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CONTENTS

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SEPTEMBER/OCTOBER 2012 VOL. 20 No. 5

26

28

30

32

34 40

36 42

38

40

Features 21-41 24 26 28 30 32 34 36 38 40

42-60 42

BRAVO Business Awards 18: The 2012 Winners Leader of the Year: Sebastian Pinera, President of Chile Distinguished Service of the Year: Julio Velarde Flores, Governor, Central Bank of Peru CEO of the Year: Juan Benavides, CEO, Falabella Financier of the Year: David Bojanini Garcia, CEO, Grupo Sura Innovative CEO of the Year: Raul Calfat, CEO, Votorantim International CEO of the Year: Andres Gluski, CEO, AES Corp. Social Sustainability Leader: Douglas Orane, Non-Executive Chairman, GraceKennedy Entrepreneurial CEO of the Year: Alejandro Ramirez Magana, CEO, Cinepolis Investor of the Year: Carlos Slim Domit, Chairman, Grupo Carso

Industry Report: Banking Reaching the Unbanked: 400 Million potential customers are still waiting for a bank to find them

45 48

Latin America’s Top 100 Banks: Ranking Latin America’s Top 100 Banks: Winners and Losers

50

Peru Financial Inclusion on the Rise: Banks are making concerted efforts to reach the far-flung and less fortunate— high in the Andes and tucked along the Amazon River

51 54

Banco Santander: A tale about a backer Fishing for Clients in Unusual Places: Brazilian banks reel in the unbanked

58 58

4

Secrecy, a thing of the past BBVA: Changing times, same old challenge

LATIN TRADE

SEPTEMBER-OCTOBER 2012

64 Business Frontier: The Caribbean Fantasy Islands for Trade 66 Special Report: A Flurry of Airports in the Region: Revamps, Enlargement and New Terminals all Over.

72 Special Report: Crossing a Minefield Environmental Activism Gets Tough on Energy Projects in Chile.

74 Special Report: Inflation

Argentina and Venezuela dealing with inflation of 20% plus. “Don´t be afraid of inflation, embrace it!,” says an executive in Argentina.

78 Country Report: Peru Humala’s First Year in Office A Small Arrhythmia, Then Investment Flows.

98 CSR: Bupa Bupa Latin America, Biking for Health

CONTENTS

SEPTEMBER/OCTOBER 2012 VOL. 20 No. 5

Editor’s Note 8

First row spectators

The Scene 12 Bogota’s economy is larger than some Latin American countries 14 Education gap in the region 16 Multilatinas: a good year for transportation and retail

Opinion 18 The Contrarian: Time for a little austerity in Latin America By John Price

10

Events 100 CFO Bogota 102 CFO Sao Paulo

On the Road 104 Guatemala City Executives offer tips on business travel in the Guatemalan capital

106 Guarulhos Airport, “How to save two hours of your day,” says German Efromovich, CEO of AviancaTaca

16

Spotlight: Argentina 108 Banco Galicia, High Impact Without Transgressions

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Cover: 18th Annual BRAVO Business Awards

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SEPTEMBER-OCTOBER 2012

106

EDITOR’S NOTE

FRONT ROW

SPECTATORS

Santiago Gutierrez, Executive Editor sgutierrez@latintrade.com

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LATIN TRADE SEPTEMBER-OCTOBER 2012

©ISTOCKPHOTO.COM/BOOKA1

T

his is the Latin American Decade. That’s not a cliché, because the way things are going now, the years will clearly show it. If the region makes the most of this time, it will at last turn the corner on offering only a promise of development, and will convert itself into a region of real opportunities and genuine progress for millions of people. I feel enormously privileged to be with the readers of Latin Trade at this moment, to be a front-row spectator along with you, watching what will no doubt be the largest and most profound economic and entrepreneurial transformation in the history of the region. In this issue, for starters, we’ll give you a detailed look at the business of “financial inclusion,” an activity that almost all Latin American countries have undertaken to deliver banking products like transactions, savings accounts, credit and insurance to the less well-off. Bringing them into the banking system will be a crucial part of including them in the modern economy, and may even reduce the possibility that a financial reversal might drop them back into poverty. In this issue I’m delighted to take you, as Latin Trade has done for the last twenty years, to the places where the big regional business trends are emerging, and to talk with the people who are building or decisively influencing the future of their countries. I congratulate myself for being able to share their insights with you, and I’d like to invite you to enjoy the reporting of a top group of journalists, in each and every issue of our magazine.

CHIEF EXECUTIVE Rosemary Winters EXECUTIVE DIRECTOR & PUBLISHER Maria Lourdes Gallo

INTERESTED IN CONTACTING

TOP

DECISIONMAKERS IN LATIN AMERICA?

EXECUTIVE EDITOR Santiago Gutierrez MANAGING EDITOR Elida Bustos ART & PRODUCTION DIRECTOR Manny Melo GRAPHIC DESIGNER Vincent Becchinelli CONTRIBUTING EDITORS Gabriela Calderon (research), Mark Ludwig COLUMNIST John Price CORRESPONDENTS Argentina: Charles Newbery, Paula Ancery, David Haskel • Brazil: Thierry Ogier (São Paulo), Taylor Barnes (Rio de Janeiro) • Chile: Gideon Long, Tom Azzopardi • China: Ruth Morris • Colombia: John Otis • Mexico: David Agren • Peru: Lisa K Wing, Ryan Dube • Spain: Sergio Manaut • US: Joseph Mann Jr., Alejandra Labanca, Mark Chesnut • Venezuela: Peter Wilson CONTRIBUTING PHOTOGRAPHERS Brazil: Paulo Fridman • Chile: Helen Hughes • Costa Rica: Juan Carlos Ulate • USA: Matthew Pace

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LATIN TRADE SEPTEMBER-OCTOBER 2012

Executive, Editorial, Circulation and Advertising offices are located at Brickell Bay Office Tower, 1001 Brickell Bay Drive, Suite 2700, Miami, Florida 33131, USA. CUSTOMER SERVICE AND SUBSCRIPTIONS: Please visit www.latintrade.com to order online or call +1 (305) 749-0880. Latin Trade (ISSN 1087-0857, USPS 016715) is published bimonthly, with editions in English and Spanish, by Miami Media, LLC. All rights reserved. Reproduction in whole or part of any text, photograph or illustration without written permission of the publisher is strictly prohibited.

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THE SCENE

by the numbers

GDP is larger than some Latin American countries In billions of US dollars 80

B

ogotรก concentrates 63 per cent of holdings and companies in Colombia, that means 1,361 multinational corporations. It is the 6th tourist destination in Latin America. With a GDP of $70.3 billion in 2011,it concentrates 27% of Colombian economic activity. Its 7.4 million population has an income per capita of $9.414 per year.

70

70.3 65.3

60 49.4

50

40.0 40

30.2

30

23.9

20 10

Source: Invest in Bogota Ecuador

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LATIN TRADE SEPTEMBER-OCTOBER 2012

Uruguay

Costa Rica

Panama

Bolivia

INVEST IN BOGOTA

Bogota

THE SCENE

EDUCATION GAP Average years of school among 21-30 years-old people

O

ne way to reduce income inequality permanently and increase productivity in Latin American economies is to improve access to education of the entire population. This has been recognized by

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LATIN TRADE SEPTEMBER-OCTOBER 2012

businessmen in the region, who have focused much of their effort toward achieving this goal through corporate social responsibility programs. The latest study by Unesco and Unicef on the region’s education situation clearly indicates the

10

4

5

3 Guatemala

7

10

Honduras

5

11

Nicaragua

12

Brazil

8

12

El Salvador

8

12

Venezuela

7

13

Dominican Rep.

7

13

Paraguay

7

13

Colombia

7

13

Costa Rica

8

13

Peru

8

13

Mexico

7

13

Ecuador

7

13

Bolivia

7

14

Uruguay

15

14

Panama

14

Argentina

Chile

20,0 15 15,0 10,0 11 5,0 0,0

20% richer people 20% poorer people Gap between rich and poor people Source: Unesco/Unicef

countries that should make more effort to reduce the gap in the number of years of education between the richest and poorest young people. This study is a good step toward orienting the programs of companies committed to education.

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MULTILATINAS A good year for transportation and retail

M

ultilatin companies had a 5.9% drop in revenue from June 2011 to June 2012. This is the main result that emerges from the analysis of the quarterly Latin Business Chronicle Multilatinas Index. The figure confirms the weakening of economic activity that has been anticipated by most economic analysts, but the Index also shows that clearly it is not a decline for all companies across the board. When the Index is broken down by industry it is clear that the 2Q12 revenue dip was largely induced by lower commodity prices and its effects were contained to a degree, to certain business areas. Sales in transportation, retail and telecommunications and media grew at a healthy 4% year over year, while in oil, mining, food and beverages fell 10%. On the good side of the spectrum, transportation company LAN TAM increased its revenues by a hefty 16%, Chilean retail Cencosud by 14%, five ‘indexed’ industrial companies by 6.5% and three telecom and media companies by 1.6%. Hence the feeling of general weakening of business in Latin America is not precise. Commodity prices took a nose dive in April 2011, as the financial markets were hit by concerns over an excessive European sovereign debt, which triggered fiscal austerity and a slowdown in European and global growth. The scene for raw materials worsened as China began to show signs of decreased economic dynamism. The

16

LATIN TRADE SEPTEMBER-OCTOBER 2012

Scotia Commodity Index fell 19.5% since the April peak. As a result, five Multilatinas on the

mining and steel industries of the Index saw a 16% revenue cut in 2Q12 year over year. Oil company Petrobras had a 9% drop, and nine ‘indexed’ companies on the food and beverage industry posted a 1.9% dip. The region will indeed see a slowdown. Consensus Economics expect regional GDP to grow 3.1% by yearend, a percentage point lower than the 4.1% registered in 2011. A less optimistic Bank of America Merrill Lynch expects GDP growth to be as low as 2.7% this year. But as the Multilatinas Index shows, in Latin America the glass for business still seems to be half full.

THE MULTILATINA INDEX REVENUES IN $ MILLION Rk

Company

2Q 2011

2Q 2012

% Chg.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Petrobras, Brazil América Móvil, Mexico Vale, Brazil Grupo JBS, Brazil Gerdau, Brazil Cencosud, Chile Femsa, Mexico Cemex, Mexico Grupo Alfa, Mexico Brasil Foods, Brazil Grupo Bimbo, Mexico Marfrig, Brazil Tenaris, Argentina Grupo Mexico, Mx Grupo Modelo, Mexico CSN, Brazil Telmex, Mexico Embraer, Brazil LATAM, Chile * Grupo Televisa, Mexico CMPC, Chile Natura, Brazil Arcor, Argentina Grupo Nutresa, Colombia Alicorp, Peru

$38,209 $13,488 $15,345 $9,373 $5,776 $3,838 $4,087 $4,091 $3,786 $4,035 $2,534 $3,412 $2,403 $2,715 $2,121 $2,771 $2,332 $1,359 $1,332 $1,147 $1,199 $893 $740 $669 $382

$34,659 $14,047 $12,150 $9,143 $4,938 $4,379 $4,365 $3,861 $3,832 $3,387 $3,170 $2,880 $2,802 $2,546 $2,059 $2,048 $1,939 $1,676 $1,548 $1,244 $1,162 $796 $725 $709 $396

-9% 4% -21% -2% -15% 14% 7% -6% 1% -16% 25% -16% 17% -6% -3% -26% -17% 23% 16% 8% -3% -11% -2% 6% 4%

$120,462

-5.9%

Total $128,037

* Newly formed company after merger between LAN Airlines and TAM. Sources: Companies, Latin Business Chronicle

PHOTO: ISTOCKPHOTO.COM/OLLO

THE SCENE

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BRAVO BUSINESS AWARDS 18 The Latin Trade Bravo Business Awards have recognized regional excellence in government, business and social development for the past 17 years. Its 18th edition clearly achieved that objective again. The 2012 winners are a group of world-class executives who are playing a key role in improving Latin American economy and business. In the following pages we take a closer look at each of them. Sebastian Pinera, President of Chile (Leader of the Year), page 24 Julio Velarde Flores, Governor, Central Bank of Peru (Distinguished Service of the Year), page 26 Juan Benavides, CEO, Falabella (CEO of the Year), page 28 David Bojanini Garcia, CEO, Grupo Sura (Financier of the Year), page 30 Raul Calfat, CEO, Votorantim (Innovative Leader of the Year), page 32 Andres Gluski, CEO, AES Corp. (International CEO of the Year), page 34 Douglas Orane, Non-Executive Chairman, GraceKennedy (Social Sustainability Leader), page 36 Alejandro Ramirez Magana, CEO, Cinepolis (Entrepreneurial CEO of the Year), page 38 Carlos Slim Domit, Chairman, Grupo Carso (Investor of the Year), page 40

SEPTEMBER-OCTOBER 2012 LATIN TRADE

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THE

BUILDING THE NEW LATIN AMERICA: THE LEADERS, THE COMPANIES, THE PARADIGMS FOR SUCCESS

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LEADER OF THE YEAR

24

SEBASTIAN PINERA PRESIDENT OF CHILE

LATIN TRADE SEPTEMBER-OCTOBER 2012

SEBASTIAN PINERA

BRAVO BUSINESS AWARDS 2012

Business Maverick Turned President BY GIDEON LONG

PHOTO: PRESIDENCIA DE LA REPÚBLICA

S

ebastian Pinera is not a man who gives up easily. By his own account, he’s a maverick, a risk-taker and a workaholic. He was staggeringly successful as a businessman, and highly controversial. And since assuming the Chilean presidency in March, 2010, he’s been just as colorful. Not for nothing has he been compared to Italy’s billionaire former Prime Minister Silvio Berlusconi. Now in the second half of his presidency, Pinera has been battered in the opinion polls. At one point in 2011 his approval rating slumped to as low as 22 percent, making him the most unpopular president since Chile returned to democracy in 1990. And yet he has doggedly pushed forward with his reform program and can point to some significant successes. The Chilean economy grew at 6 percent last year and has continued to do so in 2012, despite a deteriorating global outlook. Unemployment stands at 6.5 percent, its lowest level in over a decade, and foreign direct investment hit an all-time high of $12 billion in the first half of the year– a remarkable 80 percent increase from a year earlier. In many ways it’s no surprise that Pinera has ended up in politics: he was born into a political family. His father, a Chilean ambassador to the United Nations, was a founder of the Christian Democrat party that now, ironically, opposes Pinera’s government. But despite his background, the young Pinera was drawn to business before politics. In 1971, he graduated with a business degree from Santiago’s prestigious Pontifical Catholic University before going to Harvard, where he earned a Ph.D. in Economics. Although he studied at Harvard, it was the free-market philosophy of the Chicago

School of Economics that captured his imagination. When he returned to Chile in 1976, after a brief spell as an economist at the United Nations, he set about making his fortune. He started at Infinco, a financial services provider, before becoming general manager at Banco de Talca, a regional bank, in 1979. In that same year he founded Bancard, a pioneering company that helped bring credit cards to Chile. In 1982 Pinera faced his first scandal, when he was accused of fraudulent banking practices. An order was issued for his arrest but then was cleared by Chile’s Supreme Court. As so often is the case, Pinera bounced back. In 1985, Bancard teamed up with MasterCard to become one of the biggest credit card companies in the country. In the early 1990s, Pinera bought his first shares in Chile’s national airline LAN Chile and cemented his friendship with the powerful Cueto family that controls the airline. He later became a company director. By the time he assumed the Chilean presidency, he owned a 26.3 percent stake in LAN, a holding valued of $1.5 billion. In March 2012, Forbes estimated his total fortune at $2.4 billion, making him the fourth richest person in Chile and 521st in the world. That stake in LAN has been just as controversial as his earlier involvement in Banco de Talca. In 2007, Chile’s stock exchange regulator fined Pinera nearly $700,000 for buying shares in the airline while in possession of privileged information. He proclaimed his innocence and said the decision was politically motivated, but paid the fine anyway.

After assuming the presidency he sold his entire stake in LAN to avoid a conflict of interest. He also sold his 100 percent holding in Chilevision, a national television broadcaster, to Time Warner, as well as a series of other smaller shareholdings. The one investment he wanted to keep was his 12.5 percent stake in Blanco y Negro, a company that controls Chile’s most successful football club, Colo Colo. Football, Pinera argued, was an affair of the heart, not the head. But in December 2010 he gave in to pressure and sold that too. Unsurprisingly, Pinera has made entrepreneurialism a cornerstone of his government, and has taken steps to cut red tape. According to the World Bank, Chile now ranks 39th out of 183 countries in terms of ease of doing business, two places higher than last year. When it comes to starting a business, Chile ranks 27th – a dramatic improvement from 2011 when it placed 62nd. The Pinera government has implemented the innovative “Start-Up Chile” program, which offers entrepreneurs $40,000 in seed capital, with no strings attached, to develop their projects. The program is open to foreigners as well as Chileans, and comes with a one-year work visa. Pinera will be forced to relinquish the presidency in March 2014. In Chile, an incumbent president cannot stand for a second consecutive term. The 62-year-old father of four has said little about what he might do next. But, rest assured, it is likely to be eye-catching, and will probably make him friends and enemies in equal measure. —Gideon Long reported from Santiago editorial@latintrade

SEPTEMBER-OCTOBER 2012 LATIN TRADE

25

DISTINGUISHED SERVICE OF THE YEAR

26

JULIO VELARDE FLORES GOVERNOR, CENTRAL BANK OF PERU

LATIN TRADE SEPTEMBER-OCTOBER 2012

JULIO VELARDE

BRAVO BUSINESS AWARDS 2012

Peru’s Central Bank president, won’t be rushed BY LISA K. WING

PHOTO: COURTESY CENTRAL BANK OF PERU

“Y

ou need to know when to act, and when to stay put,” says Julio Velarde, Peru’s central bank president. “As soon as a problem arises, many people think you need to respond immediately, when many times the panorama is not even very clear.” It’s just one of the many lessons Velarde— considered one of Peru’s best economic helmsmen– has learned during more than twenty years in and out of government posts, many spent managing his country’s monetary policies. Indeed, Velarde’s ability to know when, and more importantly, how to act during some of Peru’s most economically and politically challenging times are among the qualities that have earned him the admiration of local and foreign business leaders, not to mention rating agencies and investors. Although Velarde, 60, has held posts in the private and public sector— he has served on the Central Bank’s board of directors twice and was once chairman of the Latin American Reserve Fund— business leaders say there’s one trait that has remained constant: his unfaltering commitment to maintaining macroeconomic stability and moderate economic policies. Velarde’s reputation in the business community is such that the day he was reappointed Central Bank president by the recently-elected President Ollanta Humala last year, Lima’s stock market rose nearly 5 percent (as the world’s main stock markets dropped) and Peru’s country risk indicator dropped from 185 to 176 basis points. Business leaders concur that Velarde’s reappointment to head the Central Bank by Humala (Velarde was first named to the post in September 2006 by President Alan Garcia) helped ease tensions among investors who were worried about the likelihood of a radical change in the country’s economic policies, which were helping to fuel spectacular growth. As Velarde himself notes: “The growth (rate) we have reached over the past decade is an achievement that I believe no president wanted to put at risk.”

Peru’s presidential elections last year took place six months after the country had posted GDP growth of almost 9 percent for 2010. In 2011, the country’s GDP rose almost 7 percent, and this year it is expected to grow 5.5 percent, which would mark a slight slowdown but is still high when compared to other economies around the world. Velarde’s management of Peru’s economy during the global financial crisis of 2008 and during the turbulent term of President Alberto Fujimori in the early 1990s, helped catapult him into the international spotlight. During the global economic downturn, Peru’s economy actually grew, albeit slightly. “There was a feeling that the world was collapsing. Peru went from growing 9.8 percent in 2008 to growing 0.9 percent in 2009, which is a dramatic drop, although we were one of the few countries that actually grew in 2009,” he says. Velarde is credited with a number of crisisaverting measures taken during this time of economic chaos, namely measures to avoid deflation and inject liquidity by cutting interest rates from 6.5 percent to an all-time low of 1.25 percent. Other measures included lowering bank reserve requirements. “There were many moments when there was a lot of pressure to relax the monetary policy. But when you see the growth we’ve maintained, it was the right decision not to relax it,” he says. Velarde, who has a doctorate in economics from Brown University and has served as dean of the School of Economics at Lima’s Universidad del Pacifico, has made several “right decisions” during his political career, and many are still bearing fruit today. In today’s environment of slumping world economies, Peru’s stable economic and monetary policies, which have led to impressive GDP growth, low inflation, investment-grade ratings, and a strengthening local currency, continue to attract emerging market investors. Velarde’s two-year stint as Central Bank director during President Alberto Fujimori’s government in the early 1990s also saw him

distinguish himself, although the period represents the most difficult time of his political career. “It was an extremely intense and dramatic time. Peru was actually a failed state. We had fallen into extreme macroeconomic populism. There were multiple exchange rates and subsidies everywhere,” Velarde recalls. “The Central Bank was simply dedicated to financing the government.” Velarde’s main goal was to end hyperinflation, which during this period reached 7,000 percent, he notes. Some of the measures implemented included eliminating subsidies and lifting price controls. “Each new Peruvian Sol, the currency we use today, equates to one billion old Soles. This gives you an idea of the magnitude of the hyperinflation and what needed to be done to control it,” says Velarde. “It was crucial that the government get used to not living off the Central Bank’s financing.” Another key— and drastic— move promoted by Velarde was to implement a floating exchange rate, making Peru one the first countries in the region to do so. This has allowed the government to set its own internal objectives without external constraints, and has brought more flexibly in dealing with external shocks. “During the early 1990’s, the recommendation of the International Monetary Fund, the World Bank and analysts was to lower inflation by pegging the exchange rate, like Argentina had done. Fortunately, we didn’t listen to (these institutions) and we let the exchange rate float.” Experts point to this move as a good example of Velarde’s modus operandi. If he doesn’t cave in to pressure from big players, like the IMF and the World Bank, investors can rest assured that he will stick to his guns— and his gut— if challenged on the local political scene… regardless of who is in power. “There is no right-leaning or left-leaning monetary policy,” Velarde says. –Lisa K Wing reported from Lima

SEPTEMBER-OCTOBER 2012 LATIN TRADE

27

CEO OF THE YEAR

28

JUAN BENAVIDES CEO, FALABELLA

LATIN TRADE SEPTEMBER-OCTOBER 2012

JUAN BENAVIDES

BRAVO BUSINESS AWARDS 2012

The man behind Falabella’s regional expansion BY GIDEON LONG

PHOTO: HELEN HUGHES

J

uan Benavides has succeeded in business despite, or perhaps because of, a childhood marked by tragedy and sacrifice. The fifth of nine siblings, he lost his mother in a car crash when he was just 10 years old. His father, a Chilean congressman in the 1950s, was seriously injured but recovered to raise his children alone. “He sat us all down and taught us about duty and responsibility,” Benavides recalls. “For him, the way to get on in life was hard work. He was a very strong man. Despite the hardships he suffered I never once heard him complain.” Benavides says that growing up with so many brothers and sisters taught him lessons that have served him well in business: teamwork, compromise and dealing with setbacks. He considered following his father into politics at one point but decided against it. Today, at age 54, he says politics are not in his plans. Instead, he forged a career in finance. He worked at Banco Sudamericano, now Scotiabank, before moving to the struggling Chilean agro-company Anagra and transforming its fortunes. “That experience taught me two things,” he says. “How to work with limited resources and the importance of innovation.” But it was in his next job, as head of CMR Chile in the late 1990s, that he made his name. CMR is the credit card of Falabella, the Chilean department store retailer, and although the card had existed since 1980, its appeal was limited. Customers could use it only in Falabella stores. Benavides opened it up, allowing clients to use it in other stores too. “We enjoyed extraordinary growth. It was beyond what we could have hoped for,” he says. In the 17 years since that process

began, the value of CMR’s loan book has soared from $100 million to $5.2 billion. During his time at CMR, Benavides also oversaw the launch of Falabella’s own retail bank, as well as insurance and travel divisions –Banco Falabella, Viajes Falabella and Falabella Seguros– before being appointed as company CEO in 2004. Under his guidance, Falabella has gone from strength to strength, expanding in all four countries where it operates– Argentina, Chile, Colombia and Peru. When he took over, Falabella owned 121 stores in these four countries. By the end of last year it had 259, with plans to reach 457 by the end of 2015. Sales have risen from $4.3 billion in 2004 to $11 billion last year while EBITDA has climbed from $510 million to $1.6 billion. At the end of 2011, Falabella owned 79 department stores and 116 Sodimac home improvement stores in its four countries. It also owns 64 supermarkets in Chile and Peru, and 14 shopping malls in those two countries. Chile accounts for the lion’s share of revenue– 67 percent. Peru brings in 20 percent, Argentina 7 percent and Colombia 6 percent. Department stores accounted for $3.7 billion of last year’s revenue, home improvement stores for $4.2 billion and supermarkets for $1.4 billion, with the rest coming from the financial division. The obvious next step would be to expand into the two biggest retail markets in the region, Brazil and Mexico, and Benavides acknowledges that he’d like to do just that if the opportunity arises. “But they are difficult countries and it would be a big gamble, because of the strength of the companies that are already there,” he says. “We wouldn’t be able start

from zero and rely on organic growth so we think the right way to do it would be through a sensible takeover or a joint venture.” He also says there is plenty of room for expansion in Falabella’s four existing markets, which have a combined population of over 130 million. All four countries have emerging middle classes with more and more spending power. “This company is very innovative,” he says, when asked about Falabella’s strengths. “There’s a motto that’s deeply ingrained in the culture of the company and that is: ‘What was good yesterday is no good today.’ Innovation is part of everything we do, every day of the week.” Looking ahead, Benavides says the big challenge will be to take advantage of the relentless growth of online shopping, which currently accounts for only a fraction of company sales, but is sure to rise. “We have to serve the customer both online and in the flesh,” he says. “Online, we have to reach the customer in the most tangible ways possible, so that when they see a sweater or a shirt on our website they can really feel what it’s like. And in our stores, we need to give the customer entertainment, something surprising, something new– not just a place to shop.” More than 120 years after Italian immigrant Salvatore Falabella founded his first tailor’s shop in Santiago, the company he started has a bright future. “But these challenges are not something you can mull over for too long,” Benavides warns. “If you do, you’ll be overtaken before you know it.” —Gideon Long reported from Santiago editorial@latintrade.com

SEPTEMBER-OCTOBER 2012 LATIN TRADE

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FINANCIER OF THE YEAR

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DAVID BOJANINI GARCIA CEO, GRUPO SURA

LATIN TRADE SEPTEMBER-OCTOBER 2012

DAVID BOJANINI

BRAVO BUSINESS AWARDS 2012

The Star of Sura BY SANTIAGO GUTIERREZ

PHOTO: COURTESY OF GRUPO SURA

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avid Bojanini’s office overlooks Medellin, Colombia’s second largest city, and headquarters to a number of fast-growing multilatinas associated with the Grupo Empresarial Antioqueno. This is a conglomerate formerly owned by a small group of entrepreneurs, most of them heirs to gold mining fortunes built at the beginning of the twentieth century, and now controlled by the country’s pension funds. Bojanini is the visible head of the group, which is by far the largest in Colombia and includes flagship companies likes Bancolombia, Nutresa, Celsia and Argos, whose ofices he can see from his own. In short, he has enough power to behave like an arrogant business viceroy much in the way many Latin American businessmen act. But he does not. He does not like arrogance. He only believes in fast changes, and in hard, constant and humble work. And his style has proven to be very successul. The expansion has been fast and furious. After buying the Latin American pension fund management division of Dutch group ING for more than $3.7 billion last year, Grupo Sura now manages a portfolio of $9.1 billion. That’s a staggering eleven times bigger than the company’s portfolio in 2006, when Bojanini took the reins. An engineer born in Medellin, Bojanini carried out an ambitious international transformation at Sura. His first move was to lead the company into financial markets in Europe (Latibex) and the United States (NYSE). Then in 2011, by acquiring the ING assets, he put his name on the largest transaction of its kind in Colombia’s corporate history. To follow up, and to partially finance the acquisition, he oversaw the country’s largest public offering of a private company. On his watch, the company’s market value more than doubled in six years, from $5.7 billion to $12 billion. The share price, meanwhile, rose from $11 to $17, an annual compound increase of almost 9 percent. Today the market value of Sura exceeds $10 billion. However, these figures aren’t the executive’s

main source of satisfaction. His greatest pride, he says, is the commitment of company officers to sustainability and ethical management. “I would say that what pleases me most is that I brought to fruition my predecessors’ project for the Group,” he said. “They wanted an organization listed on the exchanges, with a large number of shareholders, while keeping intact the values of our organizational culture, which is run on an ethical business basis. We want to show that these ethical values and beliefs can grow and be introduced in other places.” Sura’s transformation into a multilatin, with operations across the region, is another feather in the CEO’s cap. “Regional expansion was his priority from the time he arrived. He led the process with precision, setting out clear-cut investment plans and criteria,” says a corporate source. Juan Manuel Gomez, operations director of JPMorgan in Colombia, credited Bojanini for deciding to launch the first large-scale transaction in Colombia. “Before (the purchase from ING), many Colombian companies would have concluded that this kind of deal was very big, in places too far away,” he says. After Sura’s purchase, other Colombian companies may opt to grow in the same way. Any large acquisition is followed by a period of merger consolidation, and in Sura’s case this means positioning its brand in Mexico, Chile, Peru and Uruguay. But Bojanini isn’t waiting around for this process to be finished before he moves on to other projects. One of them is to develop products for asset administration to offer to pension fund customers. Specifically, he says he will bring voluntary savings and insurance products to the market. Another is to continue the process of international expansion in the insurance and finance sector. In this area, he adds, Sura is looking for a good (investment) opportunity. Those who know Bojanini are quick to point out that his management style helped pave the way for Sura’s growth into a multilatin. Bojanini in turn believes he inherited

his style from his superiors and colleagues during the 32 years he has worked at Grupo Empresarial Antioqueño, as the conglomerate that owns Sura is known. “Their good example enabled me to develop some very useful leadership skills to meet the company’s challenges,” he says. He breaks down his management formula into three parts: First, he says, know how to listen. Second, know how to delegate, “because there are people around you who know more than you do.” The third is humility. “At the end of the day, the opportunity (to be CEO of the Group) is on loan. One day you will no longer be there, and to the extent that one remains humble, one can prepare for the time when that moment arrives. But in addition, humility enables one to listen and to delegate better,” he adds. There are other character traits that helped him to transform Sura. He says he has always taken on challenges with optimism tempered with prudence, and he says this approach has been invaluable in leading the organization. Another trait is perseverance: “Don’t give up, be creative, go back and keep trying things until they work.” He also thinks the presidents of multilatins must bring a huge capacity for innovation and a deep understanding of their environment to their firms, if they are to be successful over the next ten years. “In a changing world one has to be prepared to innovate continuously,” he says. “The manager of a multilatin must be a visionary who knows the environment in each of his markets so that he is able to innovate and thus be competitive and sustainable through time. He has to understand the markets and the businesses and develop the vision about which paths to follow.” He adds: “In a business of this size you don’t need much luck. Waiting for luck to knock doesn’t make sense.” —Santiago Gutierrez reported from Bogota editorial@latintrade.com

SEPTEMBER-OCTOBER 2012 LATIN TRADE

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INNOVATIVE CEO OF THE YEAR

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RAUL CALFAT CEO, VOTORANTIM

LATIN TRADE SEPTEMBER-OCTOBER 2012

RAUL CALFAT

BRAVO BUSINESS AWARDS 2012

A leader in São Paulo BY SANTIAGO GUTIERREZ

PHOTO: COURTESY OF VOTORANTIM

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aul Calfat is CEO of Grupo Votorantim, Brazil’s fifth largest conglomerate. As the center of gravity of world growth has shifted toward the emerging nations, the Brazilian market has recently become one of the focal points. Grupo Votorantim is a key player in most of the business sectors in which it is involved, hence its importance. Following the acquisition of a major stake in Cimentos de Portugal, Votorantim Cimentos is now among the top ten of the world’s largest cement and concrete companies. Other subsidiaries include the globe’s largest orange juice and cellulose manufacturers. In addition, the group owns 30 hydroelectric plants with a total capacity of 2,600 megawatts, making it one of the country’s largest power providers. Votorantim boasts one of the most sophisticated management models in the region. A few years ago, leading European business school IMD named it the world’s best family firm. The company’s owners, the Ermírio de Moraes family, entrusted the difficult task of managing, conserving and developing the growth of this collection of distinctions to Raul Calfat, a 59-year-old graduate in business administration of the Getúlio Vargas Foundation. Calfat has the inside track to the conglomerate’s potential, having spent most of his career there. He first became involved with Votorantim in 1992, when the group acquired Papel Simão, where Calfat was the manager. In 2004 he became general manager of the holding that had recently been created in order to better keep all of the industrial businesses in line. Last year, Calfat

was appointed CEO of Votorantim, with $33 billion assets. Under his leadership, Votorantim has continued to push toward global expansion, one of its most important strategic aims. The group took off globally in 2001 when it bought a Canadian cement manufacturer. Today, the cement arm of the group generates 41 percent of overall revenue and has a presence in 22 countries. Meanwhile, the group’s mining, steel, finance, chemical and agricultural businesses cover 24 countries across five continents. In Latin America, there are operations in Argentina, Bolivia, Brazil, Chile, Colombia, Paraguay, Peru and Uruguay. The metals division, which generates 37 percent of the company’s revenue, will close the current year with a major investment in Milpo, its Peruvian gold, silver and copper mining business. The investment will include expansion of the Cerro Lindo mine’s production capacity. Votorantim has a well-stocked war chest with which to grow outside of Brazil by means of acquisitions. Funds generated internally, along with the sale of part of the Brazilian iron and steel company Usiminas, provided Votorantim with a $3.6 billion cash position by the end of the year’s second quarter. Moreover, with its conservative debt of $12 billion, it could opt to issue bonds in order to fund growth. Votorantim is the only privately held company in Brazil with an investment grade awarded by the three main ratings agencies, Moody’s, Standard & Poor’s and Fitch. This achievement, which holds the hallmark of Calfat, permitted the company to issue $750 million in 30-year bonds last year. By being headquartered in Brazil, the

company has an enormous advantage. The second part in Votorantim’s growth plan, under the direction of Calfat, is to speed up growth within Brazil. In this country alone, the revenues of the group’s cement business grew by 11 percent between the second quarters of 2011 and 2012, boosted by a 5 percent increase in the volume of sales and a 6 percent rise in market prices. Thus the company’s investment is focused toward domestic expansion, which in turn will be helped by growth in the infrastructure and housing sectors. This year, two cement plants will come on stream, increasing the conglomerate’s production volume by an increase of 2.9 million metric tons, on top of last year’s 5.2 million metric tons. As for steel, which accounts for 14 percent of the group’s income, this year the group will complete construction of the Três Lagoas steel plant. Now the group is reaping the benefits of investments made over recent years, even amid the 2008 crisis. In the words of colleagues in Votorantim’s São Paulo offices, the only people left unscathed by that particular crisis were those who either failed to invest or simply sat on their hands. Raul Calfat has repeatedly claimed that successful organizations are those that work together as a highly competitive team, guided by management practices that promote the creation of values. Judging by the results of the conglomerate’s businesses, Calfat’s management ideals have proven to be correct. —Santiago Gutierrez reported from Bogota editorial@latintrade.com

SEPTEMBER-OCTOBER 2012 LATIN TRADE

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INTERNATIONAL CEO OF THE YEAR

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ANDRES GLUSKI CEO, AES CORP.

LATIN TRADE SEPTEMBER-OCTOBER 2012

ANDRES GLUSKI

BRAVO BUSINESS AWARDS 2012

The most expensive energy is the one you don’t have BY DAVID HUME

PHOTO: COURTESY OF AES

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lectricity generation in Latin America and the Caribbean has more than doubled over the last two decades and perhaps no one’s has had a better seat to watch it grow than Andres Gluski. As president and chief executive officer of AES Corporation, the second-largest energy conglomerate in Latin America, Gluski has played a key role in revving up the power. His Fortune 200 company operates in 28 countries worldwide with a total workforce of 29,000 employees– 8,000 of them in Latin America. “We are quite unique as a company and we’re very excited about the future of power generation in Latin America,” Gluski told Latin Trade during an interview at his ample but modest, glass-enclosed office at AES headquarters in Arlington, Virginia, where his uncluttered workspace is a clear reflection of Gluski’s unassuming personality. “We are bullish on Latin America because it’s a region that is better governed and in a much-better fiscal situation than in the past,” he added. Born in Venezuela but educated in the United States, where he earned a doctorate in international economics at the University of Virginia, Gluski began his career with AES as chief executive officer at AES Gener, the power company’s Chilean subsidiary. He climbed his way up the ladder and was named AES chief operating officer and executive vice president in 2005—a job he held until he took over his current position last year. Prior to joining AES, he served as public finance director during Venezuelan President Carlos Andrés Perez’s second term. Soft-spoken and affable, he greets questions on AES’s future strategies by grabbing a felttipped marker and outlining them on a whiteboard. “One-third of AES operations and profits are in Latin America and our strategy is to focus on our core markets. Going forward we see growth rates of 5 to 6 percent in Latin America,” he said. Since taking the helm of AES, Gluski has been spearheading several major power-

generation projects in the region. In Chile, AES has already invested $3 billion and plans to invest $3 billion more over the next three years to build two thermoelectric plants with a joint power generating capacity of 1,000 megawatts. Also in Chile, AES and its subsidiary Gener have plans to build a $572 million solar farm in the Atacama dessert to supply power to Chile’s copper mines, and a 52 megawatt lithium-ion battery facility at its Angamos power plant. Chile’s non-conventional renewable energy law requires utilities with a total capacity of more than 200 megawatts to show that at least 10 percent of their energy comes from renewable sources. Gluski praises Chile as a model of regulatory structure and frowns at the long-term consequences of over-regulation of the energy sector he sees in some Latin American countries, which he says scares off potential foreign investment. “The most expensive energy is the one you don’t have,” he adds. In neighboring Argentina, where AES operates nine power plants that supply 12 percent of the country’s energy, the company has submitted plans to build a 30-megawatt wind energy park in the province of Buenos Aires. Gluski concedes it is increasingly difficult to obtain permits to build hydroelectric power plants in Latin America, as foreign NGOs and local pressure groups become more litigious. For that reason, he says, “We are investing heavily in alternatives such as solar and wind generation. You don’t want to be only in hydro, you need diversification.” AES’s biggest market in Latin America is Brazil, where it is part owner of Electropaulo in Sao Paulo, and full owner of AES Sul, the power company that supplies electricity in the southern state of Rio Grande do Sul. Gluski plans to develop additional capacity in Colombia and El Salvador, and to increase hydroelectric capacity in Panama, where AES operates the hydro power plants of Bayano, La Estrella, Los Valles and Esti. Another bullet

point on his to-do list, Gluski wants to ramp up capacity in the Dominican Republic, where AES generates power at the Andrés re-gasification facility with liquid natural gas (LNG) sourced in Trinidad and Tobago. In Central America, the company has a footprint in El Salvador, which derives 24 percent of its electricity from geothermal energy. Experts believe there’s plenty of room for expanding on geothermal resources in Central America too, due to the region’s proximity to the volcanic area known as the “Ring of Fire.” Asked what he sees on the horizon in Latin America, Gluski doesn’t skip a beat: “Big innovations are coming in shale gas. It could become very big in Latin America.” Gluski is also proud of AES’s corporate responsibility efforts, which have brought praise from the Organization of American States (OAS). Among them: a project to teach electricity safety in the favelas of Rio de Janeiro and other low-income neighborhoods, so that families don’t fly kites close to power lines. In another program, AES offers vocational training for high-risk youth, then hires the best students to work at its plants and utilities. “We believe this is how you help develop a country,” Gluski says. But not all has been smooth sailing for the energy giant. AES’s second-quarter profit for 2012 slipped 20 percent on the back of a 26 percent decline in revenue from its key Latin American utilities business. Power generation in Latin America, meanwhile, sank by 5.4 percent due to weakening GDP growth in some of AES’s markets, including Brazil. The company, which has been working to pay down its debt by closing or selling assets in China and other markets, posted a profit of $140 million in the second quarter, or 18 cents a share. “We feel we are making good progress on executing of the strategic plans we laid out,” Gluski concluded. —David Hume reported from Arlington, Virginia, US editorial@latintrade.com

SEPTEMBER-OCTOBER 2012 LATIN TRADE

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SOCIAL SUSTAINABILITY LEADER

36

LATIN TRADE SEPTEMBER-OCTOBER 2012

DOUGLAS ORANE NON-EXECUTIVE CHAIRMAN, GRACEKENNEDY

DOUGLAS ORANE

BRAVO BUSINESS AWARDS 2012

Happiness is a positive cash flow BY ALEJANDRA LABANCA

PHOTO: COURTESY OF GRACEKENNEDY

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or the last 20 years, the same small plaque has graced the desk of Douglas Orane, Jamaica’s most famous and successful CEO. “Happiness is a positive cash flow,” it reads. From the helm of the GraceKennedy conglomerate, Orane launched a wide array of Jamaican food products and financial services into the world, but he says it was his parents’ experience as small entrepreneurs in Kingston that kept things in perspective. “I remember my parents’ efforts to get the money to meet payroll,” Orane said during an interview with Latin Trade. “Many years later a group of young managers gave me this plaque when we turned around a failing subsidiary.” Orane says he is rational to the marrow of his bones– a product of growing up in a home of small business owners, and of his training as a mechanical engineer at the University of Glasgow in Scotland, where he was awarded a scholarship. After returning to Kingston and working for eight years in the family construction business, Orane obtained an MBA from Harvard and joined GraceKennedy. The company, which started in Jamaica in 1922 as a small trading establishment, today boasts some 60 subsidiaries and associated companies located in the Caribbean, Central and North America, and the United Kingdom. Its operations range from processing and distributing Caribbean-style food to offering financial services, and an investment in construction materials retailing. GraceKennedy took off in the 1990s,

in large part due to the leadership of Orane, who became CEO in 1995. He arrived just in time to lead the company through a period of great economic instability in Jamaica. Opportunity arose from crisis, and Vision 20/20 was born— a strategy to propel the company onto the global stage and cement the foundation for its current growth. “Ironically, it was the adversity that got us to try to move to a higher level,” said Orane. “At the time, most of Latin America was suffering the effects of globalization. I decided to look at it in a positive way. It made us look outside to find our unique strengths.” One of those strengths was a deep understanding of the company’s customer base— starting with the Jamaican population, and including a large segment that didn’t live on the island, but in the diaspora. “Jamaica wasn’t so much a geographic situation as a state of mind,” said Orane. GraceKennedy then set out to deliver the flavor of the Caribbean to the rest of the world. The company complemented its food products business with a joint venture with Western Union that allowed it to provide remittance services to Caribbean people living outside the region. After retiring as GraceKennedy’s CEO last year –he still serves as non-executive chairman– Orane decided to return to his roots. Although he speaks of studying in Glasgow as a turning point in his life, he insists his success started closer to home, in Kingston, and much further back. He’s referring to 1729, when a gold-

smith named John Wolmer bequeathed his fortune to build one of the first schools in the Caribbean: Wolmer’s. Centuries later, Orane sat at one of its desks. “What Wolmer’s gave me was absolute confidence in myself,” said Orane. “It taught me that with determination anyone can make his dreams a reality.” Thanks to this determination, Orane has combined business success with a brilliant public service career. In 1998 he was appointed an independent senator, a position he held for four and a half years. Also in the 1990s, as president of a commission to reduce wasteful public spending in Jamaica, he authored the Orane Report. It generated millions of dollars in savings. In 2002 he was also named Commander of the Order of Distinction of Jamaica—a title that recognizes contributions to the private sector. Nowadays, at 64, Orane is looking for ways to return something to the venerable school that helped form him. He serves as a member of the Wolmer’s board of directors, and also as a prolific blogger on the school’s website. This summer he wrote about the Olympic Games in London, where another graduate, Shelly-Ann Fraser, won the gold medal in the 100 meters sprint. “I have a confession to make,” wrote Orane in a recent post. “I now cry when I’m singing the national anthem in a stadium where a talented, determined young Jamaican is being awarded gold.” —Alejandra Labanca reported from Miami editorial@latintrade.com

SEPTEMBER-OCTOBER 2012 LATIN TRADE

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ENTREPRENEURIAL CEO OF THE YEAR

38

ALEJANDRO RAMIREZ MAGANA CEO, CINEPOLIS

LATIN TRADE SEPTEMBER-OCTOBER 2012

ALEJANDRO RAMIREZ

BRAVO BUSINESS AWARDS 2012

THE FOUR WORDS THAT CHANGED THE HISTORY OF CINEPOLIS BY ALEJANDRA LABANCA

PHOTO: COURTESY OF CINEPOLIS

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t could be said that four words changed Alejandro Ramírez’s life. “Alex, we need you.” With that short sentence and a handful of newspaper clippings outlining business woes, Enrique Ramirez Miguel, the patriarch of a Mexican family of cinema entrepreneurs, convinced his grandson to leave his job at the United Nations in the mid-1990s to return to his country and put his shoulder to the wheel of the family business. The note, written by hand, appealed to the heart; the newspaper articles to the head. “We were the leading company in Mexico,” says Alejandro Ramirez, referring to Organizacion Ramirez, the company’s name during his childhood, a chain of movie theaters that started up in the 1970s. “But one year the government suddenly deregulated the industry and competition increased.” While Ramirez was studying economics at Harvard and Oxford and working for the World Bank and the United Nations Development Program, the two cinema chains of the Ramirez Organization, Gemelos and Multicinemas, had been waging a fierce battle against the world’s cinema giants, which had arrived in Mexico to take over the industry. “I was at the point of accepting a new assignment at the United Nations when they called me,” says Ramíiez. “I felt that it was my duty to return. The family had supported me in all of my projects, and I felt that I owed them some generational relief.” And so it was that the man who literally grew up at the movie theater– his father’s, which was right next door to the family home– converted his grandfather’s business into Cinepolis, the largest cinema chain in Latin America and the

fourth largest in the world. As soon as he joined the company in 1996, Ramirez began to professionalize its structure, adopting new technologies and improving the seating and movie theatre design to increase the slope. He also introduced complexes of up to 10 theatres per venue under the Cinepolis brand. Now the company has more than 21,500 employees in 27 countries and almost 540,000 seats that have entertained 135 million viewers so far this year. Among its innovations, the company has introduced VIP salons with leather seats, stewards and sushi, all the time maintaining its leadership position in Mexico, where it has staked out more than 60 percent of the market. But as happens in all success stories, Ramirez’s winning streak includes at least one extraordinary stroke of luck. In 2006, while the chief operating officer of Cinepolis, Miguel Mier, was studying for a master’s degree at Stanford, he met a couple of students from India, Ramirez recounts, and they began talking about the cinema business. What the Indian students told Mier seemed like a dream scenario for any movie theatre chain: India is a country of 1.2 billion people with an antiquated cinema infrastructure, where movie-going represents a major national pastime. On average, Indians go to the movies at least four times a year (as opposed to 1.8 times in Mexico, 1.9 times in Argentina and 0.6 times in Brazil). The Mexican market, on the other hand, was mature and offered few growth opportunities. Ramirez saw huge potential. “We put together a business plan and launched solo, without a local partner,” he says.

The 2009 incursion into India, where Cinepolis now has eight complexes, marks an ambitious step in the company’s internationalization plan, which began under Ramirez in 2003 with launches in Central America, Colombia and Peru, followed by openings in Brazil and the United States. The expansion continues today, with very favorable results. Over the last two years, Cinepolis has grown eight fold in India and five fold in South America. The number of seats grew by 20 percent over the same period, and the number of viewers by 30 percent. The company expects to end 2012 with 289 more venues throughout the world, 10 percent more than it currently has. With thousands of employees and a Mexican multinational under his wing, Ramirez appears to have left behind his career in development economics– a discipline that, as a young man, he dreamed of using to help Mexico move out of its economic torpor. The last time he was involved in public policy was over a decade ago, when he lead the Cabinet for Social Development under President Vicente Fox, and then became Mexico’s representative to the Organization for Economic Co-operation and Development (OECD), in Paris. But Ramirez says he doesn’t miss working in the public sector, or the influence such positions wield. His professional story, like all good movies, has a happy and unexpected denouement. “I always wanted to dedicate myself to public policy to help the development of the country,” he says. “But many years later I discovered that I can do much more in the private sector.” —Alejandra Labanca reported from Miami

SEPTEMBER-OCTOBER 2012 LATIN TRADE

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INVESTOR OF THE YEAR

40

CARLOS SLIM DOMIT CHAIRMAN, GRUPO CARSO

LATIN TRADE SEPTEMBER-OCTOBER 2012

CARLOS SLIM DOMIT

BRAVO BUSINESS AWARDS 2012

Mexican scion assumes a leadership role in the family’s business empire BY JOSEPH A. MANN, JR.

PHOTO: BLOOMBERG VIA GETTY IMAGES

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n the media, Carlos Slim Domit, winner of the 2012 Bravo Investor of the Year Award, is commonly referred to as the eldest son of the world’s richest man, Carlos Slim Helu, the Mexican businessman and philanthropist who created an international conglomerate. But in real life, the 45-year-old Carlos Slim Jr. has made his own mark, carving out an active and high-profile role as a successful, eloquent and hard-working executive with key responsibilities in the family’s diverse holdings. In the process, he has become an important business figure both in Mexico and in the international community. Carlos Slim Domit, who received a business administration degree from the Universidad Anahuac in Mexico, began working when he was very young. His first job out of college was at Sanborns, one of the family’s companies, and he later worked in Sanborns’ accounting department. “Since I was very young, I realized the importance of business, the big impact you can have on society by generating employment opportunities and taking care of social problems,” Slim Domit said in an interview with Latin Trade. “This is part of the philosophy advanced by my father– we are temporarily administering wealth and we must do so efficiently and achieve a social impact.” Today, Carlos Slim Domit is chairman of the board of Grupo Carso, the giant company that includes Grupo Sanborns, with restaurants, boutiques, malls and department stores operating under brands such as Sanborns, Sears, Saks Fifth Avenue, Mixup and IShop; Grupo Condumex, which manufactures a wide range of products for the electrical, electronic, mining, construction, automotive, transportation and energy sectors, and Carso Infraestuctura y Construcción, which works in areas such as chemicals and petrochemicals, public works, telecommunications networks and housing. He is also chairman of the board of Telmex

Internacional and, with his brother, Patrick Slim Domit, is co-chairman of America Móvil, the largest wireless operator in Latin America. The two telecommunications companies are the source of the bulk of the Slim family’s wealth. Slim is a tireless advocate for investing in telecommunications as a means to achieve economic growth and development, a firm defender of his family’s business activities and an active figure in the major charitable foundations set up by his father. The Slim companies employ about 260,000 people in direct jobs, and perhaps four times that number in indirect jobs, Slim Domit said. Working in 30 countries, the group makes between $11 billion and $12 billion in overall capital investments each year. In Mexican telecommunications alone, Slim enterprises have invested $42 billion dollars and make new capital outlays of about $2 billion each year. “Innovations in Mexico and Latin American telecommunications can lead to important growth in mobile and broadband adoption,” Slim Domit said at a Washington, D.C., meeting in September co-hosted by the Woodrow Wilson Center’s Mexico Institute and the U.S.-Mexico Chamber of Commerce. “That growth fundamentally changes the economic landscape and opens up worldwide opportunities for citizens.” At this year’s B20 conference in Mexico, where international business leaders met to discuss economic and social development goals with world leaders, Slim Domit chaired the information and communications technology task force, which made recommendations related to implementing the expansion of broadband service worldwide, Internet security and the role of telecommunications in education, health, financial inclusion, innovation and development. Slim Domit is keenly aware of new business opportunities and recently turned to Europe– mired in a recession– to make an investment.

“We bought a big stake in KPN NV (the Dutch phone company) and we believe they have very good potential to grow and develop,” he said. The Slim family’s Grupo Financiera Inbursa also bought an 8.4 percent stake in Argentina’s YPF. Slim Domit pointed out that while the group makes investments outside Mexico, it uses capital markets so as not to sacrifice capital outlays in Mexican projects. “We have a system that focuses on finding new ideas, updating processes and IT systems and training people,” he said. “It is important for us to always know what is happening in the industry, what is happening internationally and keeping in close contact with our customers.” Often Slim Domit is called upon to defend the family’s telecommunications investments, arguing their companies have made enormous investments to provide service to almost 200,000 Mexican towns and cities, and are open to competition. He also argues that criticism of the companies’ rates is based on erroneous data. “Rates are not opinions, they are facts,” he said. “We are very competitive on rates and anyone can check on that.” On the personal side, Carlos Slim Domit, a big car racing fan who Tweets, is married to his longtime girlfriend, María Elena Torruco. Many outside Mexico may not be aware that Carlos Jr. donated a kidney to his younger brother, Patrick Slim Domit, who was suffering from renal failure. Carlos Jr. said that he was extremely pleased “to be able to contribute in a very special way” to improving the health and extending the life of his brother. He and his brother are both major supporters of kidney donations and transplants in Mexico, and the family has set up a foundation to provide kidney transplants. Soumaya Domit Gemayel, the wife of Carlos Slim Helu and mother of Carlos Jr. and Patrick, died of renal failure. –Joseph Mann Jr. Reported from Miami editorial@latintrade.com

SEPTEMBER-OCTOBER 2012 LATIN TRADE

41

INDUSTRY REPORT: BANKING

©ISTOCKPHOTO.COM/FCAFOTODIGITAL

Credit cards are becoming a major tool to expand banking services

LATIN AMERICA:

REACHING THE UNBANKED 400 Million potential customers are still waiting for a bank to find them BY JOSEPH A. MANN, JR.

N

o one knows exactly how many people are “unbanked” or financially underserved (“underbanked”) in Latin America and the Caribbean. Estimates put the number as high as 70 percent – or more than 400 million – a huge market encompassing billions of dollars in cash and offering big opportunities to those who know how to reach it. The unbanked, who have no access to traditional financial systems, typically pay their bills in cash, are obliged to carry around their earnings or keep them at home – often in highcrime neighborhoods – and pay elevated interest rates if they need to borrow from local money lenders. Those who are able to set up an account and buy on credit, from retailers for example, still face steep interest rates much of the time. People in these groups – and not all the unbanked are poor – don’t live near a financial institution, don’t trust banks, don’t meet minimum requirements for opening an account and have no credit history or assets to support a loan. In recent years, a number of institu-

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LATIN TRADE SEPTEMBER-OCTOBER 2012

tions have seen the great potential for reaching millions of people in these unbanked or underbanked populations in and outside informal economies. They are offering products such as microfinance, vouchers, prepaid or stored-value cards, payments made via mobile phones, and rechargeable cards linked to a mobile phone to provide mobile financial services. Prepaid cards, used mostly as gift cards in the United States, have a wider variety of applications in Latin America. Along with the omnipresence of mobile phones, they offer significant opportunities for providing financial services to the unbanked. Users of these products can easily set up a simple account at a merchant, kiosk, telecom outlet or a bank branch (often with only an ID card), and then use the card and a mobile phone to pay bills. Depending on the service, they can also transfer money to family and friends, receive remittances, and deposit/withdraw at ATMs. They pay a small fee for each transaction. For example, NovoPayment, a Miami-based

company that pioneered prepaid cards in Venezuela, recently launched the first reloadable prepaid card for the unbanked in Peru through its subsidiary Servitebca Peru. Holders of LATODO MasterCard receive direct deposits on the card from an employer and can make purchases at stores or online. They can also withdraw cash from ATMs and, using cell phones, make person-to-person transfers and check their balance. The cards can be reloaded at over 2,200 retail stores, pharmacies and Interbank banking agents. In Venezuela, Servitebca handles payrolls for companies like McDonald’s, Atento and Burger King via prepaid cards. The bank also replaces paper food vouchers with reloadable plastic cards at other large Venezuelan companies. Citi (former Citibank) has launched prepaid cards in Jamaica, Panama and Trinidad & Tobago that can be used by client companies to pay customers, sales agents and employees. The bank, which uses both Visa- and MasterCardbranded prepaid cards internationally, plans to expand the program to other countries. Citi also has a joint venture called “Transfer” with America Movil, Banamex (owned by Citigroup) and Inbursa to offer cell phone owners a system to pay bills and make person-to-person transfers. In Brazil, MasterCard and Telefonica created a joint venture that allows Vivo customers to carry out financial transactions on their mobile phones.

The number of ATMs is on the high in Peru.

is government. “Governments want to include people in the financial system, and provide cash cards in assistance programs in countries like Brazil,” St. Germain said. For example, governments can use plastic cards –either storedvalue or debit cards– to pay public employees, or distribute benefits like monthly food payments or government pensions. Another motivating factor is the high penetration of mobile phones in Latin America, offering a way to link potential customers to financial institutions, St. Germain noted. According to figures issued by Bradesco in 2011, Brazil, then with a population of 194 million, had 224 million cell phones. MasterCard, whose credit and debit cards are issued through financial institutions, is working to serve Latin America’s unbanked market via reloadable prepaid cards, mobile

phones, microbusiness credit and debit cards. “How can we reach the next billion consumers worldwide and the next 10 million merchants?” asked Miami-based Jürgen Wassmann, regional head of emerging payments for Latin America and the Caribbean at MasterCard Worldwide. “Traditionally, through the urban base, but now there is an opportunity in Latin America to partner with mobile network operators and reach consumers that are unbanked with prepaid or debit cards,” he said. “Mobile financial services are an important connection and can link emerging financial ecosystems that are developing in the region,” Citi’s Rubio said. “Connecting the dots and correctly pricing the systems and services leads to a profitable and sustainable business model.”

LARGE BANKS ARE ARRIVING The partners in enterprises that are beginning to tap this enormous potential include large international banks like Citi and Scotiabank as well as national and regional banks like Itau and Caixa Economica Federal (Brazil), Banamex, Azteca and Banorte (Mexico), Banco de la Pampa and Banco San Juan (Argentina), and Banco Nacional (Costa Rica). Specialized companies like NovoPayment and Movilway are also playing an essential role by providing platforms and payment systems. MasterCard and Visa, meanwhile, offer widely accepted branded cards, networks of merchants and payment processing. Telecommunications companies like Telefonica and Mexico’s Telecomm Telegrafos, plus chains of retailers and supermarkets, are also getting in on the action. These players are attracted by the appeal of sharing small fees from millions of clients as the unbanked and underbanked scramble into the middle class in countries like Brazil, Mexico and Colombia. “This new middle class is aspiring to higher standards of living, and banking services are part of this,” said Fernando Iraola, Citi’s regional head of transaction services for Latin America and Mexico. Banks generally don’t work directly with the unbanked but team up with partners, said Neil St. Germain, senior vice president of U.S.based Speer and Associates, a financial industry consulting firm. One spur to reaching the unbanked market

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LATIN TRADE SEPTEMBER-OCTOBER 2012

A tiny town with no banks gets electronic banking Santiago Nuyoo in Oaxaca, Mexico, has less than 2,000 residents and no bank. But it offers solid evidence that an unbanked community can still access financial services. Under a partnership between the government-owned telecommunications company Telecomm -Telegrafos, Banorte (the country’s largest Mexicanowned bank) and MasterCard, Santiago Nuyoo now has easy access to a financial network. Townspeople – who previously lived in a cash economy – can call a number, provide basic information and go to the local Telecomm Telegrafos office to get a prepaid card with a security code. The card is linked to the customer’s cell phone. They can receive payments on the account or use the cell phone to pay bills. They can also access their money at any Telecomm Telegrafos office or Banorte branch or ATM when they travel outside the town. This “mobile wallet” program, called MiFon, is being expanded to other parts of Mexico, including large cities

with unbanked and underserved populations. MasterCard says that since the system was introduced, the town uses 40 percent less cash. In Argentina, MasterCard and Movistar (Telefonica) offer a mobile wallet service called “Wanda.” Under Wanda, which is also available in other Latin American countries, cell phone users contact a Wanda agent or Movistar office, sign up for the service and make an initial deposit in their new, password protected account. They then can make payments at any hour, and send and receive payments by phone. Many banks, including Citi, work in partnership with telecommunications companies and a mobile payments processing company to offer prepaid cards and mobile financial services. “We work with partners to reach unbanked segments of the population,” said Jorge Rubio, head of Citi microfinance for Latin America. “We also work with microfinance institutions in the area. They have a closer understanding… and help bring millions of new users to the financial system.”

©ISTOCKPHOTO.COM/JUANMONINO

INDUSTRY REPORT: BANKING

LATIN AMERICA’S TOP 100 BANKS Ranked by assets in millions of US$, as of December 31, 2011. Rank

Institution

2011 2010 1 1 Banco do Brasil 2 2 Banco Itau Unibanco 3 3 Bradesco 4 4 Caixa Economica Federal 5 5 Banco Santander 6 6 BBVA Bancomer 7 7 Banamex 8 8 HSBC Bank Brasil 9 9 Banco Votorantim 10 10 Santander 11 11 Santander-Chile 12 14 Banco Safra 13 12 Banorte 14 13 BTG Pactual 15 16 Banco de Chile 16 15 Banco del Estado de Chile 17 18 HSBC 18 17 Banco de la Nacion Argentina 19 21 Bancolombia 20 20 Banco de Credito e Inversiones 21 19 Citibank 22 22 Banco de Credito del Peru 23 24 Banco de Bogota 24 35 Banco de Venezuela 25 25 Banrisul 26 23 Inbursa 27 37 Banesco 28 30 Davivienda 29 29 Corpbanca 30 39 Banco Provincial 31 28 Bilbao Vizcaya Argentaria 32 59 JP Morgan 33 33 Banco Continental 34 31 HSBC Bank 35 41 Banco Mercantil 36 73 Deutsche Bank 37 27 Scotiabank 38 32 BNB 39 26 Deutsche Bank 40 38 BBVA 41 44 Bicentenario 42 34 Banco Volkswagen 43 43 Banco de la Republica del Uruguay 44 40 Scotiabank Chile 45 47 Scotiabank Peru 46 48 Banco de Occidente 47 49 Banco Santander Rio 48 46 Banco de la Provincia de Buenos Aires 49 55 Banco de Galicia y Buenos Aires 50 50 Banco General

Country

Assets

Brazil Brazil Brazil Brazil Brazil Mexico Mexico Brazil Brazil Mexico Chile Brazil Mexico Brazil Chile Chile Mexico Argentina Colombia Chile Brazil Peru Colombia Venezuela Brazil Mexico Venezuela Colombia Chile Venezuela Chile Brazil Peru Panama Venezuela Mexico Mexico Brazil Brazil Colombia Venezuela Brazil Uruguay Chile Peru Colombia Argentina Argentina Argentina Panama

$523,099.4 $453,849.8 $405,977.5 $271,997.9 $225,890.7 $90,883.8 $80,316.4 $77,002.8 $59,944.9 $54,621.1 $47,274.9 $46,309.3 $45,266.2 $43,721.1 $41,692.5 $40,038.4 $37,615.7 $36,568.6 $32,009.1 $31,024.4 $30,774.1 $25,474.5 $22,270.5 $20,578.0 $20,037.1 $18,715.5 $18,441.3 $18,110.7 $17,043.9 $16,545.6 $16,401.1 $15,706.3 $15,673.0 $15,667.7 $15,650.1 $15,305.1 $14,207.9 $14,093.0 $13,488.0 $13,436.3 $12,891.2 $12,657.8 $11,913.8 $11,084.2 $11,067.1 $10,784.4 $10,607.2 $10,248.4 $10,028.8 $9,492.6

% Ch.

7.4% 0.1% 6.1% 13.1% -2.8% -3.7% -10.8% 5.1% -7.4% -0.9% 0.2% 5.2% 0.6% -1.1% 6.9% -0.4% 8.4% 2.0% 25.9% 9.8% -5.7% 6.6% 14.1% 67.0% 3.9% -7.0% 52.2% 22.8% 11.9% 47.5% 3.6% 114.0% 16.5% 6.8% 46.0% 152.9% -12.5% -1.3% -27.5% 16.4% 27.9% 1.9% 17.1% 1.7% 13.1% 17.5% 16.7% 4.1% 31.2% 12.7%

Net Income

$6,464.4 $7,794.3 $5,879.2 $2,762.8 $1,896.4 $1,681.6 $687.3 $595.8 -$107.2 $982.2 $843.8 $668.8 $499.9 $787.4 $822.3 $192.7 $66.1 $766.6 $613.7 $501.0 $989.4 $533.8 $566.4 $366.2 $482.1 $274.2 $318.1 $305.1 $232.1 $426.1 $142.7 $58.9 $418.8 $126.6 $317.4 $11.6 $205.2 $167.8 $88.7 $249.1 $35.4 $101.8 $231.2 $135.8 $292.5 $227.1 $388.2 $138.8 $256.3 $231.5

% Ch.

-8.0% -2.5 % -2.3% 22.3% -18.2% -7.9% -51.5% -8.3% -117.6% -5.8% -17.6% 6.3% 2.3% 61.8% 1.7% 10.9% 95.0% 29.1% -0.3% 5.6% 282.4% 23.9% 38.7% 152.2% 8.4% -21.4% 171.7% 13.0% -8.0% 133.9% 38.3% -10.9% 16.7% 15.2% 48.6% -54.9% -3.3% -10.8% 91.7% 13.4% 70.4% -38.2% 60.0% -11.6% 20.7% 11.6% -4.7% 1.2% 114.7% 16.0%

SEPTEMBER-OCTOBER 2012 LATIN TRADE

45

LATIN AMERICA’S TOP 100 BANKS Ranked by assets in millions of US$, as of December 31, 2011. Rank 2011 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

2010 42 51 62 56 58 53 60 54 57 75 65 70 61 67 64 36 52 71 45 63 90 77 78 82 84 68 79 69 88 89 96 92 66 72 87 85 --83 91 74 94 86 81 76 ----80 95 93 ---

Institution

Bicbanco BAC International Bank BMG Sidecredi BBVA Banco Frances Banco Macro Itau Chile Banagrario Banco de la Nacion Banco Occidental de Descuento Security Bancolombia Interbank Banco Popular Banco Nacional de Costa Rica BNP Paribas Panamericano Banco Nacional de Panama ING Ixe Banco Colpatria Bice Banco del Pichincha HSBC Bank Banco Societe Generale Banco del Bajio Banco de Costa Rica Bancoob Daycoval Banco Industrial Afirme Bladex Banco Alfa Interacciones Banco de Reservas Banco Cruzeiro do Sul Banco del Tesoro Banco Pine Helm Bank Banco Fibra Radobank Banco Azteca BMB ABC Brasil Mercedes Benz Banco Exterior Banestes Banco Popular Dominicano BASA Banco del Caribe

Country

Assets

Brazil Panama Brazil Brazil Argentina Argentina Chile Colombia Peru Venezuela Chile Panama Peru Colombia Costa Rica Brazil Brazil Panama Mexico Mexico Colombia Chile Ecuador Argentina Brazil Mexico Costa Rica Brazil Brazil Guatemala Mexico Panama Brazil Mexico Dominican Rep. Brazil Venezuela Brazil Colombia Brazil Brazil Mexico Brazil Brazil Brazil Venezuela Brazil Dominican Rep. Brazil Venezuela

$9,324.8 $9,198.9 $9,164.4 $9,010.6 $8,918.6 $8,861.9 $8,538.3 $8,409.0 $8,400.7 $8,003.3 $7,500.8 $7,452.0 $7,436.9 $7,284.4 $7,197.2 $7,170.6 $7,075.1 $6,999.0 $6,918.9 $6,879.4 $6,850.1 $6,811.2 $6,757.5 $6,691.1 $6,636.9 $6,628.5 $6,586.9 $6,471.8 $6,453.1 $6,439.9 $6,377.3 $6,353.7 $6,350.5 $6,222.7 $6,185.8 $6,112.8 $6,039.7 $5,940.7 $5,890.9 $5,872.9 $5,858.9 $5,824.9 $5,609.8 $5,603.4 $5,459.6 $5,420.0 $5,395.3 $5,322.2 $5,262.6 $5,112.6

% Ch.

-9.1% 9.4% 33.5% 19.3% 20.4% 13.2% 17.3% 9.8% 11.5% 34.4% 12.4% 19.5% 7.9% 10.3% 7.6% -41.5% -10.5% 14.0% -30.1% 1.3% 31.1% 16.6% 17.2% 18.8% 22.7% 1.8% 14.4% 0.2% 20.3% 23.1% 35.1% 26.0% -4.3% 1.7% 15.2% 9.8% 85.7% 8.2% 14.8% -2.6% 18.5% 8.0% -1.3% -4.9% 28.8% 54.2% -5.3% 11.2% 3.6% 59.4%

Net Income

$123.9 $215.9 $311.1 $28.8 $232.8 $272.2 $102.8 $198.0 $180.5 $54.5 $67.2 $202.1 $200.6 $188.7 $50.5 $119.7 $35.7 $107.1 $10.0 $11.7 $157.6 $81.0 $96.5 $98.7 -$252.4 $61.4 $51.2 $20.6 $162.6 $94.1 $10.7 $117.9 $87.0 $78.3 $70.2 $73.1 $118.5 $86.1 $66.7 -$44.7 $68.7 $80.8 $42.8 $125.8 $53.0 $115.3 $47.6 $101.9 $41.9 $92.3

Sources: Austin Asis, Banking authorities of Argentina, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Mexico, Panama, Peru, Uruguay, Venezuela, LATIN TRADE.

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LATIN TRADE SEPTEMBER-OCTOBER 2012

% Ch.

-40.8% 42.7% -14.4% 45.1% -23.7% 5.9% 1.8% 25.6% 32.8% 83.6% -6.8% 59.1% 13.2% 2.5% -15.4% -6.9% 144.6% 4.5% -83.7% 945.2% 62.0% -6.5% 22.0% 27.5% -9,016.5% -13.5% 22.2% 10.3% -1.4% 19.3% -41.5% 107.8% -9.0% 15.1% -14.1% -19.6% 401.8% 21.3% 6.0% -2,089.9% 12.2% 60.7% -47.2% 3.7% 1.4% 41.6% -52.5% 1.6% -50.9% 43.7%

LATIN AMERICA’S TOP 100 BANKS: WINNERS AND LOSERS Ranked by assets in millions of US$, as of December 31, 2011. WINNERS BY ASSETS Rank 2011 36 32 87 24 100 96 27 30 35 81

2010 73 59 --35 ----37 39 41 96

Institution

Country

Deutsche Bank JP Morgan Banco del Tesoro Banco de Venezuela Banco del Caribe Banco Exterior Banesco Banco Provincial Banco Mercantil Afirme

Mexico Brazil Venezuela Venezuela Venezuela Venezuela Venezuela Venezuela Venezuela Mexico

% Ch.

Assets

152.9 % 114.0 % 85.7 % 67.0 % 59.4 % 54.2 % 52.2 % 47.5 % 46.0 % 35.1 %

$15,305.1 $15,706.3 $6,039.7 $20,578.0 $5,112.6 $5,420.0 $18,441.3 $16,545.6 $15,650.1 $6,377.3

LOSERS BY ASSETS Rank 2011 66 69 39 37 7 67 51 9 26 21

2010 36 45 26 27 7 52 42 9 23 19

Institution

Country

% Ch.

Assets

BNP Paribas ING Deutsche Bank Scotiabank Banamex Panamericano Bicbanco Banco Votorantim Inbursa Citibank

Brazil Mexico Brazil Mexico Mexico Brazil Brazil Brazil Mexico Brazil

-41.5 % -30.1 % -27.5 % -12.5 % -10.8 % -10.5 % -9.1 % -7.4 % -7.0 % -5.7 %

$7,170.6 $6,918.9 $13,488.0 $14,207.9 $80,316.4 $7,075.1 $9,324.8 $59,944.9 $18,715.5 $30,774.1

Institution

Country

% Ch.

Net Income

Ixe Banco del Tesoro Citibank Banesco Banco de Venezuela Panamericano Banco Provincial

Mexico Venezuela Brazil Venezuela Venezuela Brazil Venezuela Argentina Panama Mexico

945.2 % 401.8 % 282.4 % 171.7 % 152.2 % 144.6 % 133.9 % 114.7 % 107.8 % 95.0 %

$11.7 $118.5 $989.4 $318.1 $366.2 $35.7 $426.1 $256.3 $117.9 $66.1

% Ch.

Net Income

-9,016.5 % -2,089.9 % -117.6 % -83.7 % -54.9 % -52.5 % -51.5 % -50.9 % -47.2 % -41.5 %

-$252.4 -$44.7 -$107.2 $10.0 $11.6 $47.6 $687.3 $41.9 $42.8 $10.7

WINNERS BY NET INCOME Rank 2011 2010 70 63 87 --21 19 27 37 24 35 67 52 30 39 49 55 82 92 17 18

Banco de Galicia y Buenos Aires

Bladex HSBC

LOSERS BY NET INCOME Rank 2011 75 90 9 69 36 97 7 99 93 81

2010 84 74 9 45 73 80 7 93 81 96

Institution

Country

Banco Societe Generale Banco Fibra Banco Votorantim ING Deutsche Bank Banestes Banamex BASA BMB Afirme

Brazil Brazil Brazil Mexico Mexico Brazil Mexico Brazil Brazil Mexico

Sources: Austin Asis, Banking authorities of Argentina, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Mexico, Panama, Peru, Uruguay, Venezuela, LATIN TRADE.

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LATIN TRADE SEPTEMBER-OCTOBER 2012

INDUSTRY REPORT: BANKING

PERU FINANCIAL INCLUSION ON THE RISE

Banco de Credito del Peru brings a floating bank to small towns along the Amazonas.

As Peru’s economy speeds ahead, one statistic stands out like a black eye. The country’s banking inclusion rate is among the lowest in South America. But with banks making concerted efforts to reach the far-flung and less fortunate— high in the Andes and tucked along the Amazon River— inclusion is on the rise. The government of President Ollanta Humala, meanwhile, says it’s mulling new strategies to aggressively court millions of people who still don’t bank. The Ministry of Development and Social Inclusion, in charge of developing the strategies, aims to deepen financial education and promote savings programs among Peru’s poorest residents, while improving their access to banking infrastructure, said Gabriel Arrisueno, the ministry official leading the initiative. The ministry intends to launch the program officially later this year, but it has already made progress. Rural residents in the government’s cash-transfer program Juntos, for example, are now receiving payments through new savings accounts at the state-owned Banco de la Nacion. The bank has also installed Quechua-language ATMs in Andean villages where Spanish is rarely used. “Financial inclusion is one component of increasing social inclusion and market participation,” said Arrisueño. Peru’s banking sector has seen rapid growth over the last decade, a trend that’s likely to continue as banks increase their presence in poor, isolated regions that have traditionally lacked financial services. The Banco de la Nacion is a prime example. Its growth strategy for the next three years aims to provide banking to 1.5 million new customers in the Amazon jungle and Andean highlands. This plan alone would boost the number of people in Peru’s banking system by 20 percent. Low income residents in remote communities have traditionally lacked access to formal banking in Peru, along with other services. At

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LATIN TRADE SEPTEMBER-OCTOBER 2012

Analysts say banking agencies are the key to most of the success in reaching low income areas. The number of agencies has skyrocketed in recent years, from about 4,300 in December 2008 to almost 11,200 in June 2012, and many are located in Peru’s poorest areas. the end of 2011, banking sector loans represented just 26 percent of the country’s gross domestic product, compared to 74 percent for Chile and 49 percent for Brazil, according to Peru’s private-sector banking association, or Asbanc. Yet in recent years, Peru has boasted one of Latin America’s fastest growing economies, posting expansion of 6.9 percent in 2011 and 8.8 percent in 2010, thanks to strong domestic demand and private sector investments. The country’s poverty rate has also declined sharply, meaning an emergent middle class is reaching for more and more consumer goods. The banking sector has tracked this growth. Since 2005, bank loans have expanded by an average of 17 percent per year with consumer loans and mortgages forming the fastest growing segments. Analysts say this is largely due to aggressive expansion plans to increase the number of clients from lower income brackets.

PHOTO: BANCO DE CREDITO DEL PERU

BY RYAN DUBE

Banco Santander: A tale about a backer

PHOTO: COURTESY BANCO DE CREDITO DEL PERU

By Sergio Manaut

According to local lore, every morning that Emilio Botin, father of the current president of Banco Santander, went to mass, a beggar at the door of the Santander Cathedral asked him for money, pleading, “for the love of God.” Don Emilio never gave the beggar so much as a glance. Then one day, Botin’s secretary advised the beggar to ask for money in the name of the Santísima Virgin– to whom the banker was deeply devoted. The next day the beggar reached out his hand and asked for money “for the love of God,” and, he added “for the Santísima Virgin.” Hearing this, Don Emilio pulled a peseta out of his pocket and said to him: “With backing like that, yes.” The anecdote points to a fundamental concept in the world of finance, the axis around which so much else revolves: backing “Banking must be understood as the access of citizens to financial services,” says Javier Hidalgo, assistant general director of the America Division of Banco Santander. “But it’s not possible to bring people (fully) into the banking system if they are part of the informal economy, or if they have income below levels that justify entering the process of becoming a bank client.” For Hidalgo, there’s no better backing for a customer than being on a payroll, although “we understand that in banking there has to

be another step,” he says. “Perhaps it’s better to use the term financial inclusion, which means access to financial services without this necessarily leading to becoming a bank client,” the executive explains. How does one get access to financial services without being a client? Hidalgo offers three examples of access programs that Santander has launched in Latin America. “You can have a consumer credit loan without a bank account. This is already happening in Brazil and Colombia,” he notes. Another option is to receive income, from government support programs for example, on a debit card. Recipients can use the card to make payments, or to withdraw cash, without being a bank client. And finally, the bank offers service networks for non-clients. “Service points—not banking strictly speaking– that carry all the security of the financial system,” he says. Despite the prevalence of the informal economy in so many Latin American countries, Banco Santander’s 2012 figures show loans of $192 billion dollars and business volume of $445 billion, based on a clientele of about 9 million. The data also shows the bank’s bet on organic growth is paying off: Latin America, which makes up 19 percent of the Group’s assets, brings in 52 percent of the profits. —Sergio Manaut reporting from Madrid

“Banking must be understood as the access of citizens to financial services” Javier Hidalgo, assistant general director of the America Division of Banco Santander.

A new experience for small town inhabitants.

And while banking participation in Peru is still relatively low, it has increased steadily over the last decade. In 2005, Peru’s banking sector loan portfolio represented less than 20 percent of GDP. “What we are observing in Peru is the start of a relatively fast process of increasing bank participation driven by growth and increased access to bank credit,” said Mario Guerrero, an economist at Scotiabank Peru. Banco de Credito del Peru, the country’s biggest bank, says it sees lots of room to increase banking participation in the country. Gianfranco Ferrari, Banco de Credito’s head of retail banking, said the bank aims to open another 100 branches in the next 18 months and 400 to 500 new ATMs this year. The bank currently has 350 branches and 1,665 ATMs. Already, Banco de Credito has almost half of Peru’s total number of agencies, at 5,300. Agencies offer basic banking services, like paying bills, transferring money from accounts and checking balances. But unlike branches, they don’t process loans, and they cost less to operate. Ferrari said the bank intends to continue growing by adding another 1,000 agencies per year. Analysts say agencies are the key to most of the success in reaching low income areas so far. The number of agencies has skyrocketed in recent years, from about 4,300 in December 2008 to almost 11,200 in June 2012, and many are located in Peru’s poorest areas. In June, Banco de Credito opened up its first agency on the Peruvian Amazon. Located on a riverboat, it provides financial services to some 45,000 people in the jungle region of Loreto. “What we wanted was to give a message of commitment to increase banking participation and to do everything we can to reach Peruvians that need financial services,” Ferrari said. Banking infrastructure in general has also increased significantly in

SEPTEMBER-OCTOBER 2012 LATIN TRADE

51

PHOTO: MARIANA BAZO/REU TERS/NEWSCOM

INDUSTRY REPORT: BANKING

Cocoa producers from the VRAE valley

Like private-sector banks, Banco de la Nacion has embarked on a plan to increase financial services in isolated regions. The drive includes opening 150 banking agencies in the Apurimac and Ene river valley– a mountainous, jungle region in south-central Peru. recent years. In 2011, Peruvian banks had about 22,300 points of contact– meaning branches, ATMs and agencies located in mom-and-pop shops, pharmacies or even clothing stores. That translates into 120 points of contact per 100,000 people, up from some 6,000 points of contact in 2006, or 35 per 100,000 people. Comparisons with other Latin American countries show room for improvement. In 2010, Peru had 17 branches and 25 ATMs per 100,000 people. Chile had 19 branches and 63 ATMs per 100,000, while Brazil had 15 branches but 121 ATMs per 100,000, according to Peru’s banking regulator. The strategy to increase banking participation among low-income residents has also included new products and services. Banks recently began offering new clients accounts with no fees and a minimum deposit, while also launching campaigns to increase transparency and financial education. The push correlates with the government’s goals. President Humala took office in 2011 promising to maintain Peru’s strong economic growth and decrease poverty. Since then, the government has sought to increase social programs and state services in poor communities, while decreasing Peru’s massive informal economy.

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LATIN TRADE SEPTEMBER-OCTOBER 2012

By the end of Humala’s term in 2016, Peru hopes to decrease the poverty rate to 15 percent, from 28 percent at the end of last year. Like private-sector banks, Banco de la Nacion has embarked on a plan to increase financial services in isolated regions. The drive includes opening 150 banking agencies in the Apurimac and Ene river valley– a mountainous, jungle region in south-central Peru. The area, called the VRAE, is known as Peru’s top producer of coca leaves, the raw material used to make cocaine, and the last stronghold of remnants of the leftist Shining Path rebels. The banking push is part of a larger plan to increase state presence in the area. “These measures will facilitate access to financial services to thousands of people,” President Humala said. But plans to increase banking participation don’t come without risk. Standard & Poor’s recently warned of growing consumer debt in Peru as more people enter the financial system and banks push increasingly aggressive lending policies. “Although credit is a useful tool to support economic expansion, increasing household debt could bring undesired risks and damage the health of Peru’s financial system,” Standard & Poor’s said.

MARK BERMAN/ WWW.SOU THAMERICANPOSTCARD.COM

INDUSTRY REPORT: BANKING

Voyager III continues its journey on the Amazon.

FISHING FOR CLIENTS IN UNUSUAL PLACES Brazilian banks reel in the unbanked BY THIERRY OGIER

The arrival of Voyager III on the Amazon river bank is usually a big event in the sleepy hamlet of Belem do Solimoes. The ship has been chugging between Manaus and Tabatinga for four years, carrying merchandise for trading, but also offering financial services by Bradesco bank. It covers the 1,500-kilometer stretch twice a month, carrying foodstuffs… and a bank manager. “Sometimes there are hundreds of people waiting for the goods to arrive by ship,” says Edmir Jose Domingues, executive superintendent at Bradesco Expresso, the correspondent banking unit of Bradesco. That means swarms of potential banking clients. Bradesco is one of the oldest banks in Brazil and now trails only state-controlled Banco do Brasil and Itau Unibanco in terms of assets. The strategy to fish for clients in unusual places, like the Amazon river or the favelas of Rio de Janeiro and São Paulo, is not exactly new. But it has gained momentum in recent years thanks to the creation of millions of jobs in Brazil, the emergence of a new middle class, and the demand for banking services from a sector of the population that never had access to them before. Part of the challenge has been to attract this new

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LATIN TRADE SEPTEMBER-OCTOBER 2012

breed of customers to an environment that is largely unfamiliar to them. “Sometimes people are a bit reluctant to go through the revolving door and all the security checks that exist at conventional bank branches,” says Lucia Helena Cuevas, executive manager of partnership networks at Banco do Brasil, Brazil’s largest bank. One way to work around this is to open so-called correspondent banking units at post offices around the country. “Access is much easier at a post office,” she says. Banco do Brasil, which started operating the Banco Postal franchise this year, says it has been opening an average 100,000 new accounts per month. The bank hopes to lure 10 million new customers within five years. At first, these new customers have access to basic services, like an account or a pensioners’ card to collect their monthly benefits. But they can also apply for some types of loans with the help of a banking correspondent, which reduces their dependence on informal credit agents, who typically charge extortionate interest rates. The bank also seeks to extend the relationship further. “The idea is to sell them other (financial) products,” says Cuevas.

Mid-size banks: the BIG squeeze In the Brazilian banking world, big is still beautiful. But mid-size banks are feeling a squeeze, due to the extended international financial crisis, higher funding costs and also the backlash from several scandals involving fraud. Over the last two years, Banco Panamericano (of the high-profile television mogul Silvio Santos), Banco Morada and Cruzeiro do Sul were all caught up in the regulatory nets of the central bank, investigated for fraudulent operations and large holes in their accounts. This has caused a “credibility challenge” to other middle market banks, says Luis Miguel

INDUSTRY REPORT: BANKING

“ this cluster of mid-sized banks is on a better footing today than it was at the beginning of 2011.”

A pedestrian walks past the Central Bank of Brazil building in Brasilia, Brazil

Banco do Brasil, which started operating the Banco Postal franchise this year, says it has been opening an average 100,000 new accounts per month. Originally, Bradesco operated the Banco Postal franchise. Banco do Brasil took it over at the end of last year after agreeing to pay 2.3 billion reais, or more than $1 billion, to exploit the service for five years. The banks’ main target is a new army of urban consumers. “We noticed that there was a great number on unbanked people in urban centers too,” says Gerson da Costa, a Bradesco manager, referring to people in lower-income jobs like car washers or elevator operators. This has prompted banks to set foot in favelas, like Paraisopolis in Sao Paulo or Cidade de Deus in Rio de Janeiro, in recent years. Bradesco says it’s planning to set up a fourth automatic teller machine at its branch in Paraisopolis, and is also working on a partnership with Casas Bahia, a popular home and electronics appliance store. Bradesco, which opened 5 million new accounts when it operated Banco Postal, now says it is opening 7,000 new accounts per day through banking correspondents, which are regulated by the central bank as part of its official financial inclusion strategy.

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(There are currently over 40,000 banking correspondents across the country.) “We have a very segmented approach. The increase in income has had a strong positive impact on our business,” says Domingues. Despite efforts in recent years to attract new customers though, there is a long way to go. At the beginning of last year, the Institute of Applied Economic Studies (IPEA), a government thinktank, found that 39.5 percent of Brazilian adults still did not have a bank account. Interestingly, the same survey found that another 39 percent had only had a bank account for five years or less. In 2011, according to the Brazilian Federation of Banks (Febraban), the number of checking accounts reached 92 million, a 3.8 percent increase compared with 2010. Febraban says access to banking increased by 6 percent last year, but it noted less than a third of customers from the lower income rungs owned a credit or debit card. In short, Brazilian banks still have a lot of fishing (and catching) to do.

Santacreu, a bank industry analyst at Austin Ratings, a São Paulo-based consultancy. Hoping to head off further trouble, authorities introduced new regulations earlier this year. Banks working in consumer finance also faced tougher funding conditions and a drop in profitability on the back of higher default rates, especially in car loans. Some, like BMG, had to look for partners. A mid-size bank specializing in payroll loans (those that are backed by wages or pensions), BMG agreed to take a minority stake in a joint venture with Itau Unibanco, Brazil’s largest private bank. The going was even tougher for banks focused on small- and medium-sized businesses, due to the economic slowdown in the first half of the year. Central bank president Alexandre Tombini is adamant that the situation is well under control. Brazil has 130 smalland medium-sized banks, which account for around 70 percent of the total assets of the financial system and have a credit portfolio that accounts for slightly more than 13 percent of total credit in Brazil. “When we detect problems, we have acted upon them and we’ve seen some important moves lately which I think bode well for the fact that (this) cluster of (mid-sized) banks is on a better footing today than it was at the beginning of 2011,” he told foreign journalists in July.

PHOTO: BLOOMBERG VIA GETTY IMAGES

Alexandre Tombini, Central bank president

INDUSTRY REPORT: BANKING

BBVA: Changing times, same old challenge By Sergio Manaut

SECRECY,

A THING OF THE PAST BY ALEJANDRA LABANCA

T

Honduras, Mexico, Panama, Peru and Venezuela, all countries that have tax accords with the United States. Chile is in negotiations to finalize a similar treaty. The new trend toward more transparency is driven in part by security issues, but there’s also an economic motive. Because of its serious budget deficit, the U.S. government is looking for ways to collect more taxes, and one relatively fast way to do it is to search for money its citizens have outside the country. “The United States is seeking a better bargaining Starting next year, the campaign for position for the transparency will arrive at one of the most moment when it asks other counpopular destinations for Latin Americans tries for financial looking for a safe haven for their money: information about Miami, and the rest of the United States. American citizens with offshore accounts,” explained Daniel Martínez, another Starting next year, the campaign for transfinancial lawyer with Holland and Knight. parency will arrive at one of the most popular The decision has caused a great kerfuffle in destinations for Latin Americans looking for Miami’s banking sector where, according to the a safe haven for their money: Miami, and the Florida regulatory authorities, foreign deposits rest of the United States. As of January 2013, represent more than 40 percent of the assets Uncle Sam will demand that banks operating of local banks and 90 percent of the assets of on American soil report on the accounts of the foreign banks. citizens of 77 countries where Washington has The International Association of Banks tax agreements. (FIA) has launched a major lobbying effort in In Latin America this new regulation will Washington against the measure. affect Costa Rica, the Dominican Republic, he secretive world of offshore banking hasn’t been the same since 2009, when Washington succeeded in knocking Switzerland’s biggest bank, UBS, to its knees and forcing it to reveal confidential information about thousands of American clients who were evading taxes. “We’re moving toward greater financial transparency and more information exchanges,” Victor Perez, a lawyer who specializes in financial issues with the Miami-based firm Holland & Knight, told Latin Trade.

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July ended with a few moves on the BBVA chessboard. The bank opened a new phase in the development of its retail business by appointing Ignacio Deschamps to head a division that combines global retail banking with its Latin America Group business. Deschamps, who is currently the top executive of BBVA’s Mexican subsidiary Bancomer, is well versed in the challenges involved in expanding access to financial services in Latin America. BBVA Bancomer currently leads Mexican banks in offering services geared towards the “unbanked” sector of the population. “Our emphasis starts with encouraging saving, improving the banking culture and managing personal finances,” he says. “Our strategy has three pillars: a low-cost account, promoting alternative channels to the branch network, and innovation through technological platforms.” One example is the “express account,” which allows people to instantly open an account, and manage it, with their mobile phone. It’s simple, available at a low cost, and offers high security. The account holder also receives an international debit card for purchases at business outlets and for use at automatic tellers. In Venezuela meanwhile, BBVA Provincial offers the Standard Payroll Plan, aimed at low-income employees. The plan’s card can be used to withdraw money paid in by employers, or to make purchases in stores. As for the poorest citizens, in 2007 the bank created the BBVA Microfinance Foundation with the goal of including this group in the financial system. The foundation, which is not formally a part of Grupo BBVA, operates in Latin America. It has eight microfinance entities that provide services to more than 1 million clients, and it’s thought to benefit another four mi-

INDUSTRY REPORT: BANKING

BBVA’s efforts towards financial inclusion in Latin America are paying off in other ways

“Now that the regulation has been approved, as banks we have to comply. We are going to report the clients of the countries that are on the list,” FIA president Maria Grisel Vega told Latin Trade. The clients who are most worried are the Mexicans and the Venezuelans, according to an investment banker who asked that his name not be used because his bank has not authorized him to speak on the issue. Under the new regulation, foreign banks must report to the IRS on all interest paid in excess of 10 dollars that is generated by the bank accounts of citizens of the relevant countries. “However, there’s one exception,” said the unnamed banker. “The banks must report the accounts that are in the name of a person, but not those in the name of an entity. Most people with a lot of money already have it in the name of a corporation, and those who don’t are opening trust accounts or setting up corporations.” The IRS says its intention isn’t to tax the interest reported but to compile the information so it’s available when a country asks for it. “The request from a foreign country cannot be general,” said Martinez of Holland & Knight. “It must be specific. The country cannot ask for the whole list. It has to ask for information about one particular person and explain the reasons why it is required to safeguard the confidentiality of the information.” All of the shared information based on this regulation is tied to tax issues. Requests for information for investigating illicit funds or money laundering are covered by other laws. But Vega, the FIA president, says there are many reasons why Latin Americans might be suspicious of news that their information will be shared with someone else, and not all of them are related to tax evasion. “It’s not true that all of the money in Miami

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is dirty. There are many legitimate reasons why Latin Americans invest their money in Miami. Some of the main ones are the lack of security, and the political and economic instability, in their (home) countries,” Vega said. The security factor is first and foremost for clients from Mexico, a country that drug cartels have converted into the new kidnapping capital of Latin America. Venezuelans fear that the socialist government of Hugo Chavez will confiscate their assets. In the special case of Venezuela, the tax accord with the United States dates back to 1999 and has never been used. According to a report last April from a US financial news agency, the U.S. Treasury has issued a notice saying there will be no exchange of information with Venezuela because it doesn’t think the country can guarantee the confidentiality of the information it receives. The FIA fears that the measure will diminish the attractiveness of the United States as a safe haven for Latin American money. The association says that the Caribbean and Panama could become alternatives for many clients who are looking for more discreet places to park their assets. Not everyone is so pessimistic. “The truth is that nowadays transparency is greater all over the world, and besides, it’s the trend,” said the anonymous banker. “Before it used to be cool to say, ‘I have money in the Bahamas.’ Now if someone has money in a tax haven it’s automatically assumed that the person is involved in something dirty.” “That’s why I don’t think this will have much impact,” he added. “Where can a client find absolute confidentiality? Not in Switzerland. Maybe in Monaco or Andorra, but those are small places and besides, who wants to say, “I have money in Andorra’?”

llion people indirectly. The median credit line is for $1,293. The default rate is 3.1 percent, and 60 percent of its clients are women. Almost half of the clients have incomes of less than nine dollars per day. But there’s another interesting figure: the total volume of microcredits stands at a lofty $946 million. At what point will the financial inclusion of this sector of Latin Americans start to benefit BBVA? The 2011 annual balance sheet offers a hint in a standout increase of loans in the region. And a directive from the bank takes note: “Historically, it was not expected that the credit segment would be at the core of the retail business for BBVA in the region.” However, in recent years, favored by an auspicious economic environment, it adds, this segment of the business grew, “with emphasis only on clients who can prove their ability to pay.” BBVA’s efforts towards financial inclusion in Latin America are paying off in other ways. According to first quarter results, 72 percent of the Group’s profits were generated in this region. This target segment of low-income clients contributed about 8.6 million active clients, who generated credit card financing of $3.716 billion, and consumer financing of $9.648 billion. All this data has not escaped the notice of Fitch Ratings. According to a recent report, the credit rating agency believes that Latin America is strategically important to BBVA, “since it benefits from its geographic diversification through the capacity of Latin American markets to generate revenues at the international level and compensate for its modest results in Spain.”

—Alejandra Labanca reporting from Miami

—Sergio Manaut reporting from Madrid

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BUSINESS FRONTIER: THE CARIBBEAN

Tropical Caribbean Harbor Marina in the Bahamas Parlatuvier Bay on Tobago’s north coast

Promenade in Bridgetown, Barbados

FANTASY ISLANDS FOR TRADE The Caribbean nations have a permanent population of 39 million and another floating population of 27 million tourists, plus one of the region’s highest per capita incomes.

T

he region’s highest income per capita countries aren’t Brazil or Argentina. They are three Caribbean islands: the Bahamas, Trinidad and Tobago, and Barbados. A ranking by Latin Business Chronicle, Latin Trade’s sister publication, shows that the Bahamas has an average annual per capita income of $24,300, while Trinidad and Tobago comes in at $18,500, and Barbados at $16,900. Those numbers are far below the $48,400 the International Monetary Fund (IMF) reports as per capita income in the United States, but they easily surpass the richest countries in continental Latin America– Uruguay, with $15,500 per capita and Chile, with $15,400. In fact, the per capita income of the Bahamas is almost double Brazil’s $12,500, is more than double Argentina’s $11,400 or Mexico’s $10,500, and is almost triple Colombia’s $8,100. The islands figure so prominently in these rankings that five of the region’s ten richest nations in per capita income are in the Caribbean. The other two are Antigua and Barbuda with $14,300 and Saint Kitts and Nevis with $12,900 per person per year. But are these figures enough to make the islands attractive for exporters and investors? Maybe not. For one thing, the economies are growing at a rate of just 2 percent to 3 percent

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per year, and IMF forecasts indicate they will continue at that rate until 2015. That’s well below the Latin American average, which is close to 4 percent. None of the islands is very big, either. Barbados has a population of 273,000, the Bahamas 345,000, and one of the biggest, Trinidad and Tobago, has 1,350,000 inhabitants. On the other hand, the 7,000 islands, islets and cays of the Caribbean have more than 39 million permanent residents, plus a floating population of 27 million tourists with equally high incomes. Taken as a group, they are very interesting. There are problems negotiating in the Caribbean. The vice-president of the northern region of the food products multilatin Nutresa, Alberto Hoyos, can name a few. Language differences makes it troublesome to have uniform labels for all products, and the smaller volumes force him to consolidate shipments. There are also serious tariff and non-tariff barriers. Caricom customs duties range between 14 percent and 20 percent. Still, there are success stories. Producers who go there generally choose to sell to the entire region and not to a select group of islands. They know they must compete against products from the United States and Asia that dominate the zone and they must be able to deliver on short

notice. Companies from Brazil, Costa Rica, Mexico and Colombia, which are the most active ones in this market, have become the momand-pop stores of the Caribbean. Islanders place their large volume orders to Asia, and though they must wait 45 days, they get low prices. What’s left over is ordered from Latin America at higher prices than China charges, but arrives in three days. In the case of perishables, they are delivered after having been consolidated in Miami– the islands’ big storehouse. Another difficulty is the precarious state of infrastructure. The United Nations Human Development Indicator classifies Barbados as having “very high” human development and Trinidad and Tobago and the Bahamas as “high.” But these ratings conceal some major shortcomings in infrastructure development needed to do business. All the same, whoever decides to embark on the adventure of selling or investing in the Caribbean knows he will be in a good neighborhood. The Perception of Corruption Index published by Transparency International, for example, puts Barbados in 16th place among 183 nations, and the Bahamas comes in at number 21– one slot above Chile. Throw in the sun and the beaches, and this market takes on the appeal of a fantasy place to do business.

PHOTO: ©ISTOCKPHOTO.COM/DEBRA WISEBERG; CORNEL STEFAN ACHIREI; WERKSMEDIA

BY SANTIAGO GUTIERREZ

Guarulhos International Airport, Sao Paulo, Brazil

FLURRY OF AIRPORTS Keeping time with regional growth, Latin America renovates its airports and builds new ones BY ELIDA BUSTOS Buenos Aires, Santiago de Chile, Bogotá, Panama City and Brasilia are all renovating their airports. Lima and Montevideo have already done so. Guatemala City and Asun-

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LATIN TRADE SEPTEMBER-OCTOBER 2012

cion are preparing to start work on theirs. And the wave of airport renovations isn’t limited to capital cities; it has spilled into provincial cities too.

The trend is part of the virtuous circle generated by economic bonanza, an uptick in tourism and the need to improve infrastructure and logistics to accommodate the region’s growing trade and business. Last year, to get the ball rolling, Brazil opened bidding for the construction of a new airport in Natal, on the northeastern tip of Brazil. The winner was the ArgentineBrazilian consortium Inframerica, which is made up of Corporacion America S.A. of Argentina and Infravix Empreendimentos, S.A., a company owned by Grupo Engevix de Brasil. This project represents the first airport terminal management awarded to a private enterprise in Brazil, and calls for hefty investment of $410 million. The new international airport will be built 11 kilometers from the old one. The consortium is working feverishly so that its official opening might coincide with soccer’s 2014 World Cup. This year, the same two-nation consortium won a 25-year concession to enlarge, maintain and operate the Presidente Juscelino Kubitschek Airport in Brasilia. It will build two new termi-

PHOTO: NEWSCOM

INDUSTRY REPORT: AIRPORTS

INDUSTRY REPORT: AIRPORTS

nals there, with a total investment (works and future management) of US$1.4 billion. “Brasilia and Natal together account for 20 million passengers per year, about the same number as the entire airport system of Argentina,” said to Latin Trade Ezequiel Barrenechea,managing director for Latin American and the Caribbean for Corporacion America, the world’s largest private airport administrator and a partner in both projects. He expects in the next few months the Brazilian government likely will offer private concessions for several other airports, including one of the two airports in Rio de Janeiro, one in Belo Horizonte, plus another in the northeast, which could be Recife or Fortaleza. In addition, Brazil has already approved the remodeling of its Guarulhos and Viracopos airports in Sao Paulo, and is expected to follow suit at Congonhas, the city’s domestic terminal. Peru, for its part, launched an ambitious airport renewal plan just as the economic boom began to take shape several years ago. The first was Lima’s, where the renovation still

LATIN AMERICA’S TOP 15 PASSENGER AIRPORTS Ranked by millions of passengers in 2011 (vs 2010) Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Ch. same same same same same same same same same same +2 same -2 same +1

City/Country

Name

Passengers

São Paulo, Brazil Mexico City, Mexico Bogota, Colombia São Paulo, Brazil Brasilia, Brazil Rio de Janeiro, Brazil Cancun, Mexico Santiago, Chile Lima, Peru Caracas, Venezuela Belo Horizonte, Brazil Salvador, Brazil Buenos Aires, Argentina Buenos Aires, Argentina Porto Alegre, Brazil

Guarulhos 30.41 Benito Juarez 26.37 El Dorado 20.32 Congonhas 16.69 J. Kubitschek 15.80 Galeao 15.20 Cancun 13.11 Merino 12.11 Jorge Chavez 11.79 Caracas 9.91 Tancredo Neves 9.88 Salvador 9.07 Ezeiza 8.28 Aeroparque 8.25 Salgado Filho 7.94

% Ch. 10.9 % 9.3 % 8.3 % 8.1 % 6.6 % 20.6 % 4.3 % 17.4 % 14.7 % 11.2 % 30.0 % 8.3 % -5.8 % 9.2 % 17.3 %

* Arriving and departing passengers, direct passengers counted once. Source: Airports Council International

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Delivering throughout Latin America UTi is one of Latin America’s leading non-asset based, global third party logistics providers. Our worldwide reach and local strength in the main industrial centers of Mexico, Brazil and throughout Latin America deliver competitive advantage to each of our client’s businesses through innovative, integrated supply chain management and transportation solutions. This means maintaining an external focus on the global marketplace, being alert to potential obstacles as well as opportunities, and having the ability to put solutions in place quickly that eliminate complexity.

AIRPORTS

LATIN AMERICA’S TOP 50 CARGO AIRPORTS Ranked by total cargo tonnage in 2011 Rank 1 2 3 4 5 6 7 8 9 10

Ch. same same same same same same same same same same

City/Country

Code

Bogota, Colombia São Paulo, Brazil Mexico City, Mexico Santiago, Chile Lima, Peru Campinas, Brazil Buenos Aires, Argentina Quito, Ecuador Manaus, Brazil Guadalajara, Mexico

BOG Guarulhos MEX SCL LIM VCP EZE UIO MAO GDL

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LATIN TRADE SEPTEMBER-OCTOBER 2012

617,467 497,087 415,074 288,233 286,641 267,946 204,828 187,287 164,775 125,309

% Ch. 17.2 % 15.4 % 4.5 % 1.0 % 5.5 % 5.1 % -3.8 % 10.5 % 4.9 % -4.2 %

Loaded and unloaded freight and mail in metric tonnes. Source: Airports Council International

With 360 freight forwarding locations in 60+ countries, we can expedite freight transportation efficiently and cost effectively while delivering goods when and where they are needed. Our freight management solutions provide value through effective inter-modal shipping at competitive rates, utilizing air, ocean, surface and specialty transportation services. With over 180 logistics centers providing more than 22 million square feet of warehousing space worldwide, we can store, configure and deliver your products while maintaining the visibility and inventory management you need to effectively manage your business. Whether delivering goods to a global client base or managing complex inbound supply chains, our transportation and inventory optimization tools reduce network costs and improve product availability. Additionally, by leveraging our global network, IT systems, freight transportation relationships and outsourcing expertise, you can improve visibility and reduce overall costs along your supply chain.

Passengers

Galapagos airport, a projection.

wins international plaudits. The British airport auditor Skytrax Research lauded it as the best airport in South America for four years running, and in a survey of 213,000 travel agents, the World Travel Awards chose it for three consecutive years as the best in South America and number 17 worldwide. Next, the Peruvian government approved renovation tenders for six more airports, all won by Corporacion America. They are: Tacna, Arequipa, Ayacucho, Juliaca, Puerto Maldonado and Andahuaylas. In the first stage of these renovations, the focus was on modernization. In the second, the government turned its attention to new terminals. One new terminal, in Arequipa, will handle 3 million passengers per year, similar to the traffic at Montevideo. The presidency of Ollanta Humala also has a new airport for Cuzco in its construction portfolio, since the current one is saturated. Sources from the sector estimate that the investment will come in between $400 and $450 million, and that it will be built in the valley. The existing airport is 3,300 meters above sea level, and passengers have the sensation of not having left the plane after it lands because of the thin air at such high altitude.

IN THE JUNGLE Ecuador has also stepped up airport investments. It renovated the Guayaquil terminal area in 2006, which is now surrounded by a botanical garden and can handle 5 million passengers per year. In 2011, it offered up the construction challenge of offering tenders for Tena– an enclave in the Amazon jungle. Ecuador’s next airport inauguration, in December or January, will take place on the Galapagos Islands. Corporacion America proudly reports that it will be “the world’s first ecological airport,” incorporating as many renewable resources as possible. “It’s our baby project, the one we’re giving the best care,” says Barrenechea. He claims the characteristics of the project are so innovative that no other project in the world comes close to duplicating it. Among the particulars, it will operate on solar energy and utilize rainwater. This is the only management concession the Rafael Correa government has issued, and will last 15 years. The investment is just 25 million dollars, “but it is a much more complex project than a conventional one of $100 million,” Barrenechea says, partly due to logistics, like bringing in supplies from the mainland. Argentina hasn’t stood idly by. The expan-

PHOTO: CORPORACION AMERICA

SPECIAL ADVERTISING FEATURE

PHOTO: CORPORACION AMERICA

INDUSTRY REPORT: AIRPORTS

The revamped Ezeiza international airport, in Buenos Aires

Brasilia and Natal airports account for 20 million passengers per year, about the same than the entire airport system of Argentina. sions of the Ministro Pistarini International Airport and the Jorge Newbery Aeropark, both of which serve the capital city, are well into their respective stages of renovation. Corporacion America is responsible for the work, through its subsidiary Aeropuertos Argentina 2000. It has also completed renovations in Cordoba, Bariloche and Santiago del Estero. The company currently manages 33 airports in Argentina and 17 overseas. Another member of Mercosur, Paraguay, is projecting a doubling of passenger volume at the Silvio Pettirossi International Airport of Asuncion in the near future. The work there, expected to begin before year’s end, will expand its capacity to 2 million passengers per year. In recent years Uruguay has renovated the Carrasco Airport in Montevideo, and another at the beach resort of Punta del Este. “Montevideo is the jewel in the crown,” says Barrenechea, explaining that the air terminal there has a “unique roof that would be very difficult to re-create.” IMPROVING CONNECTIONS Beyond South America, Central America refuses to be left behind in the rush to upgrade. Panama, for one, is moving ahead at full speed. The Tocumen International Airport is undergoing its third expansion– prompted by the

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growth of Copa Airlines, for which it serves as hub– and two further expansions are in the planning stage. “We are in the heart of the Americas,” Ernesto Orillac, viceminister of tourism of Panama, told Latin Trade, “and we are taking full advantage of our geographical position.” At present Tocumen connects to 70 destinations, giving the local tourism industry a big boost. Tocumen is growing at a rate of 20 percent per year, and in 2011, 6.5 million passengers passed through its terminal, making it Panama’s main port of access. Over the last five years tourism has grown between 10 percent and 12 percent annually in Panama, while spending by tourists has spiked 12 percent to 14 percent annually. Part of the bump comes from new kinds of tourism— like shopping trips or family vacations— on top of well established business travel. Orillac notes that in July Panama officially opened a new domestic airport in Rio Hato, on the Pacific coast, to develop the Bocas del Toro zone. At the same time it is renovating three existing structures: David, Colon and Howard Base, the latter having been occupied previously by American military forces. The Colon airport, on the Caribbean side, will be converted from a domestic airport to an international terminal.

The most embryonic project, but also one that’s generating enthusiasm, is in Guatemala City. Oddra Lacs, from the General Management of Civil Aeronautics, tells Latin Trade that this year the World Bank will conclude a feasibility study on renovations at the San José Airport, including plans to equip it for international traffic. There are four more airports, each with unique needs, waiting their turn to be modernized. Right now the most important one in terms of passenger flow is at La Aurora, in the capital city. Lacs said other airports that need upgrading include terminals in Puerto Barrios, Peten, Quetzaltenango and Retalhuleu. Peten, the most tourist-oriented, can only receive aircraft with up to 48 passengers and wants to attract larger flights to boost visits to the Maya zone. Lagging behind in airport upgrades are Bolivia and Venezuela, countries with no renovation plans for the future, but which “have huge needs for improving infrastructure,” not only in terms of logistics, but also in terms of security, according to a source in the sector. —Elida Bustos reported from Buenos Aires editorial@latintrade.com

SPECIAL REPORT: ENDESA

Enersis:

Borja Prado, Endesa’s President

Capital Increase or Asset Transfer

CROSSING A MINEFIELD Environmental activism is getting tough on energy projects in Chile BY TOM AZZOPARDI

T

hey said it would be hard to do and so it has proved. Six years after Endesa Chile and Colbun formed HidroAysen - a joint venture to build a series of hydroelectric projects in the far-south Patagonia region - their goal still seems tantalizingly out of reach. More than a year has passed since environmental regulators granted a permit for the five dams – the result of a three-year assessment process. The companies sat tight as huge protests opposed the project, as surveys claimed three out of four Chileans opposed it, and as legal challenges made their way through the courts. They were eventually quashed by the country’s Supreme Court. In the meantime, the cost of the project has skyrocketed from $6 billion four years ago to an estimated $10 billion today, although neither firm has published updated figures. But with power prices in Chile still amongst the highest in the world, thanks to a reliance on diesel to cover shortfalls in

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dry years, it remains “a very attractive project which Endesa still wants to develop,” says Tomas Gonzalez, an energy industry analyst at Chilean investment bank Celfin. The companies are now facing perhaps the biggest challenge: finding a way to transfer the electricity produced on the raging Baker and Pascua rivers to the main consumption areas in Santiago and the mining-dependent north. With their license to build in hand, the transmission line still poses a hurdle. Their preference is for a dedicated direct current transmission line to run the 2,000 kilometers between Aysen – a thinly populated town with little industry – and Santiago. But this implies tortuous negotiations for access rights and permits with eight regions, dozen of municipalities and thousands of landowners, including indigenous communities and U.S. entrepreneur and environmentalist Douglas Tompkins. The co-founder of The North Face outdoor clothing company, Tompkins has spent millions of dollars of

Energy group Enersis, Endesa Chile’s parent company, unveiled a capital increase of $8 billion on July 25— an influx that promised to be the biggest in Chilean history. The move confirmed the ambitions of controlling shareholder Endesa Espana, in turn owned by Italian utility Enel, despite troubles at home. But rather than the popping of champagne corks, the announcement was met with angry murmurs in Chilean markets that turned to full-scale revolt. At the center of it all were Chile’s pension fund administrators (AFPs). Together, they represent the second largest shareholder in Enersis. They complained that Enersis had offered a murky explanation as to why a share issue was necessary. But it was the terms of the transaction that sent Chilean investors into a state of apoplexy. Minority shareholders would have to buy the new shares with cash, but Endesa Espana would make its contributions in the form of assets– largely minority stakes in power plants and distribution firms not yet bundled into the Enersis structure. Critics also questioned the valuation of these assets, which had been set by an independent expert, hired by Enersis. The company put a price tag of $4.8 billion on the combined assets, but local investors believe the value is much lower. Investment bank LarrainVial suggested $3.6 billion would be closer to the mark. In one example, Enersis accounts assigned a book value of zero for Argentinean distribution firm Edesur, citing recent losses and regulatory troubles. But the valuation conducted for the capital increase puts the company at $230 million. This is not the first time that Chile’s AFPs have felt themselves on the sharp end of dealings with Enersis’ masters. Fifteen years ago, when Enersis’ Chilean owners sold their controlling stake to the Spaniards, they managed to negotiate much better terms than those offered to minority shareholders, including the AFPs. What had been first dubbed the

PHOTO: MARIO RUIZ

?

his own money opposing the dams. The government estimates Chile requires an additional 8,000MW of installed capacity by 2020, equivalent to a 47 percent increase. But despite the desperate need for energy, investors who want to build new plants face a regulatory quagmire. Brazil’s MPX, for example, which is looking to build the country’s largest thermoelectric plant in the Atacama Desert, has seen the project declared a polluting health risk twice. Environmentalists fear the energy plant will cause irreversible damage to a pristine part of the country; the company notes the site is located 25 kilometers from the nearest settlement. A license granted to Energia Austral, controlled by Australia’s Origin Energy, to build another dam in Aysen was suspended just days later after the Supreme Court ordered further geological studies into seismic risk. Renewables have traveled the same path: last March, the Supreme Court cancelled a permit for a wind farm on the southern island of Chiloe, citing a failure to consult

properly with local indigenous groups. Sensing looming disaster over HidroAysen, the government, which sees hydropower as crucial to weaning Chile off its diet of imported fossil fuels, has proposed a new transmission system. It would consist of a public power highway, according to President Sebastian Pinera, that would overcome permit difficulties and environmental opposition. But more than a year since first broaching the idea, the government has shed little light on its proposal. It appears to have backed off early ideas of owning either the lines or the land, while restricting issuing planning guidelines and facilitating permits. Frustrated by the lack of progress, Endesa’s partner Colbun issued an angry note to the Santiago Stock Exchange in May, recommending that work on HidroAysen be halted until the government and legislators put their heads together and come up with a policy that allows the project to advance. The government has promised to deliver legislation on the public power highway by September. Expect delays.

deal of the century quickly snowballed into one of Chile’s biggest scandals since the return of democracy in 1990. The case inspired new legislation to protect minority shareholders, including a requirement that transactions with related parties be approved by a committee of independent directors. It is precisely this clause that Chile’s pension fund managers fear Endesa is trying to bypass today, by wrapping the deal up as a capital increase rather than a transfer of assets. In the face of such strong opposition, Enersis and Endesa Espana have backtracked from their initial position, saying their valuations represent a starting point for negotiations. But they may have to go further yet. On August 3, after probing minutes of board meetings at Enersis, Chile’s securities and insurance regulator ruled the capital increase represents a conflict of interest. This could mean tearing up the original proposal and starting from scratch. The end of the story, not so soon.

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SPECIAL REPORT: INFLATION

BY DAVID HASKEL

Increasing prices in Buenos Aires

Contrary to common wisdom, some businessmen believe inflation can create business opportunities.

W

ith private analysts saying prices are rising at a 25 to 30 percent clip, doing business in Argentina can be a risky proposition, right? Not necessarily, say businessmen large and small. “Don’t be afraid of inflation, embrace it,” suggests Alexander Hotz, Central and South America CFO at Kuehne + Nagel, a global shipping and logistics company with some 63,000 employees and more than $20 billion in revenue. –Come again? –“Dealing with inflation is very simple: just increase your prices faster than your costs,” he tells Latin Trade. At the other end of the business spectrum, Ricardo Friedenthal manages Laboratorios Gaudium, a maker of disposable medical supplies. His company has 10 employees, but he sounds a similar chord. “Business is like waltzing,” he reasons. “If

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prices stampede, it’s as if the band suddenly switches from waltz to rock ‘n’ roll. First you’re in shock, but after a while everybody adjusts to the beat and keeps dancing. Sway with the tide and you won’t even notice there was a change.” Contrary to common wisdom, Hotz insists, inflation can create business opportunities. For one, when prices become a moving target consumers lose track of what the right price might be, giving savvy businessmen more room for, well, adjusting prices faster than costs. “In inflation-ridden Argentina, the market doesn’t care about prices, it cares about availability. Here availability rules, price is a pure function,” he says. Plus, with pesos melting in their pockets, people rush to buy consumer goods pronto. When they’re in that frame of mind, “people are prepared to pay double so at least they can save something.”

Add to this scenario import curbs, like the ones imposed by the government recently in a desperate attempt to halt dollar outflows, and the result is a bullish market where he who delivers the goods can make a mint, Hotz posits. And at a time of looming stagflation, producers’ labor costs also shrink. “Now that the economy is not growing anymore… the labor market tends to value job security more than full inflation adjustment.” Tough, maybe, but in Hotz’s words: “You have to play the game because the rules you cannot change.” One more tip: “Make sure you don’t have debt—debt kills you, especially if it’s denominated in hard currency.” Friedenthal recalls the chaotic situation in 2002, when prices climbed by 41 percent and the whole economy imploded. That was a more hostile environment, he says. Back then, he was running a similar operation at another lab and used to spend every morning, Monday to Friday, racing between financial agencies that would exchange his checks for cash, minus a huge haircut. How big a haircut would depend on several factors, but a 30 percent, even a 40 percent reduction was not unusual. Then he’d rush to the bank to cover short term liabilities, and back to the lab, where much of the business was conducted in pesos. In normal times employees have their wages deposited monthly into a bank account; back then the company had to pay its staff weekly, in cash. “It was crazy,” Friedenthal recalls. Yet, his business thrived. Why? Friedenthal comes back to the waltz-torock ‘n’ roll metaphor, where everyone ends up dancing to the same beat. “We all know this is an inflation-prone country. Everything goes up: the electricity bill, fuel, transportation, freight, packaging, labor costs, supplies, you name it. In this scenario, everybody will expect you to up your prices too.” Besides, Argentina, like several other Latin American nations, has a long history of prices careening skyward, so it’s become a familiar phenomenon, he argues. And

PHOTO: SIMON CHAVEZ/PICTURE ALLIANCE / DPA / PICTURE/NEWSCOM

DONT´BE AFRAID OF INFLATION! EMBRACE IT

SPECIAL REPORT: INFLATION

© ISTOCKPHOTO.COM/ JOELBLIT

We all know this is an inflation-prone country. Everything goes up: the electricity bill, fuel, transportation, freight, packaging, labor costs, supplies, you name it. In this scenario, everybody will expect you to up your prices too.

means producers have to use the official inflation rate and also the governmentmandated exchange rate in their dealings. Both differ dramatically from market figures. The government has slapped A bank note from the days of hyperinflation in Argentina fines on private economists issuing their own inflation statistics, and has leveled volatile prices give you plenty of chances to criminal complaints against two consultanget it right. You failed to increase prices fast cies. The issue is so sensitive that about a enough? Not a problem, says Friedenthal. dozen producers from different sectors deThere’ll be a new chance in just a few days. clined to discuss the statistical discrepancies Another way to protect a business is with Latin Trade. stockpiling like crazy. Having lots of production or packaging supplies on hand is But Rodes, like Hotz and Friedenthal, guaranteed to help you preserve your capital. stands firm. “Inflation is a fact that is being Plus, buying in bulk can always get you disdenied by the government,��� he protests. counts, he says. Food producers’ domestic prices are monitored and regulated based on rigged numbers, he says. This means that cost inGOVERNMENT IN DENIAL creases have to be absorbed by farmers and Yet this time around there’s a new twist. The ranchers. Those planting soybeans or maize government is in denial, and official statisfor export are lucky to have strong intertics show inflation at just 10 percent. national prices to help cushion the impact. This adds an extra challenge for some, But beef, wheat, and dairy producers are in especially in the key agricultural indusdire straits, he says. try, where producers are tied to futures On one hand, global prices are not terrimarkets, annual crop planning and other bly solid right now. On the other, authorifactors that force them to think long term, ties are keeping a tight cap on domestic says Alfredo Rodes, executive director of prices of staple foods like bread, steak, CARBAP, an umbrella organization repremilk, and cheese. senting more than 34,000 planters, ranch“How can we plan future investments ers, and dairy farmers in Argentina’s fertile when we know that inflation will take a big Pampa region. bite out of our profit margins?” Rodes says. Food production, like imports and ex“We are in deep trouble.” ports, is generally highly regulated, which

SEPTEMBER-OCTOBER 2012 LATIN TRADE

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SPECIAL REPORT: INFLATION

a catering company in Caracas. “It is a constant struggle to keep up with inflation.”

FINDING SUPPLIES, THE REAL CHALLENGE

Money is never enough with rampant prices in Caracas.

Flores says his company raises prices every three months to stay profitable. And finding supplies is a constant struggle given shortages. But in one sense, Flores is lucky. He has a product to sell. Volkswagen wishes it could say the same. The VW concession in La Victoria in the central state of Aragua opened for business in 2008. The dealership was averaging sales of 150 vehicles per month in the beginning. Those days are long gone. “We’re selling almost nothing these days,” said Bruno Louis, who runs the company’s post sales operations. The reason is simple: VW hasn’t received permission from the Venezuelan government to import enough vehicles. “When VW receives permission to bring cars in, they try to divide among all of the concessions in the country,’’ Louis said. “So, we received three vehicles in March and that was that.” Inflation is a constant, he said. Parts shortages are common. Small businessmen are especially hard-hit. “We are raising prices every month,” said Jhonny Dos Pasos, who manages Los Monjes supermarket. “We have no choice because our suppliers are constantly adjusting prices. We have to pass those increases onto our customers.” Calibrating inventories is also a challenge. “If we keep too much in inventory, then the police or consumer protection agency could accuse us of hoarding or price speculation,” he explained. “It’s good to keep some stock but not too much.” Meanwhile, efficient money management has become essential to survival.

A CONSTANT STRUGGLE IN VENEZUELA

D

oing business in Venezuela isn’t for the faint of heart. The country’s inflation rate last year hit 28 percent, the highest in the Americas. Foreign exchange and price controls are part of President Hugo Chavez’s socialist revolution, further stoking price increases. Product shortages and bureaucratic red tape are de rigueur, adding to the cost of doing business. Businesses also have to anticipate possible changes in the country’s economic policies stemming from Chavez’s ongoing bout with cancer, and elections scheduled for October 7. But while many might stand back and wait for a clearer picture to emerge, Mary Carmen Rincon and her family are taking a chance, betting that the country’s economy, the fifth-largest in South America, has plenty of potential. “We see opportunity here,” said Rincon, whose family owns an insurance agency. “We’re looking to grow by opening a car center in the southwestern city of Barinas.” The center will offer new vehicles and post-sale service, she said. Her family broke ground on the new center in 2007 and had expected to open within a year. That deadline was pushed back to late 2012 due to inflation, several devaluations, and shortages of parts and materials. “The projected cost of our investment has more than quintupled since we started work,” Rincon said. “That is the cost of doing business in Venezuela today.” To succeed in Venezuela, companies have to maneuver deftly around the country’s economic obstacles. This year, as the Chavez government ramps up spending before the election, they are especially daunting. Although the Central Bank says 12-month trailing inflation has slowed to below 20 percent, few believe its figures. Companies are expecting “a large post-election devaluation of the Venezuelan bolivar,” Procter and Gamble CFO Jon Moeller said in a conference call with analysts. That will boost inflation further. Chavez introduced the bolivar fuerte (strong bolivar) to much fanfare five years ago, when it was pegged at 2.15 to the dollar. Now at 4.30, analysts expect a devaluation could take it to about 6 to the dollar. On the black market, Venezuelans are already paying up to 9.5 for every dollar bought. “We are surviving by our fingertips,” said Raul Flores, who manages

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A TIGHT ADMINISTRATION “The key is to keep things tight, and avoid dollar debt,” said the treasurer of one multinational based in Caracas, who spoke on condition of anonymity. “We think that there will be a devaluation so it’s best to be long (on) bolivar debt.” The company finances its operating costs out of its existing cash flow, and has cut back investments until a clearer picture emerges. Investments are on hold for the time being, he said, as the company waits to see what happens with the election and Chavez’s health. “If Chavez loses the election, we don’t expect (challenger Henrique) Capriles to change things overnight,” he said. “But we expect the socalled socialist revolution to be braked, to be slowed, if not stopped.” Capriles has already hinted that he would allow an easing of foreign exchange controls, and foster a more pro-business approach. But for some businessmen, the future can only get better, regardless of shortterm hiccups. “We believe in Venezuela, and that is why we are investing here,” Rincon said. “People say that the best time to invest is when things look uncertain. Some look at this market and see only the problems. We see potential.”

PHOTO: LEO RAMIREZ/AFP/GETTY IMAGES/NEWSCOM

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COUNTRY REPORT: PERU

President Ollanta Humala’s first year: a score card

HUMALA’S FIRST YEAR A Small Arrhythmia, Then Investment Flows BY LISA K. WING

D

claimed nationalist presidential candidate Humala in July of last year. “All bets were on what was going to happen during the government’s first months,” says Mauricio Olaya, partner at Muniz Ramirez Perez-Taiman & Olaya, one of the country’s top law firms. “Fortunately, the change in government came during a time of high investor optimism. Suddenly stepping on the brakes with projects already in the pipeline was not an option.” Fast forward to today— exactly one year after President Suddenly, stepping on the brakes with Humala took office— and projects already in the puipeline was not many of the country’s top busian option nesses are already moving ahead with programmed investments, Mauricio Olaya, partner at Muniz Ramirez Perez-Raiman & Olaya or are ready to do so. “The government’s message to maintain the momentum of the economic model ready mix concrete in the local market. “They had built consumer confidence, reflected in healthy inheard in the news that a president sympathetic to ternal demand, and encouraged business executives (Venezuela’s President Hugo) Chavez had won the elections— when I had sold them the idea that Peru to continue with their investment plans,” notes Rizal Bragagnini, general manager of San Fernando, the was a country as attractive and stable as Chile. We country’s largest poultry company. ended up delaying investments for about a month This sentiment is echoed among other Peruvian and a half.” business leaders, who say that after an initial stage of Leaders of many of the country’s top businesses apprehension following elections, they are proceedtook a similar wait-and-see stance following the ing with their business plans, albeit cautiously. “Deelection results, which brought victory for self-proiego de la Torre vividly recalls the urgent call he received last year from his joint venture partners in the United States less than 24 hours after Peru’s President Ollanta Humala took office. “They nervously asked me, ‘What happened? What’s going on?’” recounts de la Torre, chairman and co-founder of La Viga, Peru’s largest building materials distribution company, who also has a joint venture with a U.S. company that produces dry

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LATIN TRADE SEPTEMBER-OCTOBER 2012

Aldo R. Defilippi

PHOTOS: PRESIDENCIA / HANDOU T/EPA/NEWSCOM

Peruvian President, Ollanta Humala

During the first half of last year, presidential candidate Ollanta Humala rose in the opinion polls and went on to become the overall winner in the first round of voting. Then, the day after his victory, the Lima Stock Exchange fell 12.5 percent, the worst one-day decline in its history. Looking toward a second round of voting, and a fight for votes at the center of the electoral spectrum, Gana Peru, Humala’s fiveparty coalition, adopted a strategy of moderating the proposals in its original governing plan. Among other things, it guaranteed the independence of the cabinet chief and the economic and finance minister, as well as respect for the rule of law and for Peru’s international commitments. Nevertheless, uncertainty and incredulity continued to dominate public opinion until after Humala took power.

AGENCIA EL UNIVERSAL/EL UNIVERSAL DE MEXICO/NEWSCOM

By Aldo R. Defilippi, Executive Director of the American Chamber of Commerce in Peru

COUNTRY REPORT: PERU

spite this uncertainty, we didn’t put the brake on or cancel our investments because of the potential risk the change in government represented,” says Andre Canguçu chief financial officer of GDF SUEZ Latin America, whose local subsidiary EnerSur operates four electricity generation plants. “We intend to continue to invest in Peru. There is ample room to grow not only in the energy sector, but in other sectors as well.” Canguçu and other market leaders concur that there were two main factors that helped dissipate concerns and gain back investor confidence following the elections: President Humala’s decision to continue with the current economic model and his choice of candidates to form his economic team, namely the finance minister, central bank president, and premier. “The announcement of the main government figures sent a positive message to the business sector. It gave us the reassurance to continue with our current projects and to embark on new ones,” says Canguçu. GDF SUEZ, Peru’s third largest electric power generator, is currently developing three different energy projects that add up to close to $1 billion in investments, all of which are scheduled to come online within the next six to 24 months. Aside from high investor confidence, factors such as the country’s tight fiscal and monetary policies, competitive foreign investment laws, and stable judicial framework have translated into continued growth across most sectors of Peru’s economy, especially in construction, agriculture, financial services, and retail. GDP growth is expected to come in at 6 percent this year, a slight drop from last year but still much higher than that of other countries around the world. Peru’s Free Trade Agreements (FTAs) with countries like the United States, Canada, China, Japan, Thailand, Singapore, South Korea, Mexico, Chile, and most recently, with the European Union, will certainly help maintain Peru’s competitiveness, economists say. “Although there was a small arrhythmia in the pumping of investments following elections, Peru continues to be a magnet for investments,” assures de la Torre.

Some of the most serious misgivings were over the possible revocation of the Constitution, the renegotiation of free trade agreements already in effect and the nationalization of strategic economic sectors, including energy, telecommunications,

seaports and airports. Country risk increased and business expectations plummeted. After posting an average of 68 points during 2010 and the first few months of 2011, the BCR business expectations index abruptly fell to 55 before starting a

slow recovery in August. But one month after Humala took power, S&P raised Peru’s sovereign risk qualification to BBB, based on promises of continuity in economic policy with an emphasis on growth and social inclusion, as well as the

positive signal taken from the appointment of technocrat Miguel Castilla as minister of economy and finance. In September, the Executive reached a consensus with the main players in the mining sector on tax reform so that, among other things,

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COUNTRY REPORT: PERU

Peru’s stock exchange

Although there was a small arrhythmia in the pumping of investments following elections, Peru continues to be a magnet for investments. Diego de la Torre, chairman of La Viga, Peru´s largest building material distribution company

SOCIAL CONFLICT While executives praise President Humala’s efforts to keep the economy on course, they are quick to criticize the government’s management, or rather lack thereof, when dealing with social conflicts, which have intensified since the beginning of the year, especially in the mining sector. “The feeling of unrest is, without a doubt, Peru’s biggest risk domestically,” says Alonso Segura, chief economist at Banco de Credito del Peru (BCP), the country’s largest financial institution. “These social conflicts are worrisome because the government is not finding a solution to the problems at hand. We do not know how well the government can maneuver politically to get these (mining) projects up and running again.” Most of the protests are socio-environmental, or involve clashes with government officials, or labor disputes. Much of this unrest also has to do with the fact that marginalized communities— where most

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of the conflicts are born— have yet to feel the social inclusion the president pro-mised during his campaign. Local political interests also play an important role, adds Daniel Cordova, managing partner at U.S.-based public relations consulting firm Newlink Group in Peru. “This social movement gains strength because elected regional authorities join this opposition against investments in order to garner political support, when they should be promoting investments,” says Cordova, whose clients include mining heavyweights like Minera Yanacocha and Southern Peru. “These authorities are like mini-Chavista leaders that are putting capital investments at risk by waving the ecological flag.” Industry experts point to the case in the northern department of Cajamarca, where regional President Gregorio Santos has been leading protests against the development of the massive $4.8 billion Minas Conga project, the country’s largest private sector

future calculations of royalties would be based on operating profits rather than on sales. In October, the government took an important step toward keeping its promise of social inclusion with the creation of the Ministry of Development and Social Inclusion. GDP grew by just 6.9 percent in 2011 despite rates of 8 to 10 percent early in the year. The Ollanta Humala government had to face a complicated international situation as growth slowed in the world’s largest economies and with it demand for products, including those exported from Peru. Last year, it managed to stave off a crisis, even achieving an all-time record in international reserves of $45.726 billion, a 38 percent increase over 2010. This was due mainly to the increase in commodity prices and the consolidation of international commercial agreements, among which the most recent are with Japan, Singapore, South Korea, Costa Rica and the European Union. However, the deepening of the European crisis in 2012 had a negative impact on exports, which fell at an average year-over-year rate of 17 percent between February and May. The measures the Executive took to strengthen the export sector with stimulus packages have not been

PHOTO: AFP/GETTY IMAGES

The Ollanta Humala government had to face a complicated international situation as growth slowed in the world’s largest economies and with it demand for products, including those exported from Peru.

COUNTRY REPORT: PERU

The most serious obstacle that confronts the current administration:

A canopy protects the construction of the Interoceanic Highway during the rain season.

this year, for example, resulted in the death of Business leaders say there are other protestors and even in concerns that need to be addressed. At the kidnapping of a local official. Opponents are the forefront: promoting infrastructure protesting against alleged development, improving the quality of the mining pollution and are education and health systems, boosting law demanding compensation. enforcement and formalizing businesses. At the end of July, the president appointed human rights lawyer Juan Jimenez as his new premier, investment ever. Protestors say that the gold minand Jimenez, in turn, announced the creation of the ing project, which is being developed by U.S.-based Newmont Mining, will harm the area’s water supply. Office for Dialogue and Sustainability. The Office, which replaces the former Conflicts Office, aims to Clashes between police officers and opponents resolve the country’s social and environmental proof the mine have resulted in several deaths, and the tests by stepping up dialogue and negotiation. government declared a state of emergency in the area in July. “Minas Conga is emblematic of the social instaLOOKING AHEAD bi-lity, the governability and political management While social conflicts are, and will continue to be, of situations in general,” says BCP’s Segura. the main issue on the government’s agenda, business For now, all eyes are on Minas Conga. But there leaders say there are other concerns that need to be are other projects raising concerns for investors. addressed. These include violent protests over the past year At the forefront: promoting infrastructure deagainst operations owned by mining giants Xstrata, velopment, improving the quality of the education Southern Copper Corporation and Anglo Ameriand health systems, boosting law enforcement and can. Uprisings against two of Xtrata’s mines earlier formalizing businesses. And although the country’s

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sufficient, due to inefficiency and slowness in carrying out the approved measures. The same is true in the execution of investment projects. Although investment projects totaling $10.352 billion have been announced for the next few years, there remain obstacles to their execution. In the mining sector alone, the value of stalled projects, $34 billion, is more than triple the announced investment plans. Inefficiency in the execution of the budgets of local and regional governments, combined with factors such as the absence of a state presence in rural areas; conflicts between the private sector and the people; and personal and political interests have combined to pose the most serious obstacle that confronts the current administration: social conflicts. Typical cases are those of the Conga project in Cajamarca and the Tintaya project in Cuzco, which have cost the lives of nine Peruvians, as well as placing at risk investments worth $6.3 billion dollars (8 percent of 2011 GDP). In this sense, the efforts of the Executive have been insufficient. The problem of social conflict and the consequent paralysis of large investment projects have put the sustainability of economic growth at serious risk. According to Apoyo, an opinion research company, investment inten-

PHOTO: MARIANA BAZO/REU TERS/NEWSCOM

Social conflicts.

President Humala at the opening of a drinking water treatment plant, in Cayma district, Arequipa region.

and the international economic crisis,” said in July Hugo Santa Maria, managing partner for economic studies at Apoyo Consultoría, one of the country’s leading business consulting firms. “It’s not all local, or what the government does or doesn’t do.” And for Peru, which is largely dependent on mining and commodity exports, the health of the global economy is particularly relevant, Santa Maria notes. As overall exports continue to drop, it’s unlikely the government will reach its target of $50 billion in export earnings for the year. But despite the challenges that lie ahead, most business leaders agree with de la Torre’s positive outlook for the country. “Peru’s perspectives are very encouraging,” says de la Torre, who teaches business at Universidad del Pacifico. “We have witnessed with optimism how the left is adopting a version of governing similar to (former Chilean President Michelle) Bachelet and (former British Prime Minister) Tony Blair. The trend is to consolidate the economic model and enter the free market independent of the government’s political color.”

Another main concern among business leaders is the slowdown of the global economy, with the most intense focus on the United States, China and Europe. poverty rate has dramatically decreased to 30 percent, down from 48 percent in 2005, there’s plenty of room for improvement. The same is true, analysts say, for the country’s unequal income distribution. Reforms to Peru’s private pension fund system, approved by Congress and the Executive in July, also promise to grab headlines moving forward. There’s plenty at stake. The country’s four private pension funds (known as AFPs) have $30 billion in assets under management, equal to 20 percent of the country’s GDP. Peru’s private pension funds association is challenging the constitutionality of the new legislation, which aims to expand coverage to residents and lower commissions by luring competition. Another main concern among business leaders is the slowdown of the global economy, with the most intense focus on the United States, China and Europe. Economic sluggishness there will certainly be felt in Peru. “A determining factor in investor confidence right now is the negative impact of social conflicts

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— Lisa K. Wing reporting from Lima

tions in the private sector are decreasing month by month: after reaching 45 percent in a survey in April, they fell to 26 percent in June. In general terms, we must recognize that Peru finds itself in a somewhat better position than the private sector predicted it would be in a year ago. President Humala has quickly demonstrated that he understands the importance of investment for development of the country, and has carried out a coherent and prudent discourse at the national level, as well as making efforts to attract foreign investment. The continuity of economic policy and the technical focus on social inclusion are important achievements. Nevertheless, the Executive must try even harder to resolve the bottlenecks impeding the stimulation of exports and investment projects. In addition, it should take measures to optimize the administration of regional and local budgets. Lastly, it will be important to improve political management and monitoring of social conflicts from the earliest stages, to guarantee rule of law and security of investment, which are just as necessary for the country. On the to-do list, no less important than the items mentioned above, are public safety, the improvement of competitiveness, the quality of education and the reduction of bureaucratic constraints. These are all problems that must be confronted, since in the past year there has been little or no progress in these areas. In spite of this, comparing pluses and minuses, the overall balance is positive.

PHOTO: LUIS IPARRAGUIRRE/PRENSA PRESIDENCIA

COUNTRY REPORT: PERU

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Machu Picchu, Cusco

PERU THE STAR OF LATIN AMERICA

PHOTO: © PROMPERÚ

INVESTMENTS Peru has become the star of Latin America, at least in the opinion of most emerging market investors, whose views on this Andean nation—which continues to outperform most economies in the region, or the world for matter—remain highly optimistic. Indeed, Peru’s stable economic and political policies, which in turn have led to impressive GDP growth, low inflation, investment-grade ratings, and a strengthening local currency, continues to attract investors looking to make a profit in the current universe of slumping world economies. “The investments we have seen in Peru over the past few years are a consequence of the continuity of the economic policies established more than 20 years ago, including macroeconomic stability, open market policies, and respect to the rules of the game and to foreign investment,” notes Luis Alfonso Carrera, Head of Investment Banking at Banco de Crédito del Perú (BCP), one of the country’s most important banks. Peru’s attractive investment climate, coupled with a plethora of investment opportunities across the country’s many industries—most of which still remain largely untapped—certainly makes this nation stand out from its peers. Indeed, investor confidence in Peru continues to rise despite the unfavorable outlook of many major world economies. The Central Reserve Bank of Peru (BCRP)

projects that foreign direct investment flow could reach $8.7 billion next year, which equals a 14% increase over the results obtained in 2011. Meanwhile, the country’s GDP growth is expected to come in at 6 percent this year, a slight drop from last year but still much higher than that of other countries around the world. “Peru differentiates itself from other countries because of its sensible macroeconomic management,” notes Pablo Secada, chief economist at the Peruvian Economy Institute (IPE). “The country’s productivity and investment has grown significantly over the past few years and is expected to continue to do so. Without a doubt, Peru will continue to grab the attention of investors.” Peru’s growing exports market—namely the mining, oil and gas, agriculture and fishing sectors—is particularly appealing, notes Luis Torres, Director of Exports at PromPerú, the country’s Tourism and Export Promotion Board.“Aside from economic and judicial stability, Peru has 16 trade agreements with 58 countries around the world,” he says. “Moreover, the country’s geographic location and port and airport infrastructure makes it an ideal platform for those looking to conduct business with Asia and other countries along the Pacific Rim.” Indeed, China was Peru’s top destination for exports last year, and is expected to be so this year. Peruvian exports in 2011 totaled $46 billion, up 28% from the year before. The main destination countries for Peruvian exports are

China, Switzerland, the U.S., Canada and Japan. Peru has signed Free Trade Agreements with the U.S., Canada, China, Japan, Thailand, Singapore, South Korea, Mexico, Chile, and most recently, with the European Union. “Within the next few years, Peru’s exports will consolidate in two regions, Latin America and Asia, fueled in a large part by trade agreements like the Andean Pact, Mercosur, and accords with countries from Central America and Asia,” says Promperu’s Torres. For those looking to capitalize on Peru’s growth—and make forays into new markets— the universe of investment opportunities in Peru is as broad and diverse as its geography. With 84 of the 103 existing ecosystems on the planet, it is not surprising that Peru’s top economic activities range from mining exploration in the highlands to agriculture production and fishing along the coast to oil and gas exploration and production in the jungle region. Last year, the country’s traditional exports— which mainly include commodities such as minerals—increased 27% to $36 billion. Meanwhile, non-traditional exports, which include agriculture products, chemicals, textiles, fishmeal and more, grew 30% to $10 billion in 2011. Similar rates in upwards of 30% are expected this year for both traditional and non-traditional exports.

AGRICULTURE Peru’s extensive 3,000-kilometer coastline, in particular, provides unique opportunities to in-

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Lake Titicaca, Puno

Asparagus

Piquillo pepper

vest in the country’s agriculture sector.The country’s strategic location on the Pacific coast with quick access to sea ports, and in the Southern Hemisphere, which allows it to sell its products during the off season (primarily to markets in Europe and the U.S.) is one of the top competitive advantages of Peru’s growing agribusiness. The country’s ideal climate, with mild weather and limited rainfall, is another plus. Moreover, the 120,000 hectares currently used for agricultural exports are expected to almost double within the next few years as a result of the massive agricultural irrigation and expansion projects that are currently underway. Although coffee and sugar have been by tradition the country’s main agricultural export products, asparagus, mangoes, grapes, artichokes, avocados and paprika have boosted agricultural export growth in recent years. Today, Peru is the top exporter worldwide of asparagus.

Hass Avocado

There are a number of Andean root and tuber crops as well as grains and cereals from the highlands that also have great export potential.These include quinoa, kiwicha, maca and camu camu. Niche markets increasingly value these products for their high nutritional content: quinoa, for example, is known as a supergrain for its high fiber and protein content. Organic products are another potentially big business for investors. Peru is the top exporter worldwide of organic coffee and bananas, with cacao, cotton, quinoa and mango slowing playing catch-up. These organic products are primarily destined to markets in the European Union and the U. S.

EXTRACTIVE INDUSTRIES Though Peru has made strides in diversifying its industries, the country continues to be heavily dependant on mining, a sector that makes up 60%

Headhunters in Peru are quite busy these days.The country’s dynamic economy—where companies profits are up and investments continue to flow—has created an active job market in Peru, where the need for qualified, and many times specialized, workers is at an all-time high, according to Inés Temple, Executive President of Lee Hecht Harrison/ DBM Perú, an outplacement firm based in Lima, Peru. The time to relocate a candidate at DBM Perú, notes Temple, has dropped 20% this year as compared to the year before. Moreover, candidates usually have two or three offers to choose from. “Without a doubt, there is a battle for talent among local headhunters,” she affirms. While headhunters compete head-to-head to bring candidates into their company’s talent pool, employers looking to fill vacant job positions are facing a battle of their own: finding top-quality candidates. Although the qualification of the local talent pool has improved drastically over the past few years—college grads and executives are increasingly investing their time and money into getting a Masters or other specialized degree—the supply of top-notch talent, or those with the “right” educational degrees and social and management skills, still falls short. “The entry of new companies into the market and the fact that many Peruvians are returning home to work has renewed the demand for highly qualified people, increasing the standards for locals,”notes Temple. “Companies Continued on pg 90.

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PHOTOS: © PROMPERÚ; ©ISTOCKPHOTO.COM/SADEUGRA

EDUCATION: The battle for talent

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of the country’s GDP. Indeed, most of the country’s total foreign investment has been channeled to Peru’s extractive industries. This is Port of Callao not surprising, considering the capital needs required to develop these investment-heavy mega infrastructure projects. “There is a great demand for financing projects in these sectors, particularly in the construction phase,” notes BCP’s Carrera.“The amounts of these transactions continue to rise. We have found the need to offer equity solutions that are different to the ones we offered five years ago.” While financing and investment opportunities should abound in Peru’s extractive industries, related sectors such as infrastructure should also remain quite active.Although the availability and quality of Peru’s infrastructure has improved significantly over the past decade, there still is an important need for new investments in this sector. Infrastructure projects ranging from roads to port to airports are expected to continue over the next few years, providing interesting investment opportunities. Peru’s fishing, textile, and forestry industries as well as the country’s growing retail and communication sectors are also expected to catch the eye of investors. It is easy to see why Peru is considered the so-called star of Latin America. “After 30 years of consolidating its growth, Peru has crossed the point of no return regarding its open market policies.The risk of taking a step backwards or abruptly changing its policies is unlikely,” notes BCP’s Carrera. “We have one of the best credit ratings in the region and our country risk is even lower than that of Mexico or Chile. “If investing in Peru 10 years ago turned out to be profitable and advantageous,” he adds, “those investing today will have even better results.”

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LGP plant

of the country’s top universities, says that business schools such as CENTRUM are also focusing efforts to internationalize their studies by offering dual degrees with foreign universities. CENTRUM’s International MBA program, he notes, is the first international master’s degree in Peru that grants two simultaneous academic degrees: a Master in Strategic Business Administration granted by the PUCP as well as a Master of Business Administration in General and Strategic Management by Maastricht School of Management (MSM) in the Netherlands. Eight courses (24%) are delivered by MSM faculty in English. “We are breaking away from paradigms in all areas of education, particularly those in business schools,” notes D’Alessio. CENTRUM’s staff is a case in point. “The fact that we have three professors from India is spectacular—just five years ago this was unthinkable,” says D’Alessio. “And the fact that there are many foreign professors that come to Peru to look for work is an indicator of the interesting opportunities there are in this country.” So while many employers in Peru are dealing with this perceived shortage of qualified local talent, it will only be a matter of time before future graduates of the country’s higher learning institutions will come to market. “I consider that the country’s main Postgraduate Institutions are greatly contributing to the development of the country by helping to prepare the future Directors of the companies in the country,” affirms UPC’s Quiroga. Headhunters take note.

PHOTOS: © PROMPERÚ

Miraflores, Lima

are under the impression that there is a shortage of available talent: not in the quantity, but in the quality.” Local universities and institutions across Peru have taken note of this shortfall. Eager to bank on the desire of executives and recent grads to beef up their resumes in order to land those highly sought-after job openings, higher learning institutions are spearheading efforts to boost their postgraduate programs. “Today’s competitive environment requires professionals with greater preparation—getting a master’s degree used to be an option, today it’s a requirement,” notes Guillermo Quiroga, Director of the Postgraduate School of the Universidad Peruana de Ciencias Aplicadas (UPC). “On the other hand, the country’s economic development demands executives with specialized knowledge in their respective fields, and postgraduate programs cover that need.” At UPC, for example, in addition to adding new courses, updating the curriculum and requirements, and hiring well-qualified teachers—those with a strong academic background and real world experience—the university offers a variety of specialized Master’s degrees, such as Mining Rights, Construction Management, and Marketing and Commercial Management. “Specialized Master’s degrees fulfill the demand of increasingly complex and sophisticated functions, or that of industrial sectors that require specialized knowledge in a certain field,” notes UPC’s Quiroga. In addition to offering a wide gamut of specialized degrees, Fernando D’Alessio, Director General of CENTRUM Católica, a center for business studies featuring doctoral level and MBA programs that is part of the Pontificia Universidad Católica del Perú (PUCP), one

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Tambo Del Inka - Valle Sagrado Cusco

PERU

Culture, cuisine and comfort. Sound enticing? Peru would truly hope so. After all, those are the concepts the country’s tourism promoters are banking on to lure visitors to this Andean nation. Peru’s newest publicity campaign—which made it debut in August—is a captivating twominute movie trailer that shows snippets of the country’s top tourism destinations, accommodations, and experiences, or its so-called Hidden Treasures.“Don’t watch the movie: Live it for Real,” is the trailer’s catchy tagline (www. youtube.com/visitperu). Scheduled to be launched this year in movie theaters and television programming in the U.S., Canada, the UK, and in a handful of countries throughout Latin America and Europe, this million-dollar ad campaign aims to fuel Peru’s thriving tourism sector, which has experienced double-digit growth over the past few years. Equally important, it wants to broadcast to the world that Peru is much more than just Machu Picchu. “Although our cultural legacy continues to be the main driving force behind tourism—Machu Picchu continues to be the icing on the cake for travelers visiting Peru—the country is also gaining recognition as a modern destination with first-class hotels and transportation, and superb cuisine,” notes María del Carmen de Reparaz, Director of

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Tourism Promotion for PromPerú, the country’s Tourism and Export Promotion Board. In addition to promoting Peru as a worldclass destination, PromPerú is spearheading efforts to highlight the country’s lesser-known destinations such as the highland city of Puno, located on the shores of Lake Titicaca, the jungle town of Puerto Maldonado and its adjacent Amazonian reserve, and the massive fortress of Kuelap, to name a few. PromPerú, and local tourism operators for that matter, are increasingly looking to capture tourists’ attention by selling them so-called experiences. “Nowadays, tourists look for experiences when they travel—an escape from their daily hectic life in order to return home to their routine reenergized by a unique and different experience,” says de Reparaz. “For the past six years we have focused our efforts on this: promoting our destinations as a unique experience for travelers.” These experiences include floating down the Amazon River on a small ship luxury cruise, hiking through the Andes alongside indigenous shepherding communities, river rafting down a granite canyon on class V rapids, surfing some of the Pacific’s best waves or boarding down sand dunes along the country’s southern coast. A gastronomic tour of Lima’s top-rated restaurants is another experience that is sure to impress.

Arequipa Cathedral

Aqua luxury cruise on the Amazon River

ACCOMMODATIONS Aside from the country’s exceptional destinations, authentic cuisine, and remarkable history—many of its archaeological sites date back before Inca time—Peru promoters want travelers to know that the country has the upscale accommodations, services and transportation to accompany visitors on their travels through the country.

PHOTOS: © PROMPERÚ; LIBERTADOR HOTELS, RESORTS & SPAS; ©ISTOCKPHOTO.COM/CANNBOYS

TOURISM

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The Nazca Lines

“Travelers are increasingly more sophisticated—they look for the best hotel, a hotel where their travel experience will be memorable across all aspects of their trip,” notes Jorge Melero, CEO of Libertador Hotels, Resorts & Spas, one of the country’s most important hotel groups owned by the Brescia business conglomerate. “Visiting Machu Picchu is so spectacular that perhaps before travelers didn’t put much importance on comfort—now travelers don’t want to cut back on comfort.Today’s customers want everything now, and they want it their way.” With this in mind, local and foreign companies alike are pouring significant dollars into tourism-related high-end infrastructure projects, particularly hotel accommodations. Such is the case of Peruvian hotel chain Grupo Libertador and Starwood Hotels & Resorts Worldwide (owner of the Westin brand), which last year teamed up to open South America’s first Westin hotel in Lima. The opening of this five-star $130 million luxury hotel in the heart of Lima’s San Isidro business district came after the inauguration of two other Luxury Collection properties of the Grupo Libertador-Starwood team: the Tambo del Inka Resort & Spa in 2010 and Hotel Paracas Resort in 2009. Another hotel that is set to raise the bar of Lima’s hotel offerings is the debut of the Hilton Lima Miraflores by year’s end.The massive modern glass building, which also includes re-

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tail space, has created much anticipation in the city. The 207-room new-build hotel is Hilton Worldwide’s first managed property in Peru and the brand’s first Hilton Hotels & Resorts hotel in the country. “Peru is not only one of the fastest growing economies in the Western Hemisphere, but also a prime market for international travel— more people are coming to see the wonders of Peru,” notes Danny Hughes, Senior Vice President for Latin America and the Caribbean at Hilton Worldwide.“[It was important for us] to have a presence in a major gateway city like Lima with a full-service Hilton.” Although the hotel will primarily tap the corporate traveler—it is located in the commercial and business district of Miraflores—it also aims to capture the elite leisure traveler. “In the old days the typical tourist travelling to Peru was more of a backpacker hiking the Inca Trail,” notes Hughes. “Today, Peru is seen more and more as an exciting destination for the high-end traveler.” The opening of a JW Marriott and a second Orient-Express luxury hotel (Palacio Nazarenas) in Cusco shows that demand for luxury not only exists in Lima, but also in its provinces. Hilton Worlwide is also considering opening a hotel in Cusco in the near future, according to Hughes.

CONFERENCES Although corporate travelers continue to

River rafting in Lunahuana

make up a large portion of overnight visitors in Lima’s major hotels, attendees of international conferences and events are becoming also an important source of income for hotels, particularly those with conference spaces. “A modern city needs to lodge its visitors and also offer them facilities to carry out conferences, conventions and other large events,” notes Joelma Galdós, co-general manager of Continental Travel, one of the country’s largest travel agencies.“Travelers are consistently demanding better hotel services. The experience at the hotel is part of the trip experience.”

Zipline in Mancora

PHOTOS: © PROMPERÚ; LIBERTADOR HOTELS, RESORTS & SPAS

Hotel Paracas, a Luxury Collection Resort

LATIN TRADE SPECIAL SUPPLEMENT Andean Explorer Train

Lobitos, Peru

Tourism operators in Lima are sure to benefit from the number of international high-end visitors heading to the city for major conferences that are taking place within the next year. These major events help attract new—and boost current—investments, as they are attended by major government and private-sector figures from all over the world. In November, Lima will be host to the Annual Assembly of Felaban (the Latin American Banking Federation), and next year, the city will host the World Economic Forum on Latin America.

REGIONAL TRAVEL Although US travelers continue to make up a big chunk of visitors coming to Peru, the in-

Virgin of Candelaria Festival

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crease in both business and leisure travel from other countries in Latin America is another trend hotel and tourism operators are looking to bank on. “Latin America’s economy is in full bloom; therefore we are seeing an increase in tourism in the region. Tourists have greater purchasing power to travel,” notes Grupo Libertador’s Melero. “Latin American tourism has made up for the standstill in tourism from Europe.” Adds Hilton’s Hughes: “Inter-regional tourism is growing outrageously, especially tourism from Brazil, which has a growing middle class with disposable income. The typical tourist from Latin America is quite different from the US traveler. [The former] has more leisure time, more vacation time, and wants to use it to travel.” Hotels and restaurants in Lima are also benefitting from the fact that locals are increasingly spending their money at establishments that traditionally cater to elite foreign traveler. “Peruvians are increasingly travelling within Peru—and they are not travelling cheaply,” says Continental Travel’s Galdós.“They want to stay in a great hotel and eat great food.”

ists, the profile of the typical tourist is changing. His purchasing power has increased; he’s become more sophisticated and demanding,” says PromPerú’s de Reparaz. “He seeks unique travel experiences and top-notch hotels and services. This is our target market.”

World-Class TOP 5 RESTAURANTS 1 2 3 4 5

Central Rafael La Gloria El Mercado Malabar

LOOKING AHEAD

TOP 5 HOTELS

Clearly, the outlook of Peru’s tourism sector— and investments in such—is bright as the country makes its way to the center stage of global destinations for high-end travelers: particularly those who look for culture, cuisine and comfort during their trip. “Although the backpacking traveler still ex-

1 Westin Hotel & Convention Center 2 JW Marriott Hotel 3 Miraflores Park Hotel 4 The Country Club Lima Hotel 5 Swissotel Lima

PHOTOS: © PROMPERÚ; LIBERTADOR HOTELS, RESORTS & SPAS; ©ISTOCKPHOTO.COM/EPICUREAN

Inca ruins in Cochabamba

CORPORATE SOCIAL RESPONSIBILITY

PHOTO: COURTESY OF BUPA

Biking and building, part of Bupa’s Global Challenge

CSR

BUPA LATIN AMERICA, BIKING FOR HEALTH BY JOSEPH A. MANN, JR.

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orporate Social Responsibility (CSR) programs come in a variety of shapes and sizes. Bupa Latin America and the Caribbean– part of British-based Bupa, an international healthcare company have developed a simple yet compelling CSR program that promotes healthy life choices for its members, employees, their families and society in general through group activities, education and community assistance. Founded in the United Kingdom in 1947 as the British United Provident Association, Bupa also aims to reduce its worldwide carbon footprint by 20 percent over the next three years, and to aid a variety of charitable causes in the communities where it works. “Bupa’s purpose is to help millions of people live longer, healthier and happier lives,” said Miami-based Ricardo Gonzalez, senior vice president of strategy, planning and development for Bupa Latin America and the Caribbean. “We believe that preventing illnesses is a better option than curing them, and we know that a healthy environment is important for enjoying good health,” said Gonzalez, a Venezuelan with over 18 years of consulting experience in financial services. “This principle is the center of our

corporate sustainability policy.” Under an international program called WellWorld (Mundo Mejor), the company is advancing its Bupa Global Challenge 2012 initiative, the Bupa executive said. The challenge, which extends to 2015, reaches beyond the company’s 10.8 million insured, to encourage some 60 million people worldwide to make positive changes in their personal health habits and to improve the environment. As part of its commitment to support a healthy planet, Bupa also plans to reduce energy consumption and invest in energy efficiency at its facilities. In Latin America, Bupa centers in Bolivia and Ecuador, for example, are staging walks and community events to promote regular exercise as part of a health improvement initiative. There are also incentives for car-pooling and a competition to provide new energy-saving ideas, Gonzalez said. Each country is setting up its own programs under the Bupa global challenge umbrella. Through its international programs, the company is also boosting efforts to educate its customers and employees on how to prevent chronic health problems that are exacerbated by smoking, poor diet, excess alcohol and a sedentary lifestyle, Bupa said. With 546 employees in Latin America

and Miami, Bupa Latin America and the Cari-bbean has insurance companies in Mexico, Ecuador, the Dominican Republic and Bolivia. It provides health insurance to individuals, families and companies, and allows customers to choose where they want to receive medical treatment. Its services include air ambulance and the option of obtaining a second expert opinion. Internationally, Bupa launched its corporate sustainability efforts in Thailand in 2007 by sending 60 employees to an orphanage for children affected by AIDS, Gonzalez said. In 2009, 120 Bupa employees from several countries raised funds to build a community health and education center in Miraflores, Ecuador, for the families of local workers. Last year, the company sponsored Bupa Global Challenge 2011, in which thousands of company employees participated in a series of team-building activities, ranging from cycling to home building. Bupa has over 30 years of experience in Latin America and the Caribbean and says it has invested more than $400 million across the region. Worldwide, Bupa has more than 10 million customers in 192 countries and employs some 52,000 people. Bupa has no shareholders and invests its profits to provide better healthcare.

Daniel Servitje Montull, General Director of Grupo Bimbo

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LT CFO BOGOTA

LT CFO Event in Bogota

Victor Traverso, Director-Representative, CAF Colombia

COLOMBIA:

Strong fundamentals and more to come default, though the European Union can’t afford that luxury.” In the United States, he noted, there is even talk of a possible dip back into recession. Given the present climate, the IMF had to review its world growth projections four times in one year to take economic volatility into account. With a complicated situation in Europe as well as in the United States, emerging economies will also see their growth rates adjusted downward over the next year– even in China, where an annual growth rate of 10 percent is proving unsustainable, he said. Zuluaga also praised the Colombian government’s “appropriate handling of the (public) debt,” which includes the goal of lowering the debt level from the current 37 percent of GDP, to 22

Gerardo Grajales Lopez, CFO, AviancaTACA

Juan Fernando Vasquez Velasquez, CFO, Isagen

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PHOTOS: FRANK ABRIL

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olombia is growing faster than the rest of the world, the developed countries and the Latin American average,” said Oscar Ivan Zuluaga, Colombia’s former finance minister, at the opening of the first Chief Financial Officers Forum organized by Latin Trade Group in Bogota on July 25th. Running through the numbers, Zuluaga presented a country with a solid economic policy that “was built with enormous effort,” and a financial system with strong reserves and plenty of liquidity in treasury coffers. But he said this healthy performance comes in the context of a worrisome international environment, marked by almost five years of crisis in major developed countries. “Europe is disturbing,” he said, “and Spain is technically in

LT CFO BOGOTA

LT CFO Event in Bogota

percent of GDP within 10 years– “something neither the United States nor Europe can do.” Following the economist’s macroeconomic analysis, financial directors from several companies, both multinational and Colombian, offered presentations on financial management within their institutions. Juan Fernando Vazquez Velazquez, CFO of the energy generating and marketing company Isagen, spoke about creating value, sector by sector, at his company. Isagen restructured its management system seven years ago in favor of a system of value creation, and has been seeking to motivate employees to implement this philosophy in their work. From Visa, Luis Emilio Fortou, head of the multinational

program for Latin America and the Caribbean, reviewed the tools that the credit card company offers to CFOs to help make their work more flexible and efficient in controlling travel and entertainment expenses. Discussion arose among the delegates about how expenses become more opaque when employees use cash or their own credit cards for work-related travel, and different kinds of expense-related fraud that can harm companies. “The cards are not only a means of payment but also a tool to help management,” Fortou said, explaining that cards can be issued for limited functions, for example, only for payments in hotels and restaurants. Fortou said that greater information improves transparency, and that centralized travel ma-

Oscar Ivan Zuluaga, Former Minister of Finance, Colombia

nagement, along with an internal policy of solid communication, can contribute to cost reductions. Another speaker, Gerardo Grajales Lopez, CFO of AviancaTaca, offered a panorama of the kinds of challenges that confront management when two companies merge, not only from the point of view of melding two different corporate cultures but also taking into account administrative integration. Here, “shared services” play a dominant role. For example, Avianca-Taca has centralized 80 percent of its processes, with invoicing managed from El Salvador and liquid assets/accounts from Colombia— a system that “cost us a lot of work at the beginning,” he admitted. Grajales explained the complexity of the airline’s

Celso Franco Herrera, Finance Manager, Organizaciopn Terpel S.A

administrative operation by citing the volume of supporting documentation it manages: 46 million boarding passes per year. And, like the representative from American Airlines, Lina Ochoa Santamaria, controller for the company’s Andean region, he referred to a variety of problems linked to “multi-jurisdictionality,” meaning the myriad regulations, tax codes, etc. a company must navigate in different countries where it operates. The day ended with a lunch at the exclusive Club El Nogal, where the forum took place, and with a speech by Victor Traverso, director-representative of CAF, the Latin American development bank, in Colombia. —Elida Bustos reported from Bogota

Carolina Bermúdez Rueda, Finance Manager, CODENSA

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LT CFO SÃO PAULO

Paulo Dias, Finance Controller, CommScope do Brasil; Rogerio Menezes Director of Finance Akzo Nobel Ltda

Mauricio Molan, Chief Economist, Santander Bank

BRAZIL:

Consumption up, but competitiveness lags Molan argued that although some consumers are indebted and may be overleveraged, “half of them don’t have any kind of debt.” Moreover, successive cuts in interest rates by the Central Bank will likely cause debt servicing to decline. “Deleveraging is not an impediment to growth.” The weakness in the current model is that real wages are growing faster than productivity gains, which means that companies have to reduce their share of income, he said. Margin contractions have a negative impact on investment, which is “unsustainable.” “The issue of labor market dynamics needs to be addressed” to restore competitiveness, he said. This may come through aggressive tax reform, although that is not on the government’s

Luis Emilio Fortou, Head of LAC Multinational Program, VISA; Jerry O’Callaghan, Investor Relations Director, JBS; Mark Ludwig, LT CFO Contributing Editor, Latin Trade Group

Daniel Oliveira, Executive Corporate Finance Manager, Petrobras and other attendees at the event.

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PHOTOS: KATIA FUJII

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razil’s growth model, based on consumption and credit, is not exhausted, said Mauricio Kedhi Molan, chief economist at the Brazilian subsidiary of Santander. Nevertheless, he remained sceptical that the largest Latin American economy will be able to boost GDP growth above its current level, even after President Dilma Rousseff revealed her government’s latest strategy to attract private investment to modernize infrastructure in mid-August. “There is room for consumption to keep growing fast,” he said. Consumption is already growing faster than GDP itself, he noted, and the acceleration in aggregate wages means that consumption still has room to pick up. While credit figures show an increase in payment arrears in mid-2012,

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LT CFO Event in São Paulo

agenda (“the government has adopted a very shy approach”), or through expanding partnerships with the private sector to invest in infrastructure, in line with the recent government plan. While the external environment continues to be clouded the Santander economist forecast 1.8 percent GDP growth in Brazil in 2012, following a 4.4 percent average for 2003 through 2010. He expected growth to pick up at 3.5 percent to 4 percent next year. “Long term potential growth will remain at a disappointing 3 percent to 3.5 percent,” said Molan, reflecting a drop in productivity and weak competitiveness. The other potentially negative factor for the Brazilian economy is the end of a long period of increases in commodity prices.

“The supercycle is over,” said Molan, referring to a drop in global demand for commodities.

PRIZE During the meeting, the winner of the award Latin Trade CFO of the Year — Brazil, was announced. It went to Eliseo Santiago Perez Fernandez, executive director of administration & finance, JBS. This award was presented to Jerry O’Callaghan, JBS’ investor relations director, on behalf of Eliseo Santiago Perez Fernandez. O’Callaghan summarized JBS’ aggressive expansion strategy abroad with the motto: “If you’re good in Brazil, you can be good anywhere around the world.” JBS has a presence on the five continents and is the world’s No. 1 producer of beef, lamb

Luis Felipe Schiriak, CFO, Copersucar; Christian-Philippe Schrader, Vice President Chief Financial Officer & Strategy, Walmart Latinoamerica

and chicken, as well as a leather processor. Afterwards, the discussion turned to planing and performance management. Jayme Fonseca, CFO of Construtora Norberto Odebrecht, the construction arm of the Odebrecht conglomerate, summarized his company policies as conservative in finances and aggressive in business. Daniel Oliveira, executive corporate finance director at Petrobras, also referred to Odebrecht’s centralized cash management. “Our big challenge is to handle the capital discipline and to act also on a centralized basis in terms of capital management, perhaps to do eventually what Odebrecht can do today, which is completely centralizing the trea-

Rodrigo Neami, Finance Manager, Agrega/ AmBev

sury and the financial operations at headquarters,” said Oliveira. Rogerio Neri Menezes, financial director, AkzoNobel Pulp and Paper Chemicals also presented his view . The executive said there was no “right or wrong” in terms of finance function design and that it must be developed according to the size and the specifics of the company in question The gathering closed with a lunch in which the CAF representative for Brazil, Moira PazEstenssoro, presented the achievements of the institution, spanning its 43-year history. “The BRICS are looking to copy CAF for their own banks,” she said —Thierry Ogier reported from Sao Paulo

Moira Paz-Estenssoro, Director- Representative, CAF

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ON THE ROAD

GUATEMALA CITY, GUATEMALA

Guatemala:

Spanish architecture in the heart of the city

Firsthand tips for visiting Guatemala’s capital

Latin Trade: What do you like best

about traveling to Guatemala City? Juan Antonio Nino: The people, the professional climate and the weather. Monti Castaneda: Overall, what I like about Guatemala is its color and landscape. The color is in the gardens — Guatemalans love landscaping with flowers — and its weavings. The mix of the indigenous Maya culture with the Spanish colonial influence is everywhere– in the architecture and how things are decorated. Also, you cannot escape the view of a volcano from anywhere in and outside the city. Guatemala has more than 20 volcanoes, and they always seem to be present as a backdrop that heightens the natural beauty. LT: What do you like the least? Nino: The street crime. Castaneda: That’s easy: traffic and crime. Getting anywhere within Guatemala City, especially during rush hour, can be a test of patience and perseverance. Unfortunately, crime is also a way of life, from petty theft, like taking your wallet, to major crimes. It is not unheard of for civilians to get caught in the crossfire of the drug cartels, or some idiot looking to settle an issue with a gun. Crime is especially high in Guatemala City, and you

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must be careful. It would be wrong not to mention this. LT: What are your preferred hotels

when visiting Guatemala City? Nino: The InterContinental. It’s well located, offers good service, and it’s close to the airport. Castaneda: I have stayed in nearby Antigua, 45 minutes outside Guatemala City, and these would be my recommendations, listed from high-end to least expensive, but comfortable: Casa Santo Domingo, Hotel Antigua, Posada de Don Rodrigo, Hotel Casa del Parque. They are all centrally located in Antigua, with access to everything. Hotel Casa del Parque especially is inexpensive, no frills, but located half a block from the central plaza. Sometimes people stay at inexpensive hotels on the outskirts of town, but at night the streets can be poorly lit. LT: What restaurants do you recom-

mend in Guatemala City? Nino: Splendido, Jake’s and Jean Francois. Castaneda: I have been to Tamarindos and Hacienda Real and have enjoyed their menu. Jake’s and Pecorino have also been recommended to me.

© ISTOCKPHOTO.COM/BENKRU T

Insights and advice are provided by Juan Antonio Nino, president of Active Capital Reinsurance, Panama City, Panama, and by Monti Castaneda, research coordinator for the NYU Cancer Center, New York City, USA, and a pro-bono collaborator with Naturopathic Medicine for Global Health, Princeton, USA.

LT: What practical advice would

you offer someone who is visiting Guatemala City for the first time on business? Nino: That you organize your meetings ahead of time, according to the locations you have to visit, and that you always use taxis provided by your hotel. Castaneda: Punctuality and safety are the two words that come to mind. Guatemalans have a very different sense of time and may miss the concept of punctuality altogether, especially in the social arena. This is less true in a business setting, however; people do still tend to be late. Bankers are the only ones who seem to keep a schedule, and they have a reputation for arriving on time. Other than that, time is given as an approximation. Although it is true that traffic is a big factor, causing delays, it is also very cultural. As stated, security and safety also are major concerns for people living in Guatemala City and anyone on business travel should be mindful of this. In terms of practical advice, I recommend that people leave their expensive jewelry at home. Don’t be loose with your cell phone and laptop. Be aware of your surroundings at all times. —Mark Chesnut

ON THE ROAD

GUARULHOS

PHOTO: COURTESY OF AVIANCA/TACA

“You can save two hours of your life” German Efromovich, senior partner of AviancaTaca airline, recommends ways to speed your passage through Guarulhos Airport. Looking ahead

G

erman Efromovich excuses himself in a very courtly manner for the way he looks, having just arrived from another part of the world. His day-old beard is a visible sign of his heavy travel schedule. The night before, he says, he was working on issues regarding AviancaTaca– the airline in which he is a majority shareholder, his present passion, and perhaps one of the best business opportunities of his life. Grupo Synergy, the holding company that owns Avianca and which he manages with his brother Jose, is based in Sao Paulo. So, with frequent business trips to Colombia and other Latin American countries, he has acquired an enviable—some would say priceless– skill set: he has figured out the fastest way to get through the infamously bottlenecked Guarulhos Airport. “You can save two hours of your life,” he says. The first thing you need to do when arriving at Guarulhos is to find a flight that lands before 5:30 a.m. That way, he

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says, you’ll pass more easily through customs and immigration. But more importantly, you’ll avoid the worst of Sao Paulo’s morning traffic jams. If you follow this suggestion, he affirms, by 8:00 a.m. you’ll have had your shower and you’ll be drinking your coffee at some meeting. “If not, there goes your day.” His second recommendation is to be one of the first to leave the airplane. Then, walk quickly to get in line for passport review. “If you’re there ahead of eight people, you’ll gain at least 10 minutes,” he says. If you really need to get to a meeting quickly, have a driver waiting for you at the airport exit– on the departure level. It’s one floor above the arrival level. If you line up behind all the taxis on the floor below, he estimates that your departure from the airport will take an extra 15 minutes. Efromovich also repeats a common recommendation for travelers to Sao Paulo: find a hotel close to the places where your meetings will take place. If

you don’t, it’s possible that you’ll only be able to fit in a couple of meetings per day, due to tangled traffic. And when you’re leaving Brazil, look for flights that leave around 11:00 p.m., he says. “You can have a quiet meal with your customer,” he says. If, instead, your reservation is in the middle of the afternoon, you can lose up to four hours making sure you arrive at the advance time required to get on your flight. Also, always take advantage of the option to check-in early by telephone or via Internet so that you can arrive at the airport closer to departure time. “If you choose the right airline and only have hand luggage, you can arrive as late as 40 minutes before departure,” he says with a broad smile. If you put your mind to it, you may even find more time-saving techniques. People who recognize good business practices will no doubt see the value of his advice! –Santiago Gutierrez reported from Bogota

SPOTLIGHT ARGENTINA

An ad parodying Robert Redford’s Indecent Proposal

HIGH IMPACT WITHOUT TRANSGRESSIONS BY PAULA ANCERY

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sonalities over and over is not something you see often, because a lot rides on being able to maintain impact with the public. Most likely the record belongs to the garoto of Bombril (a wire sponge) which, as depicted by actor Carlos Moreno, has starred in more than 300 Brazilian television spots since 1978. It was a creation of the legendary Washington Oliveto, who worked first at DPZ and later at W/Brazil. In Argentina, you would have to go back at least to the end of the 90s and the now-defunct Agulla & Baccetti to find a precedent in La Llama que Llama. In the ad, llama puppets make prank phone calls, playing on the verb “to call” or “llamar,” before dissolving into peals of laughter. Their job was to communicate the benefits of Telecom in the era of telecommunication deregulation. This year’s advertising revisits Hollywood classics which have been popular over the last few years. For example, thanks to the spots, the Quiero! couple could have been traveled on a ship that resembles the Titanic. Then came “Propuesta insuficiente” (“Insufficient Proposal”), in which Claudia and Marcos play billiards with a blond man who looks suspiciously like Robert Redford, and who offers ... six hundred dollars to spend a night with her. And the next chapter will be inspired by Pretty Woman. “There aren’t many brands that have a communication style that is sustained over the course of years. It’s something we all look for,” reflects Mercado. “Now other clients come and tell us, ‘I want a campaign like Galicia’s.’ But at the time, when we launched the first commercial, beyond hav-

TECHNICAL CREDITS

Title: Insufficient Proposal Agency: Young & Rubicam Chief Creative Officers: Martin Mercado, Diego Tuya, Martin Goldberg, Dario Rial Creative Director: Sergio Paoletta / Mariano Pazos Art Director: Stuart Martin

ing a marketing plan, the idea was to see as you go, and respond accordingly.” Certainly feminists, or women who simply pay their own credit card bills, won’t identify with this couple. But it’s possible that many of them still enjoy the forgetfulness of Marcos and the sometimes impatient, sometimes opportunely ambiguous responses of Claudia. —Paula Ancery reported from Buenos Aires

PHOTOS: COURTESY OF YOUNG & RUBICAM

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anco Galicia is one of the most generous companies in Argentina in terms of the benefits and discounts it provides to its credit card clients. But the public didn’t see it that way. Two other banks were perceived as being more “generous” in its focus groups. So, Galicia turned to the Argentine affiliate of the Young & Rubicam ad agency to reposition its Quiero! benefits program and bring perceptions closer in line with what it was offering. “Before, it was the banks that chose which clients they would allow in; now it’s the other way around,” says Martin Mercado, general director of creativity at Young & Rubicam Buenos Aires. The agency decided to dramatize the benefits that Quiero! provides, and that’s how, in 2009, Marcos and Claudia were born. Although they are presented as a pretty stereotypical couple in publicity terms– she uses the card they own jointly while he worries because he will have to pay for whatever she spends– she makes him see that with Quiero! points they are actually saving. The public accepted them immediately and so enthusiastically that over these three years and counting, the saga of Marcos and Claudia has accumulated a thick stack of chapters. “It’s because they are realistic. People’s lives are like that,” explains Mercado. “Over time, we have shown that when we communicate the week’s discounts without showing the couple, the information doesn’t get through to the audience as effectively.” A series of commercials using the same per-


Latin Trade (English Edition) - Sep/Oct 2012