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JANUARY / FEBRUARY 2014
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JANUARY/FEBRUARY 2014
CONTENTS JA N U A R Y / F E B R U A R Y 2 0 1 4
Editor’s Note 6
This is what 2014 will look like
The Scene
10 10 11 11
VO L . 2 2 N O . 1
18
Entrepreneurship: Opportunity vs. need The disturbing cost of transportation Poor quality education The pension bomb
Opinion
12 The Contrarian: Reversal of fortunes in Latin America By John Price
Events
64 CFO México: México’s big opportunity 65 CFO Miami: A new role for the CFO 66 CFO Roundtable: Clear skies ahead
Timepieces
68 The time of day hardly matters
Features 14 Industry Report: Mining The lithium triangle Buried in three South American salt flats are the largest proven reserves of lithium on the planet.
16 Retail: A shopping center boom
22
The expansion of the region’s middle class is spurring retail sector growth.
18 Multilatinas: Braskem: Peak performance Brazil’s Braskem is among the biggest gainers in 2013.
20 Natural Resources: The mining star Peru is turning into a mining power in the region.
22 Travel: Best of travel Top 10 business destination in Latam.
34 Trade: Undiscovered Russia Yekaterinburg is a dynamic market eager for Latin American products and investments.
36 Trade: A lab for reforms The Shanghai Free Trade Zone was created as the
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JANUARY-FEBRUARY 2014
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XXX
CONTENTS JA N U A R Y / F E B R U A R Y 2 0 1 4
Features 38 Trends: Rising legal stars 25 lawyers who are quickly making a name for themselves in legal issues concerning Latin America.
VO L . 2 2 N O . 1
38
40 Deals of the year: The biggest business deals in 2013 44
Cover Story: Latin America 2014 Growth is back.
50 Country Report: Brazil The Fifth Largest in the World?
52 Education: Capital development 54 Innovation: The foundation for the future 56 The land of jabutis 58 Policy Agenda: Mexico’s hollow reforms The real impact of the reforms to the energy and telecommunications sectors.
60
44
Policy Agenda: Venezuela Maduromics. Again Venezuela is set to post the world’s highest inflation in 2014.
61 Caribbean: The golden islands Some of the English-speaking Caribbean islands enjoy the highest per capita income in the region.
62
Entrepreneurs: The new entrepreneurs Latin American is beginning to show interest in innovative products tied to technology.
50 SPECIAL REPORT: WILL BRAZIL BECOME THE FIFTH LARGEST ECONOMY?
EXCLUSIVE
LATAM 2014
F O R E C A S T OF CORPORATE REVENUES
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TOP 10
BUSINESS
DESTINATIONS
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Cover: LATAM 2014 FORECAST 4
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LETTER FROM THE EDITOR
THIS IS WHAT
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014 looks good for Latin America. The region will grow by 3.5 percent, a touch better than last year. This year’s seven presidential elections won’t affect this outlook and the region’s political scenario shows no signs of major changes or extreme radical movements. There might be some protests from the new middle class, who will feel that the promises of prosperity are not happening as fast as the politicians predicted, but capital investment won’t be leaving the region because the returns will still be higher than those of the first world. It will be a good year for the multilatinas in spite of the pressures to revalue. In the last five years, the largest of these companies grew at twice the rate of their countries of origin, and as we show in this edition, they will increase their sales this year by more than they did in 2013. Some good things will happen. For example, the digital market will grow at an accelerating rate. The internet population of the region is growing faster than anywhere else in the world – by 21 percent per year according to numbers provided by IMS Research, compared with one percent in the United States. Sales in electronics are growing by 41 percent in the region and just 13 percent in the United States. Sales volumes are still small, but there are some remarkable exceptions. Grupo Pão de Açúcar, for example, is increasing its sales at one of its online sites by more than 60 percent per month. Still, not everything is rosy. If the countries are going to maintain this rate of growth, their internal markets and their middle classes need to be strengthened. For this to happen, efforts must be made to reduce poverty permanently through the creation of jobs and opportunities for access to
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LATIN TRADE JANUARY-FEBRUARY 2014
productive assets. That’s why the situation in Venezuela, which has the world’s highest Santiago Gutiérrez, inflation rate, is so worrisome. Inflation is a tax Executive Editor that’s not levied by any congress, and it’s tersgutierrez@latintrade.com ribly regressive. In 2014, Venezuela will again occupy first place regardless of any band-aid measures taken by President Nicolas Maduro. If he doesn’t make some far-reaching policy changes, this will be a dreadfully hard year for the poorest people in the country – those who, he will say, are the great beneficiaries of 21st century socialism. As for security, it is in danger of deteriorating further in Guatemala, Honduras, Haiti and Venezuela. Those countries will have to redouble their efforts to make the streets safer for more people. An accurate projection has to include one more element. The number of natural disasters in Latin America has increased by a factor of five in the last 40 years. The data from the Economic Commission for Latin America show that they have exploded from a range of about 15 disasters per year in the seventies to 90 in 2010. It’s a trend not expected to turn around in the next few years. There will be disasters this year. We don’t know where, or how big they will be, but there will be a sizable number of them. This imposes a new task: the protection of those who live there from the unavoidable fact that today we live in a world more exposed to extreme climatic conditions. That’s how we see 2014. It’s a horizon generally positive, but there are some areas that need more work so that they aren’t a burden that leave the region straggling along behind.
ILLUSTRATION: © ISTOCKPHOTO.COM/ LESZEKGLASNER
2014 WILL LOOK LIKE
CEO Rosemary Winters EXECUTIVE DIRECTOR & PUBLISHER María Lourdes Gallo
Latin America
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Visit Latin Trade online @ www.latintrade.com LATIN TRADE JANUARY-FEBRUARY 2014
THE SCENE
ENTREPRENEURSHIP:
OPPORTUNITY VS. NEED
T
he annual report of the CAF, Latin American Development Bank, was published recently, and it was dedicated to entrepreneurship in the region. Its title, “Entrepreneurship in Latin America: From Subsistence to Productive Transformation,” reflects the study’s central message. The region’s entrepreneurs are generally found in one of two extremes. One is the relatively small group of high-productivity and high-growth entrepreneurship, and the other a much bigger group
of subsistence entrepreneurs. According to the CAF, the typical entrepreneur in the region is an individual with a low level of education, whose income level from his economic activity is lower than, and more unstable, than that of either salaried workers or the dynamic entrepreneurs. Entrepreneurship in those cases is not a lifestyle decision, but rather something that is forced upon many Latin Americans due to a lack of good quality salaried opportunities.
Distribution of entrepreneurships by opportunity and by necessity OECD Members
Region or group of countries
Middle East and North Africa OECD Non-Members South Asia Eastern Asia and the Pacific Latin America and the Caribbean Europe and Central Asia Sub-Sahara Africa 0%
20%
40%
60%
80%
100%
Source: CAF, Entrepreneurship in Latin America: From Subsistence to Productive Transformation
THE DISTURBING COST OF TRANSPORTATION
Agricultural goods Manufacturing Minerals
Chile
Agricultural goods Manufacturing Minerals
Colombia
Agricultural goods Manufacturing Minerals
Brazil
Impact of domestic transport costs on exports by sector
Agricultural goods Manufacturing Minerals
México
oo Far to Export: Domestic Transport Costs and Regional Export Disparities in Latin America and the Caribbean,” is the title of the most recent study on integration and trade from the Inter-American Development Bank (IDB). It highlights the high cost of shipping Latin Americans face when sending their goods from the factories, mines and plantations to the ports for export. The authors assert that reducing internal transportation costs would ensure that Latin America and the Caribbean would take maximum advantage of their broad export opportunities, and that the revenues would be distributed more evenly within the countries. Furthermore, it states that governments will have a hard time maintaining support for free trade if the benefits are concentrated in a few rich pockets of the countries, as happens in almost all of them.
Agricultural goods Manufacturing Minerals
Perú
“T
-8
-6
-4
-2
Source: IDB, Too Far to Export: Domestic Transport Costs and Regional Export Disparities in Latin America and the Caribbean
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LATIN TRADE JANUARY-FEBRUARY 2014
0
THE SCENE
POOR QUALITY EDUCATION
T
give priority to investment in the quality of their teachers, instead of focusing on the size of the classes. They establish some clear objectives and offer teachers autonomy in the classrooms so that they can achieve their goals. But it appears that Latin America isn’t doing its homework. In the region, only Brazil and México have shown sustained improvement in recent years in mathematics. México has also managed to improve results for its low-income students, many of whom come from unfavorable socioeconomic environments, thus demonstrating that countries can improve equality through education. Colombia has been doing something similar recently to help lowincome students. Like México, it has established a system to identify and support students and schools that are having trouble. However, the region’s countries still occupy the lowest ratings on the list.
he most recent test measurements by Pisa (Programme for International Student Assessment) from the Organization for Economic Cooperation and Development has bad news for Latin America. The Asians lead the rest of the world in this study, which evaluates knowledge and competence in mathematics, reading and science among 15-year-old students from participating nations. The main focus for this edition of the study was mathematics, since for the authors, mathematical competence is a solid predictor of positive results for young adults, given that it influences their ability to participate in post-secondary education, as well as their future income expectations. It turns out that the countries with the best results are the most demanding in the selection and training of teachers, and that encourage them to work as a team. They also
Student performance in mathematics, mean score
490 455 420
409
407
391
Br az il
413
Ri ca
423
Ur ug ua y
494
M éx ico
350
Ch ile
385
388
376
368
Pe rú
Co lo m bi a
Ar ge nt in a
Co st a
OE CD
av er ag e
315
Source: OECD, PISA 2012
THE PENSION BOMB Percentage of contributors over working population 100 90 80 70 60 ALC -19, 44.7%
% 50 40 30
CRI
URY
CHL
BRA
PAN
ARG
JAM
VEN
MEX
DOM
COL
SLV
ECU
NIC
HND
PRY
PER
0
GTM
20 10 BOL
T
he Inter-American Development Bank (IDB) has just launched the book Better Pensions, Better Jobs. Its authors state that although the countries of Latin America and the Caribbean have reduced levels of inequality and poverty, new problems are appearing. How to provide adequate pensions for older adults is one of the main ones. At present, just four of every 10 older adults of the region contribute to a pension, and only two contribute to a subsidized pension. The other 40 percent will have to either work until they reach a very advanced age or depend on their families. The big challenge emerging is, that even though Latin America has a relatively young population today, it will age quickly. The population of older adults will grow from about 40 million in 2010 to 140 million in 2050.
Note: ALC-19 is the weighted average of the 19 countries analyzed. Source: IADB, Better Pensions, Better Jobs: Towards Universal Coverage in Latin America and the Caribbean
JANUARY-FEBRUARY 2014 LATIN TRADE
11
THE CONTRARIAN
REVERSAL OF FORTUNES IN LATIN AMERICA
O
SOFTENING COMMODITY PRICES
Manufacturing-Outsourcing Cost Index 105 100 95 90 85 80 75 70 65
Seven to 10 years ago, the mining and energy sectors plunged billions into exploration. Those efforts are now bearing fruit. Record new mining extraction is coming online in Australia, Canada, Chile, Perú, China and other locations while North American crude oil and gas production is soaring. The financial crisis forced change upon both the Chinese and U.S. economies. China shifted from an economy fueled by investment in infrastructure to one focused on higher domestic consumption. The U.S. economy transformed from an energy and manufactured goods importing nation that built homes on mountains of debt, to an exporter of energy products and manufactured goods. The dramatic shift in both countries served to lessen demand for commodities (in China) and raise supply levels (in the U.S.). As a result, commodities prices are softening, though there is little risk of a collapse.
NATIONS REAP WHAT THEY SOW A decade of benign global conditions weakened the appetite for reform in most South American countries. The first administration of Bachelet in Chile, the first term of Lula in Brazil and the 2nd administration of Alain Garcia in Perú all began with bold talk of political and economic reform. Instead, record tax collections from the natural resource sector served to weaken political resolve and few reforms were passed. Record growth coupled with rising corruption and political intransigence has created a frustrated middle class in many South American countries, symbolized by riots in Chile and Brazil. South America has drifted leftward in its economic policies, punctuated by higher rents for miners and energy companies, more onerous environmental and labor laws and more taxes and user fees. High resource prices have kept alive incompetent governments in Venezuela, Argentina, Bolivia and Ecuador. In Chile, Colombia and Perú, considered the economic stars of the southern continent, local business groups are frustrated by creeping populism and red tape. While resource sectors in South America have flourished, labor intensive industries are disappearing. Gone are the large scale manufacturers of clothing, footwear and electronics in Brazil. Colombian flower producers are losing global market share, as are Chilean wine makers. Peruvian clothing manufacturers are closing shop and moving to Central America. The political ramifications of a shrinking manufacturing base is only beginning to be felt in these countries.
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LATIN TRADE JANUARY-FEBRUARY 2014
2005
2006
China
2007
India
2008
2009
Mexico
2010
2011
2012
US Baseline
Source: AlixPartners Analysis
ver the last 10 years, fortune has smiled upon exporters of natural resources. In Latin America, countries in Central America, the Caribbean and México, all tied traditionally to the U.S. economy, have grimaced with envy as investment dollars went to South America, whose economic motor is China. But softening commodity prices, a resurgent U.S. economy and a renewed thirst for reform in México promises to lift the Aztec nation and some of its neighbors out of a decade of slow growth.
THE MEEK SHALL INHERIT THE EARTH’S INVESTMENTS The most dramatic feel-good story at the moment in the region is México. Even though México exports oil, it did not receive the same financial boost from rising oil prices as others because production levels fell over the last decade. Instead, México felt the constant pressures of globalization as its manufacturing base struggled to compete with Asian assemblers. In México, voters rejected a pull to the left. Instead, they embraced the pro-business policies of the PAN and largely welcome the reform agenda of President Peña Nieto who has helped Mexicans feel better about their country and themselves after six years of homicidal headlines stemming from drug trafficking. In less than 12 months, México achieved more reforms (telecom, education, labor, energy, and tax) than Brazil and Chile together accomplished over the last eight years. While most South American countries fell behind in global competitiveness rankings over the last five years, México has climbed steadily. Mexican labor + shipping costs (to the U.S.) are now cheaper than China’s in several product categories. México has regained lost assembly jobs in electronics, white goods and auto parts. More gratifyingly, México is attracting investors in higher value added fabrication operations in IT, aerospace, and the auto sectors. Over the last decade, government stayed out of the way (of manufacturing exports) and Mexican assemblers invested aggressively in worker training. Given their deficit of natural resources, one would expect to see more reform-minded governments in the Caribbean and Central American regions. However, subsidized Venezuelan oil delivered through the PetroCaribe program has kept poor policies afloat in many of these countries. As Venezuela’s economy deteriorates, most analysts predict dramatic drops in PetroCaribe shipments. Anticipating such a trend, Guatemala pulled out of the John Price is PetroCaribe alliance in Nothe managing vember, 2013. Others may soon director of follow suit. The subsidies will be Americas Market missed but for reform-minded Intelligence and a leaders, unhinging their coun20-year veteran of tries from cheap oil may be the Latin American impetus needed to join the likes competitive of México in modernizing their intelligence and strategy consulting. economies. jprice@americasmi.com
MINING INDUSTRY REPORT
THE LITHIUM TRIANGLE Buried in three South American salt flats are the largest proven reserves of lithium on the planet. The metal is used in the manufacture of long-life batteries and is indispensible in the era of laptops, cell phones and electric automobiles. ing value instead of exporting it as raw material or an industrial input. The strategy is summed up in the slogan of the Mining Commission of Bolivia (Comibol): “produce, industrialize and export, with sovereignty intact.” So far, the country has signed letters of understanding with Brazil, Iran and the Low Countries and some Asian companies. But, it still hasn’t begun to produce lithium carbonate on an industrial scale. In January 2013, it opened a pilot production plant, and National Evaporite Resources Management told Latin Trade it expects that this year it will call for bids for the design of the industrial plant. Bolivia is supposed to have the largest lithium reserves in the world in the Uyuni salt flats, but the country still hasn’t certified them. As Eclac Hugo Altomonte put it, “Lithium is for Bolivia what copper is for Chile.” BY ÉLIDA BUSTOS
T
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LATIN TRADE JANUARY-FEBRUARY 2014
As Bolivia works to move forward on its state production project, Chile has taken the lead as the world’s main exporter of lithium carbonate. There, the state also sees the metal as a strategic resource, but it has given permission to two firms, Chilean company SQM and US Rockwood Lithium, to mine it. “Anyone may have a mine property and exploit all the minerals that are there, but in the case of lithium, you need permission from the state,” explained Felipe Smith, SQM’s manager for iodine, lithium and industrial chemicals. In 2013, the two companies operating in Chile produced about 60,000 tons of lithium carbonate equivalent, out of total world production estimated by the British consultant Roskill at 150,000 tons. SQM extracts 60 percent of Chile’s production from the Atacama Salt Flats, and this makes it one of the big international players in the lithium market. It shares control of the global market with the Australian firm Talison Lithium, with each having about 30 percent. And, finally, the third South American producer, Argentina, does not have a special regulation on lithium nor has it been declared a strategic mineral. Companies extracting lithium in the country operate under the Argentine general mining laws. FMC and the Australian company Talison Lithium operate through their own affiliates; there are also joint ventures, such as that of Toyota Tsusho with Orocobre (a company that’s quoted in Sydney and Toronto), and some international companies like Mitsubishi and LG holding minority positions in producer companies. This situation could change because there are bills circulating in the Argentine Congress that call for declaring lithium a strategic mineral, with limits for its extraction. It remains to be seen whether in the next few years Bolivia and Argentina seize the moment, or if the delays in their projects cause them to miss the boat. As the SQM executive put it, “The main challenges are political and regulatory.” Élida Bustos reported from Buenos Aires.
GRAPHIC: © ISTOCKPHOTO.COM/ POP_JOP
CHILE EXPLOITS THE PRESENT ogether, the salt flats of Uyuni in Bolivia, Atacama in Chile and Hombre Muerto in Argentina account for at least 75 percent of the world’s known reserves of lithium. They comprise what’s known as the “lithium triangle,” a desert expanse in the high Andes that today provides the raw material that moves the world of information technology and communications. “Global communication is possible because of the lithium batteries in our laptops and cellular telephones,” claims an ad from Canadian mining company FMC. But that isn’t all: it has a bright future as a crucial ingredient in high-performance batteries for electric vehicles. Nevertheless, the current lithium business is under discussion in South American producer countries so as to which is the best exploitation model to follow. The debate ranges from the more ideological view that contends that lithium should be treated as a strategic mineral and should therefore remain under the strict control of national states, to the more pragmatic one that holds that, with the rapid changes in technology, lithium’s moment is today and shouldn’t be allowed to pass. “Lithium’s time horizon of intense use will last until 2035 or 2045,” wrote the Peruvian sociologist and analyst Monica Bruckmann in a document for the Union of South American Nations. Speaking for SQM, the Chilean company that’s the international leader in extracting lithium, its commercial manager Felipe Smith thinks that “there’s no justification for holding onto the metal to face an uncertain future” and “not for its potential use in nuclear fusion energy, which is far from being a reality.” Bolivia, Chile and Argentina are a showcase of diversity in respect to the way to handle the business. Bolivia defends its tight-fisted state control of every stage of the industrialization process, which it is seeking to top off by building lithium-ion battery manufacturing plants which will export batteries to the world. It sees lithium as a strategic resource which it should capitalize on by add-
PHOTO: DIEGO SANTACRUZ GDA PHOTO SERVICE/NEWSCOM
RETAIL
A SHOPPING CENTER BOOM The expansion of the region’s middle class is spurring the growth of the retail sector, which is already ringing up billions of dollars in sales, and is still growing. BY SERGIO MANAUT
S
hopping centers are taking off in Latin America. Their growth is tied to the countries’ economic situation, and that’s the main reason for the sector’s strong advance. The numbers posted by the most important players speak of a boom, and that’s not an exaggeration. Some of the best examples are the investment plans announced by the Chilean companies Cencosud and Falabella, two of the sector’s stars, whose regional expansion plans call for investments totaling $8 billion. The International Council of Shopping Centers (Icsc) believes the growth of the sector has not yet peaked. They contend that the commercial density of the Latin American countries compared with that of the United States is such that there are opportunities based on the natural growth of the middle class, especially in Colombia and Perú. “In these two markets, the expansion is in full bloom,” said Andrés Stalman, director for Europe and Latin America at Cato Partners. “In countries like Brazil, Argentina and Chile, the markets are much more mature, but even they are still experiencing development and growth. The boom is gathering steam in Central America, mainly in Guatemala, but also in Panamá, and especially in México. In the Caribbean, the leaders are Puerto Rico and the Dominican Republic.” Stalman added that there is a third group of countries made up of Ecuador, Paraguay and Bolivia, whose economies are performing really well, and where the global information networks and the new possibilities for travel, have created a demand for having in their own cities what they have seen in Buenos Aires, Santiago de Chile or Miami. What’s certain is that this boom is generating business opportunities
16
LATIN TRADE JANUARY-FEBRUARY 2014
the big companies don’t want to miss. “The Chilean companies are very strong throughout the Andean region,” said Stalman. “There are regional players like the Venezuelan chain Sambil that has a presence in the Dominican Republic and Puerto Rico, and now is moving into Spain. There is also activity from investment funds attracted by the profitability these retail assets are offering in Latin America.” Although the enthusiasm generated by the high returns from shopping centers has spread throughout the region, there is no doubt that Colombia is the most attractive market to investors. According to RECon Latin America, investment there for the period 2013-2015 will total $2.642 billion, and plans are in place for construction of another 51 shopping malls. Perú, the other tempting jewel, will be seeing more of the big Chilean companies that are arriving with checks totaling $600 million over the next two years. In fact, it’s expected that its shopping center revenues will far exceed the $4.656 million it posted in 2012, and will stitch together as much as $7 billion in 2014. Brazil, the region’s biggest market, expects that spending in shopping centers will grow by 11 percent this year, to exceed the current level of $230 billion. The Icsc data shows Chile as the nation with the greatest density of shopping centers. It’s hard to see any chance that they will lose this privileged position. Its companies – and its billions of dollars aimed at expansion – are, in large measure, responsible for the growth of the business throughout the region. Sergio Manaut reported from Madrid.
MULTILATINAS
PEAK PERFORMANCE
Braskem’s PVC plant in Marechal Deodoro, Alagoas, Brazil
Brazil’s Braskem is among the biggest gainers in 2013. Tax cuts, acquisitions and an innovative investment plan were key to its results.
B
raskem’s shares soared nearly 57 percent last year through December 20, in local currency terms, as Latin America’s largest petrochemical company benefited from tax exemptions, started planning investments in shale gas in the United States, and has a clear acquisition strategy. Braskem outperformed most stocks on the benchmark Ibovespa index, which lost about 16 percent in the period. The year started off on a positive note for Braskem, as the Brazilian government reduced taxes to fund social programs known as PIS/Cofins on raw materials used in the chemical industry. The measure, which cut the levy to one percent from 5.6 percent, took effect on May 1st and will be gradually restored through 2018. Braskem’s stock rallied for over a week after the announcement on April 23 as investors priced-in the tax reduction. The company earned upgrades to a “buy” rating from Banco Santander, Citigroup, and JPMorgan Chase, after the government announcement, further boosting Braskem shares. Third-quarter results were much better than expected, as higher resin prices and lower naphtha costs led to an improvement in spreads; a depreciation of the real (BRL) eased the company’s debt burden; and the PIS/Cofins tax exemption improved operating results. To close off the year with more upside, Braskem announced on December 17 plans to acquire plastic maker Solvay Indupa, the ArgentineBrazilian unit of Belgium’s Solvay SA, valued at $290 million. Solvay Indupa has plants making PVC resins and caustic soda in Brazil’s São Paulo state and the province of Buenos Aires in Argentina. At the close of this issue, the deal had not been approved by Argentine regulators.
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LATIN TRADE JANUARY-FEBRUARY 2014
The acquisition was largely seen as positive as the deal raised the company’s capacity with no cash disbursements. CEO Carlos Fadigas said Braskem would acquire Solvay Indupa mainly through assuming its debt, along with a small cash payment. Braskem is expected to pay $50 million in cash and assume the rest in debt. “The acquisition will be accretive for Braskem, depending on synergy gains, but we see the transaction as positive, raising the company’s capacity with a small cash disbursement,” said Leonardo Alves, an analyst at Votorantim Corretora. The deal also reinforced Braskem’s strategy to combine investment with new alternatives for access to competitive raw materials. Braskem’s first production venture in Brazil’s southern neighbor comes as Argentina seeks to develop the Vaca Muerta field, one of the western hemisphere’s largest shale oil and gas reserve. Braskem is building a $4.5 billion plant in México and considering investments in the United States as it seeks access to cheaper shale gas, instead of the more expensive naphtha it uses at existing plants. The model being designed for possible shale gas investment in the U.S. seeks to protect its balance sheet from yet another large project outside Brazil. Odebrecht, which controls Braskem, is using its unit Odebrecht Ambiental to conduct feasibility studies for a petrochemical plant in the U.S., which would be fueled by shale gas. Odebrecht Ambiental would be responsible for the economic feasibility study, financing, and construction of the project, while Braskem would be the operator. Adriana Brasileiro reported from São Paulo.
PHOTO: COURTESY OF BRASKEM
BY ADRIANA BRASILEIRO
NATURAL RESOURCES Peruvian President Ollanta Humala (L) gives a speech during his visit to the Toromocho project of Chinalco Perú in the District of Morococha, Yauli Province, in the Junín region.
THE MINING STAR Perú is turning itself into a new mining power in Latin America, with investments expected to total $57 billion over the next 10 years. Copper is where it all starts. BY ALEJANDRO GONZÁLEZ
20
LATIN TRADE JANUARY-FEBRUARY 2014
Perú’s economic indicators, and it represents almost 60 percent of the nation’s exports. In fact, the Central Reserve Bank justifies its projection of six percent growth for 2014 with the start-up of production at Toromocho, and the 10 percent increase in copper production promised to its investors.
NO SHORTAGE OF PROBLEMS Beyond its projections and benefits, the Peruvian mining industry has its share of challenges to overcome. First of all, the people living close to several of the projects have demonstrated against them because of the risk of contamination of their water supply and the environmental destruction they could cause. The project most affected by social protest is Conga, in Cajamarca, where delays have set things back by almost two years. Developed by the American company Newmont and the Peruvian company Buenaventura, this operation involves an investment of close to $4.8 billion. Its deposits will produce 680,000 ounces of gold and 54,000 tons of copper per year, according to the Ministry of Energy and Mines. To round things out, at the most recent Annual Conference of Executives in Paracas (Pisco) in November, mining company representatives worried about the lack of clarity about the duration of the current mining royalties – the tax the government levies on these companies based on their profits – as well as the lack of effective means of controlling illegal mining. Despite these difficulties, it looks like the mining locomotive in Perú is on the move. Alejandro González reported from Bogotá.
PHOTO: PERU’’S PRESIDENCY XINHUA NEWS AGENCY/NEWSCOM
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ast December marked the start-up of the Toromocho Mining Project. It will produce a million tons of copper concentrate, 10,000 tons of molybdenum oxide and four million ounces of silver per year. Located in the Junín region, its initial investment was $4.82 billion, most of it provided by a Chinese company in Perú. According to Chinalco, the owner, this mine has a concentrating plant that will process 117,200 tons of mineral per day over its expected lifetime of 36 years, producing an average of 1,838 tons of copper concentrate and 25.7 tons of molybdenum oxide per day. Although Toromocho isn’t Perú’s biggest mining project, it’s the most recent example of the way this country has been turning itself into one of the mining sector powers in the continent. This mining “boom” includes other operations, like Las Bambas, Constancia, Conga, Quellaveco and Galeno, which together will require investments of more than $57 billion dollars over the next 10 years. Perú’s Ministry of Energy and Mines expects that Toromocho, together with Las Bambas (Glencore) and La Constancia (Hudbay Minerals), which will start operating in 2015, and the expansion of Cerro Verde (Freeport-McMoRan), will double annual copper production by 2016, from 1.3 million tons to 2.6 million tons. If that happens, Perú will become the world’s second largest copper producer, above China, which produces 1.5 million tons, and the United States, with 1.1 million tons per year. Only Chile, with 5.37 million tons per year, will produce more, according to the Copper Development Association (CDA). Meanwhile, the activity is starting to have a powerful impact on all of
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Boardroom at the JW Marriott Hotel Lima
Latin America is a vast region with lots of different choices for today’s business traveler. We’ve narrowed it down to the top 10 business destinations in the region, as well as the most important industries that serve travelers, to come up with a definitive guide to the best travel experiences in Latin America, as well as the trends that might shape how you travel in the years to come. BY MARK CHESNUT
THE CITIES Most Improved Hotel: CROWNE PLAZA TEQUENDAMA BOGOTÁ This landmark Bogotá hotel, which celebrated its 60th anniversary in 2013, has invested $4.5 million in upgrades, and offers a more contemporary experience at the newer Crowne Plaza Suites Tequendama, which sits adjacent to the original property. Best Classic Style: CHARLESTON CASA MEDINA Elegant touches of Colonial-era style — including rich woodwork and suites with fireplaces — are among the reasons to check into this luxury hotel.
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Best Contemporary Style: B.O.G. HOTEL The first member of Design Hotels to debut in Colombia, B.O.G. is a gold-hued fashion statement, with minimalist architecture by designer Nini Andrade Silva and a heated rooftop swimming pool. Most Functional Hotel Meeting Space: CASA DANN CARLTON HOTEL SPA BOGOTÁ Business travelers here can make use of 16 meeting rooms, as well as a tower with 237 guestrooms and a second tower with 91 apartments for long-term stays, and a business floor with a private restaurant, express check-in and check-out.
Hilton Bogota
Best Hotel Value for the Price: CROWNE PLAZA SUITES TEQUENDAMA Full service and a central location — at rates below many large internationally branded hotels — make this property worth considering.
PHOTO: COURTESY OF HILTON WORLDWIDE
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and lots of meeting space, the Sheraton offers a lot of amenities at competitive prices. Best Hotel Concierge/Club Floor: FOUR SEASONS HOTEL BUENOS AIRES Guests on the seventh and eighth floors have access to the e-lounge, which is luxuriously furnished with chandeliers, burgundy designer furniture and a furnished balcony with inspiring city views.
Sheraton Buenos Aires
Best Hotel Concierge/Club Floor: HILTON BOGOTÁ Executive rooms and suites offer access to the spacious, handsomely decorated executive lounge, where guests can enjoy a hot breakfast buffet, snacks and refreshments throughout the day.
Cost of Doing Business: Reasonable (Maximum per diem rates per U.S. State Department — room rates $277, meal and incidental expenses $105, maximum per diem $382)
PHOTO: COURTESY OF STARWOOD HOTELS
BUENOS AIRES Noteworthy Convention/Event Facility: CLUB EL NOGAL This social and business complex, founded by a group of businesspeople in 1989, organizes social, cultural and business events, and has its own catering and accommodations.
Most Improved Hotel: FOUR SEASONS HOTEL BUENOS AIRES In 2013, the Four Seasons wrapped up a $49 million renovation, introducing a new indooroutdoor restaurant, a renovated spa and new meeting and event space.
Best Equipped Convention/Event Facility: CORFERIAS With 22 pavilions, a 673,000-square-feet indoor area and 221 meeting rooms of various sizes, Corferias offers lots of options — and plans for a new convention facility on the site should be good news for business-minded folks as well.
Best Classic Style: ALVEAR PALACE HOTEL Appearing consistently at the top of reader’s choice awards, the Alvear Palace exudes elegance, with Belle Époque architectural details, crystal chandeliers and attentive service.
Interesting Meeting/Event Venues: SALT CATHEDRAL OF ZIPAQUIRÁ Located about an hour outside of Bogotá, this unique religious complex — built deep inside a salt mine — offers memorable and surprisingly ample spaces for private meetings and events. Big Issue for Business Travel: The renovation and expansion of El Dorado airport is a major improvement over the previous facility, and additional upgrades are in the works. In addition, economic growth and stability have attracted new hotel investment, while a new convention center will increase its attractiveness for corporate gatherings.
Best Contemporary Style: FAENA HOTEL + UNIVERSE Designed by Philippe Starck, this Puerto Madero hotspot is both sumptuous and whimsical.
Noteworthy Convention/Event Facility: CENTRO COSTA SALGUERO Six pavilions, capacity for more than 3,000 guests, and turnkey company party planning are among the selling points here. Best Equipped Convention/Event Facility: LA RURAL Multiple pavilions and a central location have helped keep this facility on top of the meetings and events market. Interesting Meeting/Event Venues: SEÑOR TANGO Business travelers looking to tap into a bit of tango excitement can make use of this 43,040-square-foot space. Big Issue for Business Travel: The continued introduction of stylish boutique hotels ensures that business travelers will always have interesting alternatives to big-box chain hotels. Cost of Doing Business: Reasonable (room rates $221, meal and incidental expenses $121, maximum per diem $342)
CARACAS Best Classic Style: GRAN MELIÁ CARACAS Conservative luxury is the norm at this wellplaced hotel, which also features am exclusive RedLevel category of accommodations with even more amenities.
Most Functional Hotel Meeting Space: HILTON BUENOS AIRES Among the property’s more than 71,000 square feet of meeting space is a 2,700-person boardroom, billed as the largest in the city.
Best Contemporary Style: RENAISSANCE CARACAS LA CASTELLANA Bold colors and stylish furnishings make this one of the coolest places to stay in Venezuela’s capital.
Best Hotel Value for the Price: SHERATON BUENOS AIRES HOTEL AND CONVENTION CENTER With a decidedly business-friendly attitude
Most Functional Hotel Meeting Space: EUROBUILDING HOTEL & SUITES CARACAS With 50,000 square feet of meeting space, as
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well as 617 rooms in three categories — and a “Business Woman Floor” just for female travelers — the Eurobuilding is well positioned for business gatherings. Best Hotel Value for the Price: EMBASSY SUITES BY HILTON CARACAS Rooms equipped with refrigerators, microwaves, MP3 docks — as well as the hotel’s onsite meeting space — make this a good home base for budget-minded business travelers. Best Hotel Concierge/Club Floor: JW MARRIOTT CARACAS Free continental breakfast, midday snack, afternoon tea, hors d’oeuvres, dessert and nonalcoholic beverages are among the amenities in the 24-hour executive lounge, which offers lovely views of the mountains.
Noteworthy Convention/ Event Facility: WORLD TRADE CENTER VALENCIA Attached to the Hotel Hesperia, the WTC has 38 meeting and event rooms, and lots of space for exhibits and trade shows. Best Equipped Convention/Event Facility: FORO XXI A broad array of clients in technology, consumer goods, pharmaceuticals and finance are among those that have made use of this venue, which has rooms that accommodate from five to 155.
Hilton, Marriott International, Starwood and Best Western are just a few of the hotel brands investing in expansion in Latin America. Brazil and Panamá City are among the destinations seeing some of the biggest growth. Here are a few of the top choices for business travelers around the region.
BEST HOTEL REWARDS PROGRAM: MARRIOTT REWARDS Priority check-in and a wide variety of properties around Latin America — as well as partnerships with The Ritz-Carlton Rewards program and more than 30 airline programs — are among the selling points.
JW Marriott Caracas
Interesting Meeting/Event Venues: HARD ROCK CAFÉ CARACAS Located in the Mall of Caracas, the 12,000-square-foot, 375-seat Hard Rock has multiple areas available for private corporate gatherings. Big Issue for Business Travel: Continued economic and government complications have slowed investment in hotels and meeting space, resulting in far fewer options than in neighboring nations. Cost of Doing Business: Expensive (room rates $314, meal and incidental expenses $193, maximum per diem $507)
GUADALAJARA The mobile check-in from Marriott Hotels is now available at 20 additional Marriott hotels in 19 countries, including the Bogotá Marriott, CasaMagna Marriott Cancun Resort, Panamá Marriott, Santiago Marriott and San Juan Marriott Resort & Stellaris Casino, with more properties to be added. The app allows Marriott Rewards members to check in via smartphone, and pick up a key card upon arrival at the mobile check-in desk. This will likely be the future for other brands in Latin America.
MOST IMPRESSIVE LATIN AMERICAN EXPANSION: IHG Holiday Inn and Holiday Inn Express are both in growth mode in Latin America, with new properties in Argentina, Brazil, Colombia, Ecuador, Honduras, Nicaragua and Puerto Rico. Add to this the company’s planned InterContinental Punta Piqueros in Chile, Staybridge Suites in Panamá and Crowne Plaza Suites Greenville in Argentina, and IHG fans will have more choices than ever.
NEWEST BRAND TO WATCH: HYATT PLACE Hyatt Hotels Corporation is beefing up its mid-market presence in Latin America, with the recent opening of the Hyatt Place San José del Cabo in México, the Hyatt Place San José/ Pinares in Costa Rica and Hyatt Place Bayamón in Puerto Rico. Still in the works is a twohotel venture in Panamá City’s Costa del Este neighborhood, which will include a Hyatt Place and Hyatt House. The mixed-use development will include some 118,000 square feet of commercial space.
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Most Improved Hotel: PRESIDENTE INTERCONTINENTAL GUADALAJARA The shimmering Presidente features an attractive lobby lounge and crisply designed superior rooms with floor-to-ceiling windows and great views. Best Classic Style: QUINTA REAL GUADALAJARA With ambiance reminiscent of México’s colonial era, the Quinta Real is graced with cobblestone paths and beautifully manicured gardens. Best Contemporary Style: WESTIN GUADALAJARA Conveniently close to Expo Guadalajara, the Westin Guadalajara serves up contemporary style with lots of amenities. Most Functional Hotel Meeting Space: HOTEL RIU PLAZA GUADALAJARA The Riu packs in nearly 50,000 square feet of meeting space, including 16 event rooms.
PHOTO: COURTESY OF MARRIOTT INTERNATIONAL
BEST HOTEL TECHNOLOGY: MARRIOTT’S CHECK-IN APP
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Rio de Janeiro Aerial view with Two Brothers Mountain, Ipanema in background and Rocinha favela in foreground.
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LIMA Most Improved Hotel: MIRAFLORES PARK HOTEL BY ORIENT-EXPRESS This luxury hotel shut its doors temporarily in December, and when it reopens in April 2014, guests will enjoy the benefits of a wide-ranging, $13.5 million upgrade on suites, bathrooms, meeting space and the Dr. Jekyll and Mr. Hyde Bar. Best Classic Style: COUNTRY CLUB LIMA A member of Leading Hotels of the World, Country Club Lima was built in 1927 and declared a Peruvian Cultural Monument, with rooms decorated in traditional style, complemented by Peruvian art.
The Westin Lima
Best Hotel Value for the Price: HAMPTON INN BY GUADALAJARA/EXPO Close to Expo Guadalajara, the Hampton Inn offers a free hot breakfast and free transportation to the airport and other local destinations. Free Wi-Fi and business center access round out the value-added offerings.
Big Issue for Business Travel: Increased options for business travelers are key in Guadalajara, thanks to the growth of low-cost domestic carriers as well as the recent debut of large new hotel brands including Riu Plaza and Westin. Still to come is the Frida Kahlo Guadalajara, a Luxury Collection property slated to open in 2015.
Best Hotel Concierge/Club Floor: HOTEL RIU PLAZA GUADALAJARA Guests staying in executive rooms and suites — as well as anyone with RIU Class Gold and RIU Class Diamond cards — have access to the Crown Level Executive Lounge, which has a meeting room, free soft drinks, beer and wine and snacks. The hotel also features a women’sonly floor, with 25 specially appointed rooms reserved exclusively for female travelers.
Cost of Doing Business: Affordable (room rates $161, meal and incidental expenses $79, maximum per diem $240)
Best Equipped Convention/Event Facility: EXPO GUADALAJARA With more than 811,000 square feet of indoor and outdoor event space and proximity to thousands of hotel rooms, Expo Guadalajara dominates the convention market in the region. Interesting Meeting/Event Venues: MUNDO CUERVO Located in the nearby town of Tequila, this distillery offers customized corporate group events, with spirited themes.
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There may be fewer airlines competing for the business traveler in Latin America, but that doesn’t mean that carriers aren’t working hard to differentiate themselves from the competition. Here are a few ways they’re targeting frequent flyers.
MOST IMPROVEMENT OVERALL: DELTA AIR LINES In 2013, Delta unveiled new menus on flights to Latin America from Miami-based chef Michelle Bernstein. The airline also began selling seats through GOL and introduced Westin Heavenly In-Flight bedding on all its BusinessElite cabins, with full flat-bed seats debuting between Atlanta and Buenos Aires in January 2014.
BEST FOOD AND BEVERAGE: LAN, TAM LAN offers six different menu options for lunch and dinner services in its Premium Business Class. TAM’s business class wine list, meanwhile, was curated by Brazilian wine consultant Arthur Azevedo, who serves as executive director of the Brazilian Association of Sommeliers of São Paulo. BEST BUSINESS/FIRST CLASS: LAN AIRLINES LAN offers full-flat, 180-degree reclining seats on its Premium Business Class, aboard Airbus A340, Boeing 767 and Boeing 787 fleet. BEST IN-FLIGHT TECHNOLOGY: AEROMÉXICO The new Boeing 787 Dreamliner features the AVOD personal entertainment system, which has a jukebox application with a capacity for playlists of 1,500 songs, as well as iConnect to synchronize with iPod and Seat Chat, which allows passengers to communicate with others on the plane.
PHOTO: COURTESY OF STARWOOD HOTELS
Noteworthy Convention/Event Facility: TEATRO DEGOLLADO This neoclassical theater, which opened in 1866, hosts a variety of private meetings and events, with historic style.
Best Contemporary Style: HILTON LIMA MIRAFLORES One of Lima’s newest luxury hotels, the Hilton exudes handsome, contemporary style, with marble bathrooms and deluxe rooms with soundproof floor-to-ceiling windows. The king executive room has a 231-square-foot balcony overlooking the Miraflores district.
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BEST PARTNERSHIPS AND ALLIANCES: DELTA AIR LINES Most Functional Hotel Meeting Space: WESTIN LIMA HOTEL & CONVENTION CENTER Some 17,514 square feet of meeting space and a 24-hour business center are among the draws for travelers looking to meet. Best Hotel Value for the Price: SHERATON LIMA HOTEL & CONVENTION CENTER A central location and 15,802 square feet as well as reasonable rates, make this a good fullservice value option. Best Hotel Concierge/Club Floor: JW MARRIOTT HOTEL LIMA Executive rooms have free in-room Wi-fi and access to the executive lounge, which offers free services including hot buffet breakfast, midday snack, afternoon tea, hors d’oeuvres, dessert, non-alcoholic beverages, free pressing of two garments per stay, light dinner, and free wine and pisco tasting from 5pm to 6:30pm. Noteworthy Convention/Event Facility: LARCOMAR Located in the upscale Miraflores District, Larcomar is a retail complex with entertainment and restaurants that are ideal for group and individual business entertaining.
PHOTO: COURTESY OF MARRIOTT INTERNATIONAL
Interesting Meeting/Event Venues: MUSEO LARCO This privately owned museum of pre-Columbian art, set in an 18th-century building, provides a dramatic setting for private corporate events.
JW Marriott Hotel México City Santa Fe
Delta’s strengthened partnership with GOL, as well as its agreements with Aerolíneas Argentinas and Aeroméxico, make this a carrier to reckon with.
BEST FREQUENT FLYER PROGRAM: AVIANCA LIFEMILES Avianca’s entry into the Star Alliance — which includes Copa Airlines and United Airlines — has beefed up its appeal for Latin America business travelers. (Its program was the only winner in Latin America in the 2013 Freddie Awards for frequent flyer programs, in the category of Best Redemption Ability.) BEST AIRLINE APP: COPA AIRLINES Among Latin American carriers, the Copa Airlines app is the easiest to use, with flight status, timetables, travel info and the ability to check-in and obtain electronic mobile boarding passes — plus, the app is available in English, Spanish and Portuguese. BEST AIRLINE VIP LOUNGES: LAN/TAM These newly aligned carriers are investing heavily in VIP lounges, with the El Dorado lounge in Bogotá the first of the stylish new facilities. BEST ROUTE NETWORK OVERALL: COPA AIRLINES This Panamá-based carrier’s relentlessly logical route map, which fans out from one of most centrally located airports in the hemisphere, makes it easy to flit among North, Central and South America.
Big Issue for Business Travel: The expansion and upgrade of Lima’s Jorge Chávez International Airport should improve the travel experience for arriving and departing passengers, and the addition of new hotels will expand offerings in a variety of price points. Cost of Doing Business: Reasonable (room rates $250, meal and incidental expenses $89, maximum per diem $339)
MÉXICO CITY Most Improved Hotel: JW MARRIOTT MÉXICO CITY A $30 million renovation, started in 2013, is bringing refreshed style to the guest rooms and lobby, as well as an expanded fitness center. Meeting rooms are to undergo a revamp in 2014. Best Classic Style: FOUR SEASONS MÉXICO CITY The classic elegance and superb service at this well-located luxury hotel has made it one of México City’s most favored destinations for business travelers. Best Contemporary Style: W MÉXICO CITY Located in the upscale Polanco district, the W México City combines sleek style with business-friendly amenities and location. Most Functional Hotel Meeting Space: CAMINO REAL POLANCO A member of Preferred Hotels and Resorts, the Camino Real Polanco is known for its contem-
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Interesting Meeting/Event Venues: THE INTERACTIVE MUSEUM OF ECONOMICS (Museo Interactivo de Economía) is a logical venue to host business-minded groups. Billed as the first museum in the world dedicated exclusively to economics, the museum’s event space includes a 500-person patio, a 12-person boardroom and multiple meeting rooms. Big Issue for Business Travel: The growth of the Santa Fe business district, with brand-new hotels, meeting and office space, is providing attractive new options for business travelers.
porary Mexican architecture and artwork. But business-minded travelers also take note of the more than 47,000 square feet of meeting space for up to 2,000 people. Best Hotel Value for the Price: FIESTA INN SANTA FE MÉXICO CITY Located in the fast-growing Santa Fe business district, just one block from Expo Bancomer Santa Fe, the Fiesta Inn offers reasonable rates, free breakfast buffet, free Wi-Fi, a businesscenter and access to meeting rooms at the adjacent Fiesta Americana Santa Fe. Best Hotel Concierge/Club Floor: JW MARRIOTT HOTEL MÉXICO CITY SANTA FE The newest JW property in México City, this
hotel features an executive lounge with stylish furnishings, coffee table books and an ample serving area for food and drinks. Free services include a full American breakfast, afternoon tea, hors d’oeuvres, dessert, non-alcoholic beverages and pressing of two garments per stay. Noteworthy Convention/Event Facility: PEPSI CENTER WTC In 2012, the World Trade Center unveiled a second theater, the 3,000-seat Pepsi Center, which offers 52,000 square feet of expo space. Best Equipped Convention/Event Facility: CENTRO BANAMEX This convention and exhibition center has more than 366,000 square feet of exhibition space, as well as 32,100 square feet of meeting space.
BEST AIRPORT IN SOUTH AMERICA: LIMA, JORGE CHÁVEZ INTERNATIONAL AIRPORT Multiple VIP lounges and a well-regarded airport hotel help make this one of the region’s best terminal facilities. Expansions and upgrades should make it even better.
BEST AIRPORT IN CENTRAL AMERICA: PANAMÁ CITY, TOCUMEN INTERNATIONAL AIRPORT A new concourse is already up and running, and an ambitious new construction plan will result in space unequaled anywhere in Central America.
MOST IMPRESSIVE AIRPORT UPGRADE: BOGOTÁ, EL DORADO INTERNATIONAL AIRPORT El Dorado is undergoing the greatest reconstruction in its history, providing much-needed relief to passengers. BEST INDEPENDENT AIRPORT VIP LOUNGES: AMERICAN EXPRESS With locations at airports in México City, Buenos Aires and São Paulo, American Express offers easy access to Platinum cardholders.
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Cost of Doing Business: Reasonable to expensive (room rates $244, meal and incidental expenses $118, maximum per diem $362)
PANAMÁ CITY Most Improved Hotel: BRISTOL PANAMÁ A member of Leading Hotels of the World, the Bristol Panamá debuted a brand-new tower in 2012 with tastefully designed, spacious and well-appointed guest rooms, a lounge, swimming pool and spa. Best Classic Style: THE BRISTOL PANAMÁ Luxurious condominium-style apartments feature handsome, conservative yet stylish décor, making it easy to settle in and get to work. Best Contemporary Style: WALDORF ASTORIA PANAMÁ The first Waldorf Astoria hotel to open in Central or South America, this Panamá City hotel exudes contemporary yet comfortable style, with a rich cream and café con leche palette accented with dramatic touches of gold. Most Functional Hotel Meeting Space: EL PANAMÁ CONVENTION CENTER & CASINO A member of Summit Hotels & Resorts, El Panamá has so much meeting space – enough for 3,000 delegates — that it partners with other area hotels to offer a variety of accommodation options to fit different budgets.
PHOTO: COURTESY OF FOUR SEASONS HOTEL
Four Seasons México City
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Best Hotel Value for the Price: TRYP BY WYNDHAM PANAMÁ CENTRO Centrally located in the El Cangrejo district, the TRYP offers free Wi-Fi, breakfast and parking, and has three meeting rooms and a VIP room. Best Hotel Concierge/Club Floor: MIRAMAR PANAMÁ, AN INTERCONTINENTAL CITY HOTEL The InterContinental Miramar has always been known for offering some of the best views of any Panamá City hotel. Guests on the executive floors can enjoy the panorama while sipping on cocktails and enjoying hors d’oeuvres and breakfast.
Waldorf Astoria Panama
Noteworthy Convention/Event Facility: NEW PANAMÁ CONVENTION CENTER It’s taking longer than expected to build, but the brand-new convention center rising along the Amador Causeway, near the mouth of the
BEST OVERALL: HERTZ With its impressive global presence and robust loyalty program, Hertz remains a popular choice with business travelers.
Panamá Canal, will add more than 613,000 square feet of new space to the city. Best Equipped Convention/Event Facility: ATLAPA Until the brand-new convention center opens, the king of the hill is Atlapa, which sits across the street from the Sheraton Panamá Hotel & Convention Center. The eight-acre complex can accommodate up to 10,500 people. Interesting Meeting/Event Venues: BIOMUSEO Famed architect Frank Gehry’s first creation in Latin America, the BioMuseo — which focuses on ecological and cultural exhibits — is sure to be a popular venue for private events when it finally opens in 2014. Big Issue for Business Travel: Factors making Panamá City more attractive for business travelers include the expansion of Tocumen International Airport, extremely competitive hotel rates due to massive hotel growth, and the promise of improved traffic/ transportation situation following the opening of the city’s first Metro rail line.
BEST PAN-LATIN PRESENCE: AVIS BUDGET GROUP Avis, which operates in 19 Central and South American nations, in 2013 became the preferred car rental supplier of Aeroméxico’s Club Premier, providing still more accrual and redemption opportunities for loyal flyers and renters.
Cost of Doing Business: Inexpensive (Maximum room rates $158, meal and incidental expenses $96, maximum per diem $254)
ONE TO WATCH: SIXT
BEST LUXURY CAR OPTIONS: In México, HERTZ offers customers a Prestige Collection that features BMW and Mercedes Benz.
BEST SOUTH AMERICA PRESENCE: LOCALIZA Localiza recently inked a new partnership with GOL Linhas Aéreas Inteligentes, offering special discounts and booking abilities. FASTEST GROWING IN SOUTH AMERICA: UNIDAS This Brazil-based car rental company, which entered a 15-year agreement with Alamo Rent A Car and National Car Rental in 2012, announced initial public offering plans in 2013, to help fund expansion of its network. The company also established a marketing agreement with TAM Airlines. BEST VIP/LOYALTY PROGRAM: HERTZ Hertz currently offers Gold Plus Rewards in México City and Cancún, and will expand the program to more locations in 2014. In addition, Hertz has frequent traveler agreements with several major airlines that serve the region, including LAN, Aeroméxico and Avianca.
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RIO DE JANEIRO Most Improved Hotel: COPACABANA PALACE BY ORIENT-EXPRESS In 2013, this legendary hotel finished a $20 million upgrade, with refurbished guest rooms, a revamped Cipriani restaurant and larger lobby. Best Classic Style: COPACABANA PALACE BY ORIENT-EXPRESS This hotel’s stately neoclassic style and upscale service and amenities have attracted politicians, celebrities and business travelers since long before commercial jets began touching down. The formula still works. Best Contemporary Style: FASANO RIO DE JANEIRO The São Paulo brand’s Rio debut has set new standards for Rio’s boutique hotel scene.
PHOTO: COURTESY OF HILTON HOTELS
This Germany-based rental car company added its newest Latin American destination in October 2013, when it debuted in Chile, offering a fleet of premium BMW brand vehicles.
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Best Equipped Convention/Event Facility: RIOCENTRO One of the hosts for the 2016 Olympics, Riocentro is investing in upgrades, while the adjacent new Grand Mercure hotel, slated to open in 2014, will make it even more convenient. Interesting Meeting/Event Venues: MARACANÃ STADIUM Upgrades for the World Cup are making this famous stadium more comfortable for the general public, while the new museum and VIP areas will also make it more attractive for business events and groups.
Most Functional Hotel Meeting Space: SHERATON BARRA HOTEL & SUITES Located in the fast-growing and increasingly important Barra da Tijuca neighborhood, the Sheraton has nearly 12,000 square feet of meeting space.
Best Hotel Concierge/Club Floor: SOFITEL RIO DE JANEIRO COPACABANA The Club Lounge has a business center for private meetings as well as a veranda that offers beautiful views of Rio’s beaches.
Best Hotel Value for the Price: RIO OTHON PALACE Tour groups may crowd the lobby desk, but savvy business travelers enjoy the value and convenience of the VIP check-in and service.
Noteworthy Convention/Event Facility: CENTRO DE CONVENÇÕES SULAMÉRICA Located in the Cidade Nova business complex, SulAmérica offers space for business meetings, events and parties.
Big Issue for Business Travel: Progress may be slower than planned, but the World Cup and Olympics are bringing an influx of investment in new hotels and infrastructure investment — especially downtown and in Barra da Tijuca. Business travelers should reap the benefits of increased choice and competition. Cost of Doing Business: Expensive (Maximum room rates $361, meal and incidental expenses $157, maximum per diem $518)
SANTIAGO DE CHILE
NUMBER OF MEETINGS IN THE AMERICAS BY COUNTRY:
BY CITY:
1. 2. 3. 4. 5. 6. 7. 8.
1. 2. 3. 4.
U.S.A.: 833 (up from 759 in 2011) Brazil: 360 (up from 304) Canada: 273 (up from 255) Argentina: 202 (up from 186) México: 163 (up from 175) Colombia: 138 (up from 113) Chile: 101 (up from 87) Uruguay: 56 (up from 46; has jumped ahead of Perú)
9. Perú: 51 (down from 55) 10. Ecuador: 43 (first time on top 10 for Latin America; knocking Paraguay off the top 10 list)
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Buenos Aires: 99 (up from 94 in 2011) Rio de Janeiro: 83 (up from 69) São Paulo: 77 (up from 60) Montreal: 67 (up from 50, jumped ahead of Vancouver, Washington D.C., México City)
5. Santiago de Chile: 61 (up from 49; jumped ahead of Vancouver, Washington D.C., México City)
6. Toronto: 60 (up from 44) 7. México City: 52 (up from 51) 8. Bogotá: 50 (up from 44; jumped ahead of Vancouver, Washington D.C.)
9. Vancouver: 49 (down from 55) 10. Washington, D.C.: 48 (down from 51)
Most Improved Hotel: INTERCONTINENTAL SANTIAGO A new tower built in 2011 has added 81 new guest rooms, two swimming pools and additional meeting and event space. Best Classic Style: THE RITZ-CARLTON SANTIAGO Located in the El Golf neighborhood, the Ritz-Carlton features stately design details and service that includes daily wine tastings. Best Contemporary Style: W SANTIAGO Starwood’s W brand is known for hip design statements, and the W Santiago is no exception — especially in the aptly named Extreme Wow Suite, which has a 1,905-square-foot private terrace.
PHOTO: COURTESY OF STARWOOD HOTELS
Perhaps it’s fitting that the 2015 congress of the International Convention and Convention Association (Icca) will take place in Buenos Aires, Argentina. After all, that city continues to outrank all others in the Americas when it comes to the number of international association meetings hosted. The city received more than 2.2 million foreign visitors in 2012. With the release of the 2012 Country and City Rankings, Icca is reporting another year of continued strength in the international association meetings market. Nearly all of the top 10 nations and cities in the Americas reported increases in the number of meetings hosted.
THE BEST OF TRAVEL
PHOTO: COURTESY OF IHG HOTELS
PHOTO: COURTESY OF MARRIOTT INTERNATIONAL
Interesting Meeting/ Event Venues: CENTRO CULTURAL ESTACIÓN MAPOCHO This historic former train station has been recast as a cultural center, with 33 different spaces for private group use.
Most Functional Hotel Meeting Space: INTERCONTINENTAL SANTIAGO The recent addition of a second tower has only added to the InterContinental’s appeal for business gatherings; with more than 27,000 square feet of meeting space, it’s one of the largest venues in the city. Best Hotel Value for the Price: CROWNE PLAZA SANTIAGO Extensive meeting facilities and amenities, as well as a central location on Av. Libertador Bernardo O’Higgins, make this hotel a stalwart with business travelers. Best Hotel Concierge/Club Floor: GRAND HYATT SANTIAGO The Grand Hyatt’s “hotel within a hotel” concept, the Grand Club, features 38 rooms and 23 suites, and a private, three-story atrium lounge that features board games, a billiard table and free breakfast, as well as impressive views of the Andes. Noteworthy Convention/Event Facility: CENTRO PARQUE EVENTOS & CONVENCIONES Located in Parque Araucano, near the Las Condes business and commercial district, this venue offers 92,600 square feet of space for everything from small business meetings to large fairs and shows. Best Equipped Convention/Event Facility: CENTRO DE CONVENCIONES ESPACIO RIESCO With more than 355,000 square feet of pavilions and covered areas, Espacio Riesco has lots flexible event and meeting space.
Big Issue for Business Travel: In 2013, the first phase Ritz-Carlton of a renovation and Santiago expansion project started at Santiago’s Comodoro Arturo Merino Benítez International Airport. Already a big hub for LAN Airlines, the expansion — which will grow capacity to 16 million passengers per year by 2015 — should bring new flight options for travelers. Cost of Doing Business: Reasonable (Maximum room rates $190, meal and incidental expenses $96, maximum per diem $286)
SÃO PAULO Most Improved Hotel: INTERCONTINENTAL SÃO PAULO Fully renovated in 2011, the InterContinental São Paulo’s stylish redesign includes interactive guest check-in stations, a revamped lobby, expanded Club Lounge and guestrooms with new furniture and lighting. Best Classic Style: GRAND HYATT SÃO PAULO Attractive, thoughtful design and amenities, with an eye on business travelers’ needs, keeps this hotel top-of-mind with many frequent flyers.
Most Functional Hotel Meeting Space: GRAND HYATT SÃO PAULO With nearly 33,000 square feet of meeting and event space, as well as multiple dining options and business services, the Grand Hyatt São Paulo makes it easy to do business. Best Hotel Value for the Price: MERCURE SÃO PAULO A prized central location, decent amenities and business services help the Mercure stand out among mid-range hotels. Best Hotel Concierge/Club Floor: GRAND HYATT SÃO PAULO In addition to free Wi-Fi, continental breakfast, evening cocktails and hors d’oeuvres, Grand Club guests also get one hour of free use of the Club Lounge meeting room. Best Equipped Convention/Event Facility: ANHEMBI PARQUE More than 100,000 square feet of flexible meeting and event space puts Anhembi Parque firmly on the list of meeting and event planners. Interesting Meeting/Event Venues: PINACOTECA DO ESTADO DE SÃO PAULO The oldest art museum in the city allows private groups to meet and socialize amid a stunning collection of international art.
InterContinental São Paulo
Best Contemporary Style: HOTEL UNIQUE Is it a giant slice of watermelon, an extraterrestrial spaceship or simply an eye-catching bit of modern architecture? However you may view it, Hotel Unique serves up lots of style and an array of refreshing amenities.
Big Issue for Business Travel: The new Terminal 3 at Guarulhos International Airport is scheduled to open by May 2014, adding 22 gates and additional aircraft parking. Terminals 1 and 2 are slated for renovation next. Cost of Doing Business: Expensive (Maximum room rates $282, meal and incidental expenses $145, maximum per diem $427)
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UNDISCOVERED RUSSIA
CNG gas compression system company based in Buenos Aires,with business in different parts of the country. And Russian imports just keep on growing. Consumers are eager for foreign goods. They’re looking for foods that are exotic or of better quality, tools, machinery, mass-produced or designer consumer goods, everything the world has to offer. And they can pay for them. Imports have grown from less than $5 billion per month in January 2004 to a crescendo of $28.8 billion in September 2013, and the graph is still pointed north. Where does Latin America fit into all this? In 2012, its sales there barely reached $12 billion, out of a total of $316 billion imported into Russia. Most of those imports went to Moscow or St. Petersburg, leaving a vast market wide open in the rest of the country. That’s the situation in the Federal District of the Urals, one of the eight districts into which Russia is divided, and one of the nation’s richest mining and industrial areas. Within this district, the region posting the strongest growth is Sverdlovsk, whose capital is
Yekaterinburg is a dynamic market eager for Latin American products and investments. BY ÉLIDA BUSTOS
R
ussia is open for business, with 140 million people keen to consume. But, not everything happens in Moscow or St. Petersburg. Russia’s third city, Yekaterinburg, located east of the Urals, the mountain chain that divides Europe from Asia, is settled in one of the nation’s most
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mineral-rich regions and opens the door to Russian Asia. A flourishing city with a dynamic economy is looking to Latin America for its most emblematic products. “Each Russian region is a country in its own,” said to Latin Trade Osvaldo del Campo, CEO of Galileo, a
PHOTO: ÉLIDA BUSTOS
TRADE
Yekaterinburg, Russia’s third largest city. Latin America’s trade with the Sverdlovsk region is very small: it was barely $350 million in 2012, and most of that was in basic products. “The level of development of the Russian capital and St. Petersburg is well beyond ours, but we’re closing the gap,” Vladimir Solovarov, Sverdlovsk’s vice minister of international relations, told Latin Trade. “The rates of industrial growth here have been four times higher than the national average in recent years. The region of Sverdlovsk and Yekaterinburg is in third place in Russia for volume of industrial production, trade, and square meters occupied by supermarkets,” he added Sverdlovsk is also working to develop incentives for companies to invest in its territory. “We know the conditions Moscow can offer can be very favorable at the start-up stage, but later on the costs are much higher,” said Andrei Becedin, president of the Ural Chamber of Commerce, based in Yekaterinburg. “Moscow can be two or three times as expensive.” And, added Solovarov, “Yekaterinburg is
an industrial and logistical center for the most easterly part of Russia. It’s not worth the trouble to go to Moscow or St. Petersburg to buy products and take them to the cities of Siberia.” Businessmen in Yekaterinburg are interested in setting up trade contacts with Latin America. “Now we are trying to open up the Sverdlovsk region to Latin America because it’s not well known there,” said Zhanna Belayeva, a business consultant and director of the Center of Research for Excellence in Global Social Responsibility at Ural Federal University. Belayeva also told Latin Trade there are plans for export in “optical and mechanical goods, and medical infrastructure and instruments.” Early in 2013, the Ural Chamber invited commercial representatives from Latin America to a round of negotiations, and consular officials from Argentina, Brazil, El Salvador, Nicaragua and Ecuador attended. “Latin America is becoming a partnership strategy for Russia,” said Belayeva. Becedin finished the thought: “Our products don’t compete there,” he said. “The strength of
Sverdlovsk is in metals and metallurgical products, such as pipes or rails for railway lines. But, in addition to simple metals, the region works with more valuable metals like copper, aluminum and titanium, and is a leader in this.” Traditionally, Latin American exports to this region in the heart of Russia have been food, especially fruit such as bananas, oranges, grapefruit and pineapples. But the region is open to buy meat, coffee, sugar, flowers, and many other products. From Buenos Aires, Matías García Tuñon, coordinator general of the Argentina-Russia Chamber of Commerce and Industry completed the scene. “They are consuming more and more. It’s a curve, not a straight line,” he said. In the World Bank report Doing Business 2014, Russia improved 20 places to number 92, and in the World Economic Forum’s Competitiveness Index for 2013-2014, the country places 64th out of 144, having moved up three positions in the last year. See more at www.latinbusineschronicle.com
Élida Bustos reported from Ekaterinburg.
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A LAB FOR REFORMS
Cars are driven to the entrance of the free trade zone in Shanghai, China. China has devoted an island to free trade. On an area of 11 square miles, China will test its future economy.
The Shanghai Free Trade Zone was created as the test bed for reforms, which will facilitate outbound investment of Chinese companies. Infrastructure will probably lure these firms to Latin America.
T
he Shanghai Free Trade Zone was eerily quiet when it opened for business three months ago. Vacant office towers stood over empty truck terminals, as if built out of Lego. But as new regulations take form, analysts say the low-key launch could translate into a big boost for Chinese outbound investment— with Latin America among the regions set to benefit. Officials launched the 11-square-mile zone on Sept. 29 as “a test bed” for wider economic reforms, especially in the financial sector. Among the changes, firms and individuals operating there will be able to convert money more easily from the Chinese yuan to foreign currencies, and move it overseas. “China’s leaders realize they have too much foreign exchange reserves. They want to encourage Chinese investors to go out and spend,” said Gary Liu, executive deputy director of the Ceibs Lujiazui International Finance Research Center, referring to the new guidelines on currency convertibility. Latin America’s trade commissioners will likely be looking for an opening. Latin America has huge infrastructure needs, for example, but often lacks the capital for new highways and port terminals. In a November working document, the Economic Commission for Latin America and the Caribbean (Eclac) put Chinese foreign direct investment in Latin America at an average $10 billion a year in the region since 2010. The totals were unexceptional compared to other regions, but up dramatically from just a few years earlier. They showed investment concentrated in the oil and mining sectors, with expansion into electricity and automobiles. “Chinese FDI in infrastructure has been relatively modest so far,” the document noted, “despite the fact that many Latin American governments actively seek out Chinese investments in this sector.”
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Before the Shanghai Free Trade Zone, Chinese firms wanting to invest overseas had to seek approval from three different government entities, including the powerful National Development and Reform Commission and the Commerce Ministry. The process was “time consuming” and “painful,” Liu said. Inside the pilot zone, outbound direct investment will require little more than a bank transaction. Daniel Rosen, who runs the China practice at Rhodium Group, an economic advisory firm, said outbound investment in Latin America by Chinese firms would likely follow export trade patterns. “As these firms try to maintain existing market share and market share growth in Latin America, they will need to deliver an ever-improving value proposition to consumers,” he said. “In all the light manufacturing categories where China is already a significant exporter to Latin America– consumer electronics, apparel, electric machinery, auto parts – one can expect growth of direct investment flows to show up.” Globally, the Rhodium Group projects China’s outbound foreign direct investment stock will grow to $1–2 trillion by 2020, from the current $500 billion. A big question mark looms over whether officials will eventually expand reforms outside the Shanghai FTZ, and to what degree. Meanwhile, zone administrators have published a so-called ‘negative list,’ detailing restrictions on investment within 16 major industrial categories inside the zone. They are expected to scale it back over time. Even with the negative list in place, Liu said the Shanghai FTZ marks a bold step. “I think (Chinese) leaders have realized they must upgrade the economy,” he said, “and they have started to integrate even further into the world economy.” Ruth Morris reported from Shanghai.
PHOTO: STEPHAN SCHEUER/DPA/PICTURE-ALLIANCE/NEWSCOM
BY RUTH MORRIS
TRENDS
The Rising Stars of Latin America 1. Luiz Aboim, Freshfields Bruckhaus Deringer 2. Carlos Albarracín, Milbank Tweed 3. John W. Anderson Jr., White & Case 4. Felipe Berer, Akerman 5. Maurice Blanco, Davis Polk 6. Antonio Borja Charles, Galicia 7. Grenfel Calheiros, Simpson Thacher & Bartlett 8. Francisco J. Cerezo, Foley & Lardner 9. Enrique Conde, Greenberg Traurig 10. Vivian de las Cuevas-Diaz, Holland & Knight 11. Pedro Echeverría, Claro & Cía 12. Daniel Fridman, Holland & Knight 13. Carlos F. Gonzalez, Diaz Reus 14. Patrick Jackson, Clifford Chance 15. Chantal E. Kordula, Cleary Gottlieb 16. Mark López, Greenberg Traurig 17. Juan Francisco Méndez, Simpson Thacher & Bartlett 18. Victor G. Mendoza III, White & Case 19. Felipe Moro, Carey 20. Carlos Núñez-Vivas, Waserstein Nuñez & Foodman
RISING LEGAL STARS
21. Maria-Leticia Ossa-Daza, Wilkie Farr & Gallagher
The list, Rising Legal Stars of Latin America, honors 25 lawyers who are quickly making a name for themselves in legal issues concerning Latin America.
22. Alexandro Padrés, Shearman & Sterling 23. Anja Pfleger Andrade, Clifford Chance 24. Fabian Pal, Fowler White Burnett 25. Fábio Yamada, Proskauer Rose
W
ith its annual ranking Latin Legal Stars, Latin Business Chronicle honors those lawyers who have reached the pinnacle of their careers – universally recognized as senior statesmen by colleagues and the clients they serve. The list recognizes those attorneys at U.S. law firms with a strong professional connection to Latin America, as well as Latin American lawyers who are renowned as counsel in Latin American business. This year, the market intelligence service that is part of Latin Trade Group decided to introduce a new ranking: The Rising Stars of Latin America. This list honors 25 lawyers who are quickly making a name for themselves in legal issues concerning Latin America, and are among the most qualified in dealing with the business environment there. These attorneys are the up-andcomers, those quickly gaining a reputation for excellence in their field. The list includes lawyers involved in capital markets, M&A, project finance, arbitration, and real estate. They come from a number of firms and countries, with backgrounds in a number of fields. They practice in the United States, Argentina, Brazil, Chile, Colombia, México and have a reach throughout the region. They have served major corporations and banks, as well as Latin American sovereigns. The list includes lawyers with diverse expertise and backgrounds.
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One example is Alexandro Padrés of Shearman and Sterling, who is dualcertified in the United States and México, and has a specialization in infrastructure finance, specifically in the oil and gas sector – an increasingly interesting field given México’s recent energy reform. Another interesting lawyer is Miami-based Vivian de las Cuevas-Diaz of Holland and Knight, a former president of the Cuban-American Bar Association, who provides counsel to public and private investors for lending to real estate projects throughout the United States. And, Chantal E. Kordula of Cleary Gottlieb, who has worked with project finance with some of the region’s largest energy companies and financial institutions, including Suez, Highstar Capital, Bimbo, Pemex, and Grupo Kuo. Also notable is Carlos Albarracín of Milbank Tweed, who is a specialist in cross-border M&A, and is praised for his knowledge of the Colombian and Méxican markets. Though representing diverse practices, specializations, and geographic locations, what unites these lawyers is their reputation for excellence, and their commitment to resolving and facilitating the legal concerns of Latin America. These are truly the lawyers to keep an eye on, and are individuals that should show up in Latin Legal Stars in the coming years. Mark Keller reported from Miami.
PHOTO: ©ISTOCKPHOTO.COM/MATHEESAENGKAEW
BY MARK KELLER
THE
BUSINESS DEALS IN LATIN AMERICA IN 2013 Latin America racked up more than $20 billion dollars in the 10 largest mergers and acquisitions. Two other important deals in the region added another $15 billion. Brazil, México and Colombia are the leading players in this story.
Bottles of Corona beer, distributed and marketed in the U.S. by Constellation Brands, are seen in México City.
I
t took until mid-2013 to finalize the $20.1 billion acquisition by the Belgian firm Anheuser-Busch InBev of Grupo Modelo that began more than a year earlier. The final piece in the puzzle of this mammoth acquisition became the largest business deal in Latin America last year. It involved AB InBev’s sale to Constellation Brands of Compañía Cervecera de Coahuila – a sophisticated brewery on the Mexican border
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with Texas – for $2.9 billion, together with the rights in perpetuity of the Grupo Modelo brands in the United States. The Belgian company orchestrated the move so that the American competition authorities would give it the green light to acquiring the rest of the Mexican brewery. Rob Sands, the president and CEO of Constellation Brands said, “The agreement with AB InBev will make the brewery division of Constellation’s crown a fully independent competitor, and the third largest producer and distributor in the United States brewery industry.” AB InBev CEO Carlos Brito, commenting on the sale, said that “the transaction of AB InBev and Grupo Modelo has always been about México and making Corona a more global brand in all the different markets of the United States, where the brands will be the property of Constellation.” Although it’s true that the U.S. is the biggest market for the more than 31 million barrels of Corona that are sold every year in more than 170 countries, for Brito the most important thing was to complete the total acquisition of Grupo Modelo, since that “will enable us to move expeditiously to the process of integrating Modelo and the capture of about $1 billion in synergies, a number that exceeds the $600 million that we initially estimated.” The region’s second biggest deal was done by the Brazilian food giant
PHOTO: EDGARD GARRIDO/REU TERS/NEWSCOM
BY ÁLVARO MORENO
DEALS OF THE YEAR Carlos Brito, CEO of the brewery group, AB InBev.
PHOTO: TOP: AFP/GETTY IMAGES
BOTTOM: ELIARIA ANDRADE/O GLOBO DE BRASIL/NEWSCOM
The transaction of AB InBev and Grupo Modelo has always been about México and making Corona a more global brand in all the different markets of the United States, where the brands will be the property of Constellation. JBS with its acquisition of Seara Alimentos in Brazil and Zenda Leather in Uruguay, both owned by Marfrig, for $2.741 billion. With the Seara deal, JBS became the world’s largest producer of chicken, surpassing the American city of Springdale, Arkansas, which had been number one. “With the acquisition, JBS is seeking to expand its portfolio of processed meat products and to capture the synergies of these two businesses,” said Jeremiah O’Callaghan, investor relations officer of JBS in a press release. That deal, which turned out to be the largest in Latin America during the first quarter of 2013, was also in the top 100 largest transactions worldwide, as number 68. Another Brazilian business also arrived in the top 100 global mergers and acquisitions in the first quarter of 2013, at number 78. This was the region’s third largest deal last year, featuring the merger of the university operator Anhanguera Educacional Participações and Kroton Educacional, a deal with a value of $2.639 billion. With that transaction, Kroton
became the world’s largest for-profit private educational operator, with a million students in 835 cities in every Brazilian state, more than 32,000 employees, and annual revenues of more than $2.1 billion. The region’s fourth most important deal was the acquisition of 100 percent of the shares of Petrobras Energía Perú by China’s biggest oil company, China National Petroleum Corporation (Cnpc), for $2.6 billion. “The acquisition of these assets will help to expand the scale of cooperation of Cnpc in petroleum and gas in Latin America, and will mark the sustainable development of Cnpc’s businesses beyond China’s borders,” said the Chinese Petroleum giant’s official press release. Petrobras has been in Perú since 1996 with exploration projects through much of the territory. It has made important discoveries such as the Urubamba, Picha and Taini wells in the department of Cuzco. It decided to sell these shares as part of its disinvestment program. That program, called Prodesin, is spelled out in the Brazilian company’s Business and Man-
JBS purchases Seara Alimentos in Brazil.
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DEALS OF THE YEAR
agement Plan 2013-2017 as a way to develop the discoveries it has made on the Atlantic coast of its home country. The fifth largest Latin American transaction in 2013 again involved Brazil, as a seller. Eike Batista, the Brazilian billionaire, ran into difficulties with his mining empire and was obliged to offload some of his shares, among them his 65 percent interest in MMX Porto Sudeste, which passed into the hands of Impala, a subsidiary of the Trafigura group, and Mubadala Development Company, the powerful investment arm of the government of Abu Dhabi. The transaction closed for $2.42 billion. The property is a modern and powerful Rio de Janeiro port for shipping iron. The port, which will start operating in mid-2014, was designed to support Capesize ships and will have an initial capacity of moving 50 million tons per year; at full capacity, it will handle 100 million. For Impala, although it was the most important transaction in the region, it wasn’t the only one; in 2013, it also won the bid to build a multimodal logistics system on the Magdalena River in Colombia, to lower the cost of transporting petroleum in the country. Mubadala added these shares to the ones it had already bought in Brazil, of Grupo EBX in 2012 for $2 billion. Colombia was a player in the sixth largest acquisition in Latin America last year, which involved buying the shares of the HSBC bank in
Panamá by Bancolombia, Colombia’s largest bank, for $2.1 billion. Bancolombia has had operations in Panamá since 1973, but with this move it decided to create a new bank, Banistmo, in the Central American country. According to Augusto Restrepo Gómez, corporate vice-president of Bancolombia, the reason behind the deal is that “the Central American financial sector has changed a lot in recent years, and so we see it as an interesting space to move forward with our growth strategy. We saw that we could get in, and we identified in Banistmo an ideal way to add to the development of Panamá.” And, he added, “Our growth is focused on the search for allies with principles and values similar to those of Bancolombia, and with expectations that are aligned with our proposal to follow growth in a sustainable way.” The purchase of HSBC Panamá was the third major acquisition by Bancolombia in Central America. A few months earlier, in December 2012, it bought a 40 percent interest in Grupo Financiero Agromercantil in Guatemala for $216 million, and back in 2006, it acquired Banco Agrícola in El Salvador for $900 million. As well, in 2011, Grupo Sura, Bancolombia’s biggest shareholder, acquired the Latin American pension and insurance shares from the Dutch bank ING for $3.6 billion, in one of the largest Latin American plays of that year. In seventh place is a deal between a Chilean company and an Ameri-
Kroton became the world’s largest for-profit private educational operator, with a million students in 835 cities in every Brazilian state, more than 32,000 employees, and annual revenues of more than $2.1 billion.
PHOTO: PAULO WHITAKER/REU TERS/NEWSCOM
Brazil’s Kroton Educacional SA Chief Executive Officer Rodrigo Galindo
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DEALS OF THE YEAR
PHOTO: PAULO FRIDMAN/POLARIS/NEWSCOM
Chairman of Brazilian conglomerate EBX Group Eike Batista is at the company headquarters.
can one. It’s the acquisition by MetLife of Provida, Chile’s largest pension fund manager, which changed hands for $2.037 billion. The agreement was made possible as a result of the efforts of BBVA to sell 64.3 percent of the shares it had in Provida. With the acquisition of Provida, MetLife increased its revenues from emerging markets from 14 percent to 17 percent. Provida has a 40 percent market share in Chile in terms of customers, and 30 percent in terms of funds under management. The eighth slot occurred between Brazilian and Mexican companies, with the acquisition by México’s Coca-Cola Femsa of Spaipa Indústria Brasileira de Bebidas, for $1.855 billion. With that purchase, the Mexican company said it has raised its volume of sales by 40 percent, to reach a market share of 39 percent by total volume of Coca-Cola in Brazil. With it, Coca-Cola Femsa will be able to service more than 66 million consumers and will increase its participation in Leão Alimentos, the leader in non-carbonated drinks in the country, to 26 percent. Carlos Salazar Lomelín, CEO of the company, which is the world’s largest bottler of Coca-Cola products, stated that “this year we have had the privilege of extending our leadership position in the Coca-Cola system of Brazil, consolidating our geographic position and increasing our family of partners.” And, he added, “The investments our company has made in the country are the bases for a stronger business capable of better serving the nation’s consumers.” México is also the protagonist in the ninth spot in the ranking. Fibra Uno, the largest real estate investment trust in México, spent $1.806 billion to buy 49 industrial and commercial properties belonging to three international investment funds administered by MRP Group of México. Together, the properties acquired add a total of a 11 million square feet of rentable space, with which Fibra Uno chalked up growth of more
than 50 percent in the total area of properties it owns, and enabled it to obtain $373 million in revenues in 2013. “For Fibra Uno, this acquisition is transformational, since it not only enables us to reaffirm our leadership in the real estate industry, but also to add to our valuable platform an information system of the latest generation that will enable us to reach our growth and value creation objectives more rapidly,” Gonzalo Robina, general adjunct director of Fibra Uno told México’s daily newspaper El Economista (México). “By incorporating this portfolio of real estate of high quality and strategic location, our diversification in the different market segments of Mexican real estate will be strengthened. In addition, the acquisition will contribute to significantly increasing our annual revenues, to the benefit of all our investors.” The last transaction in the top 10 of Latin America’s biggest business deals in 2013 is again in the petroleum sector, this time in Colombia, with the acquisition of Petrominerales by Pacific Rubiales Energy, for $1.502 billion. Pacific Rubiales Energy is the largest private producer of crude oil in Colombia and has a presence in 80 exploration and production blocks there, in addition to the nine it has in Perú. “This acquisition is an excellent addition to our strategy, providing an immediate capture of added value through synergies of the shares and attractive measures of growth in production and cash,” said Ronald Pantin, CEO of Pacific Rubiales Energy. 2013 was an important year for Latin American mergers and acquisitions in sectors such as petroleum. Brazil and México continue to dominate the region’s transactions. As in 2012, Colombia continued to be an attractive market that is displacing Chile and Argentina for the bestknown, and most important, transactions in Latin America. Álvaro Moreno reported from Miami.
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LATIN AMERICA 2014 SPECIAL REPORT
GROWTH IS BACK The entrepreneurial ranking for sales and revenues of 50 of the largest Latin American companies points to 2014 being a year of improved performance in sales and profits.
F
or much of the Latin American corporate world, 2013 won’t be remembered as an especially good year in economic terms. On the contrary, many of the region’s companies were battered by the volatility in world markets as new worries emerged about the global economic panorama. The response of Latin America’s business leaders, seasoned as they are by many crises, was not to wait and see. Their cost adjustments successfully compensated for the fall of revenues, and in many cases improved profits. At least that’s what the analysis carried out by Latin Trade on a sample of 50 Latin American firms shows. In addition to including some of the largest ones by sales (taken from our report on the Latin 500, the region’s largest companies, published in our September-October edition), we included some of the most actively traded companies both regionally and worldwide, either in shares or corporate bonds. According to the categorizing that we did and the opinions we received when we consulted with several financial analysis firms, sales of these 50 large companies fell by an average of one percent in dollar terms during 2013 compared with the previous year, but their net profits increased by 17 percent. With the moderately optimistic expectations at the start of the new year, the projections of the analysts consulted suggest that 2014 will be
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a somewhat better year. Although average profits of the 50 companies from our sample are expected to grow at a slower rate than in 2013, the expected change of 14 percent will be quite satisfactory, generating almost $75 billion in net benefits. Moreover, the average increase expected in sales of five percent, rising to $812 billion, will demarcate a recovery compared to the previous year. The aggregate numbers disguise some rather interesting individual performances. For example, by grouping the energy sector companies (which include oil and electricity), you can see that on average, their 2013 sales fell at a much faster rate (three percent), and revenues increases were lower (eight percent) compared with the average of the Latin America 50. These results were heavily influenced by the performance of the giant Petrobras, which was, and continues to be, Latin America’s largest company by sales, with revenues of more than $135 billion last year. The Brazilian state-owned oil company is also a good example of corporate flexibility in difficult times. The internal adjustments it carried out enabled the company to increase its profits by almost 20 percent even though revenues fell by two percent. The betting on Petrobras in 2014 is that it will achieve another significant increase in profits (17 percent) along with a moderate increase in sales (four percent). Another standout
PHOTO: ISTOCKPHOTO.COM/ MRPLISKIN
BY DAVID RAMÍREZ
LATIN AMERICA 2014 SPECIAL REPORT
case within the sector is Pacific Rubiales, the Canadian oil company that operates mainly in Colombia. It is expected to produce rapid growth in sales (16 percent) and profits (17 percent) in 2014 by increasing production, thanks to new extraction methods and its mergers and acquisitions strategy. The dynamism of the retail business will not only be maintained, but will improve in 2014. Wal-Mart de México, Cencosud and Falabella are the dominant players within the retail group we selected. These, together with other companies in the region with sales of less than $10 billion per year, will achieve revenue growth that averages eight percent this year, compared with five percent in 2013. The rate of profit growth will also improve; it’s expected to increase by 17 percent, compared with the 10 percent posted in 2013. It’s anticipated that Cencosud will experience a substantial recovery in its profit margins in 2014, once it has overcome the extraordinary costs it took on as a result of its acquisitions. Another noteworthy case is that of InRetail Perú Corp., which includes supermarket and drug store chains. Its profits could grow by 180 percent in 2014, although from a small base, due to a 16 percent increase in sales. It’s one of the most dynamic retailers within the Latin America 50. The situation of mines and steel mills was complicated in 2013 as a result of the fall of international commodity prices. On average, we expect
revenues from steel companies to grow by seven percent in 2014 after a four percent decline in 2013, while profits will increase, basically due to the recovery of the largest ones by sales, Gerdau and Ternium. Giant mining companies like Vale and Grupo México will improve their sales over the next year according to the analysts consulted, after last year’s disappointing performance, which in the case of the Brazilian company Vale was zero growth, and for the Mexican company, it slid by more than six percent. The group of companies chosen within the food sector had modest sales growth of barely two percent in 2013, but it shone as one of the most profitable groups of the Latin America 50, with earnings up by an average of 64 percent. Sales in this sector should grow by nine percent and net profits by 55 percent in 2014, due to the performance of large Brazilian firms like JBS and BR Foods. Grupo Bimbo increased its sales marginally and will show slower growth than in 2013, but its high average profitability will continue. The closely-related mass consumer drinks sector, led by Femsa de México and Coca Cola-Femsa will also see its sales margins recover in 2014. Maybe 2014 won’t be a record year for the Latin America 50 companies, but current projections indicate that at least the sun is rising on the horizon. David Ramírez reported from Miami.
Petrobras continues to be Latin America’s largest company by sales, with revenues of more than $135 billion last year.
PHOTO: RICARDO MORAES/REU TERS/NEWSCOM
President of Brazil’s oil company Petrobras, Maria das Graças Silva Foster
JANUARY-FEBRUARY 2014
LATIN TRADE
45
LATIN AMERICA 2014 TO P C O M PA N I E S FO R E CA S T
Revenues Company, Country
46
Sector
2013(F) in US$ Mill
2014(F) in US$ Mill
% Change 2014/2013
# of analysts *
$137,014
$142,702.96
4%
14
1
Petrobras, Brazil
Oil & Petrochemical
2
Am茅rica M贸vil, Mexico
Telecom
$59,986
$61,563.86
3%
16
3
Vale, Brazil
Mining/Steel/Iron
$47,132
$47,478.15
1%
22
4
JBS, Brazil
Food & Beverages
$40,975
$44,419.47
8%
12
5
Wal-Mart de Mexico
Retail
$33,220
$36,693.56
10%
14
6
Ecopetrol, Colombia
Oil & Petrochemical
$34,129
$36,684.35
7%
15
7
Grupo Ultra, Brazil
Oil & Petrochemical
$27,737
$28,819.45
4%
5
8
CBD, Brazil
Retail
$26,525
$26,708.75
1%
12
9
COPEC, Chile
Oil & Petrochemical
$24,803
$25,430.12
3%
6
10
Cencosud, Chile
Retail
$20,134
$21,051.33
5%
12
11
Femsa, Mexico
Food & Beverages
$17,619
$20,347.91
15%
6
12
Gerdau, Brazil
Mining/Steel/Iron
$18,005
$18,753.27
4%
10
13
Braskem, Brazil
Oil & Petrochemical
$17,836
$18,640.56
5%
6
14
Alfa, Mexico
Food & Beverages
$15,664
$16,613.26
6%
12
15
YPF, Argentina
Oil & Petrochemical
$16,096
$16,579.40
3%
14
16
Cosan, Brazil
Food & Beverages
$11,601
$16,468.14
42%
5
17
Cemex, Mexico
Cement
$15,116
$16,418.60
9%
7
18
AmBev, Brazil
Food & Beverages
$15,884
$16,291.10
3%
12
19
Telefonica, Brazil
Telecom
$15,685
$15,372.58
-2%
3
20
BR Foods, Brazil
Food & Beverages
$13,920
$14,689.27
6%
4
21
Grupo Bimbo, Mexico
Food & Beverages
$13,924
$14,497.74
4%
10
22
Falabella, Chile
Retail
$12,561
$14,296.25
14%
9
23
Enersis, Chile
Electricity
$12,258
$13,893.40
13%
13
24
LAN, Chile
Transportation
$13,465
$13,866.90
3%
14
25
Coca-Cola Femsa, Mexico
Food & Beverages
$11,663
$12,799.55
10%
12
26
Oi, Brazil
Telecom
$12,863
$12,322.12
-4%
9
27
Tenaris, Argentina
Mining/Steel/Iron
$11,130
$11,559.86
4%
3
28
Grupo Mexico, Mexico
Mining/Steel/Iron
$9,465
$10,259.25
8%
4
29
Ternium, Argentina
Mining/Steel/Iron
$9,164
$9,164.17
0%
16
30
Grupo Modelo, Mexico
Food & Beverages
$6,846
$8,971.44
31%
2
31
TIM , Brazil
Telecom
$9,077
$8,958.61
-1%
5
32
Org. Soriana , Mexico
Retail
$8,181
$8,887.74
9%
13
33
Marfrig, Brazil
Food & Beverages
$9,283
$8,863.56
-5%
3
34
CSN, Brazil
Mining/Steel/Iron
$7,715
$8,102.70
5%
18
35
Grupo Carso, Mexico
Holding
$6,675
$7,861.01
18%
15
36
Alpek, Mexico
Oil & Petrochemical
$6,918
$6,808.64
-2%
17
37
Cemig, Brazil
Electricity
$6,555
$6,571.98
0%
17
38
Embraer, Brazil
Aerospace
$5,811
$6,538.56
13%
7
39
CPFL, Brazil
Electricity
$6,583
$6,525.32
-1%
8
40
Liverpool, Mexico
Retail
$5,620
$6,331.60
13%
12
LATIN TRADE
JANUARY-FEBRUARY 2014
LATIN AMERICA 2014 TO P C O M PA N I E S FO R E CA S T
Revenues Company, Country 41
Sector
2013(F) in US$ Mill
2014(F) in US$ Mill
% Change 2014/2013
# of analysts *
Usiminas, Brazil
Mining/Steel/Iron
$5,808
$6,179.55
6%
7
42
InRetail, Peru
Retail
$5,198
$6,143.82
18%
12
43
Éxito, Colombia
Retail
$5,403
$6,091.18
13%
8
44
Lojas Americanas, Brazil
Retail
$5,685
$6,004.65
6%
7
45
Grupo Televisa, Mexico
Media
$5,638
$5,901.26
5%
2
46
Grupo Chedraui, Mexico
Retail
$5,135
$5,552.65
8%
6
47
Pacific Rubiales, Colombia
Oil & Petrochemical
$5,945
$5,495.21
-8%
12
48
CMPC, Chile
Wood & Pulp
$5,025
$5,206.17
4%
7
49
Mexichem, Mexico
Oil & Petrochemical
$4,954
$5,199.91
5%
12
50
Endesa, Spain/Italy
Electricity
$4,247
$5,193.90
22%
7
51
Arca Continental, Mexico
Food & Beverages
$4,692
$5,046.00
8%
2
52
Sabesp, Brazil
Waste management
$4,906
$4,979.75
2%
2
53
Ind. Peñoles , Mexico
Mining/Steel/Iron
$5,225
$4,926.34
-6%
2
54
Telecom, Argentina
Telecom
$4,935
$4,788.76
-3%
2
55
Gruma, Mexico
Food & Beverages
$4,939
$4,598.89
-7%
2
56
Copel, Brazil
Electricity
$4,113
$4,043.53
-2%
2
57
Comercial Mexicana, Mexico
Retail
$3,660
$4,003.52
9%
2
58
GOL, Brazil
Transportation
$3,899
$3,967.55
2%
2
59
Eletropaulo, Brazil
Electricity
$4,030
$3,939.38
-2%
2
60
Magazine Luiza, Brazil
Retail
$3,700
$3,933.40
6%
2
61
Weg, Brazil
Manufacturing
$3,128
$3,268.10
4%
2
62
Natura, Brazil
Cosmetics
$3,187
$3,184.15
0%
2
63
Fibria, Brazil
Wood & Pulp
$3,181
$2,962.62
-7%
2
64
ICA, Mexico
Construction
$2,587
$2,943.42
14%
2
65
Souza Cruz, Brazil
Tobacco
$2,678
$2,789.73
4%
2
F=Forecast * = This is the number of analysts contributing forecasts for the respective company. Sources: 2013 figures from average of responses from Latin Business Chronicle forecasts, Banco Santander; GBM; Invex; Reuters; Bloomberg; 4-Traders; Financial Times 2014 forecasts are an average of data from Thomson Reuters, BofA Merrill Lynch, BTG Pactual, BBVA, Citi Research, Credit Suisse, Banco Santander, GBM, Invex , Bloomberg, 4-Traders, Financial Times. Latin Trade calculations based on exchange rate forecasts provided by Trading Economics.
PROFIT MARGIN
REVENUES AND PROFITS by sector forecast
by sector forecast
% Chg. 2014/2013
Sector
Revenues(F)
Profits (F)
Electricity
3%
-15%
Food & Beverages
9%
30%
Mining/Steel/Iron
6%
2013(F)
Sector Electricity
12%
10%
Food & Beverages
4%
5%
20%
Mining/Steel/Iron
14%
16%
9%
10%
5%
5%
10%
11%
9%
8%
Oil & Petrochemicals
3%
15%
Oil & Petrochemicals
Retail
8%
17%
Retail
Telecom
1%
6%
Other
4%
-6%
F=Forecast
Profit margin=Profit/Revenues
2014 (F)
Telecom Other
Source: Latin Business Chronicle survey 50 companies.
JANUARY-FEBRUARY 2014
LATIN TRADE
47
LATIN TRADE SPECIAL SUPPLEMENT
New paradigm in global logistics calls for creative strategies An imbalance in supply and demand in global logistics and transportation has pushed supply chain management and transport logistics companies to look for resourceful solutions to serve their clients efficiently and responsibly By Susana G Baumann “On me and on budget” is a well-known goal in any business, but it is reaching new heights in the transport logis cs and supply chain management industries as corpora ons are becoming more demanding and expec ng faster, seamless service from their providers. The deep decelera on of the global economy a er the 2008 economic crisis, and factors such as the change in the economies of scale to a shorter produc on and distribu on cycle, as well as an increased supply of shipping capacity with a diminished demand for cargo needs, have forced major transport logis cs and supply chain management providers to look for new strategies to be er serve their clients while responsibly cu ng costs. “Our customers are now looking to have as li le stock possible in warehouses and move their cargo as fast as possible to reach des naons in the least me possible and at the lowest possible cost,” said Poul Hestbaek, Vice President of Hamburg Süd, the thirteenth largest container shipping line in the world and a leading container carrier in La n America trade. “They want their stock underway, to know exactly where that stock is and how fast it is moving. Many are also increasingly nearsourcing; for instance, it takes three days to move goods from Honduras to the U.S. East Coast while it requires 35 days from China,” Hestbaek shared. Nearsourcing gives customers added supply chain flexibility. To be er fulfill those needs, several large companies work together, building consor ums to guarantee high service frequency and efficiency, and achieve adequate vessel u liza on. “The reason behind this new trend is compensa on for low revenue in the industry. Profitability is so low that carriers have to combine services to match
A Hamburg Süd container vessel near the entrance to the Panama Canal. Photo courtesy of Hamburg Süd.
transport space with cargo demand,”Hestbaek explained. “We have to drive out every excess cost of our opera on, the largest being the cost of vessels, the cost of port and fuel consumpon. In order to improve that unit cost, we need to have good u liza on of our vessels and our Photo courtesy of Hamburg Süd container equipment.” A hold up in global GDP growth –the Internaonal Monetary Fund projects global growth of less than 3 percent for 2014 - driven to a great extent by sluggish domes c demand and slower growth in several key emerging markets, resulted in an overall slowdown in container trade. In addion, with the new Panama Canal expansion on its way, carriers have been cascading unwanted ships from the Asia-Europe trade into the Asia-South America routes, which caused an increase in vessel capacity and a rate war. In fact, the industry has been opera ng at a loss in some trade routes. In 2013, the Asia-South America East Coast market saw an average size in-
crease in vessels of 41 percent, over 45 percent in the Europe-South America East Coast trade, and 87 percent in the Asia-South America West Coast trade, according to Drewry Shipping Consultants. Within this increased capacity, rates plunged to nearly a quarter of their 2012 value in some cases, causing major losses in carriers’ revenues. However, Hestbaek is op mis c about the future. “The 2008 crisis whipped out an increasing need for transport. The industry will have to deal with the excess transport capacity for a while. It will take another couple of years before the global economy improves to the extent that transport volume is fully recovered. Just a small further improvement in global GDP will make a significant difference to our industry,” he said. According to industry standards, importers and exporters are as interested in low rates as in the ability of carriers to fulfill the promised level of service. Maersk Line, the largest container shipping company in the world, decided to take their com-
Photo courtesy of Panalpina
LATIN TRADE SPECIAL SUPPLEMENT
mitment one step further for customers last year. “We unveiled the Customer Charter, which sets out specific targets for a range of services from invoice accuracy to the speed of answering phone calls,” said Robbert Jan van Trooijen, chief execu ve for La n America & the Caribbean, Maersk Line. The eight-point performance aspira ons plan is the result of discussions with more than 1,000 regular users and covers service interac ons and opera onal execu on the carrier provides to all customers. Another Maersk recent announcement is the revamp of Sea-Land, their improved and restructured intra-Americas carrier that will be fully opera onal in 2015. “With this announcement, we express our commitment to mee ng the demands of La n American customers that ask for local customer specialists empowered to act quickly and respond to changes in the market,” the chief execu ve explained.
us while also opening doors to opportuni es with new poten al clients.” In La n America, UTi develops global integrated supply chain solu ons in industry ver cals such as automo ve, hi-tech, aerospace, and consumer retail, among others. “For instance, Brazil has become one of the largest automo ve markets in the world in the last year – fi h posi on worldwide in produc on-with 3.6 million cars produced accoun ng for 5.5 percent of its GDP,” she said. According to Gagna, the transporta on of automo ve parts Brazil produces for their own consump on and export to neighboring countries is essen al to the produc on cycle, and plants can lose millions if they are not delivered on me. “We customize solu ons not only according to our clients’ needs, but also according to best prac ces that have worked with other clients. Our teams of
management, according to Cecolim. “Finding a way to make logis cal processes more technologically advanced and environmentally sustainable is a challenge many companies face today. These so-called ‘green logis cs’ are based on improving the use of logis cs resources by using raw materials, green warehousing, ecological transporta on, and by processing and recycling waste, among other things,” he said. The increasing need to speed up shipment as well as to streamline opera onal processes has also been embraced by Panalpina World Transport Ltd., a global provider of freight forwarding and logis cs solu ons with commercial presence in six con nents. “Panalpina is rising as the global leader in providing supply chain op miza on for its customers worldwide. We have developed improved synergies in opera onal processes to reduce processing me, increase produc vity and reduce the margin
Photo courtesy of Panalpina
Photos courtesy of UTi
In addi on, the company has also made a commitment to improve energy efficiency to reduce bunker costs. Early in 2012, Maersk Line had reduced its CO2 emissions per containerkilometer by 11 percent compared to 2011. The company’s absolute CO2 emissions also decreased by 7 percent compared to 2011. “So far, we have now reduced our CO2 emissions by more than 25 percent per container- kilometer since 2007. This was our target for 2020, so we have accomplished our goal eight years earlier,” van Trooijen said. Companies in supply chain management are dealing with new trends in other opera onal aspects. For instance, UTi Worldwide, a leading non-asset-based supply chain management global company with offices in 59 countries, has seen an increase in their clients’ demand for cost reduc on in a new shorter request for proposal (RFP) cycle. “Companies used to send pricing request bids on a two to three-year cycle basis. Now, they are doing it in six to 12-month cycles,” said Miriam Gagna, Regional Vice President for La n America at UTi. “This new dynamic has required our company to become extremely compe ve in order to ensure that current clients will con nue to choose
dedicated and experienced professionals for each ver cal and each region also design best solu ons for each par cular case,” she explained. FedEx has also been at the forefront of using technology to enhance efficiency and produce cost savings by giving customers access to constant informa on about their shipments. “As our customers grow and connect with larger markets at home and abroad, their need for real- me visibility and flexible control over their shipments increases. To meet this demand, FedEx built one of the largest, most dynamic customer informaon technology networks in the world with online tracking tools, web-based shipping systems and mobile applica ons,” said Alex Cecolim, Managing Director, Logis cs, FedEx Express La n America and Caribbean Division. In addi on to providing me-sensi ve service, customers can determine the status of their packages at all possible loca ons along the delivery route in real me via the FedEx website, by using FedEx Ship ManagerTM Lite at fedex.com, or FedEx WorldTM Shipping So ware. Sustainability is another trend that con nues to be a major focus in logis cs and supply chain
for human error,” said Marcelo Caio D’Arco, Panalpina’s Country Manager for Brazil. The company features a fully integrated, endto-end supply chain management applica on that helps customers reduce costs while increasing access and tracking of real- me informa on, from configurable dashboards to end-to-end electronic data interchange (EDI) interfaces and direct web entry. “We are providing added-value to our customers, presen ng them with a different approach to take control of their whole process,” Caio D’Arco explained. The company has made a formidable investment effort at a global level in reviewing and re-discussing each internal procedure to improve accuracy and service performance. With the upcoming spor ng events to be happening in Brazil – the FIFA World Cup in 2014 and the Olympics in 2016–, Panalpina has invested $500,000 in Brazil alone to improve monitoring processes in an cipa on of poten al conges on during and a er the events. The outlook for 2014 seems challenging for all companies compe ng in trade. Those coming up with more crea ve service solu ons will definitely arrive to a safe berth.
BRAZIL COUNTRY REPORT
TH
LARGEST THE
IN THE WORLD
Dramatic improvements in productivity, education and innovation are required for Brazil to become the fifth largest economy in the world. Can it be done?
PHOTO: ©ISTOCKPHOTO.COM/ EDULEITE
BY THIERRY OGIER
50
LATIN TRADE JANUARY-FEBRUARY 2014
BRAZIL COUNTRY REPORT
I
n this country report, we look beyond interim trends and focus on Brazil’s structural issues. Indeed, the short-term is still shrouded with uncertainty, with elections coming up against a backdrop of possible social unrest. In spite of relatively poor performances in the past three years, Finance Minister Guido Mantega remains optimistic: “We are working to increase the growth rates for the Brazilian economy to about four percent. This is the current potential that we see for growth. To reach such rates, we have to, on the one hand, look at ways of increasing domestic investment, which we are already doing. The more than $200 billion concession program underway is an example of that, and this will help,” Mantega said in a reference to the ongoing initiative to modernize infrastructure, which is finally taking off. Brazil is currently the world’s seventh largest economy and is projected to reach the top five over the next two decades. It has already come a long way after years of hyperinflation and recurrent crises, although it still needs to move further. Brazilian officials think big, but sometimes in strange ways. The country is now acquiring fighter planes from Saab to feed its ambition to become a global superpower. There are still a series of basic obstacles in the way. “Human capital is currently one of the main barriers to development. But in the next 20 years, the issue of the skills gap can be addressed and human capital can become a competitive advantage for Brazil,” said André Rapoport, vice president of Sanofi, the pharmaceutical firm, in São Paulo.
In the short-term, some currently fear a repetition of the kind of volatility that prevailed before Lula’s election in 2002. But in spite of the surrounding uncertainty related to the U.S. tapering, Mantega would still rather look at the bright side. “We depend on the recovery of the international economy. If such recovery takes place, even if at modest rates in 2014 and subsequent years, as forecast by the IMF, then we have a safe path to walk towards the four percent.” Looking ahead, the Latin American giant still has a long way to go, but the experts are confident. “Brazil has a young population and is especially diversified in natural resources. It is not unreasonable to think it would rank in the top five [of the world’s largest economies] by 2030,” Deborah Wetzel, the World Bank’s Brazil representative told Latin Trade. “It has managed to take a lot of people out of poverty. I am reasonably optimistic it will continue to be a dominant economy,” she added. Obviously, there is little consensus about the current Brazilian performance, and there is a lot of scepticism regarding the high growth scenario: “A lot of things will have to fall into place for this to happen,” said Danny Leipziger, managing director of The Growth Dialogue in Washington, DC. “Brazil needs improvement in total factor productivity, which has been virtually zero in the past 20 years,” he said. Here, we discuss the key issues needed for the “Brazilian miracle” to become a reality. Thierry Ogier reports from São Paulo.
Rio de Janeiro aerial view with Two Brothers Mountain, Ipanema in background and Rocinha favela in foreground.
JANUARY-FEBRUARY 2014 LATIN TRADE
51
BRAZIL
EDUCATION: CAPITAL DEVELOPMENT
Demonstrators hold a protest on the Esplanade of Ministries in Brasilia. The protest was a call to the government to provide education, health and public services of the same standards as the FIFA World Cup stadiums, according to the NGO Rio de Paz (Rio Peace).
Brazil could do better in terms of education. Experts say that, despite the progress, the Latin American giant still has to turn a deficit into a competitive advantage.
M
any Brazilians still feel helpless when it comes to dealing with public services, and some took to the streets last June to call for schools and hospitals to be built according to “Fifa standards.” While demonstrators may protest against the cost of the soccer stadiums ahead of the World Cup, which is now less than six months away, the quality of public education and health is still a sore point. The performance of 15-year old pupils at the benchmark Programme for International Student Assessment (Pisa) is well under par, with the fifth largest populous country ranking 58th in mathematics and science, and 54th in reading (out of 65 countries) in 2012. “There are still challenges in access to preschools [2-5 years], and teaching teenagers between 15-7 years old,” said Andrea Bergamaschi, project manager at the NGO, “Todos pela educação,” in São Paulo. “Many pupils just leave school without having learned enough. Just a few of them leave high school with sufficient knowledge. And there are also regional inequalities, with the North and the Northeast well behind the South and the Southeast [where the largest business centers are located, such as São Paulo, Rio de Janeiro and Belo Horizonte].” But some things may change. Come 2016, a new legislation will be implemented. All young kids will have to be enrolled in preschools. All towns have had seven years to get ready. This will be a differential according to pedagogues because it is at the preschool level that abstract reasoning is stimulated, which will make a huge difference in children’s ability to learn at school. In the state of Minas Gerais, municipalities generally benefit from the support of the state-level government to create these preschools. In the long-term, it is expected to improve the quality of service and ultimately, productivity.
52
LATIN TRADE JANUARY-FEBRUARY 2014
Brazil, a country of 200 million inhabitants, currently has 2 million teachers across 200,000 schools. “But academic training is poor. It is largely disconnected from the needs of the 21st century school. It focuses on theory rather than pedagogy and actual classroom management. School is not a center of excellence. The quality will only improve when the teachers improve,” said Bergamaschi. “It needs to be a state policy, not only a government policy which is subject to change depending on the election results.” Many middle-class Brazilians, including an increasing number of the new middle class, avoid sending their kids to public schools and would rather pay to send them to private institutions, even though their quality is rather uneven. But the official from Todos pela Educação rejects the idea that Brazilian public education is a disaster. “This is not a tragedy. There has already been substantial progress,” she explained. There have been great strides in recent years in terms of improving access to public services. A lot of people now have access to education, for instance. The new challenge is to work through the issue of quality.” “Brazil has done well given the demands placed on the system,” added Deborah Wetzel, the World Bank’s representative in Brazil. “[But] the skills have to be in place for people to be able to pick up the technology,” she said. Brazil is also at a critical juncture. “We are going through an important demographic transition. It is a key moment for the development of the country in the next 30 years. If we manage to give such a leap forward, with qualified teachers, Brazil will reach a far more advanced stage in its social and economic state,” concluded Bergamaschi.
PHOTO: STRINGER/BRAZIL/REU TERS/NEWSCOM
COUNTRY REPORT
BRAZIL
Too few companies have managed to combine the advantage of a large domestic market, technical excellence, and the corporate ability to achieve competitive gains. The capacity to innovate, which is currently great among a few Brazilian companies and selected sectors, will have to be disseminated in the rest of the domestic economy. “Brazil has become a country with low indices of competitiveness. There has already been some substitution of domestic output by imports of manufactured goods. But this scenario can be reverted,” said Pfeifer in an interview with Latin Trade. Brazil’s success in agribusiness cannot be ignored. More to the contrary, it must become a source of inspiration. “In the primary sector (agriculture and mineral products), the trend continues to be very supportive. The income from agriculture and mining is expected to remain high for the next 20 to 50 years. This is inexorable; Brazil can count on this. And if you do this by internalizing competitive factors [in the economy], you do have a positive outlook for the country.” Sadia, the poultry exporter that has now merged with Perdigão to form Brasil Foods, provides technological support to small producers to increase their level of income and reduce risk. “When you look in this direction, you see a great dose of technological and market-oriented innovation. What does this mean? It means bringing in the country all that is related to innovation and to competitive advantages compared to the rest of the world. We have done this in agriculture. Brazil is a leader in tropical agriculture, thanks to Brazil’s potential relies heavily on innovation Embrapa and other government agencies.” and leadership. Whereas manufacturing has lost competitiveness, except for aeronautics, Brazilian firms have increasingly developed competitive services in the razil may become greater or smaller. It depends whether it decides financial sector, as well as to a lesser extent, software. Stefanini and Totus to face its issues and whether it decides to exercise leadership,” are examples of companies that have been able to compete globally said Alberto Pfeifer, executive director of the The Business Council of and expanded abroad thanks to the quality of their workforce and an Latin America (Ceal) in São Paulo. One of the issues, apart from “more innovative environment. education” and “less bureaucracy,” is innovation, a key ingredient to Nevertheless, Pfeifer points to the current limits of innovation in Brazil. transform Brazil’s future. “Here, you do not have innovation along the lines of ‘creative destruction;’ “When conditions for innovation are met, the Brazilian executive does you do not have any kind of breakthrough. What you have is a great dose manage to respond in the public as well as in the private sector. Petrobras of gradual innovation. Brazilians are very clever at doing this to be able to is a great innovator, Vale, privatized in 1997, is a great innovator. Embraer, which also used to be state-owned, emerged thanks to innovation,” he said. compete globally.”
INNOVATION:
THE FOUNDATION FOR THE FUTURE
“B
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PHOTO: DESIGN PICS / DIANE LEVIT/DIANE LEVIT/NEWSCOM
COUNTRY REPORT
BRAZIL COUNTRY REPORT
THE LAND OF JABUTIS Reform, educate, innovate. There is a lot to be done. But “that’s doable,” said the World Bank’s Otaviano Canuto. “Brazil can become a developed country in a generation.”
abuti is a species of Brazilian turtles. As could be expected, it does not climb on trees or, as locals say, “jabuti não sobe em arvore.” So, “if you see a jabuti on a tree, it’s because someone put it there,” explained Otaviano Canuto, a senior Brics advisor at the World Bank and a former Brazilian government official. In spite of its huge economic potential, there are still numerous jabutis on Brazilian trees, he said. “No one understands why they are there, but if they are, it’s because someone is making money with their presence,” he argued. Removing vested interests will not be easy. There will be “bloody fights,” said the former secretary for international affairs of the finance ministry under the first Lula administration, and a likely candidate to succeed current finance minister Guido Mantega. There is a widespread consensus in Brazil that the economy can grow at four percent if the right policies are implemented. The problem is, obviously, that there has so far been little consensus about what these required policies are. This may be changing, according to Canuto. If Brazil wants to become a world-class economy, its policymakers need to grasp a series of nettles – and some may well hurt. It is a matter of political will and democratic choice, he told Latin Trade.
WHAT IS YOUR LONG-TERM ECONOMIC OUTLOOK FOR BRAZIL?
Otaviano Canuto, senior Brics advisor at the World Bank
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The current economic growth potential is around two percent. It can increase to a range of four to five percent, provided that government policies aim at improving the quality of education, improving the business environment by reducing waste and improving the infrastructure provision,
PHOTO: FADEICHEV SERGEI ITAR-TASS PHOTOS/NEWSCOM
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BRAZIL COUNTRY REPORT
IF I WAS A FOREIGN INVESTOR, I WOULD BE LOOKING AT BIOTECHNOLOGY, INFRASTRUCTURE AND EDUCATION – THESE ARE THREE HOT AREAS FOR INVESTMENT IN THE COUNTRY IN THE FUTURE. Otaviano Canuto, senior Brics advisor at the World Bank, former Brazilian government official
which will also lead to waste reduction, and the quality of public spending because of the large chunk of the GDP that comes through the public sector. This is a democratic option to be taken by the country.
HOW CAN WE INCREASE FROM TWO PERCENT TO FOUR PERCENT IN THE LONG-TERM? If we implement an agenda along these lines, it is doable. This is what makes the difference between the two percent and the four percent. If waste can be reduced, productivity is higher.
IN OTHER WORDS, WHAT WILL BE NEEDED FROM THE NEXT PRESIDENT? I am a strong believer that whoever wins the election will move towards an agenda in that direction. This has become clear in the case of infrastructure. Also, about public spending, I foresee a convergence of views like in other democracies in the world and in the region. The discussion will hinge on who does better, on who has better instincts with respect to social demands. But overall, I foresee a convergence in economic policy making... The government needs political capital to make these reforms. This will not be done overnight. The fight will be fierce, because interest groups, as in all places of the world, resist changes. I would personally prioritize the fiscal reform, towards simplification, and reduction of the cost of paying taxes. [Also,] not everything that is public spending really benefits poor people, the lower half of the
population. Some entitlements should also be subject to a review. Some of this will take time. But sooner or later, pension entitlements will have to be reviewed. Brazil’s pension system is among the most generous in the world. There are some social assistance policies disguised as pensions. The first task would be to differentiate what is social assistance from what are truly pensions, true compensation for a contribution. Once you make that separation, then review the pensions that are not there for social assistance reasons. And, you can go on with a whole range of public expenditures. The link between the minimum wage and the whole range of pensions is something to be tackled. All of these will be bloody fights.
ARE YOU OPTIMISTIC? WILL DISCIPLINE PREVAIL OVER DEMAGOGY IN THE LONG-TERM? Yes, because reality will impose it. No matter who wins the election. I would say there is a tendency to converge in terms of agenda.
ASSUMING THINGS WILL IMPROVE, WHICH INDUSTRIES WILL BENEFIT THE MOST? If I was a foreign investor, I would be looking at biotechnology, infrastructure, and education – these are three hot areas for investment in the country in the future. [But] instead of thinking of specific sectors, I would say that, provided that the country becomes a good place for entrepreneurship and a place of skilled labor, given the wealth of natural
resources, productivity and competitiveness will deepen in a wide range of sectors. And of course, the level of domestic demand will remain very attractive to foreign investors.
WILL OIL MONEY FROM BRAZIL’S HUGE RESERVES BE USED IN A PROPER WAY, OR WILL IT BE SQUANDERED? The challenge will be on how exactly to define rules to avoid the squandering. When President Dilma says that 100 percent of the rents accrued from the pre-salt will be dedicated to education and health (75 percent and 25 percent respectively,) that bodes well. This rent will not be used to build useless public buildings, to increase the wages of public clerks, or to subsidize uncompetitive, obsolete sectors and so on. But [this is fine] as long as the non-pre salt revenues are not used for that [either]. Otherwise, we would be wasting oil resources. The outcome is not written in stone, it will depend a lot on how society democratically exercises its pressure on governments to avoid careless spending.
THE COUNTRY IS STILL ENJOYING A PERIOD OF DEMOGRAPHIC DIVIDEND; IS IT TAKING ADVANTAGE OF IT, OR WILL IT BE A MISSED OPPORTUNITY? The country seems to be aware of the need to improve the education level, that’s the upside. On the other hand, it seems to be less aware of the need to review pensions. So the answer is mixed.
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MÉXICO P O L I CY A G E N DA
Mexican President Enrique Peña Nieto (R) holds up the document that introduces constitutional reforms in the area of oil and energy in México City, México. The reforms will allow foreign firms to participate in the exploitation of oil for the first time since 1938.
MEXICO’S HOLLOW REFORMS The real impact of the reforms to the energy and telecommunications sectors, and to the political, electoral, and education systems, will remain low until the so-called enabling laws are enacted. The final destiny of reforms is highly dependent on the next round of legislation. The devil is in the details.
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22-page preamble and two modified constitutional paragraphs – this is what President Enrique Peña Nieto sent to México’s Congress on August 12th, 2013. After 14 years of failed attempts to reform the struggling energy sector by his predecessors (Zedillo in 1999, Fox in 2002 and Calderón in 2008), the pressure was on for México’s new administration. Peña Nieto himself had called the sector’s overhaul his presidential legacy, and it had always been at the top of his agenda. Going into his second year in office, with falling approval rates, a cloudy economic and security context, and a crumbling political pact with the country’s main opposition parties, his best chance was clearly then. In mid-December of 2013, a last-minute congressional alliance between the governing PRI and the right-winged PAN finally gave México’s energy reform a wining majority vote. Amending Articles 27 and 28 of the Mexican Constitution put an end to seven decades of “oil nationalism” and the historical prohibition of private, national and foreign ownership across the complete value chain of hydrocarbon extraction, from offshore exploration to selling gasoline. Removing these constitutional locks against private investment in the
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sector represents a gigantic step forward for México. However, it says very little about exactly how the operationalization of this reform will look like, particularly for private investors. In the president’s bill, there was some mention of contracts of shared utility, changes to Pemex’s tax code (which will have to wait until a second fiscal reform initiative from the executive), and outlines of possible compensation schemes for those who generate results in exploration and production. But while the aim of opening up the sector was clear, there was no comprehensive or detailed vision that was suitable for potential investors. The final destiny of this important reform is highly dependent on the next round of legislation. The devil is in the details. Unfortunately, this is the case for many of the recently approved constitutional reforms in México, including last year’s telecommunications bill, and the political, electoral, and education reforms. Beyond strengthening the highly marketable reputation of Peña Nieto as a reformist president, the real impact of these changes in the country’s law will remain low if the so-called enabling laws (secondary regulation, by-laws, norms, regulatory bodies and implementation plans) are not set in place.
PHOTO: ALEX CRUZ/EFE/NEWSCOM
BY ARTURO FRANCO
MÉXICO P O L I CY A G E N DA
Hopefully then, 2014 will be remembered as the year when the appropriate enabling laws were set in place, allowing all Mexicans to benefit from these important constitutional reforms through higher rates of economic growth, decreasing income inequality, and improved living standards. Some of these long-awaited reforms could even expire or see a future setback if follow-up legislation is not enacted upon. México’s main political parties seem fully aware of this, and have been privileging some reforms over others. For example, while the energy reform obtained the required approval of two-thirds of the state legislatures in almost a week, the political and electoral reforms, voted a week prior to the energy bill, have not yet achieved this approval.
So after an impressive display of legislative productivity in México’s Congress, approving in just a few weeks before the Christmas break an unprecedented number of daring constitutional reforms, the question of presidentialism becomes relevant again. Have the reigns of the country’s legislative agenda, and the political power to reach consensus, relocated once again to the executive branch of government?
PHOTO: OMAR TORRES/AFP/GETTY IMAGES/NEWSCOM
HYPERACTIVE CONGRESS OR HYPERPRESIDENTIALISM? While the country’s 1917 constitution closely emulates the United States’ in providing for a clear separation of powers, until recently the Mexican president exercised nearly absolute control over the country, choosing his own successor, and even designating party officials and candidates all the way down to the local level. Much of this power, however, came from unwritten rules within the corporatist structures of the hegemonic PRI. As the new parties began to increase their presence in Congress and win municipal and state elections, these excessive presidential privileges disappeared. In this context, México’s Congress only really came to life within the last two decades. After the mid-term elections of 1997, when absolute majority in the lower house by any party was lost forever, presidents Ernesto Zedillo, Vicente Fox, and Felipe Calderón saw as many as half of their own reform initiatives blocked or delayed by the opposition. Even more telling was the fact that more than 90 percent of the almost one thousand laws passed by Congress during the last administration were originated by the legislative branch, not the executive. Political power in México had clearly moved from Los Pinos to San Lázaro. Mexicans seemed to celebrate the growing independence of the federal legislature in relation to the other two branches of the union. However, a natural consequence of this increased protagonist in the country’s political life was the democratic claim of more effective legislators. After many lost opportunities for important reforms to be pushed forward, México’s federal Congress kept falling short on its primary responsibility: legislating. By 2010, opinion surveys about congress revealed that more than 65 percent of respondents gave lawmakers less than a 50 percent score for overall performance, and almost 70 percent of Mexicans believed legislators did not represent the national interest.
Aerial view of the Centenario exploration oil rig, operated by Mexican company “Grupo R” and working for México’s state-owned oil company PEMEX, in the Gulf of México.
2014: THE YEAR OF ENABLING LAWS The government’s strategy of leaving most details around structural reforms to the enabling law discussions might not be entirely wrong. Separating the political from the technical debates might have been the only way to move forward in many of these areas. With this, 2013 will surely go down in history as a year that significantly changed the institutional scaffolding of México. Peña Nieto and his administration can now proudly wear the frock of true reformers. Hopefully then, 2014 will be remembered as the year when the appropriate enabling laws were set in place, allowing all Mexicans to benefit from these important constitutional reforms through higher rates of economic growth, decreasing income inequality, and improved living standards. Otherwise, the exciting new energy, telecommunications, financial, labor, competition, education, transparency, electoral, and political legislation will be remembered as yet another great opportunity lost in the fine print. Arturo Franco reported from London.
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VENEZUELA P O L I CY A G E N DA
The outlook for 2014 is even worse, with prices in general rising anywhere from 60 to 76 percent in the wake of another expected devaluation of the Venezuelan bolivar, according to independent economists.
MADUROMICS Again, Venezuela is set to post the world’s highest inflation in 2014.
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first year economics student could illustrate amply why inflation is a tax on the poor. Price increases have turned into a paradoxically sustained punishment to the poor in socialist Venezuela, which maintains the infamous record of having the world’s largest inflation, with prices rising by an estimated 55 percent or more in 2013. The outlook for 2014 is even worse, with prices in general rising anywhere from 60 to 76 percent in the wake of another expected devaluation of the Venezuelan bolivar, according to independent economists. While not reaching the hyperinflation experienced by some Latin American nations in the past, these price levels would rank as the highest in the world. In sharp contrast to non-government projections, Venezuela’s ministry of finance recently issued a lowball estimate for 2014, saying inflation would reach between 26 and 28 percent, a figure not taken seriously by independent economic analysts. Ironically, Venezuela is experiencing these higher prices at a time when the government of President Nicolás Maduro is enforcing a wide range of price controls on consumer goods, leading to extensive shortages and an expanding black market. “My guesstimate - assuming the government doesn’t fudge the numbers – is inflation of 55 percent to 56 percent inflation for 2013,” said Robert Bottome, editor of VenEconomy, a bi-lingual publication based in Caracas that has followed Venezuelan economic and political developments since 1982. Caracas Metropolitan Area inflation, according to the Central Bank of Venezuela, was 44.5 percent from January to October 2013, and 51.7 percent in the October 2012-October 2013 period. Up to this point, these were the last figures release by the government, which usually published data every month. Some sectors, such as agriculture, have seen prices rise even more in 2013. Agricultural prices rose by 82 percent. “We expect a devaluation, with a 6.30 bolivars per dollar rate retained
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for certain key products, and 12 bolivars per dollar rate for everything else,” said Bottome, one of the country’s leading economic analysts. A devaluation will push up the bolivar cost of imported goods and services. “With Venezuelan ports in a state of chaos and the government seizing or controlling the means of production, shortages will continue and inflation will be in the 60 to 70 percent region,” Bottome added. At a forum on the Venezuelan economy, the economist Asdrúbal Oliveros said inflation in 2014 could reach 76 percent, as the government continues to print money, according to the Caracas daily, El Nacional. Last October, the International Monetary Fund (IMF) projected Venezuelan end-of-period inflation of 46 percent in 2013, and 35 percent for 2014. What’s causing this inflationary surge? “The main causes of Venezuela’s sharply higher inflation are two,” the VenEconomy editor said. “Reckless government spending has created a huge amount of money running after a limited quantity of goods. Money supply (M2) increased 67.7 percent in the first 11 months of 2013, while manufacturing output stagnated and imports were actually reduced. So where was all that money going to go if it wasn’t to push up prices?” Bottome said. “Shortages are also a cause,” he noted. “Apart from not providing the private sector with dollars for imported components, the government has private industry in a straightjacket of restrictions, controls and disincentives. And in those cases where the government has seized, purchased or expropriated plants, production has collapsed. The result is severe shortages of consumer staples, construction materials and other goods.” President Maduro will have to make profound changes in his economic plans. Until now, 21st century socialism seems to be rendering inflation results reminiscent of almost-forgotten 20th century pure bad economics. Joseph Mann reported from Miami.
PHOTO: JUAN BARRETO/AFP/GETTY IMAGES/NEWSCOM
BY JOSEPH A. MANN, JR.
PHOTO: ©ISTOCKPHOTO.COM/ ERICK4X4
CARIBBEAN
THE
GOLDEN ISLANDS The Bahamas, Trinidad and Tobago, St.Kitts and Nevis, and Antigua and Barbuda have some of the highest per capita income in the region according to the IMF. Some of these islands have a larger per head income than Chile or Argentina. Increased, but modest growth, is to be expected in 2014. BY JOSEPH A. MANN, JR.
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ncreased but uneven growth is expected for 2014 in the Bahamas, Trinidad and Tobago, St.Kitts and Nevis and Antigua and Barbuda, islands which have some of the highest per capita income in the region. These are the “golden islands” of the Caribbean, with per head income which in some cases surpasses that of Chile or Argentina. The English-speaking Caribbean nations are expected to show GDP growth averaging 2.7 percent in 2014-2015, underperforming Central America and the Caribbean as a whole, which is expected to grow 3.2 percent in 2013-14, following a 2.2 percent increase in 2013, Scotiabank, which has a strong presence in the region, said in its December 2013 outlook. The Dominican Republic will continue to be the top regional performer, while Barbados and Jamaica will return to positive growth in 2014, but will still lag behind the pack, the Scotiabank report stated. The World Bank, while noting some improvement in tourist arrivals, warns that high debt levels, relatively weak remittances, current account deficits and other factors will continue to hold back growth. Slight improvements in the U.S. and European economies bode well for Caribbean tourism, but large-scale investments in tourism and construction for most regional countries have not recovered from the Great Recession of 2008-2009. Among the English-speaking countries, these “golden islands” – Trinidad and Tobago, the Bahamas, Antigua and Barbuda and St. Kitts and Nevis – have a special place. Trinidad & Tobago, which stands out because of its large natural gas resources, is making some progress following a year of anemic growth. Finance Minister Larry Howai said recently he has a “very positive” outlook for the economy. “Based on normal performance and reasonable expectation, we anticipate 2014 to see a much stronger return to growth and a much more robust performance,” Howai said at a news conference in Port of Spain. T&T Central Bank said the economy grew by 1.5 percent in 2013 and projected 2.5 percent growth for 2014. In the third quarter of 2013, gas production was sharply reduced due to a major, coordinated maintenance and upgrade operation that temporarily shut down part of the industry.
“2014 will be better because we expect the continued strength of the non-energy sector,” the minister said. “The energy sector will be back up to 100 percent capacity, so our expectation will be a much stronger year for the economy. In 2015, we expect to see – based on some of the investment we see starting to materialize and increased exploration and production activity – an increase to 2.5 to three percent,” he said. Scotiabank sees a slow improvement in the Trinidadian economy for 2014, as the non-energy output, representing almost 60 percent of GDP, has been increasing faster than energy, due to the recent maintenance work, while energy prices have weakened somewhat. Scotiabank expects GDP to expand by around 2.5 percent in 2014-15, after a 1.5 percent in 2013. In the Bahamas, GDP will expand by 2.4 percent in 2014, following 1.8 percent in 2013, according to Scotiabank. The bank pointed to investments in large construction projects in the Bahamas as offsetting the negative performance of the tourism sector, “which has not rebounded completely since the 2008-09 crisis,” the bank reported. “Stop-over arrivals (0.7 million) decreased by 7.3 percent y/y in the first half of the year [2013], while cruise passenger visits (2.8 million) increased by 4.2 percent in the January-July period. The U.S. remains the major source of tourist arrivals, accounting for 76 percent of total passengers. Nonetheless, as the main investment project, Baha Mar concludes, and the resort becomes fully operational (expected in late 2014), tourism will likely pick up, fueling economic activity. Additionally, we anticipate that the U.S. growth rate will accelerate from an expected 1.7 percent in 2013 to 2.8 percent in the coming two years, supporting the recovery in the Bahamas,” the report said. Among the smaller Golden Islands, Antigua and Barbuda are expected to post GDP growth of 3.2 percent in 2014, up from 1.7 percent in 2013, according to the International Monetary Fund (IMF). For St. Kitts and Nevis, the IMF also sees growth of 3.2 percent in 2014, following 1.7 percent in 2013. Joseph Mann reported from Miami.
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ENTREPRENEURS
THE NEW ENTREPRENEURS
LAB 4+ summit of regional entrepreneurs, held in Santiago
Latin American entrepreneurs are beginning to show interesting and innovative products tied to technology, from skin grafts, electric vehicles and logistics to remote ticket sales. Will these products create a new environment for company growth?
I
n a warehouse on the outskirts of Santiago, Daniel Pavez is building what he says will be Chile’s first homegrown electrically powered vehicle. It’s a three-wheeler that runs on lithium batteries, will have a top speed of 43 miles per hour and, when it goes on sale this year, will cost around $9,500. It is called the “Lüfke,” which, in the language of Chile’s indigenous people, the Mapuche, means thunder. Charge the batteries for three hours, and the Lüfke will run for nearly 40 miles. Pavez decided to build it because, a few years ago, he wanted to buy an electric car and couldn’t find one in Chile. Unlike in Europe, there are no tax breaks here for companies importing such vehicles. So, he applied for $80,000 in seed capital from the state development agency Corfo, sold his house to raise extra cash, and built the Lüfke. “We want to show that we can do this in Chile, that we can develop a quality product and that eventually we can export to Europe,” he said. Pavez is one of a generation of Latin American entrepreneurs who are helping to change the culture of the region, making it more open to innovation and less reliant on the traditional export of raw materials. But, it is not always easy. Latin America has a poor record of spending on research and development (R&D). While the countries of the Organization of Economic Cooperation and Development (Oecd) spend an average
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of 2.4 percent of their gross domestic product (GDP) on R&D, Brazil spends around 1.1 percent, and most of the rest of the region well below one percent. In 2010, only 2.6 percent of the world’s applications for patent registration were filed from Latin America, even though the region is home to eight percent of the world’s population. In the 2013 Global Innovation Index compiled by Cornell University and the World Intellectual Property Organization, Costa Rica is the highest ranked Latin American country (39), followed by Chile (46), Argentina (56), Colombia (60), México (63) and Brazil (64). Most punch below their economic weight. Things are starting to change, particularly in Chile, under the guidance of the country’s businessman-turned-president Sebastián Piñera. He declared 2012 the year of entrepreneurship and 2013 the year of innovation. His government has overseen the launch of Start-Up Chile, which offers early-phase entrepreneurs $40,000 and a one-year work visa to come to Chile to develop their ideas. In December, the program selected its ninth generation of applicants. “Three years ago, we had this crazy dream of changing our country’s cultural approach to global entrepreneurship,” said Horacio Melo, StartUp Chile’s executive director. “We still have a long way to go, but the country changed. We now have a start-up ecosystem that works.”
PHOTO: GIDEON LONG
BY GIDEON LONG
ENTREPRENEURS
Start-Up Chile has spawned replicas in Brazil and Perú. The Brazilian version picks 100 technology-based start-ups each year and gives them a combined $20 million in public and private investment to develop their ideas. In Perú, from this year, the state will give $20,000 to early-stage start-ups and up to $50,000 to established companies to help them realize their business ideas.
AND SOME OF THE IDEAS OUT THERE ARE GREAT Jorge Soto is the co-founder of Keraderm, a Colombian company that specializes in skin grafts. When a patient arrives at a hospital in Bogotá with, say, a serious burn, Keraderm takes a tiny sample of their skin and within five days produces three sheets of collagen implanted with the patient’s cells that can then be used for grafts. Because the sheets are made from the patient’s own cells rather than those of donors, the risk of immunological rejection is low. Keraderm’s technology has already been used to treat over 100 patients in Colombia. “We’ve been supported by a government agency called iNNpulsa,” Soto told Latin Trade during a summit of Latin American entrepreneurs in Santiago last December. “They funded us and also helped us join the MassChallenge accelerator program in Boston.” In Brazil, Felipe Itoyama is co-founder of Cargobr, an online platform that helps companies shift cargo around the vast Brazilian hinterland. All too often in Brazil, truck drivers deliver their goods and then return to their starting point with an empty truck. Itoyama says a staggering 46 percent of road freight journeys in Brazil are unproductive. That’s 40 million wasted journeys each year. Cargobr puts companies and transporters in touch with each other so they can fill the empty trucks, reduce the idle fleet and cut costs. In Perú, Gary Urteaga is the co-founder of Cinepapaya.com, which allows customers to buy movie tickets on their mobile devices. “Two years ago, we didn’t know what ‘startup’ meant,” he said. “Until recently in Perú, entrepreneurship was a question of subsistence. People started their own business because they couldn’t get a job and they had to survive, so they sold sandwiches and candies in the street, or washed cars. But now, increasingly, people are choosing to be entrepreneurs rather than being forced into it.” In Chile, Drivetech is a start-up that allows car owners to monitor their vehicles remotely. The company installs a device in the car that is registered with the owner’s smart phone. If someone tries to break into your car, you get a message alert on your phone. If your car is moved, you can follow it online. You can even shut down its engine with one click on your phone. For years, many Latin Americans believed that the way to become a true entrepreneur was to move to Silicon Valley, but that attitude
is changing as the Jorge Soto, CEO region develops. of Keraderm “A lot of ideas that are redundant in Silicon Valley make perfect sense in Latin America,” said Vivek Wadhwa, a U.S.-based technology entrepreneur and academic who helped set up Start-Up Chile. “The kids of Silicon Valley don’t know what poverty is, they don’t know what it’s like not to have roads, infrastructure, telephones, clean water. People in Latin America do, so they’re the ones who can fix these problems.” “My advice to entrepreneurs in this part of the world is leave North America alone and concentrate on Latin America,” Wadhwa said on a recent visit to Santiago. “You’ll find more opportunities than you ever imagined.” Gideon Long reported from Santiago de Chile.
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CFO EVENTS MÉXICO
Gabriel Casillas Olvera, Chief Economist and Head of Research, Banorte-Ixe
Lorenzo González Bosco, Managing Director-Mexico, Temasek Holdings
Rafael Contreras Grosskelwing, Finance Director, Grupo Chedraui; Francisco Santoyo, Finance Director, Comisión Federal de Electricidad; Sergio Jorge Zamora, Latin America Credit Project Leader, Dupont
MÉXICO’S BIG OPPORTUNITY
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éxico continues to move toward the center of the global economic stage, but the day-to-day realities of business in the country create challenges that require informed and disciplined leadership to overcome them. That was the main conclusion of the Mexican Latin Trade CFO Series meeting, last November, at the Four Seasons Hotel, in México City. There is a great opportunity in the fact that the country has gained appeal as a place to invest. According to Gabriel Casillas, chief economist and head of research of Banorte-Ixe, the country climbed to ninth place from 25th, on the ranking of the safest countries to invest in. Nevertheless, old burdens such as corruption and the lack of rule of law, hold growth back. If
México was successful at reducing its corruption levels, the country may add two percentage points to its economic growth, and it will stand out as one of the best places to invest, Lorenzo González, managing director-México, of Temasek Holdings, said. Mexican companies have begun to stand out on the world stage. Mexican multilatinas operate in 30 or 40 countries, and are widely respected due to the quality of their goods and services. But these firms feel that banks have not been up to par. They demanded of banks the development of more efficient international operations for Mexican clients. Up to now, non-financial companies are the ones who have taken the lead in finding solutions that enable better international transactions, attendees said.
Edgardo De la Rosa, Trade & Structured Finance, Grupo Cargill de México & Cargill-Sofom; Mayela Rincón de Velasco,CFO, Bio Pappel; Ricardo Falú, CFO, AES Latin America; Juan Ignacio Rubiolo, VP Commercial-Mexico, Central America & Caribbean, AES Latin America
LT CFO MÉXICO GROUP
CONNECTING LATIN AMERICA’S CFO COMMUNITY
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Martín Barrios, Managing Director GTS Latin America and Caribbean - Corporate Sales, Bank of America Merrill Lynch; Luis Emilio Fortou, Global Commercial Expansion Team, Latin America and Caribbean Region, Visa Inc.; Felix El Idd, CEO, Datarisk; Mark Ludwig, Contributing Editor, Latin Trade
PHOTOS: ALEJANDRA GUTIÉRREZ
David González, Head of Financial Planning, Grupo Lala Francisco Ríos Zanotti, Centre Director, Mexico CityAmericas Group, International Enterprise Singapore
CFO EVENTS MIAMI
Joseph P. Quinlan, Managing Director & Chief Market Strategist, U.S. Trust, Bank of America Private Wealth Management
Maria Murillo, CFO LATAM Region, Microsoft
Ignacio Corral (CFO of the Year 2012), Finance Director, Latin America & the Caribbean, Diageo; Peter David (CFO of the Year 2013), CFO, SAP Americas, SAP International; and Philippe Schrader (CFO of Year 2011), President, CHPS International LLC.
A NEW ROLE FOR THE CFO E
PHOTOS: PABLO BLAZQUEZ
xternal factors and internal challenges will make replicating the growth of the past decade difficult for Latin America, said Joseph P. Quinlan, managing director and chief market strategist at U.S. Trust, Bank of America Private Wealth Management. Quinlan addressed a group of corporate and financial leaders who gathered at the Four Seasons Hotel in Miami for the Latin Trade CFO Forum in December. In the global scene, the United States economy is picking up steam, while the United Kingdom, Germany, and Japan are beginning to show signs of life as well. For the first time since the recession years, these four economies will contribute more to global growth in 2014 than the Brics. The latest figures from the United States show employment is recovering, which hints that tapering of quantitative easing should happen sooner rather than later, explained Quinlan. This will make the external financing situation more difficult for emerging markets, as the United States resumes normal interest rates. Despite these headwinds, various opportunities exist for business in the region. Andrés Caldera of Visa mentioned the potential for credit cards to reduce risk, increase efficiency, and offer greater access to financing for SMEs. In a later session, Philippe Schrader of CHPS International discussed the changing role of the CFO, and how this will affect hiring in the future. CFOs agreed that the role of the CFO has evolved in the past decade or so from primarily an accounting role with backroom function, to increasingly client-facing and business closing. “Communication is more valuable for a CFO than ever,” said Cheryl McDowell of Oracle.
Jim Gentile, Finance Director, EMS LACR, Motorola Inc. Latin America; Alexander Sotelo, Vice President, Corporate Controller, Open English; Tony Peñate, Vice President & CFO, LatAm, Johnson & Johnson Inc.
Cheryl McDowell, Vice President of Finance & Business Operations, Latin America, Oracle Corporation
Liba Saiovici, Latin America Product Executive, Bank of America Merrill Lynch; Fernando Moreno Lamus, Vice President Finance, Latin America and the Caribbean, Avnet Technology Solutions; Luis Emilio Fortou, Global Commercial Expansion Team, Latin America and Caribbean Region, Visa Inc.
Enrique Goicoechea, Regional Controller, Ferragamo Latin America Inc.; Carlos Estefan, Regional Director of Finance/IT, Latin America and Caribbean, Starbucks Coffee Company; Javier Ramírez, CFO- Vice President of Finance & Operations, Latin America, BlueStar Inc.
LT CFO MIAMI GROUP
CONNECTING LATIN AMERICA’S CFO COMMUNITY JANUARY-FEBRUARY 2014 LATIN TRADE
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CFO EVENTS R O U N DTA B L E FO R F I N A N C I A L I N S T I T U T I O N S
Alberto J. Bernal-León, Head of Research and Partner, Bulltick Capital Markets; Eduardo Checa,CEO President, Analytica Securities.
CLEAR SKIES AHEAD
Carlos Arauz, Executive VP of Private Banking and Personal, TowerBank; Beatriz Arbelaez, CFO, Bancoldex; Ignacio De la Luz, CFO, BBVA Continental; Raymundo Mendoza, CFO, BBVA PY; Santiago Gutierrez, Executive Editor, Latin Trade; Gema Sacristan, Chief, Financial Markets Division, IDB; Adriana Chávez, Manager Finance & Controlling Division, MIBANCO, Banco de la Microempresa S.A.; Eduardo Checa, CEO, Analytica Securities; Jorge L. Toccafondi, International Business Manager, Banco Comafi S.A.; Pablo Pochat, Finance Manager, Banco Comafi S.A.; Ramiro Crespo, CEO, Analytica Securities
Victoria Kenny, Programs and Content Advisor, Latin Trade Group; Pablo Pochat, Finance Manager, Banco Comafi S.A.; Jorge L. Toccafondi, International Business Manager, Banco Comafi S.A.
T
he year 2014 will not be like 1994, a year of interest rate increases in the developed world which derailed the Latin American economy. That’s the main conclusion of Bulltick Capital Market’s head of research, Alberto Bernal’s presentation on the outlook for the region in 2014. He was the keynote speaker at the first CFO Roundtable for Financial Institutions, hosted by Latin Trade in partnership with the Inter-American Development Bank. The event took place in December at the law offices of Greenberg Traurig in Miami. Returns in the developed world will not rise dramatically in 2014, Bernal said. He expects that the U.S. Federal Reserve will not hike its policy interest rates this year, and that the announced tapering of the stimulus program known as quantitative easing in the United States - which would reduce international liquidity, would be partially offset by the Bank of Japan’s strongly expansionary monetary policy. He does not expect any negative surprises coming from Europe’s economic performance. At the same time, returns to financial investors in Latin America will remain high this year, Bernal said. Yields on long-term Brazilian, Mexican and Colombian bonds will all surpass nine percent. The combination of low and sustained yields in developed markets and good returns in Latin America will keep capitals in the region. Alberto Bernal is confident about the long-term outlook for Latin America. Nominal returns in equity markets from 2014 to 2030 will be between 11 and 12 percent in Brazil; 12 percent in Colombia and Chile; between 12 and 13 percent in México; and 14 percent in Perú.
CONNECTING LATIN AMERICA’S CFO COMMUNITY
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LATIN TRADE JANUARY-FEBRUARY 2014
PHOTOS: ILEANA CUTIÉ
Santiago Gutierrez, Executive Editor, Latin Trade; Gema Sacristan, Chief, Financial Markets Division, IDB
TIMEPIECES
T THE
TIME OF DAY
HARDLY MATTERS
Carrera by Tag Heuer
BY ADRIANA BRASILEIRO
T
he time? Anything but. Those who buy high-quality watches don’t just want to know whether they’ve arrived on time for their appointments. A few, like the navigators in regattas, need a good watch to help them in demanding conditions, but most people are looking for a timepiece that suits them and that reflects their lifestyle. Some prefer to put a collector’s item on their wrist, and others want an exquisitely designed accessory. Still others want them as an investment. Altiplano 38mm by Piaget
Panerai’s Radiomir Composite 45mm Black Seal
Clifton 43mm by Baume & Mercier
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LATIN TRADE
JANUARY-FEBRUARY 2014
Duometre by Jaeger- LeCoultre
For those looking for the most sophisticated timepieces, the end of January is a special opportunity to see the latest. The manufacturing houses launch their products in the Salon International de la Haute Horlogerie, SIHH, in Geneva, Switzerland. These are among the new models. • Piaget Altiplano 38 millimeters. This is a model that Piaget launched last month in SIHH in Geneva, claims to be the thinnest mechanical watch in the world. • The Duometre Unique Travel Time of Jaeger- LeCoultre is the first watch with world times that enables the user to set the hours of a second time zone that’s precise to the minute. The traveler can precisely adjust the second time zone for all countries and all continents, whatever the time lag. • Besides the watches on offer in Geneva, there are other classic watches that can easily be found on any list for demanding buyers. Panerai’s 45 mm Radiomir Composite Black Seal 3 Days Automatic features the name Black Seal on the dial. That’s the name given to the little submarines of the Italian commandoes of the Second World War, whose crews used this brand of watches. • The 43 millimeter Clifton de Baume & Mercier is hermetic up to a pressure of five atmospheres, equivalent to 50 meters underwater. • The Carrera de Tag Heuer has been the watch of professional racing drivers since 1963. Fernando Alonso, Kimi Raiikkonen and members of the Ferrari team of the 1970s are among those who have used it, as well as countless collectors.
PHOTOS: COURTESY OF: PIAGET; JAEGER- LECOULTRE; PANERAI; BAUME & MERCIER; TAG HEUER
C Collection watches for tthose who want more than a device for keeping time.
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