park is a good second option. LT: What restaurants do you recommend? Bertone: My favorite is Pescados Capitales for lunch. I also like Lima 27, Symposium and Central. Baquerizo: There are so many! My personal favorites are La Gloria, Rafael, La Mar and Central.
Sanchez: La Gloria and Astrid & Gastón. LT: What practical advice would you give to someone who is visiting Lima for the first time on business? Bertone: Allow plenty of time to get from the airport to the hotel or your meeting. Get a local driver that understands the dynamics of the traffic. Don’t forget that the locals take the time to have lunch and enjoy the experience. Baquerizo: Beware or you will fall in love with Peru! You will definitely want to return soon: the food is fantastic and the people are kind and helpful. Never turn down a business meeting in Peru — and don’t forget to present your stamped passport at your hotel to receive the exemption from VAT, which is close to 20 percent. Sanchez: Lima is a formal city. The business community appreciates when you dress well and arrive on time to any scheduled appointment. Breakfasts can be a good opportunity to discuss business. Lunch and dinners tend to be more relaxed and reserved for a casual exchange of ideas of the different cultures of the countries of guests around the table. Peruvian women are competitive and professional; however, they appreciate good manners from a gentleman. Take care of the check if possible, but if the host or hostess insists on paying, be gracious and do not argue about it and simply offer to get the next one. Peruvians will appreciate if you learn a little bit about their music and culture and make a genuine effort to ask questions and details about their country. And never, ever say or imply that Pisco is not from Peru. Pisco is Peruvian and will always be from Peru. —Lisa K. Wing editorial@latintrade.com
CARLOS IBARRA / PROMPERÚ
Lima’s Centro Comercial Larcomar is built into the cliffs, with spectacular views of the Pacific Ocean.
ASK THE CONCIERGE The Westin Lima Hotel & Convention Center was inaugurated in May, the first Westin property to open in South America. The 29-story tower has 301 guest rooms and the largest meeting and convention facilities in all of Peru. Concierge Angela Ayala offers her tips for making the most out of a trip to the capital city. What restaurant would you recommend for a professional lunch or dinner? Central Restaurante serves innovative fusion cuisine. The Cebicheria El Mercado is a top choice for seafood. Panchita, part of chef Gastón Acurio’s culinary empire, specializes in criollo dishes. Rafael is housed in colonial mansion. La Gloria is a classic for formal dining. I have 24 hours in Lima. What itinerary would you recommend? Begin with breakfast at the hotel. Spend the morning sightseeing in
Lima’s historic downtown, visiting the Cathedral, the Presidential Palace and the convent of Santo Domingo. After lunch, stroll around the Barranco district, with its leafy streets and plazas and refurbished colonial and 19th century homes. Be sure to experience the grandeur of ancient culture at La Huaca Pucllana, the pyramid located in modern-day Miraflores. In the evening, take in the traditional dance show at La Dama Juana restaurant (CTE Larco Mar local 301, Miraflores; tel. 51-1-447-3686).
Can you suggest one or two places to shop? The Centro Comercial Larcomar, built into cliffs overlooking the Pacific Ocean, combines stores, restaurants, a movie theater and other entertainment options with spectacular views. The Mercado Indio, on Avenida Petit Thours, features about 100 stands with traditional handicrafts, jewelry, textiles and more.
Miraflores Park Hotel by Orient-Express Av. Malecón de la Reserva 1035, Tel.: (51-1) 610-4000 miraflorespark.com
Novotel Lima Victor Andrés Belaunde 198 Tel.: (51-1) 315-9999 novetel.com
What are the must-buys? A bottle of Pisco; a scarf made from alpaca fleece; and a book on Peruvian gastronomy.
What safety measures do you recommend? Always use taxis operated by a registered company. Change money at the hotel. Do not walk alone in deserted areas. I have many meetings in the city. What is the best way to get around? Hire a hotel driver to take you. What is the appropriate amount to tip a taxi or other driver and in restaurants? Normally, about 10 percent of the check.
LT GUIDE: LIMA WHERE TO STAY CENTRO Sheraton Lima Hotel & Convention Center Paseo de la Republica 170 Tel: (511) 315-5000 starwoodhotels.com
MIRAFLORES Casa Andina Private Collection – Miraflores Avenida La Paz 463 Tel. (51-1) 213-9739 casa-andina.com Crowne Plaza Hotel Lima Av. Benavides 300 Tel: (51-1) 610-0700 crowneplaza.com Doubletree El Pardo Independencia 141 Tel.: (51-1) 617-1000 doubletree1.hilton.com JW Marriott Hotel Lima Malecon de la Reserva 615 Tel: (51-1) 217-7000 marriott.com
Radisson Hotel Decapolis Miraflores Avenida 28 De Julio 151 Tel: (511) 625-1200 radisson.com
SAN ISIDRO Country Club Lima Hotel Los Eucaliptos 590 Tel: (51-1) 611-9000 hotelcountry.com DUO Hotel Boutique Valle Riestra 576 Tel: (51-1) 628-3245 duohotelperu.com Hotel Atton San Isidro Av. Jorge Basadre 595 Tel: (51-1) 208-1200 atton.com Meliá Lima Av. Salaverry, 2599 Tel.: (51-1) 411-9000 solmelia.com
Radisson Hotel San Isidro Av. Las Palmeras 240 Tel: (51-1) 422-3887 radisson.com Sonesta Hotel El Olivar Pancho Fierro 194 Tel: (51-1) 712-6000 sonesta.com/lima Swissôtel Via Central 150 Tel: (51-1) 421-4400 swissotel.com/lima Westin Lima Hotel and Convention Center Calle Las Begonias 450 Tel: (51-1) 201-5000 starwood.com/
WHERE TO DINE
Central Restaurante Calle Santa Isabel 376 Tel. (51-1) 242-8515 Cebicheria El Mercado Hipolito Unanue 203 Tel. (51-1) 221-1322 La Gloria Atahualpa 201 Tel. (51-1) 446-6504 Panchita Av. Dos de Mayo 298 Tel. (51-1) 242-59577 Pescados Capitales Avenida La Mar 1337 Tel. (51-1) 421-8808 Rafael San Martin 300 Tel. (51-1) 242-4149
SAN ISIDRO Lima 27 Calle Santa Luisa 29 Tel. (51-1) 422-8915
MIRAFLORES Astrid & Gastón Calle Cantuarias 175 Tel. (51-1) 242-5387
Symposium Santa Luisa 122 Tel. (51-1) 221-3397
NOVEMBER-DECEMBER 2011 LATIN TRADE
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TECH TRENDS Latin America’s Technology Leaders
ISTOCK
How Panama replaced Uruguay as Latin America’s technology king.
PANAMA CITY — Latin America is one of the fastestgrowing technology markets in the world. But how do the countries in the region compare with each other in wireless telephony and PC and Internet penetration? The Latin Technology Index from Latin Business Chronicle, the digital sister publication of Latin Trade magazine, provides a unique comparison of the technology level of 19 Latin American countries by looking at the penetration rates of 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. On this year’s index, Panama replaced Uruguay as Latin America’s technology leader, while Chile replaced Uruguay as the Internet penetration leader in Latin America, but Uruguay
replaced Chile as the region’s broadband leader. AMBITIOUS PANAMA Panama seeks to remain Latin America’s technology leader by expanding Internet use and drawing in companies to transform the capital into a logistics hub. Internet penetration in Panama was up 43 percent last year and personal computer sales jumped 21 percent, the data show. Eduardo Jaen, who heads Panama’s National Authority for Government Innovation, attributes the rise to government support for Internet access and success at luring new businesses into the modern capital. More than 60 corporations, including tech giants Dell and 3M, shifted regional headquarters to Panama since a tax exemption law was passed in 2007. “There’s a broad array of companies that have decided to position themselves here and use Panama as a hub,” Jaen says. “We intend to be ahead of Uruguay for years to come.” Panama President Ricardo Martinelli has made “closing the
digital gap” a key priority of his administration. Having established hundreds of free Internet hot spots throughout the country, the government will start offering discount loans to help workers buy computers. About 21 percent of Panamanians currently have at least one computer at home, according to 2010 census data. Martinelli’s administration began offering free computers and Internet access in schools, which helped move Panama up one notch on a separate technology index compiled by the World Economic Forum. Even so, much of the Internet growth is driven by multinational corporations and small start-ups that move to Panama because of lower tax rates and cheaper operating costs. Panama eased requirements for starting a business in 2007. About 35,000 individuals and legal entities have since registered as Panamanian companies online, according to government figures. Among those are a growing number of young American web developers and movie production crews that are demanding faster Internet. Roman Kogan, who runs Internet service provider PaNetma, says his business has grown 150 percent from last year.
COMPETITIVE RATES Panama’s Internet rates are competitive with other Latin American countries, and many people find they can save money while running a successful business out of the endless high-rise buildings that pop up in Panama City. “The Internet here is quite reliable and fast enough,” says Jesse Schoberg, who moved his web development company, LJ Host, from Madison, Wisconsin, to Panama in 2009. Rent, food and basic living expenses all are less than in his home state. Meanwhile, wireless networks connected by BlackBerries and iPhones allow Schoberg to keep working on remote beaches and in the mountains. “You have the perfect storm for Internet entrepreneurs who want a high quality of life,” Schoberg says. Internet penetration and computer sales are expected to climb as Panama’s economic growth outpaces the region. Backed by an expansion of the Panama Canal, finance officials predict at least 9 percent growth this year. “We are advancing,” Jaen says of Panama’s technology agency. “The government is committed to growth.” —Eric Sabo, Latin Business Chronicle
LATIN AMERICA’S TECHNOLOGY LEADERS Category Overall Wireless telephony Fixed telephony PC Internet Broadband
Leader
Score
Panama Panama Costa Rica Chile Chile Uruguay
27.17 18.47 3.18 3.22 5.2 1.14
Source: Latin Technology Index from Latin Business Chronicle
NOVEMBER-DECEMBER 2011 LATIN TRADE
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BRAVO 17 THE LATIN TRADE SYMPOSIUM & 17TH ANNUAL
BRAVO BUSINESS AWARDS
PHOTOGRAPHS BY ALEX GORT PRODUCTIONS
OCTOBER 28, 2011
Flashing cameras, tributes and applause greeted the 2011 honorees of the 17th BRAVO Business Awards at the annual gala. Some 400 leaders from business, financial, government and non-profit sectors feted the award winners, from corporate leaders to Dominican President Leonel Fernández, who was honored with a Lifetime Achievement Award. The October 28 black-tie ceremony was held at the Four Seasons Hotel in Miami. The celebration included a special video message from former Colombian President Álvaro Uribe — recipient of the 2010 Lifetime Achievement Award — for the 2011 honoree, President Fernández. The gala capped a day of activities that began with the Latin Trade Symposium, an annual conference on business, economics and politics in Latin America. The Latin Trade Symposium is organized in partnership with the Inter-
American Development Bank and the Americas Society/Council of the Americas. The 2011 BRAVO honorees included (pictured above, from left to right): Martín Migoya, CEO, Globant (Emerging CEO of the Year); Luis Carlos Sarmiento Gutiérrez, CEO, Grupo Aval (Dynamic CEO of the Year); Marcelo Odebrecht, CEO, Odebrecht S.A. (CEO of the Year); Jane Bussey, Editorial Director, Latin Trade Group; President Leonel Fernández of the Dominican Republic (Lifetime Achievement Award); Luanne Zurlo, President, Worldfund (Humanitarian of the Year); Richard Burns, Chairman, Latin Trade Group; Laurence Golborne, Minister of Public Works, Chile (Leader of the Year); Alberto Alemán Zubieta, CEO, Panama Canal Authority (Distinguished Service in the Hemisphere).
Not present: Banco de Mexico Governor Agustín Carstens, who accepted the Financier of the Year award via video, and Alex Behring, managing partner of 3G Capital and chairman of Burger King, who had been named Investor of the Year. Special thanks to the following organizations for their support of the 2011 BRAVO Business Awards: presenting sponsor InterContinental Hotels Group; gold sponsors Chevron, Copa Airlines, HSBC, Right Space Management and Zenith; silver sponsors AES, Bupa (British United Provident Association), FTI Consulting Inc. and SAP; partner Ashoka; media partners CNN en Español, The Financial Times and PR Newswire; and communications partner República. Nominations for the 2012 BRAVO Business Awards will open at www.ltbravo.com in December 2011.
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Welcome reception for the 2011 BRAVO honorees and the Latin Trade Symposium 1. Latin Trade Group Chairman Richard Burns with current and past BRAVO award recipients: Federico Restrepo, CEO, Empresas Públicas de Medellín; Martin Migoya, CEO, Globant; Luanne Zurlo, president, Worldfund; Michel Chancy, Haitian Secretary of Animal Production; Susan L. Segal, CEO, Americas Society/Council of the Americas; Marcelo Odebrecht, CEO, Odebrecht. 2. Clay Sawyer, director of marketing, InterContinental Hotels Group, Maria Lourdes Gallo, executive director, Latin Trade Group; Patricia Roquebert, marketing manager, Copa Airlines; Ricardo López, vice president of sales, Latin America, InterContinental Hotels Group. 3. Luis Ortiz, director of development, Un Techo para mi País; Victoria Florez-Toro, senior associate, Office of Outreach and Partnerships, Inter-American Development Bank; Rosemary Winters, executive director, Latin Trade Group; Emma Carrasco, executive vice president, República; Ignacio González, U.S. CEO, Un Techo para mi País 4. Emerging Leaders panel: Juan Pablo del Valle, chairman, Mexichem; Martín Migoya, CEO, Globant; Juan Pablo Bonilla, chief of staff to EVP, Inter-American Development Bank; Jane Bussey, editorial director, Latin Trade Group (moderator); Marcelo Odebrecht, CEO, Odebrecht; José Tomas, president, Latin America and Caribbean, Burger King. 5. CEO Roundtable with host Eduardo Solórzano, CEO, Walmart Latin America; Carmen González-Sanfeliu, vice president, Intelsat. 6. Ferdinand Kurt, president, South and Central America, Kuehne + Nagel. 7. Divaldo Suzuki, vice president of business operations, SAP, Latin America. 8. Calixto Mateos, director of institutional linkages, Banco de México; Scarlett Álvarez, vice president of stakeholder global utility, AES Corp.
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Latin Trade Symposium and BRAVO Business Awards 1. Alvaro Diago, COO, Latin America and the Caribbean, InterContinental Hotels Group, welcomes attendees during the opening session of the symposium. 2. Keynote speaker Lord Mark Malloch-Brown, chairman, Global Affairs, FTI Consulting. 3. Dominican President Leonel Fernández gives a speech on controlling global speculation of commodity prices. 4. The Latin Trade Symposium. 5. Zenith executives Hugo Escude, brand manager, Latin America and Caribbean; Jean-Frédéric Dufour, CEO; Nathalie Kusmierek, sales and marketing coordinator. 6. César Bueno, trade commissioner, ProMéxico; Louise Léger, Canadian Consul General. 7. G. Jayakrishnan, group director, The Americas, International Operations Group, IE Singapore; Cristian Balbontin, managing director, Highland Adventures; Damian Chan, international director, Singapore Economic Development Board. 8. Carolina Rendeiro, CEO, Right Space Management. 9. Christophe Maincourt, president, Cartier Latin America; Joseph G. Audi, chairman, Interaudi Bank.
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1. Regional Dynamics panelists: Ronald Denom, president, SNC-Lavalin International; Ricardo Marino, CEO, Latin America, Itaú-Unibanco; Federico Restrepo, CEO, Empresas Públicas de Medellín; Susan L. Segal, CEO, Americas Society/ Council of the Americas (moderator); José Antonio Ríos, chairman, Global Crossing Latin America; Alberto Alemán Zubieta, CEO, Panama Canal Authority. 2. Energy and Infrastructure panelists: Germán Efromovich, chairman, Synergy Group; Marcelo Odebrecht, CEO, Odebrecht; Joachim Bamrud, executive editor, Latin Trade Group; Alberto Alemán Zubieta; Ronald Denom. 3. Luncheon panelists: moderator David Rothkopf, CEO, Garten Rothkopf; Laurence Golborne, Minister of Public Works, Chile; Calixto Mateos, Director of Institutional Linkages, Banco de México; Gen. Douglas Fraser, Commander, U.S. Southern Command. 4. Marta Clark, area vice president, Latin American sales, Adobe Systems; Joseph Leitao, president, LVD Consulting. 5. Kevin Wolahan, Transition Manager Caribbean, Chevron. 6. Eduardo Balarezo, CEO, Lonesome George & Co., at the panel on education and entrepreneurship. 7. Andrés Otero, managing partner, Kroll. 8. Bank of America Merrill Lynch executives Juan Pablo Cuevas, managing director, Latin American head; Blanca Gonzalez (right), manager, debt products; and Thomas Avazian, managing director, global business; with Mercedes Fernández, business development manager, Latin Trade Group. 9. Ricardo Fragale, VP, regional director, Starcom Worldwide; Andrea Fragale; David Bishko, managing director, Latin America and Caribbean, Delta Air Lines. 10. Michel Chancy, Haitian Secretary for Animal Production; Santiago Fittipaldi, director, Burson-Marsteller Miami.
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BRAVO Business Awards Gala 1. President Leonel Fernández of the Dominican Republic accepts the 2011 BRAVO Lifetime Achievement Award. 2. President Fernández congratulates BRAVO winner Martín Migoya, CEO, Globant, as fellow honoree Alberto Alemán Zubieta, CEO, Panama Canal Authority, looks on. 3. Marcos Gastaldi, president, Lynx Bursátil; Alejandra Collarte, corporate affairs director, University of Miami; Marcela Tinayre de Gastaldi. 4. Álvaro Guerrero, managing director, Alca Trading Group; Adriana Guerrero; Poul Hestbaek, senior vice president, Hamburg Süd; Tine Hestbaek. 5. Teresa and Carlos Guimarães, president, Latin American Investment Group. 6. Eduardo Carneiro, finance manager, Latin America and Caribbean, Burger King; Armando Jacomino, senior vice president, Latin America, Burger King; Marta Jacomino; Lisa Tomas; José Tomas, president, Latin America and Caribbean, Burger King. 7. Fabio Valenzuela, business manager, Dufry Dominicana; Kirsys Fernández de Valenzuela. 8. BRAVO winner Laurence Golborne, Chile’s Minister of Public Works (second from right), with Copa Airlines executives Fernando Fondevila, regional manager North America; Patricia Roquebert, marketing manager; Pamela Cordova, Southeast U.S. sales manager. 9. Luis Carlos Sarmiento Jr.; BRAVO winner Luis Carlos Sarmiento, CEO, Grupo Aval; Vivi Sarmiento; Tomás Sarmiento.
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1. Gerardo Mato, CEO, Global Banking for the Americas, HSBC; BRAVO winner Marcelo Odebrecht, CEO, Odebrecht. 2. David Rothkopf, CEO, Garten Rothkopf; Adrean Rothkopf; Lord Mark Malloch-Brown, chairman, global affairs, FTI Consulting. 3. Marcelo Macagno, owner, InterContinental Nordelta Buenos Aires; Julieta Macagno; María Dolores Rojo; Cristián Rojo, principal, Innvest Developments, Buenos Aires. 4. Bernardo Guillamon, manager, Office of Outreach and Partnerships, Inter-American Development Bank; Rosemary Winters, executive director, Latin Trade Group. 5. Juan Miguel Gutiérrez Tinoco, Mexican Consul General; Grazyna Gutiérrez Tinoco; José Valdivia, partner, Hogan Lovells; Jenny Valdivia. 6. Nabil Achkar, first senior vice president, Interaudi Bank; Yvonne Achkar; Jorge Salcedo, president, Salcedo & Associates; Beatriz Salcedo. 7. Pam Steigerwald; Rob Steigerwald, COO, Americas Southern Region, Marriott International; Lilian Ferland; Mark Ferland, area vice president, Southeast U.S. and Caribbean Region, The Ritz-Carlton Hotel Company; Christina Contos; Steve Contos, area vice president, Americas Southern Region, Marriott International . 8. Esteban Levin, head of Advisory, Mexico, HSBC Mexico. 9. Juan Luis Nilo, Chilean Consul General. 10. Juan Pablo del Valle, chairman, Mexichem; Barbara Fernández. 11. Maria Victoria Bambach; Fernando Concha, CEO, Andean, Central America & Caribbean Region, Citigroup.
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BRAVO Business Awards Gala 1. Ronald Denom, president, SNC-Lavalin International; Parveen Khan; Germán Efromovich, chairman, Synergy Group; Hilda Efromovich; Frank Holder, chairman, Latin American region, FTI Consulting; Susan Hahn. 2. Felipe Vergara, CEO, Lumni; Lorena García Durán, Miami hub director, Ashoka; Candido Viyella, executive director, Morgan Stanley. 3. Eduardo Eraña, president, Visa International; Rosario Eraña; Roberto Eraña; Ana Eraña. 4. Herman Bern, chairman, Empresas Bern; Alvaro Diago, COO, Latin America and the Caribbean, InterContinental Hotels Group. 5. G4S executives Eric Ospina, vice president, operations, South America East; Fiona Walters, chief communications officer; Helio Ferraz, country manager, Brazil. 6. Alfonso Fierro, head of global banking and markets, HSBC Mexico; BRAVO winner Luanne Zurlo, president, Worldfund; Jorge Rubio, director microfinance, Citi. 7. Manuel Almanzar, Dominican Consul General; Isabel Reynosa. 8. Luciano Garrido, VP sales, Bupa Latin America; Sandra Asin, customer service director, Bupa Latin America; Diego Dos Santos, president, Suprainvest; Beatriz Guerrero, head of communications, Bupa Latin America; Pedro Rojas, president, Consultores 3G; Ricardo González, senior vice president of planning, Bupa Latin America, Roberto Schaechter, director, United Financial Consultants 9. BRAVO winner Dominican President Leonel Fernández; Jorge Plasencia, CEO, República.
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ALEX GORT PRODUCTIONS
LT CFO EVENTS MIAMI
Despite in-region challenges, business in Latin America remains robust, according to participants in the August 26 LT CFO Event in Miami. And at the mid-year point, the regional economic outlook is positive, according to Kathryn Rooney Vera, senior macroeconomic strategist and partner at Bulltick Capital Markets. Rooney Vera’s regional forecast is predicated on sluggish economic growth, of about 1.6 percent this year, in the United States. She is not forecasting a recession but cautioned that she sees the U.S. economy moving slowly between 2011 and 2012, at a rate of 1.5 to 2.4 percent. In constrast, most of Latin America is doing well and Bulltick’s forecast calls for nearly 5 percent regional growth this year. Rooney Vera anticipates a slowdown of the growth rate in Brazil in 2012 and some leveling off of the appreciation of the real in 2012-2013. She forecasts a 6.7 percent increase in GDP in Chile this year, given that “domestic demand is rocketing,” she said. Rooney Vera added that she believes Argentina will grow on par with Chile. “Inflation continues to be the main problem in the entire region but especially in Argentina,” she added. She anticipates that the Argentine peso will weaken before year-end 2011. “It’s the only country where we see currency depreciation,” she said. FDI is flowing into the other countries, supporting appreciation. Mexico reported disappointing results in the first two quarters of 2011, acknowledged Rooney Vera, who predicts a second-half rebound, supported by low unemployment and sustained consumer demand, that will result in 4 percent GDP growth for the year. Latin Trade Group Executive Editor Joachim Bamrud discussed regional trade
activity. “Despite the sluggish U.S. economy, Latin American exports grew by 22 percent in the first half of the year,” he said. “It had a lot do with certain commodities, and certain countries doing better than others, but overall it’s pretty impressive.” Integrated treasury management that leverages new technologies can generate back-office savings and better cash flow management, said executives from Visa. One CFO said 21 people of his staff of 148 are focused on treasury or cash management, and handling invoices. “I do agree that it is a lot of people doing low-value added work and if you look at from an SG&A perspective, it is very costly,” he said. Card acceptance is a consideration, said Emilio Fortou, head of the LAC Multinational Program at Visa. “As we move away from urban centers, acceptance becomes an issue and in that case using a card becomes more inefficient because [companies] have to revert to a lot of the manual processes.” The threshold for using cards versus other forms of payment will vary by company, said Diego Rodriguez, head of LAC commercial products for Visa. “Higher frequency and smaller value transactions are where you can find the efficiencies,” he said. Alejandro Ubeira, vice president of corporate accounting and reporting for DHL Americas, set the stage for a spirited discussion of shared regulatory burdens, which emphasized taxes. “The burden in our region is high, even in the U.S.,” Ubeira said. A number of CFOs estimated that they devote as much as half their time to regulatory and tax issues. The attendees agreed that Brazil is especially complex. One executive noted that her company integrates tax expertise when assessing any plan. “We have seen a lot of business initia-
tives go down the drain when you see that it just doesn’t flow on a tax basis,” she said. Brazil also dominated the panel devoted to key markets and best practices. Approximately 5 million Brazilians are moving from the so-called Class C to Class B, said Rogerio Menezes of AkzoNobel. “If we have that three years in a row, that is the market size of Chile,” presenting enormous opportunities, he said. Menezes cited challenges such as education, expensive financing, onerous tax and labor laws and a slow-moving legal bureaucracy. “Because the Brazilian legal system is so old fashioned, you get a tax statement 15 years late. By then, your tax lawyer has died,” he described, not entirely in jest. Paulo Giacomini, executive director, treasury services advisory Latin America, J.P. Morgan, made the point that globalization has been the driver behind benchmarking and best practices — but that best practices are not rigid rules. “Best practices are good to see but they are going to be different country by country and company by company,” he said. Since 2008, Giacomini has seen a trend emerge of companies separating their cash, from strategic cash that will produce better returns to more stable funds that will be used for acquisitions. “In a country like Brazil, when you have a daily liquidity paying a 6 percent real return, you don’t really need this,” he noted. Larger companies in Brazil, Mexico, Chile and, to a lesser extent, Argentina, have been investing and making acquisitions in other parts of the world, Giacomini said. “In the United States and Europe, assets are getting cheaper,” he said. “We are colonizing the people who colonized us.” —Mary Sutter
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1. Emilio Fortou, Head of the LAC Multinational Program, Visa. 2. Paulo Giacomini, Executive Director — Treasury Services Advisory LATAM, J.P. Morgan. 3. Kathryn Rooney Vera, Senior Macroeconomic Strategist and Partner, Bulltick Capital Markets; Joachim Bamrud, Executive Editor, Latin Trade Group. 4. David Schoenberger, Vice
6. LT CFO roundtable at the Four Seasons Hotel Miami. 7. Alejandro Ubeira, VP Corporate Accounting and Reporting — Region Americas, DHL. 8. Philippe Schrader, VP, CFO & Strategy, Latin America, Walmart Latinoamerica. 9. Adriana Nuñez, LA VP Finance, Kraft Foods Latin America; Paul Staines, CFO Latin America and the Caribbean, Bupa. 10. Mark Ludwig, Contributing Editor, LT CFO Events, Latin Trade Group. 11. Eduardo Carneiro, Finance Manager Latin America and Caribbean, Burger King; Carlos Cubias, VP Finance & Accounting, Latin America Strategy, UPS.
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ALEX GORT PRODUCTIONS
President of Finance & Accounting, Ingram Micro; Cheryl McDowell, Vice President of Finance & Operation Americas, Oracle. 5. Rogerio Menezes, Finance Director, AkzoNobel Pulp and Paper Chemicals Brazil.
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patterns and help negotiate better group rates. Visa’s advanced spend management tool also provides an opportunity for Latin American banks to address the needs of a wide spectrum of companies. It provides an opportunity to capture incremental revenue, increase market differentiation and enhance customer loyalty. As a cloud-based solution, Visa IntelliLink can be implemented quickly and is easy for card issuers to deliver and support. It is also simple for client organizations to learn and use. In Latin America and around the world, Visa IntelliLink addresses the most important spend management criteria of companies: • Access to timely information • Speed and ease of use with an intuitive user interface and self-paced learning tools • Local to global scope, with support for up to 15 languages and 14 different currencies • Fully customizable • Local tax support including VAT and GST • Tailored to company travel and entertainment policies— compliance triggers, multi-tiered approval workflow, receipt imaging, and more. • Direct integration of transaction data to ERP systems, • Support of customized formats as well as to third-party applications. With Visa IntelliLink, Latin American banks are offering their commercial customers an added-value fully integrated spend management solution. Visa Commercial solutions are not just cards – They are cost-saving, productivity-enhancing global management tools.
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MADE IN Nicaragua
B
est known for its revolutionary politics, Nicaragua is finally gaining attention for its Flor de Caña rum. The liquor is still aged in oak barrels along sugar fields in the northern town of Chichigalpa, where the Pellas family started its first distillery in 1890. The rum survived the uprising against dictator Anastasio Somoza and an almost decade-long civil war that pitted the Sandinista government against U.S.backed contra rebels. Now, Flor de Caña is part of a broad social-media campaign, called Nicaragua Loves You, with more than 24,000 followers on Facebook. The Central American country also made Flor de Caña its main ingredient for a new national cocktail, the Macua, which blends rum with guava juice. The hope is that Nicaragua will be known for its own style of drink, much like Cuba is for mojitos, or Brazil for its caipirinhas. Most Nicaraguans still prefer to mix Flor de Caña with just regular soda, and attempts to turn the Macua into a tourist icon have a way to go. But the rum is making headway outside the country’s borders. Flor de Caña’s popularity surged once the company opened an office in Miami to handle international sales, and Nicaragua’s sole homegrown rum is currently found in 40
countries. Tourism in Nicaragua continues to grow, a key force for driving Flor de Caña interest once visitors return home. The United States, which once barred Flor de Caña imports to starve the Sandinista government of revenue, is now a prized market. American consumers down four times as much rum as natural connoisseurs of Cuba, according to just-drinks.com, a Londonbased research firm. And the liquor is riding a “cocktail wave” that has made the mojito among the leading premium drinks ordered at bars, which can use a range of rums, the group said. Although Bacardi and others still dominate the mix, Flor de Caña launched an aggressive online campaign last year to spread the word, including web “lounges” where fans can chat about their taste for rum, as well as learn about the lifestyle and culture of Nicaragua. “We were able to start a dialogue about the country and then, little by little, introduce the brand,” says Sergio Bahamondes, who heads the digital effort for Plural and Partners, a creative agency in Los Angeles. Adding social media to a centuryold rum business has proved “very powerful,” he says, with Flor de Caña websites opening in Chile, Peru and Mexico, among other countries.
Flor de Caña
Company Milestones
Annual exports, in U.S. dollars
Key dates in Flor de Caña history
Year 2010 2009 2008 2007 2006
1890: Builds first rum distillery in Chichigalpa, Nicaragua. 1937: Pellas family launches company. 1959: Begins exporting Flor de Caña throughout Central America and to Venezuela. 1980: Keeps rum aging in barrels during revolution and civil war, creating one of the largest rum reserves in the world. 1999: Launches U.S. office to direct international sales.
Value Change $22.21 million -14% $25.76 million -10% $28.66 million 19% $24.11 million 30% $18.52 million N.A.
Source: Nicaragua’s Center for Exports
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—Eric Sabo
COURTESY OF FLOR DE CAÑA
Rum
Top Markets for Rum Ranked by value in 2010 Country 1. USA 2. India 3. Spain 4. Canada 5. UK
Value $3.8 billion $1.8 billlion $956.4 million $954.0 million $773.5 million
Change 2.7% 25.3% -3.5% 15.6% 8.2%
Note: Value expressed in U.S. dollars. Source: The IWSR (International Wine & Spirit Research)