LATIN TRADE
WEF SPECIAL REPORT: TRANSFORMING GROWTH INTO SUSTAINED PROSPERITY
MARTINELLI’S LEGACY
MARTINELLI’S LEGACY MARCH / APRIL 2014
BUSINESS CONSULTANTS IN LATIN AMERICA
ALSO INSIDE PARAGUAY, INVESTOR HEAVEN HIGH-IMPACT FOUNDATIONS AGRIBUSINESS IN ARGENTINA AND PERU
YOUR BUSINESS SOURCE FOR LATIN AMERICA » WWW.LATINTRADE.COM
MARCH/APRIL 2014
CONTENTS MARCH/APRIL 2014
VO L . 2 2 N O . 2
Editor’s Note 6
From growth to prosperity
The Scene 10 10 12 12
Natural Potential New Frontiers for Clean Energy Pole of Attraction for Microfinances Stalled Exports
Opinion 14 The Contrarian: The Chinese Debt Crisis Domino Effect on Latin America By John Price
14
Events 68 CFO México: The strategist. Rafael Contreras Grosskelwing of Grupo Comercial Chedraui won Latin Trade’s CFO of the Year 2014.
69 Growth in sight
Features Agribusiness 16 Argentina: Seeds of Havoc? Politics are the key to understanding the complexity of recent changes in Argentine rural production.
17
17 Perú: A Green Engine. Agricultural production in 2014 is set to reach its 13th year of consecutive growth.
18 Multilatinas: Cinemex Multilatina in the works. Founded in 1995, México’s second chain of cinemas eyes international expansion.
20 Multilatinas: SIX Semicondutores SIX is a Crowd. A wealthy Argentine entrepreneur comes to the rescue of Brazil’s industrial policy dream.
22 Trends: Chile Is Chile about to lose its shine? A deep tax reform and a hard-liner environmental stance could do harm to business conditions in the country.
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CONTENTS MARCH/APRIL 2014
VO L . 2 2 N O . 2
Features 26-38 World Economic Forum: Latin America 2.0 28 Innovation: Latin America’s innovation agenda 30 Entrepreneurship: The making of an entrepreneur 32 Trade: Developing models or growth tactics? 34 Sustainable cities: Happiness depends on urban design 36 Human Capital: Liberating human potential 38 Natural Disasters: Reducing Vulnerability
32
40 Industry Report: Energy Latin American countries could benefit from a more integrated energy market.
44 Policy Agenda: The Orange Economy Cultural industries produce $175 billion in Latin America.
46 Special Report: Business Consulting The consulting industry is growing at double-digit rates.
50 Paraguay: Interview: Gustavo Leite, Minister of Industry and Commerce. “Today we have what we never had before: markets.” 52-57 53
Cover Story: Country Report: Panamá Martinellli’s legacy
40
Panamá Canal, future
58 Foundations: Social cause organizations Measuring social impact, a necessary approach in philanthropy 62 Economy growth: Guyana After the gold rush 63 Telecommunications: The perfect scenario 64 Techtrends: The e-commerce explosion 66 Trends: Money in Big Data 70 Luxury: Automobiles Fine wheels
WEF SPECIAL REPORT: TRANSFORMING GROWTH INTO SUSTAINED PROSPERITY
MARTINELLI’S LEGACY Web Find us online at www.latintrade.com
BUSINESS CONSULTANTS IN LATIN AMERICA
ALSO INSIDE PARAGUAY, INVESTOR HEAVEN HIGH-IMPACT FOUNDATIONS AGRIBUSINESS IN ARGENTINA AND PERU
YOUR BUSINESS SOURCE FOR LATIN AMERICA » WWW.LATINTRADE.COM
MARCH/APRIL 2014
Cover: Martinelli’s Legacy 4
LATIN TRADE
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EDITOR’S NOTE
I
t’s a good time to talk about Latin America. Markets are again moving in its favor. Commodity prices fell by 3.6 percent in the first week of January, against the lackluster December 2013. But they bounced back by 10.7 percent between January 9 and the end of February to reach a 12-month high. Countries like Panama, Guyana and Peru continue to chalk up economic growth rates usually associated with Asia. Unemployment rates in January were lower in almost all of the largest economies in the region, and in some cases, like in Brazil and Colombia, they were the lowest they’ve been in the past 12 years. Companies continue to grow, some of them helped by the strong performance of local markets, but more often due to international acquisitions, or through investments in countries like Paraguay, where investors can obtain cost advantages. It’s a good time, therefore, to talk about how to convert growth into sustained welfare. The meeting of the World Economic Forum in Panama, at the beginning of April, will reopen this discussion, and Latin Trade wants to have a say there. In the current issue, we invited experts to share their opinions about what countries and
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companies must do to create societies where more people are employed, wealthier, more innovative and happier. With the United States, Japan and Europe showing the first signs of economic resurrection, the Latin American moment, characterized by growing investment, low interest rates and weaker corporate multinational competition, could grind to a halt at any time. Not to mention the threat that John Price warns us about in his column in this issue, of the state of municipal finances in China, which could stall worldwide economic growth. The discussion this year should be followed by urgent action. Otherwise, when are we going to get going? We can’t let this moment pass without a heartfelt comment about the situation in Venezuela. Already unsustainable on the economic front, the nation now faces pressures that could seriously affect its social fabric, and which could require decades to repair. No doubt it’s time to rethink which path to follow.
Santiago Gutiérrez, Executive Editor sgutierrez@latintrade.com
PHOTO: © ISTOCKPHOTO.COM/ HARVEPINO
FROM GROWTH TO PROSPERITY
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THE SCENE
NATURAL POTENTIAL
A
recent report from McKinsey Global Institute tackles the question of countries whose economies depend largely on their natural resources and how they can maximize their potential. The report says that the number of countries where the natural resource sector represents the largest segment of the economy jumped from 58 in 1995 to 81 in 2011, a 40 percent increase in just 15 years, with most of the newcomers being low-income countries. Latin America is an important player in this scenario, and this could translate into an enormous opportunity to transform its future. However, history
has shown that it’s very easy to fall into a “curse of natural resources,” even when that fate can be avoided. McKinsey proposes that these economies should direct their economic strategies to three key elements: developing of the extraction sector efficiently, capturing the value it offers, and transforming that value into long-term prosperity. To do that, the report says, it’s necessary to work in six areas of the natural resources value chain, a task that is only being achieved with high standards in one or two areas by Chile, Mexico and Brazil, among the countries of Latin America.
Countries performing well across the six areas of the resource value chain Development of resources
Capture of value
Transforming value into long-term development
Institutions and governability
Infrastructure
Tax policy and competitiveness3
Development of local content
1
Norway
Canada
Canada
Canada
Norway
Norway
2
Canada
Malaysia
Chile
Norway
Australia
Qatar
3
Australia
Norway
Norway
Qatar
Canada
Australia
4
UAE
Australia
Botswana
UAE
Bahrain
Iceland
5
Chile
Lithuania
Mexico
Australia
Brazil
Canada
2
Profusion of resources
2
Economic development
Ranking of the country based on natural resources for a given area Countries based on natural resources that excel in four or more areas 1
Analysis restricted to the mining sector due to availability and comparability of data. United Arab Emirates Source: McKinsey Global Institute, Reverse the curse: Maximizing the potential of resource-driven economies. 2
NEW FRONTIERS FOR CLEAN ENERGY
C
limascopio’s 2013 report focuses on investment in lowcarbon energy in Latin America. Climascopio is an initiative of the Multilateral Investment Fund (Fomin) and Bloomberg New Energy Finance for evaluating the investment climate as it relates to climate change in Latin America and the Caribbean. To do this, it considers four main parameters that are interrelated with 39 indicators, and that show how local markets operate and which favorable policies exist, as well as other critical information for energy investors. The report shows the marked increase in clean energy investment taking shape in the region’s countries: Mexico, the Dominican Republic, Uruguay, Peru
Total investment in clean energy by destination, 2006-2012 ($bn) 25.0 Caribbean $20.2
Panamá
$18.9
20.0
$17.3 $16.8 $15.3 15.0
$14.9
Other Central America Perú
10.0
Other South America Chile
$6.5 5.0
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0.0
Nicaragua
México Brazil 2006
2007 2008 2009 2010 2011
2012
THE SCENE
and Chile recorded growth of more than 300 percent between 2011 and 2012, and that trend shows up in 20 of the 26 Latin American countries, although in less dramatic proportions. As well, in 2013, the number of clean energy policies in the region jumped from 80 to 110, while the diversity of those policies also increased. Climascopio
found that there is still room for future regional development and growth in the sector. It expects that the region’s political environment will continue to improve, that investment will continue to grow, and that more clean energy capacity will be installed during 2014. Brazil, Mexico and Chile are the main poles of attraction.
Source: Fomin and Bloomberg New Energy Finance, Climatescope 2013: New Frontiers for Low-Carbon Energy Investment in Latin America and the Caribbean.
POLE OF ATTRACTION FOR MICROFINANCES Overall microfinance business environment rankings (weighted sum of category scores from 0 to 100, where 100 is the most favorable) Rank
Country
2013 Score
Change
1
Perú
82.5
+2.7
2
Bolivia
69.8
-2.0
3
Pakistan
69.7
+2.3
4
Philippines
67.9
+4.6
5
Kenya
61.1
-1.7
6
Cambodia
60.3
+4.6
7
Colombia
58.5
+2.5
=8
El Salvador
53.8
-2.5
=8
Uganda
53.8
+2.2
10
Dominican Republic
53.6
+7.5
=11
Panamá
53.5
-0.1
=11
Paraguay
53.5
+1.5
13
Ghana
53.3
+2.3
14
Nicaragua
52.9
+9.0
15
Azerbaijan
52.4
+14.0
16
India
52.0
+6.3
17
Uruguay
51.5
+7.3
18
México
51.1
-2.5
19
Chile
49.9
-1.9
20
Brazil
49.1
-0.1
T
he Economist Intelligence Unit recently issued the 2013 Global Microscope study on the business environment for microfinances. The analysis was first prepared in 2007 for the countries of Latin America and the Caribbean and was broadened to become a worldwide study in 2009. The report analyzes in-depth the business environment for microfinances in 55 countries, based on an index that compares countries and regions in two categories: the regulatory framework and practices, in which it examines regulatory conditions and entry into the market; and the institutional support framework, which evaluates business practices and interaction with clients. Latin America is more advanced than the other regions covered by Microscope 2013 in that it obtains the highest regional grade in general: first place in “institutional framework” of support, and third place in “regulatory framework.” In addition, the region is shown to be the most politically stable for microfinances. Latin American countries occupied half of the positions among the top 10 worldwide. Peru and Bolivia led in the worldwide classifications with first and second place, respectively. Colombia, El Salvador and the Dominican Republic were also among the top 10. Due to its weak normative environment, Mexico missed the top 10 and fell behind Panama, Paraguay, Nicaragua and Uruguay. Chile and Brazil were behind Mexico to round out the top 20.
Source: Economist Intelligence Unit, Global microscope on the microfinance business environment 2013.
STALLED EXPORTS
A
ccording to the latest InTrade report, a compendium of information on integration and trade of the Interamerican Development Bank (IDB), Latin American exports are stalled, having had two low-growth years. The region’s annual increase of foreign sales was barely above the zero mark, and it remains stuck at about $1 trillion. In the first half of 2013, exports suffered a year-over-year contraction that prolonged the negative trend that started at the end of 2012. However, exports began to grow again in the third quarter, providing modest positive growth for the year. Among the reasons for this trend, the report highlighted the
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cooling external environment after 2011, when a number of uncertainties hampered the recovery of the world economy, including decreased demand from the main partners and falling prices of basic products that are crucial for the region. Still, the results varied widely among the countries: Brazil, Colombia, Peru and Venezuela suffered a fall in exports, while Argentina, Bolivia, Chile, Ecuador, Mexico, Paraguay and Uruguay showed positive results for the year. Central America presented a mixed scenario, with external sales barely growing in Costa Rica and Guatemala, falling in Honduras and Nicaragua, and increasing in El Salvador and Panama.
THE CONTRARIAN
THE CHINESE DEBT CRISIS DOMINO EFFECT ON LATIN AMERICA China today is much more than South America’s second largest customer. China is the largest source of soft loans to these governments. With growth slowing, skyrocketing municipal debt will soon lead to a fiscal crisis. BY JOHN PRICE
O
n December 30th 2013, a long awaited report published by China’s National Audit Office confirmed the fears of many – municipal debt levels had soared, to $3 trillion, or 30 percent of GDP. For decades, China’s communist party has rewarded municipal leaders who delivered growth and job creation and allowed state-run banks to lend at artificially low rates. The municipal spending spree grew to feverish levels in 2008 when the Central government unveiled the world’s largest fiscal stimulus plan to mitigate the collapse of Chinese exports to the U.S. and Europe. There are dozens of mid-size cities in China with roads, subways and public housing built decades ahead of their time, today underutilized and costly to maintain. With growth slowing in China, skyrocketing municipal debt will soon lead to a municipal fiscal crisis as loans come due and the true costs of corruption are realized. The national government will almost certainly step in before any municipality defaults for fear of triggering a run on Chinese debt or any of the overexposed national banks, but doing so will cost more trillions. In the meantime, Beijing will continue its policy or ratcheting up the reserve ratio, forcing banks to write off or recall the most delinquent of its opaquely recorded loans. A few brave independent analysts in China
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Chinese SOEs have become some of the largest foreign direct investors in the region, particularly in natural resources, but also in infrastructure. began shedding light on China’s growing public debt and shadow bank economy in Q1, 2013. Their skepticism has piqued the interest of international traders and investors, including George Soros, the most notorious currency raider of them all, who once earned a billion dollars shorting the English pound. Some startling figures are being unmasked by Chinese analysts, many of which are difficult to corroborate but unrefuted thus far by Beijing officials. Of the 19 trillion yuan in municipal debt accumulated over the last five years, more than 500 million has been flagged by the auditors’ report as questionable – many believe the corruption levels are closer to 10 percent, not 2.5 percent of spending. Worrying to Chinese
leaders hoping to keep a lid on this crisis is the fact that the Chinese affluent were able to send an estimated $3.97 trillion out of the country between 2000 and 2011. All told, Chinese government debt amounts to 53 percent of GDP. But Chinese corporate debt is twice that level, much of it lent to inefficient state-owned enterprises. China’s national government can cover its public debt obligations, but can it stave off an internationally driven shorting of Chinese bonds and equities coupled with the exit of national capital through the limited channels available? If forced to take bold measures, Beijing’s defensive actions could curb growth dramatically, thereby impacting demand for Latin American exports of all kinds, but particularly commodities. A credit crunch in China would raise the cost of capital around the globe, exposing another Latin American vulnerability – foreign debt. China today is much more than South America’s second largest customer. China is the largest source of soft loans to South American governments, often underwritten by future oil export contracts. Chinese SOEs have become some of the largest foreign direct investors in the region, particularly in natural resources, but also in infrastructure – a long-term strategy to guarantee Chinese companies access to cheap input commodities. The China, Inc. model of foreign investment is often lauded for its long-term strategic mindset, but it is also vulnerable to any fiscal pullback that could result from a debt crisis back home. China’s particular brand of commercially focused foreign policy, though vital to the long-term growth of the Chinese economy, is a low political priority in a communist government that is hypersensitive to domestic instability. China’s runaway municipal debt will force Chinese leaders to focus on sustaining domestic growth and will likely cannibalize the considerable resources that have recently been dedicated to penetrating Latin American markets. An old regional adage now has a new twist: “When Beijing sneezes, Latin America catches a cold.”
John Price is the managing director of Americas Market Intelligence and a 20-year veteran of Latin American competitive intelligence and strategy consulting. jprice@ americasmi.com
AGRIBUSINESS
SEEDS OF HAVOC? Politics are the key to understanding the complexity of recent changes in Argentine rural production. BY DAVID HASKEL
I
n most countries, agricultural exports are tied to global prices and demand, weather patterns, and sanitary considerations. In Argentina, these forces are also present, but they play second fiddle to other factors such as politics, foreign reserves, and inflation. And, they do it at a price. Back in 2009, the country was the world’s number four beef exporter behind Brazil, Australia and the United States with 621,000 metric tons. This year, according to the U.S. Department of Agriculture, it will be tenth, with only 220,000 tons. Even much smaller neighbors Uruguay and Paraguay are now selling more beef. And while a crippling drought a few years ago wreaked havoc on its herds, producers and analysts blame topsy-turvy government policies for most of the lingering harm. These include a 180-day meat export ban in 2006 as well as current export quotas, lofty export duties and other moves aimed at forcing ranchers to sell in the domestic market in order to keep prices down and buttress the fight against inflation, which many economists see reaching 30 percent this year. This heavy-handedness has backfired, leading many ranch landowners to
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switch to soybean planting. As a result, beef output nose-dived and local meat prices went through the roof. Argentines are the world’s biggest beef eaters, so meat prices have a huge impact on cost of living indices. In this scenario, short term prospects look dim. “Any recovery process would
Argentina’s wheat exports this year will only reach two million tons, the smallest in 40 years. need clear rules of the game, a stable economy, and incentives so producers can make long-term investments, and all that is lacking,” Alfredo Robles, executive director of Carbap, the Buenos Aires and La Pampa Rural Associations Confederation, a producers group, told Latin Trade. The grains and beans trade is also suffering, although at least in the case of soybeans, of which Argentina is the world’s number three exporter behind
Brazil and the United States, prospects look brighter. With 35 percent tariffs on soy exports, the bean is not only Argentina’s largest hard-currency earner, but also the government’s top source of income. Yet, permanent frictions between President Cristina Fernández de Kirchner’s administration and producers—which include the local units of U.S. agrifood heavyweights Bunge, Archer Daniels Midland, Monsanto, and DuPont—have not helped the industry. After Argentina’s reserves in January dropped by $2.5 billion to a 7.5-year low of $27.7 billion and the peso plunged by 19 percent, cabinet chief, Jorge Capitanich, accused growers of sitting on their output and of stashing dollars instead of expediting shipments and pouring the proceeds into the market to bolster the ailing economy. For years, the left-of-center administration has accused rich farmers of selfish greed and lack of social concern. Still, planters and economists see reasons for hope, as the devaluation means growers willing to ship their soybeans will get more pesos for their dollars. With Argentine bean exports seen reaching eight million tons this year compared with 13 million four years ago, there is a lot of room for improvement. Besides, “We don’t consume soybean in Argentina,” Néstor Aleksink, executive director of Programa Argentina Exporta, a private export-promotion group, told Latin Trade. “Unlike beef or wheat, all output is meant for export.” And all the tension that has been building up between the government and producers can easily vanish as soon as more dollars are poured into the market, he added. Wheat, of which the country is also a key supplier, faces challenges as well. In its latest report, the Usda forecasts that this year, Argentina will export only two million tons, the smallest in 40 years, as the government has authorized only limited shipments in order to keep bread and flour prices at bay. Corn exports are also seen dropping, expected to reach 13 million tons, compared with 14 million in the last season and 22.8 million two years before. David Haskel reported from Buenos Aires.
PHOTO: ©ISTOCKPHOTO.COM/ GABRIELDURANDO
ARGENTINA
AGRIBUSINESS PERÚ Ollantaytambo, an old Inca fortress and town in the hills of the Sacred Valley (Valle Sagrado) in the Andes mountains of Peru.
A GREEN ENGINE Agricultural production in 2014 is set to reach its 13th year of consecutive growth. Exports will probably rise 20 percent, thanks in part to investments in technology and infrastructure. BY RYAN DUBE
PHOTO: ©ISTOCKPHOTO.COM/ MARIUSZ_PRUSACZYK
A
gricultural production in Perú is set for another year of growth in 2014, part of a decade-long trend that has seen the Andean country establish itself as a major fruits and vegetables exporter. The sector’s expansion has been driven during the past decade by a broader improvement in the country’s business climate coupled with new infrastructure projects, like irrigation, that have supported the development of agro-industrial production on the country’s arid coast. In 2013, the agriculture sector posted its 12th year of consecutive growth as production expanded 2.2 percent compared to the prior year, according to national statistics agency, Instituto Nacional de Estadística e Informática (Inei). Overall growth in the sector was impacted by a sharp 20 percent decline in coffee production as crops were hurt by the roya fungus. However, output among non-traditional agro-industrial products that make up a strong portion of the sector’s overall exports
posted a robust increase. The output of grapes grew 21 percent last year, while mango production jumped almost 150 percent thanks in part to favorable weather. Other non-traditional agricultural products include asparagus and avocado. Exports of non-traditional fruits and vegetables totaled $3.4 billion, which is a 10 percent increase from 2012. The increase was mainly due to higher production. Exports of the fruits and vegetables has increased from $624 million 10 years ago, with about twothirds of the shipments going to the United States and European Union, according to the Central Reserve Bank of Perú. Perú’s association of agricultural producers, Agap, expects that exports will rise another 20 percent this year, amid greater demand for grapes and avocados, as well as investments in technology. “Rather than increase the areas under cultivation, it is best to improve the productivity which requires increasing the use of new technologies that will allow us to raise the level of competitiveness,” Agap’s executive
director, Ana María Deustua, said. The Agriculture Ministry forecasts that overall production in the sector will rise by about five percent in 2014, while Scotiabank Perú says output could increase about three percent. “What we are seeing is going to be a boost in agricultural production mainly from agro-export crops,” said Pablo Nano, a senior economist at Scotiabank Perú. “The investments over the last five years are producing results.” In addition to higher production, the agro-export sector is looking for new markets, said Juan Carlos Rivera, the general manager of the Peruvian Association of Mango Producers and Exporters. For example, Rivera said that Peruvian mangogrowers are hoping to receive approval to ship the fruit to South Korea. While the agricultural sector continues to have a good outlook, experts say that growth this year could be hurt if poor weather in parts of the country continues. A lack of rain in the Perú’s northern highlands has led
Perú’s association of agricultural producers, Agap, expects that exports will rise another 20 percent this year. to a shortage of water in rivers that flow to the coast and that are used to irrigate crops. Rivera said that mango production hasn’t yet been impacted, but a continued lack of rain could eventually hurt output. “The concern is that if it doesn’t rain in the next few weeks, it could have a very important impact on production,” he said. The Agriculture Ministry has looked to ease the impact of the lack of rain. In February, it proposed to help farmers by providing pumps to access groundwater. Ryan Dube reported from Lima.
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MULTILATINAS CINEMEX Cinemex expansion plans include theater upgrades and new service models.
MULTILATINA IN THE WORKS Founded in 1995, México’s second chain of cinemas eyes international expansion.
M
exicans were the world’s fifth most avid moviegoers in 2011. By 2013, they had moved up to fourth place, but they still lag behind the leaders. India had 2.724 billion ticket sales, the United States 1.258 million and China 469 million. In 2013, Mexican movie theater turnstiles clicked 257 million times, and the industry rang up $897 million in sales nationwide. As things now stand, two companies dominate this market. According to the National Chamber of the Film Industry (Canacine), Cinépolis has 66.07 percent of the nation’s screens and Cinemex 30.53 percent. The other 3.4 percent are run by small groups. What’s interesting is that Cinemex was only founded in 1995. Both leading companies are betting heavily on expansion. Cinépolis is broadening its international presence in India and the Americas, and Cinemex is growing in México beyond the capital, where it has most of its cinemas. At the end of last year, the chain finalized the purchase of all the facilities of its competitor Cinemark within the country. With respect to the battle with Cinépolis to increase the number of patrons, Jaime Rionda, director of operations of Cinemex, told Latin Trade the company is planning to invest about $100 million to remodel and add air conditioning in all of its theaters, including those it has just bought. In addition, it will earmark part of its budget to totally digitalizing the entire chain. It’s also planning to grow organically. “For 2014, we have
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plans to open about 20 new units, which would involve about 200 screens,” said Rionda. Another important element for Cinemex, based on what its operations director said, is the effort the company will make to speed up customer service in all areas. Its goal is “to make the experience of our guests really unique, so that they come to our cinemas and have a really great time.” The way to do this is to make available a broad variety of products in its food stands and cafeterias, and to create new service models such as the Premium concept, an intermediate level between the economy ticket and the Platinum one already offered. They also plan to include 3D, 4D and CinemeXtremo in all of their theaters, in addition to diversifying the theme offer to add art cine, sporting and musical events to its billboard. “We are trying to satisfy everyone,” said Rionda. With respect to international expansion of the brand, there is still nothing concrete. Rionda said it’s still being studied. However, he noted that the United States, Brazil, Colombia and Perú are the countries where they would like to be present. Cinemex is scaling positions in the market: “We see ourselves in the top three (worldwide). The strategy is very ambitious.” Their goal is to double the number of theaters from the current 2,600 to more than 5,000. But if they want to do that, sooner or later, they will have to look for outside markets. It’s a step toward becoming a new multilatina. Blanca Quiriarte reported from México City.
PHOTO: AGENCIA EL UNIVERSAL/EL UNIVERSAL DE M XICO/NEWSCOM
BY BLANCA QUIRIARTE AND LT STAFF
XXX
MARCH-APRIL 2014 LATIN TRADE
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MULTILATINAS
Eduardo Eurnekian, head of Corporación America
SIX IS A CROWD A wealthy Argentine entrepreneur comes to the rescue of Brazil’s industrial policy dream. BY THIERRY OGIER
T
he hilly landscape of Minas Gerais is slowly changing. A yellow and white striped building is emerging from the sleepy town of Ribeirão das Neves in the metropolitan area of Belo Horizonte. Yet, it is not a mine. It is not a car manufacturing plant either in this part of the southeastern region, which has hosted Fiat operations in Brazil for almost 40 years. When the new building is completed, it will host a large semiconductor plant – the first of its kind in Brazil - which is already expected to be-
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come the pride of the country’s industrialists. “It has always been our dream to have a plant of semiconductors in Brazil. We have been dreaming about this for three decades,” said Luciano Coutinho, president of the Brazilian Development Bank (Bndes), and one of the main protagonists of Brazil’s controversial industrial policy. Coutinho blames the past failures of this project on economic instability and on the lack of interest from investors. However, this may be changing.
Economic stability is far from guaranteed amid current volatility in the international capital markets. But, the Bndes has found a new partner to play ball. At the beginning, there were six: Eike Batista’s EBX had the largest share in the new venture (33 percent) and convinced IBM to take a 20 percent stake in a company called SIX Semicondutores, alongside the Bndes itself and the development bank of Minas Gerais (Bdmg). Two smaller private companies, Matec and WS-Intecs, were also part of the new company, which was founded in 2012. But there was big trouble ahead when Eike Batista, the flamboyant billionaire, ran into deep financial trouble. The dream almost turned into a nightmare. The irony is that the great Brazilian design was virtually bailed out by another billionaire – from Argentina, this time. Diplomats first made contacts. Then Bndes officials went to visit Eduardo Eurnekian, the head of Corporación America, in the neighboring country. Corporación America is a holding company that is active in airports, construction and agribusiness in Argentina and other countries. But Eurnekian also had a good reason to look into this Brazilian project, as he had recently launched his own semiconductors plant called Unitec Blue in the Buenos Aires province. He has invested some $200 million in a unit to encapsulate chips for GSM and credit cards there. The projected Brazilian plant would produce the silicon wafers that he currently needs to import. The Brazilian plant is also due to churn out application-specific integrated circuits that will be used in several segments of industry such as healthcare. “It is a project of total complementarity,” Eurnekian said during a brief visit to Minas Gerais early this year, as he formally announced he was buying Batista’s stake in SIX for an undisclosed amount. He also injected $70 million to help complete the plant. The Brazilians were not only relieved, but ecstatic, too. “The arrivals of the Argentines is phenomenal,” said Mauricio Neves, the Bndes’ industrial superintendent. “It is true that they come in the context of the EBX crisis. It may not look that positive at first sight, but it does represent an opportunity
PHOTO COURTESY OF AEROPUERTOS ARGENTINA 2000
S I X S E M I C O N D U TO R E S
MULTILATINAS S I X S E M I C O N D U TO R E S
to strengthen both companies here.” “The Argentines were intending to do something that is pretty close to the project we have been developing. So it is a perfect match. Both sides are happy because they leap-frogged three or four years, and they will be able to start doing things immediately,” said João Carlos Ferraz, the Bndes’ planning director. The Brazilian plant won’t produce the most sophisticated chips used in the computer industry or in smartphones. It’s a smaller investment (around $400 million), but also a safer bet, according to Brazilian officials. “There is no doubt it is a vital project for the insertion of Brazil in tomorrow’s world,” said Neves. “Such a company will foster innovation through the entire electronics industry,” he argued. Last year, the industry registered a deficit of $36 billion, according to Abinee, the Brazilian association of electronics manufacturers.
INDUSTRIAL POLICY PRIORITY Fifty workers are already busy to prepare the Minas plant, which is now due to be completed next year. Officials consider it a milestone for Brazil’s industrial policy. “It is a nice project. It is a project of structural change,” said the Bndes’ Ferraz. Ten years ago, semiconductors were selected by the government as one of four key sectors to foster the local industry, together with the pharmaceutical industry, capital goods and software. Such industries have since benefited from massive tax breaks as part of what is now called the policy of productive development, in the official “Brasil Maior” package. Furthermore, Brasilia considers that the inclusion of an Argentine group in the project is a strategic movement towards productive integration between leading Mercosur members, exactly at a time when the embattled Southern
Cone common market does not have a lot to boast about. “It was good to negotiate with this company, because it brings someone from Mercosur to invest in this project,” said Coutinho. The number of staff is expected to increase six fold and reach 300 when the plant is operational. Recruiting will be a challenge. “Brazilians do not have much tradition in this segment,” admitted Neves. But IBM, which is one of the main SIX shareholders (the company name, which was chosen by Eike Batista, is due to change), will probably contribute to the staffing. Moreover, officials expect Brazilians that currently work abroad to seize the opportunity to come and live again at home. “It has been very interesting to see the large number of Brazilians and Argentines who are working in the U.S. or in Europe that we are attracting back here thanks to this project,” said Neves. Thierry Ogier reported from São Paulo.
PHOTO: PAULO FRIDMAN/POLARIS/NEWSCOM
Eike Batista, Chairman of Brazilian conglomerate EBX Group
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TRENDS CHILE
Former Chilean President Sebastián Piñera shakes hands with new president, Michelle Bachelet.
IS CHILE ABOUT TO LOSE ITS SHINE?
Bachelet, a socialist, was sworn in on March 11, four years after she left office, and her second government promises to be more radical than her first.
A deep tax reform and a hard-liner environmental stance could do harm to business conditions in the country.
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or years, Chile has been regarded as the safest country in South America in which to invest, but the return to the presidency of Michelle Bachelet has got some in the business community worried. Bachelet, a socialist, was sworn in on March 11, four years after she left office, and her second government promises to be more radical than her first. She has vowed to increase corporate taxes, empower trade unions and give the state a role in Chile’s private pension system. The outgoing center-right government of billionaire businessman Sebastián Piñera said her proposals are a threat to Chile’s economic health, just at a time when growth is cooling anyway. At the heart of Bachelet’s program is a pledge to increase the annual tax take by $8.2 billion, or three percent of gross domestic product (GDP). The president wants
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to spend most of that money on education reform. She wants to gradually increase the basic corporate tax rate from 20 percent to 25 percent over her four-year term. Opinions are divided on what the impact of that will be. On one hand, it would leave the tax rate a full eight percentage points higher than in 2010 – a big increase in less than a decade. On the other hand, even at 25 percent, Chile’s tax rate would be lower than in most countries in the region. In Brazil, Argentina, Perú and México, companies already pay between 30 percent and 35 percent, and according to advisors Kpmg, the Latin American average is 27.6 percent. “Bachelet is planning to take the tax rate as a percentage of GDP to somewhere close to where you’d expect it to be for a country of this level of development,” said Kirsten Sehnbruch, professor of public policy at the University of Chile. “It’s not a major,
groundbreaking tax initiative. It’s simply a step in the right direction.” Others are more alarmed by the prospect, and (even more so) by Bachelet’s proposal to scrap the Taxable Profits Fund, or FUT, a mechanism set up by the military government in 1984 to encourage investment. The FUT allows companies to indefinitely defer the payment of taxes on their re-invested profits. They pay taxes only at the moment they withdraw or repatriate their earnings. Since its inception, companies have used the FUT to defer payment of around $50 billion in taxes – money that Bachelet said should have gone to the state. She has vowed to scrap the FUT in 2017 in her final year in office. “It’s a huge change,” said Francisco Klapp, an economist at Libertad y Desarrollo, a think tank. “It’s practically a re-write of the corporate tax laws.” He sees the proposal as
PHOTO: PRESIDENCY OF CHILE/XINHUA/PHOTOSHOT/NEWSCOM
BY GIDEON LONG
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“a disincentive to saving and investment,” and believes it could have a significant impact on economic growth. But Bachelet’s supporters say the FUT
has been abused by private individuals who register their personal wealth as company profit to defer the payment of taxes on it. “It’s abused by the upper-middle classes,”
ENERGY AND MINING One of the toughest decisions that Michelle Bachelet will have to make during her fouryear presidency is what to do about HidroAysén, the biggest energy proposal in Chile’s history. It involves building five dams on two rivers in a remote and beautiful part of Patagonia. The project has already been given the go-ahead by Chile’s Supreme Court, but still needs final government approval. The outgoing government of Sebastián Piñera postponed a decision, saying the project was complex and needed further study. It will fall to the Bachelet administration to make a ruling. If she approves HidroAysén, she risks the wrath of Chile’s increasingly vocal environmental lobby. If she does not, she will anger the business lobby, which warns that Chile’s faces a looming energy crisis. HidroAysén would have an installed capacity of 2,750 megawatts and could provide Chile with around 17 percent of its current electricity consumption. But, it would also involve flooding a stunning Patagonian valley and building one of the longest transmission lines in the world to carry the electricity to Santiago. Bachelet has said the project is unviable as it stands, but that could change. Other energy projects also face opposition in Chile. The Supreme Court has already forced Brazil’s Eike Batista to scrap his plan for a $5 billion coal-fired power plant in northern Chile. Closer to Santiago, AES Gener faces vehement environmental opposition to its Alto Maipo hydro project. The mining sector is being challenged by environmentalists and indigenous groups. Of the $100 billion of mining investment planned in Chile over the next decade, some $40 billion has been either delayed or blocked. Barrick Gold’s $8.5 billion Pascua Lama gold project is completely on hold. El Morro (Goldcorp), Caserones (Nippon Mining and Metals), Pelambres (Antofagasta Minerals), Cerro Colorado (BHP Billiton) and Andina (Codelco) are other mines under scrutiny from the green and indigenous lobbies.
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Sehnbruch said. “It’s an outdated funding mechanism, especially for a country that has sovereign wealth funds abroad.” Bachelet is also planning to increase a stamp tax on borrowing operations from 0.4 percent to 0.8 percent, and to scrap Decree Law 600 – another piece of legislation set up by the military government to encourage investment. It gives foreign investors certain guarantees such as fixed long-term tax rates, access to Chile’s capital markets and legal protection in the event of disputes. Bachelet argues that these provisions have been enshrined elsewhere in Chilean law and that Decree Law 600 is therefore now redundant. Klapp disagrees, and points out that a significant number of foreign companies still use the law when they invest in Chile, and may turn their backs on the country if it is scrapped. The debate over Bachelet’s tax plans are likely to rumble on throughout her tenure but, either way, the outlook is not particularly bright. Foreign investment has already fallen from the record $28.2 billion in 2012 due to delays to several big mining projects. After averaging 5.8 percent between 2010 and 2012, economic growth slipped to 4.2 percent last year, and the central bank warns it could drop below 4 percent this year. The Bachelet years, it seems, could be relatively lean for business. Gideon Long reported from Santiago de Chile.
PHOTO: HECTOR RETAMAL/AFP/GETTY IMAGES/NEWSCOM
Socialist Michelle Bachelet was swept back into office on a platform of boosting education and narrowing the gap between rich and poor.
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WORLD ECONOMIC FORUM I N T R O D U CT I O N
LATIN AMERICA
2.0
PHOTO: ©ISTOCKPHOTO.COM/ MARI
What’s new on the list of things that best promote competitiveness and development in the region? Experts talk about labor skills, innovation, cities, trade, and entrepreneurship.
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WORLD ECONOMIC FORUM I N T R O D U CT I O N
O
ver the next 12 months, 20 people from Latin American government, academia and the corporate sector will “experiment” in a laboratory to see what creates the highest impact on development and wellbeing in the region. This is the Laboratory of Competitiveness, which was established a few weeks ago at the World Economic Forum (WEF). It’s part of an effort to discover an agenda that reduces the lag that confronts these countries in terms of labor skills and innovation, compared with the developed world. Competitiveness is definitely the most important tool for starting down the path to sustainable development. Quantifying progress in the macroeconomic ordering and structural changes, as the WEF has done for years, has enormous value. This work is the most effective way, bar none, to compare the results of policy efforts and point the graph north as it measures the modernization actions of countries. To add an extra element of analysis, the WEF Laboratory looked for common factors that slow development down in most of the region’s economies. During this process, as Marisol Argueta de Barillas, the WEF’s senior director for Latin America, told Latin Trade, it has identified two important deficiencies: worker training and lack of innovation. Starting in April, the Laboratory will begin the task of developing a coherent agenda that can be applied toward increasing the culture of human capital and innovative capacity in Latin America. There are already some signposts along the road to follow, which are the recommendations that Argueta de Barillas and the WEF are making to Latin American countries to accelerate their development. When dealing with human capital, she said, we must always think in terms of integrated action that touches on themes such as gender, education and health, because these are fundamental to maximizing people’s opportunities. In terms of gender, the director emphasized that women comprise more than 52 percent of Latin America’s population. It makes sense, then, for countries to promote equitable participation of the sexes in production, starting with equality of pay. She added that labor policy should be favorable to women to make it easier for them to join and remain
in the workforce. Labor practices should be established that align corporate objectives with family objectives. For example, they should set up flexible work hours with one day per week of working from home. In addition, she said, systems for recognizing and making the most of female talent in production should be designed. Quotas for raising women to management positions are a formula, but it’s not the only way to encourage women. For example, the WEF promotes women’s participation in its annual forum in Davos, Switzerland. The organization raises the upper limit of the number of people a company can register if it includes women participants. On health, Argueta de Barillas said countries should look at it integrally, to improve people’s quality of life, and at the same time, their capacity to be linked to the workforce. Preventive medicine plays a dominant role in this because it combats the problems without much increased expense. Similarly, education should have the same essential vision. She said countries should study the education of children and youth, but also the relevance of their education to employment, plus the use of technology, which is a tool that facilitates the universalization and improvement of the quality of education. She said education should be aligned with the needs of the employers, offering not only professional careers, but also technical careers, a path which quickly improves employability conditions and worker development. The discussion on accelerated development in Latin America will undoubtedly benefit from the recommendations of the Laboratory and those the WEF is making today. To enrich the discussion, Latin Trade invited a group of experts to present their viewpoints on crucial issues such as innovation, policies of initiative, business strategies, and construction of cities that improve the well-being of those who live there. All of these elements should be included in the agenda for promoting human capital. That theme has been highlighted several times in this magazine, plus one more which we believe should be linked to these discussions with more emphasis: natural disasters.
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WORLD ECONOMIC FORUM I N N O VAT I O N
LATIN AMERICA’S INNOVATION AGENDA The region faces numerous challenges in deepening its innovative capacity. To begin, there are desperate lags in the fundamental building blocks of an innovative society. Entrepreneurship is the watchword.
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wo puzzles from the distant year 1900 speak to the current debate on Latin American growth and trade policy. First, if natural resources are intrinsically cursed, how was it that foreigners were able to take the stagnant regional mining sectors and remake them into dynamic industries that persist today? Second, if business climate and institutions in the region were so discouraging, then why were immigrants able to make contributions to industrialization so vastly disproportionate to their numbers where locals did not? The answers to both lie in the absence of an indigenous modern, cosmopolitan, and technologically savvy entrepreneurial class, as well as the supporting institutions for technological adoption and innovation. As a crude measure of both, Sweden and Denmark had five times as many domestically trained engineers per capita as Chile and Argentina at the same level of income. In the case of mining, this meant Latin Americans were unable to apply the new advances in metallurgy and chemistry; more generally, it meant that the region was profoundly unprepared for the Second Industrial Revolution. A century later, despite renewed assertions that it is the composition of regional exports that is holding back growth, Latin America still has trouble innovating across the wide range of goods that we already export. In 1980, México and Korea were both engaged in the assembly of electronics and computers and had similarly low indexes of patenting in these sectors. But, after 30 years of HP and IBM in
Guadalajara, we connect on our Samsung Galaxy instead of an A(zteca) phone. And, it was a Massachusetts firm that invented the Frankenfish – the genetically engineered super fast growing salmon – rather than Chile for whom the product is iconic. In each case, the export appears identically in the trade statistics – copper, computers, salmon – yet yields radically different development outcomes depending on the country’s ability to innovate around the product. Policy needs to focus more on how we produce rather than what we produce. Latin America faces numerous challenges in deepening its innovative capacity. On the supply of knowledge side, the region falls in the bottom third in the Oecd’s Pisa global education quality test suggesting desperate lags in the fundamental building blocks of an innovative society. At a higher level, too few students are sent abroad – Korea and Taiwan send double the share of college graduates to the U.S. than does the Latin leader and neighbor México – and yet the advanced countries are where the knowledge frontier is demarcated, business opportunities identified, and trade and finance networks established. In terms of local knowledge institutions, surveys by the World Economic Forum’s Global Competitiveness Report suggest the private sector thinks relatively little of their quality and interacts infrequently with them. Often public think tanks lack clear mission and appropriate incentives for excellence, and universities have not yet fully embraced their third mission of partnering with industry. Monitoring the functioning
of the overall innovation system, and ensuring the articulation and quality of the components state institutions, is often overlooked as a policy priority. But it is the firm, not universities or think tanks, that generates economic growth, and the manager of the firm provides the impetus and vision to innovate. Strikingly, the recently established Stanford-LSE World Management Survey that compares managerial quality among manufacturing firms of over 50 employees globally ranks Argentina, Brazil, Chile and Colombia among the worst in their sample. The region justifiably celebrates its high functioning multilatinas, but the average firm does not have a strategic vision, routines for adopting new technologies, or forward looking personnel management strategy. To develop the capacity to exploit TLC-opened markets, or even to imagine doing R&D, it’s necessary to follow Korea, Japan, Singapore and Spain in developing coherent systems of technological extension and entrepreneurial support for SMEs as Colombia is attempting. Programs to facilitate entry into new markets and “road mapping” diagnostics to identify bottlenecks and coordination failures in clusters work to create demand for efficiency and innovation. The 21st century Latin America is a world away from 1900. Latin companies operate at the technological frontier of sectors once ceded to foreigners in a state of abject technological dependence. Entrepreneurship is the buzzword of every new business school. The progress needs to accelerate.
*William F. Maloney is lead economist in the World Bank’s Development Economics Research Group. He received his Ph.D. in economics from the University of California, Berkeley and his B.A. from Harvard University.
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ILLUSTRATION: ©ISTOCKPHOTO.COM/ FMNG
BY WILLIAM F. MALONEY*
WORLD ECONOMIC FORUM
THE MAKING OF AN ENTREPRENEUR
According to research, entrepreneurial success depends not on the wealth of the parents, but on a collection of values and experiences that are acquired early in life. BY EDUARDO LORA*
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n theory, Latin America is full of entrepreneurs: almost one-quarter of those employed in Argentina aren’t paid a salary, but are owners of their own businesses. In Colombia and México, this group represents close to 40 percent of those who work, and in the poorer countries of the region, it exceeds 60 percent. However, the type of entrepreneurial spirit that dominates the region doesn’t lend itself to economic growth. Most of those self-proclaimed
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entrepreneurs aren’t there because they choose to be there, but because they have been left with no other option. True entrepreneurs are those with the capacity and motivation to assume risks and to try to continuously improve the efficiency of their companies or businesses. Only this type of entrepreneur is positive for economic growth, according to the theories of Joseph Schumpeter, and many others after him. This means that the entrepreneurial spirit is an issue of quality, rather than quantity.
WHERE DO REAL ENTREPRENEURS COME FROM? According to conventional reasoning, being successful as an entrepreneur depends above all on having been to the best university, to be able to put together the capital to start and run your own business (or to inherit it from the family), and the connections one has to open the space and do good business. In this view, the entrepreneurial undertaking is a mechanism of reproducing privileges, rather than a channel for social mo-
PHOTO: ©ISTOCKPHOTO.COM/ RAWPIXEL
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bility. This is especially true in Latin American countries, where only a few people have access to a good education, the financial system or to the corridors of power. The role of a progressive state, then, must be to get rid of these barriers and offer all of the support (and subsidies) to the novice entrepreneurs from the lower classes. But this approach has rarely yielded good results. Why? Put simply, entrepreneurial success depends much less on these things than what has generally been believed. Family origin is possibly the factor that has the greatest influence on the chances for success, not for the conventional reasons, but rather for the influence parents can have on their children’s system of values and attitudes. In fascinating research from México, the brother-and-sister team Roberto and Viviana Vélez-Grajales found that an individual’s decision to become an entrepreneur and his chances for success depend in large measure on the profession of his father, but not on the wealth or education of his father (they only studied boys, so the gender reference is intentional). This is really notable, since it suggests that the lack of social mobility in the entrepreneurial initiative has its roots in the family as it relates not to wealth, but to a collection of values and experiences that are acquired early in life, and for which it is difficult to compensate later.
who are from the middle-class and who lack the talent for assuming risks and making the right management decisions. This means there is a limited margin for action in public policy. The objective of the programs of entrepreneurial support should not be to increase the number of entrepreneurs, but rather to identify and
eliminate the income barriers to entrepreneurial activities. Given that entrepreneurs tend to be exceptional individuals, the challenge consists of defining the public programs while keeping this restriction in mind, with the goal of not squandering public resources simply to promote entrepreneurial capacity indiscriminately.
* Eduardo Lora is an economist from the London School of Economics and associate fellow at Oxford. He is a consultant with the IDB. He was chief economist of the IDB and director of the Colombian think tank Fedesarrollo. Note: the studies cited are part of the book Entrepreneurship in Latin America: A Step up the Social Ladder?, edited by Eduardo Lora and Francesca Castellani, which has just been published by the World Bank and the IDB.
IT’S ALL A QUESTION OF VALUES Another recent study, by José Anchorena and Lucas Ronconi, shines light on the importance of family values in entrepreneurial development. Using data from the World Values Survey, the study established which values tend to bring out the entrepreneur in children. The general conclusion is that, at a worldwide level, entrepreneurs place more emphasis – relative to those who are not entrepreneurs – on responsibility, tolerance, respect, independence, determination, perseverance and imagination. In contrast, it doesn’t give much importance to obedience, religious faith or the propensity to save. It turns out that the system of Latin American family values is poorly aligned with the entrepreneurial spirit (although Argentina is a less critical case than the other six Latin American countries analyzed). That the tendency to take entrepreneurial risks and the possibilities of success in business depend on experiences and values acquired during childhood is somewhat bittersweet. If it’s true, the entrepreneurial spirit encourages mobility of income, but only for the relatively few people who have the right family background, and certainly not for the broad majority of people
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WORLD ECONOMIC FORUM TRADE
DEVELOPMENT MODELS OR GROWTH TACTICS? Import substitution practices shielded Brazil and in general, Latin America, from the effects of the global recession. Now it’s time to rethink trade and openness.
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any around the world believed until recently that Latin America – and particularly Brazil – had devised an economic formula assembling high growth and social inclusion. But that magic recipe doesn’t really exist. Policies put in place by Brazil in the past few years to boost its economy weren’t pillars of a new miracle. For the past 10 years, Brazil has resorted to import substitution and the appetite of its domestic market as recurrent tactical attempts to promote growth. The Brazilian case offers a valuable example of the distance between “development models” and “growth tactics” in Latin America. The former are strategic in nature; they include a “plan,” a well-structured vision of the future. The latter are superficial – they react – to changes in the global economy. Models are about sustained development. Tactics are about punctual growth. These differences are further enhanced by the stance countries take towards the “reglobalization” now in the making – a new phase in international relations shaped by further integration to global supply chains and increased terms of trade. As a consequence, a “two-speed Latin
America” emerges. On the one hand, the Pacific Alliance (México, Colombia, Perú and Chile) and its competitive drive. On the other, Mercosur – a platform now characterized by the oldfashioned ideological and protectionist attitude of its members. Brazil is key to how Latin America will be reconfigured. The region´s largest economy has not gone down the path of isolation as deeply as Venezuela and Argentina. Nor, has it opted for a competitive integration with the global economy. The current reinterpretation of import substitution policies in Brazil is a good example of the difference between a development model and growth tactics. Nearly all experiences in industrial development around the world resorted to some sort of import substitution as a stopover to local capacity-building. But, import substitution cannot become an everlasting rule. In order to enable a particular sector of the economy to compete internationally, it is only to be applied at “infant industry” level. Fostering domestic consumption as a countercyclical tool following the Great Recession of 2008 did make the economy respond positively to stimulus. However, there are many
constraints for such growth tactics to become a development model. Low levels of savings and investment, outdated labor and tax legislations, infrastructure bottlenecks, a business environment lagging behind that of its competitors. These are some of the obstacles keeping Brazil away from a development road paved by entrepreneurship and innovation. Brazil could definitely use the old economy to help build new competencies. This would necessarily involve sectors such as agribusiness, mining, deep-water oil, biofuels. These should generate surpluses to service the construction of new competitive advantages – in nanotechnology, biotechnology, new materials – areas that may drive Brazil to the forefront of emerging markets. Building a development model requires three ingredients. Political will, capital availability and a good diagnosis of what the world is today. If along these three lines, Brazil manages to enact the much needed structural reforms, the country would be driven away from an autarkic approach to development. And, it would certainly edge closer to its rightful place amidst the leading economies of the 21st century.
*Marcos Troyjo teaches international affairs at Columbia University, where he directs the BRICLab, a special forum on Brazil, Russia, India and China.
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PHOTO: ©ISTOCKPHOTO.COM/ ZIVIANI
BY MARCOS TROYJO*
WORLD ECONOMIC FORUM S U S TA I N A B L E C I T I E S
HAPPINESS DEPENDS ON URBAN DESIGN How to plan cities that help make their citizens happy? The formula is very clear.
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mproving public spaces is never a priority for mayors for the simple reason that this is something of little interest to the people. Security, the condition of the streets and mobility are of more immediate concern to citizens. That’s the typical middle-class culture, which aspires one day to have a life free from stress and fear, and that for the moment, is snowed under with too many worries about money and family to be able even to think about recreation areas, green zones or culture. They leave others to worry about those things. Unfortunately, that’s the formula for the urban hell into which hundreds of Latin American cities are turning. Based on numerous investigations, and using personal testimonies and photographs, a recent book by the Canadian journalist Charles Montgomery called Happy City shows what urban design oriented toward happiness looks
like. Basically, what’s needed is that public spaces be conceived to make life pleasant for pedestrians, and not toward the flow of vehicles. The result is more interaction among different types of people and less segregation of rich from poor, so that it’s possible to combine work, living, shopping and relaxation in an orderly way, instead of separating one activity from another. Cities where people live with more gusto, like Copenhagen, New York, London, Paris or Vancouver, have fewer cars and more space in plazas, pedestrian walkways and bicycle paths. To replace the private car, these cities have invested in better public buses and urban trains and in various ways in which bicycles and cars are available for rent at small stations at all times. The personal automobile and the house in the suburbs are no longer status symbols, and rich and poor alike are returning to live in the city centers, which have the most sought-after properties and
where the action is most intense. These new urban designs help to reduce crime because public spaces can be better maintained and have more activity, and because the streets that had been jammed with autos now feature small shops and restaurants, chairs on the sidewalk and people walking or riding bicycles. Is this a fantasy for Latin American cities? Not at all. It’s much cheaper to recover public spaces and improve public transportation than it is to build more streets and freeways that encourage everincreasing use of the private automobile. A person in his private vehicle needs 20 times as much space on public roadways as one being transported by bus, 30 times more space than a bicyclist needs and 75 times more space than a pedestrian. Given that in Latin America those with cars are in the minority, it makes economic sense to reorient the urban development vision toward people and not cars.
Eduardo Lora is a consultant for the IDB. An economist, he graduated from the London School of Economics. He has been an associate fellow at Oxford, director of the Colombian think tank Fedesarrollo and chief economist of the IDB.
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ILLUSTRATION: ©ISTOCKPHOTO.COM/ JAVI.RUIZ
BY EDUARDO LORA
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WORLD ECONOMIC FORUM H U M A N C A P I TA L
LIBERATING HUMAN POTENTIAL A look at what Latin America must do to face the challenges of developing its talent in the “Human Age.”
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he issue of human capital is one of Latin America’s most important challenges. According to data from the International Labour Organization (ILO), the rate of youth unemployment in 2013 was 14.5 percent. Paradoxically, the ManPower Group’s Talent Shortage Survey indicates that 39 percent of the region’s employers said they were having difficulty filling vacancies during the same period. This is a “Human Age” characteristic, an era when the only certainty is uncertainty, and talent is the most important driver of economic growth. There are several factors behind the gap between the supply and demand of talent. Current education programs do not respond to the market’s needs. In many ways, they are obsolete, since they fail to focus on training in skills and abilities that students need if they are to be a source of attractive and competitive talent in the formal work world. The education system follows a teaching model focused on the teacher, giving priority to learning by memorization instead of encouraging students’ capacity to analyze, synthesize, and reason logically, using skills like mathematics. “While 72 percent of
the educational institutions think their recent graduates are ready to work, only 42 percent of employers and 45 percent of the graduates think they have been adequately trained,” says the ManPowerGroup study, Simplify to win in the Human Age. In the short term, there needs to be a dialogue between educational institutions and companies, to be able to prepare young people in the skills they currently need, such as: learning a second language (English), problem-solving, learning to work in a team, learning to innovate, and above all, learning to learn. Changing the education programs of today means seeing results over the next 15 or 20 years, but it is an essential step to ensure that the talent the country will need in the future will be there. Conditions have changed in the Human Age; now it’s more important to have certain abilities and competencies than to have a university degree. Full-time employment plans are no longer the norm. It’s necessary to redefine the work models, focusing on issues like flex-time, temporary employees, half-time or by the hour, and working remotely. That way, it will be easier to have
*Mónica Flores is director general of ManPowerGroup LATAM.
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access to the talent, and to include women and other groups such as older adults or disabled persons in the labor sector. Add to this the fact that the forces that define the macroeconomic environment are constantly changing. According to the ManPowerGroup study, companies have to simplify their processes, optimizing their resources and doing more with less, innovating and breaking with the preestablished norms. Doing this will require serious communication between collaborators, both vertically and horizontally. They must focus on what they can control, and they have to be flexible, respond quickly, and act with agility. In addition, they have to keep in mind that they are working with four completely different generations, each one with different motives, work attitudes, interests and expectations. Today’s leader must know how to inspire each of these groups to form productive teams and take advantage of the diversity that prevails within organizations. However, lower unemployment rates and liberating human potential is indeed humanly possible.
ILLUSTRATION: ©ISTOCKPHOTO.COM/ESENKARTAL
BY MÓNICA FLORES*
WORLD ECONOMIC FORUM N AT U R A L D I S A S T E R S
REDUCING VULNERABILITY Population growth, unplanned urbanization, the overexploitation of natural resources and the effects of climate change have increased permanently the risk of natural disasters.
atin American nations are pushing forward with policies to reduce their vulnerability to natural disasters after the region has seen a steady increase in catastrophes during the past several decades, resulting in devastating human casualties and large-scale economic losses. Governments in several countries, including Brazil, México, Chile and Perú, have recognized the need to be better prepared for the impact of earthquakes, floods and storms after recent events have made it clear that they are still highly susceptible to disasters. The awareness of Latin America’s continued vulnerability to natural disasters comes as the region has seen a decade of robust economic growth that has boosted government revenue. However, it also comes amid increased uncertainty as regional growth slows due to what many economists see as the end of a global boom for commodities like copper, oil and soybeans. Many observers argue that not all countries in Latin America took advantage of the increased revenue to properly invest in infrastructure that would not only improve business competitiveness during the downturn, but also reduce the impact of Mother Nature’s wrath. Natural disasters in Latin America have increased over the past several decades due to population growth, unplanned urbanization, the overuse of natural resources and the effects of climate change. According to the Inter-American Devel-
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opment Bank (Iadb), catastrophes in Latin America and the Caribbean from 2000 to 2009 caused economic losses of some $34 billion, compared to $13 billion in the 1960s. The region was especially hard hit in 2010, when more than 200,000 people were killed in the Haiti earthquake, and Chile reported economic losses of some $30 billion, approximately 15 percent of its gross domestic product, due to its quake. The Zurich Insurance Group said that it expects this trend to continue in the coming years. “The economic losses from natural disasters will most likely further increase in years to come, as a growing population and urbanization, as well as growing wealth, will expose increasing values to risk,” it said in a recent report. In Brazil, for example, the insurance company expects that the number of individuals exposed to flooding risks will rise to 43 million by 2030 from the current 33 million. The World Bank estimates that the number of people in the region exposed to cyclones and earthquakes will more than double by 2050. The bank adds that the region’s countries need to improve policies, strengthen integration among government agencies and invest to reduce the risks. In 2012, Brazilian President Dilma Rousseff announced that Brazil would invest some $7.8 billion to reduce vulnerability to floods and other natural disasters. “Human beings
don’t control nature, but we can build mechanisms to better resist natural phenomenon, save lives and prevent people from losing their homes,” she said at the time. Former Chilean President Sebastián Piñera announced last year that his government had strengthened the country’s national emergency agency Onemi, which was criticized for its handling of the 2010 earthquake. In Colombia, President Juan Manuel Santos passed legislation to create the National Disaster Risk Management System. Santos said the law created Colombia’s first ever policy focused on preventing the effect of natural disasters. President Ollanta Humala of Perú urged the country’s regional governments to use tax revenue to invest in works to reduce the impact of natural disasters. In January, the Peruvian government signed an agreement with the Inter-American Development Bank for access to a $300 million loan in the event of a catastrophe. The Iadb estimates that Perú, one of the world’s most vulnerable countries, has infrastructure worth $450 billion that is at risk in natural disasters. Meanwhile, during his first year in office, Mexican President Enrique Peña Nieto, also announced a strategy to reduce risks from droughts and other natural phenomena, as well as support for those affected by heavy flooding last year. Ryan Dube reported from Lima.
ILLUSTRATION: ©ISTOCKPHOTO.COM/FINGERMEDIUM
BY RYAN DUBE
ENERGY INDUSTRY REPORT
PHOTO: © ISTOCKPHOTO.COM/ CELSODINIZ
Oil rig drilling in Brazil
ENERGY
SECURITY Latin American countries could benefit from a more integrated energy market. Has the time come for them to forget about nationalism?
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he nations of Latin America and the Caribbean possess one of the world’s largest reserves of petroleum and natural gas, as well as an abundant supply of hydroelectric energy. In fact, the western hemisphere has plentiful sources of both conventional and renewable energy. Nearly a third of the world’s proven petroleum reserves are in the Americas, according to statistical reports from British Petroleum (BP). Latin America has 9.7 percent of world reserves and produces 13.8 percent of the world’s petroleum, BP reports. In spite of the cooperation on energy issues among some countries within the region, especially on electrical energy interconnections, relations among these countries are becoming ever more tainted by ideology as a result of growing tensions
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among the political regimes, and that’s having an adverse effect on the possibility of developing more energy integration. The result is that the reciprocal needs of producing countries and importing countries, which could be a force for greater cooperation and regional integration, are in practice turning into measures that fan nationalistic flames and cause discord and energy insecurity. According to data from the InterAmerican Development Bank (IDB), demand for energy in Latin America will grow by 75 percent between now and 2030, and to meet that demand generating capacity will have to increase by 145 percent during the same period. That goal would be more easily met if the all the regional players worked together. This scenario becomes even more com-
Executive secretary of Brazil’s Ministry of Mines and Energy (MME), Marcio Zimmermann (R) and president of the Energy Research Company (EPE), Mauricio Tolmasquim speak during a press conference in Brasilia February 4, 2014.
Brazil: Blame it on the rain
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n February 4th, a countrywide blackout hit six million people in 11 of Brazil’s 27 states as a result of a failed transmission line. While the cause of the outage was unclear, what it represents is not: Brazil is facing a major energy crisis. Approximately 70 percent of Brazil´s energy comes from hydro.
PHOTO: UESLEI MARCELINO/REU TERS/NEWSCOM
BY ÁLVARO MORENO AND DAVID SECONI
ENERGY INDUSTRY REPORT Oil pump, Perú
plicated when one takes into account that the region uses its energy inefficiently: Latin American energy demand is very high relative to the rate of economic growth. European industry consumes half as much energy as Latin America per unit of production, according to a recent study from the Woodrow Wilson International Center for Scholars. The response of most of the region’s countries has been to try to become independent in energy – except for the nations of the Caribbean, which continue to be net importers of energy. In any case, energy independence is a necessary, but not sufficient condition, for achieving energy security. That was demonstrated in Japan after the disastrous tsunami of 2011, when that country proved capable of quickly replacing the lost nuclear energy with imported gas. Energy security is easier to achieve by being part of an integrated system than by achieving self-sufficiency at the national level. For that reason, energy cooperation needs to become the roadmap for the countries of Latin America and the Caribbean to follow. Álvaro Moreno reported from Miami. David Seconi from Bogotá.
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PHOTO: © ISTOCKPHOTO.COM/ XENI4KA
The region uses its energy inefficiently: Latin American energy demand is very high relative to the rate of economic growth.
The country suffered through its driest January in almost 60 years and the likelihood for sufficient rainfall for the rest of 2014 is small, leading experts to predict that reservoir levels could hit rationing levels by 2015. The Brazilian government has few options beyond passing increased costs onto consumers. Exploding budgets and looming credit downgrades makes continued subsidies to distributors difficult, and massive social unrest during an election and World Cup year, likely rules out any rationing. President Rousseff certainly understands the dangers of the latter. The 2001 rationing program crushed the stock market, caused massive defaults in the utility sector and helped push her predecessor, then in the opposition, into the presidency.
ENERGY DIPLOMACY The Obama Administration has made energy policy a defining pillar of its Latin American policy. At the Summit of the Americas last year, the U.S. announced, in cooperation
with Colombia, the “Connecting the Americas 2022” initiative, which aims to ensure universal access to electricity to people in the region by 2022. Energy resources have historically been a major flashpoint for social unrest in the region, whether between European ancestors and poor, indigenous populations, or between Latin American nations and the United States, which have kindled energy nationalisms like those in Venezuela, Bolivia and Ecuador. There are a number of projects currently underway in the region. The Central American Integrated System Project (or Siepac in Spanish), the Andean Electrical Interconnection System (Sinea) and the Garabí Project connecting Argentina and Brazil. While there is still little connection between these systems (and relatively few major regional energy policies), Obama’s energy diplomacy will press the region’s nations on finding common ground that could open the door for greater connectivity, under the aegis of the U.S.
POLICY AGENDA
THE ORANGE
ECONOMY Cultural industries are an important economic sector due to their penchant for innovation and development. In Latin America, this group of activities produces $175 billion. BY ÁLVARO MORENO
etween 6.1 and 7.3 percent of the world’s Gross Domestic Product (GDP) is produced by cultural or creative industries, according to estimates from the Inter-American Development Bank (IDB) and Unesco. The orange economy, as the IDB recently called it, creates a high rate of GDP growth, added value to the economies, and is an important job creator. In Latin America, the sector produces $175 billion of value, slightly more than 10 percent of what it produces in the United States economy, but almost twice what it produces in a country like Canada, home of Cirque du Soleil, the global reference point for creative businesses. In Brazil, the sector’s production is slightly higher than Venezuela’s petroleum exports. Cultural industries are also responsible for 23.3 million jobs in the Americas (including 10.3 million in Latin America and the Caribbean). Worldwide, the number of jobs it creates is almost as large as the entire workforce of the U.S. One out of every 10 employees in Buenos Aires is in a cultural or creative industry, and the sector contributes 3.8 percent of that nation’s GDP. In México, it contributes 4.8 percent of GDP. If this sector in Latin America and the Caribbean were a country, it would be the same size as the Peruvian economy ($177 billion); it would export as much as Panamá ($21.6 billion); and it would employ as many people as the combined workforce of El Salvador, Guatemala and Honduras (11.5 million). The IDB says the orange economy is defined as the meeting place of three essential elements: first, the raw material comes from creativity, arts and culture; second, it has a close relationship with intellectual property rights, especially royalties; and third, it operates directly as a creative value chain. The creative economy embraces the visual arts, including video games, sectors that
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contribute a growing amount to the GDP, to business and employment in the countries. Interest in the cultural industries and their rapid acceptance as a model to tackle the problems of development from an economic and political standpoint isn’t new. However, among the obstacles to be overcome is convincing those in charge of public policies to include them in the formulation of economic policy and strategic development planning. “For the physical barriers that limit the ideas and the opportunities of the orange economy of Latin America and the Caribbean to be knocked down, it’s first of all necessary to overcome the psychological barrier of cultural protectionism,” said the authors of a recent book from the IDB on the theme. The book’s authors establish as well that Latin America cannot afford to miss the opportunity to take advantage of the talent of the region’s more than 100 million young people who could make this their economic revolution. “To benefit from the demographic bonus in the region will require a rapprochement based on knowledge and active participation in the digital revolution, taking science, technology and culture seriously,” they added. Álvaro Moreno reported from Miami.
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BUSINESS CONSULTING
PHOTO: © ISTOCKPHOTO.COM/ RAWPIXEL
SPECIAL REPORT
THE BUSINESS OF
STRATEGIC CONSULTING The consulting industry is growing at double-digit rates in the region, as a result of the profound changes in the corporate environment. What will the leaders in this sector do in 2014 to cash in on the boom? BY DAVID RAMÍREZ
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BIG CHANGES “Not only have the customers become more sophisticated, we have too,” said Enrique Luz, PwC Brazil’s clients & markets leader. “When the company arrived here 28 years
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“Not
only have the customers become more sophisticated, we have too.”
Enrique Luz, PwC Brazil’s clients & markets leader
ago, there were only three professions represented: accountants, lawyers and company administrators. Today, we have 27 types of professionals from the most diverse areas, from engineers and economists to doctors, biologists and specialists in zoology.” Another big change is arising from growing client demand for more service, because the consultants are moving from strategic
planning and design to working with customers on the implementation and management of these new areas. The big consulting firms that specialize in technology are aware of this change. “We have moved from being desk-bound consultants to ones who look at and transform the processes together with the client,” said Sergio Kaufman, president of Accenture Argentina and regional leader for Spanish South America. In fact, his company has been significantly increasing its staff of personnel dedicated to supporting outsourcing processes. Another group of firms has taken part in the trend of clients needing much more
PHOTO: COURTESY OF PWC
he Latin American economic boom of recent years extends to the business of strategic consulting companies. The proliferation of consulting needs of Latin American and foreign companies that has descended on the region has triggered an explosion of demand for services in a diversity of sectors. It’s affecting not only traditional services like auditing and strategic assessment, but also new areas like risk management and marketing. The consulting business operating in Latin America has changed significantly in recent decades, and even more in the last five years or so. One of the main transformations has been brought about by the growing sophistication of its clients, whose education and training has increased to levels comparable to those of their peers in developed countries.
BUSINESS CONSULTING
“We have moved from being desk-bound consultants to ones who look at and transform the processes together with the client.”
“There has also been growing interest from small and mediumsized companies that are experiencing growth.”
“This isn’t an issue that only involves the systems engineers; now it also involves the CEOs.”
Sergio Kaufman, president of Accenture Argentina and regional leader for Spanish South America
Javier Eduardo Macci, advisory managing partner of Ernst & Young
Jorge Becerra, senior partner and managing director, Boston Consulting Group (BCG), Santiago
specific and almost personalized services. Space has opened up for specialized companies that are expanding in areas such as risk assessment, reputation management and executive security. Consulting strategy has also encountered new niches with respect to the type of company that contracts its services. “It’s interesting. At least in the case of Colombia, our clients not only are global accounts and large local groups, but there has also been growing interest from small and medium-sized companies that are experiencing growth,” said Javier Eduardo Macci, advisory managing partner of Ernst & Young, based in Bogotá.
said the BCG executive. The second trend involves the traditional need of knowing the clients, but on a dayby-day basis from the point-of-view of the management of the large information sources (Big Data). “The word Big Data underlines the fact that there is a different order of magnitude for processing data for clients, from many sources, including social media, call centers, etc.,” he said. He concludes that the idea is to start applying a new model of interaction with clients in the organizations. Becerra says the other two trends include digitization of the business models, which implies a task of systemization accompanied by strategic assessment, and lastly, the actual transformation of business, which includes the need by those being assisted to have the support of consultants during the implementation phase.
NEW TRENDS In the vision of Jorge Becerra, senior partner and managing director in the Santiago office of Boston Consulting Group (BCG), you could say that at least four trends are currently developing in industry activities. In first place, there’s the role of technology in the transformation of businesses. “This isn’t an issue that only involves the systems engineers; now it also involves the CEOs,”
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PERSPECTIVES FOR 2014 Except for the Latin American countries where the investment climate remained poor, 2013 was another year of excellent growth for most of the region’s consulting
firms. A large number of them report sustained double-digit revenue growth over the past five years. According to Luz, of PwC, revenue growth for the company’s Brazil operations last year was driven by activity in economic sectors such as infrastructure, health, agroindustry, telecommunications, retail and mass consumption. Lines such as strategic assessment enjoyed a growth spurt as a result of mergers and acquisitions, in which the traditional business of auditing and taxes benefitted, due to the legal obligation of Brazil’s public companies to change auditors every few years. PwC returned to several accounts in 2013, which enabled them to recapture a larger market share, according to Luz. Even so, industry expectations in Brazil aren’t especially optimistic for 2014. Evidently the activity of consultants is highly correlated with the economic cycle. According to José André Viola Ferreira, strategic growth markets leader of Ernst & Young in Brazil, the firm’s rate of revenue growth has slowed since the end of last
PHOTOS: KAUFMAN: COURTESY OF ACCENTURE; MACCI: COURTESY OF ERNST & YOUNG; BECERRA: COURTESY OF BCG
SPECIAL REPORT
BUSINESS CONSULTING
PHOTO: FERREIRA: COURTESY OF ERNST & YOUNG; PALACIOS: COURTESY OF PWC
SPECIAL REPORT
“We are projecting greater growth in areas such as cost reduction and restructuring.”
“We are hoping for major growth in companies that are going to change their business plans in the light of the recent reforms.”
José André Viola Ferreira, strategic growth markets leader, Ernst & Young, Brazil
Jose Antonio Quesada Palacios, senior partner for clients and markets, PwC, Mexico
year, though he still hopes revenues will still see a double-digit increase in 2014. At least a few segments of the consulting business appear to be counter-cyclical. For that reason, “we are projecting greater growth in areas such as cost reduction and restructuring,” said Viola Ferreira, who agrees with other colleagues in projecting the continued drive to develop infrastructure projects and its multiplier effect. Due to the slow execution of Brazil’s federal government works (as a result of election year legal restrictions), the private sector will have to continue with that activity alone. The Mexican economy appears to offer a very bright picture. After the 2013 electoral transition, the country is hoping to benefit from the major reforms approved by the legislative branch. Many people think the new laws will signal the most important changes for consulting firms in the last four or five decades. “Growth will continue on the business side as it relates to regulatory issues such as the laws to prevent laundering of assets, and in traditional areas such as strategy and technology consulting,” said Jose Antonio
Quesada Palacios, senior partner for clients and markets at PwC in Mexico. “However, we are hoping for major growth in companies that are going to change their business plans in the light of the recent reforms. Those changes are going to attract many investors, not only in the energy sector, but also in finance and telecommunications.” In the Andes region, Peru and Colombia will continue to capture the interest of consultants with the expectation that those two countries will accelerate their growth in 2014. Andres Cadena, leader of corporate finance, financial services and public sector practices in Latin America for McKinsey, has predicted a continued good growth rate for strategic consulting in Colombia, in sectors such as infrastructure, mining, petroleum, finances, and health and education services. While most industry players agree that the Colombian market is relatively mature by regional standards, it still continues to offer growth opportunities. Meanwhile, Peru offers significant possibilities for expansion because business is barely in the first stages of development.
In the Andes region, Peru and Colombia will continue to capture the interest of consultants with the expectation that those two countries will accelerate their growth in 2014.
Kaufman said while Peru is a relatively new country for Accenture, “it is an economy that has gained momentum in recent years, which has brought many opportunities, especially in business consulting mixed with outsourcing needs.” This is happening especially in sectors like mining and financial services, and to a lesser extent in telecommunications. Other geographic areas also offer attractive potential. Becerra expects stable revenue growth in Chile, while in Central America, the executive predicted growth to the extent that “the national champions (the big local players) continue to be excited about expanding in view of the action they have observed by foreign investors.” Becerra added that those groups are in general family operations, but as they start adopting systems of corporate governance to increase transparency, they will open up opportunities for strategic consulting, especially in countries like Panama, Costa Rica and Guatemala, and in the Caribbean in nations like the Dominican Republic. David Ramírez reported from Miami.
MARCH-APRIL 2014 LATIN TRADE
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INTERVIEW PA R AG U AY ’ S M I N I S T E R O F I N D U S T R Y A N D C O M M E R C E
TODAY, WE HAVE WHAT WE NEVER HAD BEFORE,
MARKETS. Gustavo Leite, Paraguay’s minister of industry and commerce, highlights the elements that are luring foreign investors to his country. His predictions for 2014.
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ith an economic growth rate of 13 percent in 2013, Paraguay has become one of the most interesting places to invest. With a stable legal and macroeconomic environment and a large market due to the combination of lower costs and having Brazil as a next-door neighbor, it’s a country that attracts the attention of those who, like Paraguay’s Minister of Industry and Commerce Gustavo Leite, understand where this economy is going. Minister Leite spoke in an exclusive interview with Latin Trade.
HOW DO YOU SEE 2014 FOR YOUR COUNTRY? We are very excited for two reasons: first, because 2013 finished very well, and so far one of the important drivers of the Paraguayan economy, the agricultural sector, is doing very well. Grain is planted from September to November and the weather has helped. Also, with the approval in Congress of two fundamental laws, the fiscal responsibility law and the law on public-private partnership, we believe that 2014 will confirm Paraguay as the new major player in a universe of options for investing and making money.
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WHAT DO YOU EXPECT IN TERMS OF THE GROWTH RATE FOR THE YEAR? Expectations are between five and seven percent. We wish it were more, but much will depend on climatic conditions, which affects 35 to 40 percent of gross domestic product (agriculture). It will also have a lot to do with the realization of the large number of interesting potential investments that are coming to Paraguay. Paraguay is seen today as a serious, reliable, easy country for doing business, with a large expanded market in Brazil.
WHAT SECTORS ARE FOREIGNERS INVESTING IN? The auto parts sector is investing; and grain logistics, both storage and transport chains via the Paraguay River; the manufacturing sector linked to the Brazilian market; and the electro-intensive small business sector is
growing. Today, Paraguay has a special situation compared to its neighbors. It’s the only one that can deliver 1,390 MW of installed capacity at about $40 per MW.
HOW IS THE TAX REGIME FOR FOREIGNERS? The exemptions are for special regimes. There is the free trade zone regime, which is not very well exploited by Paraguay. There is the maquila system or outsourcing that has a one percent tax on the value of exports, and there’s the normal system for the domestic market, which has a tax rate of 10 percent, which is very attractive.
CAN WE EXPECT CHANGES IN ECONOMIC POLICY THIS YEAR? Paraguay is attractive precisely because there are no changes. It maintains strict fiscal and monetary discipline as it has done for some time. There’s a very controlled fis-
PHOTO: COURTESY OF PEDRO OLMEDO SEMIDEY, PRIVATE SECRETARY TO THE MINISTER
BY SANTIAGO GUTIERREZ
INTERVIEW PA R AG U AY ’ S M I N I S T E R O F I N D U S T R Y A N D C O M M E R C E
is the export highway corridor, open to the private sector. Another one is modernizing our logistics system. There is an opening for freight rail projects, which have a lot to do with connectivity. President (Horacio) Cartes has expressed it well: Paraguay is the heart of South America, but is not beating. We are going to make every effort to make Paraguay the axis of integration between the Atlantic and the Pacific, and the axis of integration between western Brazil and Rio de la Plata.
cal deficit, tending towards a primary surplus. Probably by mid-year, there will be a new law of reinsurance investment, a statement to the world that Paraguay has no intention of changing the rules over time. I would say that change is not what Paraguay wants.
IN INFLATION CONTROL, WHAT DO YOU EXPECT FOR THIS YEAR? Our inflation is under control. The central bank’s target has always been close to five percent. I don’t think there is any reason to think otherwise.
AND THE FUTURE? IN FISCAL POLICY?
The idea is that 2015 and 2016 will be the years of heavy investment and realization of these works, and some of these will continue beyond 2018. President Cartes has also instructed the minister of planning to prepare a 30-year plan, which he intends to make public after his first year in office.
Paraguay has a very special situation. Although it’s true that it’s a low-tax country, it also has high levels of (tax) evasion. The fiscal priority is the extension of the tax base to everyone.
BUT WON’T THERE BE MORE REVENUE COLLECTED THIS YEAR?
PHOTO: INGRAM PUBLISHING/NEWSCOM
Since the arrival of this government, customs collections have had substantial increases of 7 to 10 percent compared with the same period last year, and we believe that will be the constant. Also, probably, as 2013 was a year of 13 percent growth, logic tells us that we will collect more income taxes, which are paid in April.
HOW MUCH WILL THINGS DEPEND ON THE OUTCOME OF BRAZIL’S PERFORMANCE THIS YEAR? When Brazil does well, we do super-well, and when Brazil gets the flu, we get pneumonia. It is obviously a very important country but, important as it is, today there is a belief that in some sectors, Brazil is more competitive out of Paraguay. That’s why the vagaries of the Brazilian economy almost always affect border trade. Also, from the standpoint of geographical location, the flow of Brazilian investments to Paraguay is always more important.
AND WHAT ARE THESE AREAS? I look at the statistics for orders that fall under the provisions of Act 60, which is a law that exempts all taxes on imports of capital goods for establishing a company, industry or service, and there is manufacturing, and all that is electro-intensive, all leather goods, textiles, clothing, all foods.
ENERGY IS SUBSTANTIALLY CHEAPER IN PARAGUAY THAN IN BRAZIL, RIGHT? Much cheaper. It costs a little more than half as much.
WHAT ARE PARAGUAY’S MOST IMPORTANT INFRASTRUCTURE PLANS? There are 10 mega projects of more than $500 million each. Among these are dredging, maintenance, and use of the Paraguay River 24, 7, 365. Another transport project
OTHER THAN PROXIMITY TO BRAZIL, WHAT OTHER ARGUMENTS ARE THERE TO ATTRACT INVESTORS? Paraguay has always been an easy place to do business, but it’s probably forgotten that there were doubts about its democratic vocation and legal certainty. I think with the latest developments, these doubts will be laid to rest. Secondly, Paraguay was always forgotten because it had no markets, but today, it has an almost perfect one with Brazil, and it has nearly full complementarity with Chile, which will have a free trade agreement with us from 2014. Today, Paraguay is the only country in South America with more than 6,000 products with zero tariff s in the European Union. In Paraguay, there are competitive factors, competitive resources and there is something we have never had, markets. Santiago Gutierrez reported from Miami.
MARCH-APRIL 2014 LATIN TRADE
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PANAMÁ COUNTRY REPORT Ricardo Martinelli, president of Panamá
MARTINELLI’S LEGACY Ricardo Martinelli is leaving office in July with sky-high job approval numbers and a long list of achievements, but also a wake of strong-arm tactics that have given rise to detractors angling for change.
D
uring five years as Panamá’s president, Ricardo Martinelli has forged a reputation for winning ugly. He favors a bruising, Chris Christielike governing style. He disdains democratic checks and balances and tried to spy on his political foes. He’s been accused of corruption by his own vice president. Shortly after Martinelli took the oath of office in 2009, the U.S. ambassador to Panamá described him as having “a penchant for bullying and blackmail.” Yet, Martinelli is leaving office in July with sky-high job approval numbers and a long list of achievements that includes public works mega-projects, Panamá’s promotion in 2010 to investment grade status, and the fastest growing economy in the
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hemisphere. Supporters portray Martinelli as Panamá’s best chief executive since the country returned to democracy following the 1989 U.S. invasion that ousted dictator Manuel Noriega. “If he had been a softie,” said Franco Uccelli, executive director of emerging markets for JP Morgan Chase, “maybe none of this would have happened.” Martinelli, a 62-year-old supermarket tycoon-turned-politician and leader of the conservative Democratic Change party, has overseen a surge in public spending on roads, bridges, and schools and is transforming the country into a full-service maritime hub. Despite recent contract problems and construction delays, the ribbon cutting for a
new set of locks on the Panamá Canal will likely take place near the end of 2015. This wider, third set of locks will accommodate larger ships and increase traffic, potentially doubling the waterway’s annual revenue to $6 billion by 2025, according to the Panamá Canal Authority. (See sidebar.) Adjacent to the canal, the most obvious indicator of the boom is the ever more crowded Panamá City skyline. New housing complexes, condominiums, and hotels are going up to accommodate tourists, U.S. retirees and South American expatriates who distrust the leftwing governments in Venezuela and Ecuador and who are looking to park their assets in Panamá. Following a recent visit to Panamá City, Orlando Pérez, a political science professor
PHOTO: DENIS BALIBOUSE/REU TERS/NEWSCOM
BY JOHN OTIS
COUNTRY REPORT
PANAMÁ COUNTRY REPORT
PANAMÁ CANAL FUTURE Panamá Canal
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Panamá City
Martinelli’s government has also primed the economic pump by spending about $15 billion on new infrastructure. The budget surplus that Martinelli inherited in 2009 is now a deficit equal to about three percent of GDP, but the on-the-ground effect is akin to a national facelift. at Central Michigan University, quipped: “I didn’t want to stand on street corners too long for fear somebody was going to build a building on top of me.” By way of international loans, rising canal and tax revenues, and deficit spending, Martinelli’s government has also primed the economic pump by spending about $15 billion on new infrastructure. The budget surplus that Martinelli inherited in 2009 is now a deficit equal to about three percent of GDP, but the on-the-ground effect is akin to a national facelift. For the past 30 years, Panamanian governments debated building a metro, and it finally happened under Martinelli. The nine-milelong light-rail system in Panamá City, parts of which will be underground, inaugurated in March. It will be Central America’s first metro and will help ease congestion in trafficchoked Panamá City. Another $700 million is being spent to refurbish the existing terminal at Tocumen
International Airport on the outskirts of Panamá City and on the construction of a new terminal. The expansion, which includes new commercial space and hotels, will allow the airport to handle 15 million passengers annually by 2016, as well as more cargo with the goal of turning Panamá into an aviation hub for the Americas. This flurry of activity on the isthmus has fueled 8.5 percent annual economic growth under Martinelli – the highest rate of growth in Latin America, and one of the highest in the world. But the wealth has yet to trickle down. Panamá has long been one of the most unequal countries in Latin America with 30 percent of the population still living in poverty. Economic and social progress has been hindered, in part, by a poor educational system which has resulted in a shortage of skilled workers. A 2013 International Monetary Fund report says that “a comprehensive reform agenda is needed to support
PHOTOS: HECTOR RETAMAL/AFP/GETTY IMAGES/NEWSCOM; © ISTOCKPHOTO.COM/ RICHARDALOCK
he Big Ditch is about to get bigger – and busier. Despite a nasty contract dispute this year that provoked work stoppages and cost overruns, a new, larger set of locks on the Panamá Canal is expected to begin operating in December 2015, according to Jorge Quijano, administrator of the Panamá Canal Authority, known by its Spanish initials ACP. That’s about a year later than the original deadline, but Quijano claims it will be worth the wait. The new locks at either end of the canal will be wider and feature deeper channels in order to accommodate vessels that are too big for the two sets of original locks. The canal will also be widened where it cuts through the mountains at the Continental Divide. The ACP predicts that the expansion will help double annual canal revenue to $6 billion by 2025 and double tonnage carried through the 50-mile-long waterway that connects the Atlantic and Pacific oceans. “This project is critical for the country,” Quijano said. To prepare for the larger ships that will transit the canal en route from Asia, U.S. East Coast ports have been dredging deeper and wider shipping channels and adding larger cranes and shore infrastructure with greater overhead clearance. Still, it’s unclear to what degree the remodeled Panamá Canal will reorient international shipping. Container ships keep getting bigger and some are already too
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PHOTO: RUBEN SPRICH/REU TERS/NEWSCOM; © ISTOCKPHOTO.COM/ FERNANDOAH
COUNTRY REPORT
large for the canal’s wider locks. What’s more, the Suez Canal and the U.S. ship-to-rail intermodal system remain highly competitive alternatives for vessels carrying cargo between Asia and the U.S. East Coast. “There will be increased business through the Panamá Canal, but I don’t believe it will be nearly as large as many people hoped for,” said Richard Wainio, a U.S. shipping consultant who in the 1990s served as director of executive planning for the Panamá Canal Commission, the predecessor of the ACP. Plans to expand the Panamá Canal have been around almost as long as the canal itself. When it opened in 1914, some U.S. Navy vessels could barely squeeze through its 110-foot-wide by 1,050foot-long locks. In 1939, U.S. military engineers began widening the canal, but the project ran aground amid the outbreak of World War II. In 1996, so-called Post-Panamax ships that were too big for the canal were introduced. The Suez Canal has no locks and can handle these larger vessels. But the main option for the Asia-U.S. East Coast route is to dock at West Coast ports then send containers inland via railroads. With their canal in danger of becoming irrelevant, Panamanians in 2006 overwhelmingly approved a ballot initiative to expand the waterway by building a wider third set of locks. The project was originally budgeted at $5.25 billion. Amid the contract dispute between the ACP and the Spanishled construction consortium, the final price tag seems likely to rise by $1.6 billion or more, according to media reports. Yet Wainio and other analysts predict the new locks will get built because, for Panamá, the project is too important – and too big to fail. The wider canal will bring in more ships providing more toll revenue to the Panamanian gov-
Deforestation work in order to expand the Panamá Canal
sustainable and socially inclusive growth.” Martinelli has made some efforts to raise all boats. His administration has built hundreds of schools and health clinics and is providing $100 monthly stipends to people over 70 who lack pensions. Panamanians seem to like what he’s doing. A poll by Dichter & Neira in November 2013 put Martinelli’s job approval rating at 62 percent, one of the highest in the region. From the day he took office on July 1,
2009, Martinelli set out to run Panamá more like a business. “This is probably the first government that is not run by politicians, but is run by entrepreneurs or businessmen,” Martinelli said in a 2011 speech in Washington. “When you come into government, you can put things on automatic pilot and nothing happens. Or, you can be an agent of change. We selected the hard path of change.” But in his efforts to transform Panamá,
Ricardo Martinelli, President of Panama, speaks during a session at the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland.
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PANAMÁ COUNTRY REPORT
Aerial view of the Bridge of the Americas at the Pacific entrance to the Panamá Canal.
“Right now, when people look at Panamá, they see dollar signs. They either overlook the corruption or see it as the cost of doing business in Panamá.” Aaron Freedman, vice president and senior officer, Moody’s
Martinelli has steamrolled his opponents and sought to skirt the checks and balances of democratic governance that can often delay or derail presidential initiatives. One example is the nascent mining industry, which Martinelli sees as key to diversifying Panamá’s economy. Once the Cobre Panamá project begins copper production in 2016, it is expected to generate up to $100 million annually in royalties, and annual exports could exceed $2 billion, according to Moody’s. Other gold and copper mining projects are also in the works. But when Indians blocked the Pan-American Highway in 2012 to protest mining projects on their traditional lands, Martinelli sent in the police. In the ensuing clashes two Ngöbe-Buglé Indians were killed and dozens more injured, prompting the United Nations and the Organization of American States to scold the Panamanian government and urge peaceful dialogue. Martinelli is famously thin-skinned. His administration has harassed independent journalists and even proposed amending the criminal code to make insulting the president punishable by up to four years
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in prison. When Roberto Eisenmann, the founder of La Prensa newspaper, and one of Panamá’s most respected journalists, questioned Martinelli’s commitment to democracy, he was promptly accused of tax evasion by the government. Martinelli initially portrayed himself as a right-wing counterweight to Hugo Chávez and other left-wing presidents in Latin America. Yet, he has copied some of their strong-arm tactics in his attempts to control all branches of government and perpetuate himself in power. He suggested using a U.S.-designed wiretap program aimed at nabbing drug traffickers to eavesdrop on his political foes and coopted opposition legislators to give the ruling party a majority in the National Assembly. In what was viewed as a bid to modify the constitution so he could run for reelection, Martinelli tried to pack the Supreme Court with allies. When that failed, First Lady Marta Linares de Martinelli, was named running mate to the eventual ruling party presidential candidate José Domingo Arias, who is leading in the polls ahead of the May 4 election.
ernment. It will mesh with other projects designed to turn the country into a full-service maritime, logistics, transportation and financial center - a sort of Central American Singapore. After visiting Singapore in 2010, Panamá’s president, Ricardo Martinelli, said: “We copy a lot from Singapore, and we need to copy more.” The refurbished canal will also facilitate shipping between the east and west coasts of South America and trade between North and South America. It will also lower the costs of shipping agricultural products, oil and liquefied natural gas from the U.S. Gulf Coast to Asian destinations as well as Colombian oil and coal, according to Jim Brennan, a partner at Norbridge Inc., a management consulting firm that focuses on international freight. Touring the canal construction project in November, U.S. Vice President Joe Biden said: “As the energy production throughout the Americas grows, Panamá is going to play a critical role in bridging energy supplies in the Atlantic with a growing demand in the Pacific.” What a wider waterway won’t do, Brennan says, is create an immediate and massive diversion of ships away from Suez and the U.S. West Coast to Panamá. In recent years, West Coast harbors and U.S. rail lines have been investing billions to improve their distribution of Asian imports. The system is
PHOTOS: RODRIGO ARANGUA/AFP/GETTY IMAGES/NEWSCOM; © ISTOCKPHOTO.COM/ LISASTRACHAN
General view of the work being done to construct the new Panama canal locks.
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PHOTO: JEFFREY ARGUEDAS/EFE/NEWSCOM
COUNTRY REPORT
now several days faster - and in some cases cheaper - than the Panamá route. As a result, about 75 percent of U.S. bound Asian goods use the West Coast route. Complaining that toll rates had tripled since 2008, Maersk Line, the world’s biggest container shipping company, stopped using the Panamá Canal last year to focus on sending larger ships through the Suez Canal. It was a huge and costly blow to Panamá, and it remains unclear whether Maersk will return once the new locks open. Environmental factors may also work against Panamá. On the one hand, the new locks will use catch basins to recycle the millions of gallons of fresh water that are currently flushed out to sea with each ship transiting through the old locks. On the other hand, using the canal could mean a larger carbon footprint for ships traveling from Asia to the U.S. East Coast. Writing in the Spring 2011 edition of Americas Quarterly, Liliana Rivera and Yossi Sheffi estimated that a Panamax vessel using the U.S. intermodal system would generate about one-third fewer CO2 emissions per 20-foot-container than ships traveling the longer route through the Panamá Canal. Rather than a surge in traffic, the canal will likely see a gradual increase as new ships under construction with the wider locks in mind are launched, said Paul Bingham, who has worked as a consultant for both the old canal commission and the ACP. Critics, he added, have often misjudged Panamá. When the country gained full control of the canal from the United States in 1999, some predicted chaos, but the transition was smooth. Since then, the ACP has emerged as one of the most respected institutions in the country. When it comes to the canal, he said: “Panamanians have a lot of incentives to prove the naysayers wrong.”
Panama’s President Ricardo Martinelli and his Costa Rican counterpart Laura Chincilla chat during the inauguration ceremony of Honduras’ president-elect Juan Orlando Hernandez Tegucigalpa
Then there is the issue of graft. Amid a 2012 corruption scandal involving associates of former Italian President Silvio Berlusconi who were doing business in Panamá, Vice President Juan Carlos Varela accused Martinelli of pocketing $30 million in bribes. Varela, who was sued by the president for libel, but can’t be fired from his elected position, is now running for president and has become Panamá’s most vocal opposition figure. “What kind of example does this set for future generations about how our leaders should govern?,” said Daniel Suman, a Panamanian who teaches Latin American studies at the University of Miami. “I can see how people are fascinated by Panamá’s economic growth, but there is a whole other side to the story.” Although none of the corruption allegations against Martinelli have stuck, Jaime Alemán, Panamá’s former ambassador to the United States, warned: “The rule of law and separation of powers are sorely lacking. Corruption is widely perceived to be rampant and out of control and is a potential problem for any company that wants to invest in Panamá.” Still, foreign investors keep coming. “Right now, when people look at Panamá, they see dollar signs,” says Aaron Freedman, a vice president and senior credit officer at Moody’s. “They either overlook the corruption or see it as the
cost of doing business in Panamá.” For all the controversy surrounding Martinelli, he will hand over the presidential sash to his successor with the fundamentals in place for continued expansion. “Panamá’s future growth prospects are bright,” said the IMF report, which predicts six percent annual GDP growth over the medium term. The report predicted that infrastructure development, the expanded Panamá Canal, the approval of trade agreements with the United States, the European Union, and Canada, and new mining projects would support growth over the medium term. Even if there is a downturn, another Martinelli legacy is the creation of a sovereign wealth fund that will use revenue from the Panamá Canal to serve as a buffer. The fund will be put in place once the canal expansion is completed and Finance Minister Frank de Lima estimates it will grow by $1.5 billion per year. With his term winding down, Martinelli took stock of his presidency during a February trip to the Panamanian province of Coclé. “I get criticized for everything, but I’m not afraid of that,” Martinelli told a crowd of admirers. “The critics never did anything. They never did any public works projects. They never built roads or hospitals…. It takes a lot of guts to grab the wheel of government.” John Otis reported from Bogotá.
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FOUNDATIONS S O C I A L C A U S E O R G A N I Z AT I O N S UPS employees at Philadelphia International Airport volunteer for The UPS Foundation’s Global Forestry Initiative to plant one million trees around the world.
MEASURING SOCIAL IMPACT A NECESSARY APPROACH IN PHILANTHROPY
Traditionally, donors had limited information to make difficult giving decisions. New trends in the way social cause organizations measure their impact is now helping donors get more “bang for their buck.”
A
child’s life in South Africa is saved from malaria, an ex-convict in New York City starts his own small business and never goes back to jail, and a teenage girl in Colombia is the first one in her family to finish high school. These are “little miracles” that happen every day without being publicized with big headlines or on TV reality shows. Behind these miracles stands the world of philanthropy, a complex universe that requires the action of thousands of organizations working for the most unimaginable causes in every corner of the planet. Their livelihood depends on the decisions of donors, individuals or large foundations that extend their giving hand to champion their efforts. But how do these donors know their giving reaches the noble causes they support? “In order to make philanthropic decisions, funders have traditionally paid attention to the way non-profit organizations manage their overhead and administrative costs instead of how relevant their programs were or the social impact those programs had in the populations they targeted,” Angélica Ocampo, executive director of Worldfund, tells Latin Trade.
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Ocampo believes that type of cost-evaluation process has supported, on occasion, worthless programs from well-run organizations. By trying to spend as little overhead as possible, many programs have failed to reach their goal. On the other hand, investing in fundraising efforts or paying up considerable compensation to talented minds who can produce outstanding results have been discarded in the non-profit sector as unacceptable practices. On the results side, “most donors have a vague idea of the social impact their money produces. The focus on giving has to shift to how relevant and how impactful each program is,” Ocampo shares. New trends in the philanthropic world sustain that metrics considered to evaluate programs – and consequently, giving policies – should include, as in the private sector, a return on investment (ROI) value. In this case, the so-called social return on investment (SROI), a framework for understanding, measuring and managing outcomes that monetizes results so they can be added up and compared with the investment made. The Worldfund’s executive director has studiously followed the subject
PHOTO: COURTESY OF UPS
BY SUSANA G. BAUMANN
FOUNDATIONS S O C I A L C A U S E O R G A N I Z AT I O N S
PHOTOS: JOSÉ DAVID SÁNCHEZ-CORRAL; ANGELICA OCAMPO: PABLO VELAZQUEZ
IAPE Teachers’ Collaborative Mexico participant Cristina Malacara in action during her elementary English class in Aguascalientes.
and has encouraged her organization to look into these new practices. For instance, Worldfund contracted Aseguramiento de la Calidad en la Educación y en el Trabajo (Acet) – a Mexican consulting firm – to conduct independent evaluations of their Inter-American Partnership for Education (Iape) program since its inception. Iape, a Clinton Global Initiative, trains and supports a network of English-language teachers working in underserved Mexican public schools. Moreover, together with the Inter-American Development Bank (IDB), Worldfund conducted a randomized control trial (RCT) evaluation of the Iape intensive English program in 2011. The goal was to measure the impact of Iape training on students’ and teachers’ English skills. Preliminary assessments are already showing outstanding results and will be published this year. “This new approach gives organizations an opportunity to show that not only we believe in what we do, but also it provides ways to prove it,” Ocampo says. Some organizations are reluctant to apply these procedures because they are afraid to lose their funding. However, and especially after the 2008 economic crisis, donors are more careful about the way they distribute their contributions. “Funders are looking for more, and better, information to understand how their giving is making an impact in the world,” says Katherina M. Rosqueta, founding executive director at the Center for High Impact Philanthropy, School of Social Policy and Practice at the University of Pennsylvania. “The use of technology and other evaluation tools are helping the world of philanthropy make smarter and quicker decisions while measuring and managing progress.” She knows it well, as she was called to launch the center in 2006. “A group of individual donors – most Wharton alumni – were frustrated because they could not get good and independent information to make decisions in their philanthropic efforts,” Rosqueta explains. “On the other hand, folks at the School of Social Policy and Practice had extensive information about the nature of major social issues, but little or less information about what worked and what didn’t.” At the center, Rosqueta and her team have developed free tools, strategies and resources based on academic research, sharing experiences of others, capturing opinions of beneficiaries – those receiving the programs’
Angélica Ocampo, executive director of Worldfund
benefits – and focusing on policies and procedures to help foundations start on the high impact path. “Donors should understand that metrics are just proxies, not a goal. The more quantitative and qualitative information they gather, the wiser the decisions they make. For instance, in an educational program, test evaluation scores are just one side of the equation. Talking with children in the program and their families about the way their futures are improving adds a social and emotional perspective that increases donors’ confidence,” Rosqueta says. Among foundations trying this approach, the Edna McConnell Clark Foundation (Emcf ), which began testing these waters in 1999. Between 2001 and 2012, they invested large amounts of upfront money to help their grantees build their capacity to scale up programs that had proven effective. They have recently published the Results and Lessons from the First 10 Years report. Likewise, The William and Flora Hewlett Foundation has engaged an outside evaluator to assess the technical assistance provided to grantees as part of its Community Leadership Project.
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FOUNDATIONS S O C I A L C A U S E O R G A N I Z AT I O N S
Katherina M. Rosqueta, founding executive director at the Center for High Impact Philanthropy, School of Social Policy and Practice at the University of Pennsylvania
In its Logistics of Caring, 2012 Social Impact Report, the UPS Foundation states that it donated more than $39.5 million globally, including $9.5 million through local grants in 43 countries. “We seek to fund organizations that operate within one of the four funding areas in which we concentrate our social investments: community safety, diversity, environmental sustainability, and volunteerism,” says Lisa Lynn, UPS director of corporate relations. Each year, the foundation sends out an invitation-only RFP to solicit funding requests. Both quantitative and qualitative data is requested in order to assist foundation officers in the decision-making procedure. “Potential grantees are evaluated on the alignment of the program, impact reports they submit, and strategic value to UPS. In the past few years, we have started to gather more data on the impact of the programs we fund to ensure we are directing our dollars appropriately,” she says. At a local level, the involvement is even greater. In order for an organization to receive funding, a UPS employee must have contributed a minimum of 50 hours of volunteer service to it. “UPSers log an annual average of 1.8 million volunteer hours each year with community-based organizations. A cross-functional committee of employees at the local level reviews the employee requests to direct funding and decides where the dollars will be allocated to balance local funding across geography and investment areas,” Lynn explains.
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In Latin America, where donors’ confidence has been bruised by political unrest and corruption practices, organizations called “calificadoras sociales” (social qualifiers) are making headway. They help donors match their contributions with high social impact grantees by previously qualifying non-governmental organizations (NGOs) working in the region. Filantrofilia, the first calificadora social in Latin America, was launched in 2009 by five Mexican entrepreneurs out of the necessity to find reliable information on organizations with real social impact. “We wanted to contribute to society, but there was very little public information available concerning NGOs in the region as there is in the U.S. or in Europe,” says Edgar Herrera Arizmendi, Filantrofilia’s executive director. “We wanted to create a new concept in this field and also, help the social sector.” In addition to researching grantees for performance, Filantrofilia has created new strategies to qualify them, which help donors make significant decisions. “Not only we measure the organization’s social impact in several ways including, for instance, talking to program beneficiaries, but we also visit every NGO in the region, anywhere they are located,” he emphasizes. “Now grantees are seeking our qualification in order to improve their funding.” Their program #DonaConConfianza (Donate with trust) has attracted large foundations such as Nacional Monte de Piedad – one of the oldest and most traditional Mexican non-profit institutions – and Fundación Telmex – established by Carlos Slim in 1995 – among others. Promotora Social in México and Filantropía Transformadora in Colombia are also creating sustainable opportunities through venture philanthropy, an emerging practice that provides financial and nonfinancial support to organizations on performance-based development finances and professional services to expand their social impact. Young entrepreneurs such as Mark Zuckerberg and other “millennials” are taking an active role in philanthropy. Aided by technology, they are relying on social impact measurement strategies to make their pledges. However, social-cause organizations and NGOs believe there is a greater potential to be unleashed in corporate giving and venture philanthropy. In a world where the need of many calls for the action of all, the most fortunate must be involved in the conversation. Activist and fundraiser Dan Pallotta sustains that “many non-profits are rewarded for how little they spend — not for what they get done … Let’s start rewarding charities for their big goals and big accomplishments … and change the way we think about charity … Now we are talking about changing the world.” Susana G. Baumann reported from New York.
PHOTO: COURTESY OF THE CENTER FOR HIGH IMPACT PHILANTHROPY
Rosqueta and her team have developed free tools, strategies and resources based on academic research, sharing experiences of others, capturing opinions of beneficiaries and focusing on policies and procedures to help foundations start on the high impact path.
ECONOMIC GROWTH G U YA N A
AFTER THE GOLD RUSH Guyana’s economy shows impressive growth, but now must cope with lower export prices and a weak economic structure.
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he Co-operative Republic of Guyana, whose economy struggled under the heavy hand of socialist-style governments for decades after achieving independence from the United Kingdom in 1966, has posted strong economic growth over the last five years, and is now among the leaders in regional economic performance. Buoyed by gold and rice exports and an expansion in construction and other sectors, Guyana is achieving growth that could be the envy of most other countries in Latin America and the Caribbean. Guyana’s real GDP growth reached an estimated 4.8 percent in 2013, far outstripping the Caribbean average of 2.2 percent, according to the International Monetary Fund (IMF), and placing second after Panamá in Latin America. The Economic Commission for Latin America and the Caribbean (Eclac) projected 4.6 percent GDP growth for this year, while the IMF, in October 2013, estimated 5.8. Guyana’s economic strength is due to several factors. The main drivers, exports of gold and rice, enjoyed strong international prices over the last several years. “The mining sectors in Guyana, like those in México, Colombia and now Perú, have benefitted enormously from the ‘gold rush’ brought on by the 2008 global economic crisis,” said Ken Roberts, president and CEO of World City, a Miami-based firm that analyzes trade between the U.S., Latin America and the Caribbean. “Investors wanted bullion under their pillows. Now, the gold rush is winding down as investors and the financial sector have become more secure with the global economy, and particularly with the U.S. economy, the price of gold, and the need to mine gold at whatever cost, is tapering off.” Production of gold in Guyana reached an estimated 500,000 ounces last year. The Inter-American Development Bank (IDB) said that Guyana’s economy “remained resilient amid anemic external conditions,” but the bank warned that the decline in export prices for gold and rice, plus poor performance in the sugar industry, will impact the economy this year. “Further downside risks may stem from lagging investments in productive infrastructure, especially roads, ports and electricity …as the economy’s competitiveness and capacity to diversify are stymied by high energy costs, limited electrical generation capacity and poor quality of electricity service,” the IDB said in its Caribbean Region Quarterly Bulletin of January 2014.
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In contrast, there seems to be sustained investment in areas like construction. “There is a lot of vibrancy in the Guyanese economy. Just by casual observation, one can see that there is a lot of construction that is taking place in the country. I’d like to say that whenever I go to Guyana, I can almost see the country changing in front of my eyes,” the Caribbean Development Bank’s president, William W. Smith, told reporters during the bank’s annual press conference in February. The nation benefitted from a high level of remittances sent by Guyanese living mostly in the U.S. and Canada. In 2013, remittances were estimated at $498 million (close to 15 percent of GDP), up from $469 million in 2012. The country has also built a somewhat stronger fiscal base. Ruled by democratically-elected governments since 1992, recent governments instituted economic reforms, such as a value-added tax, and tried to keep its foreign debt under control. “Guyana is a good example of a country that has done some of the right things, and at the same time has also benefitted from good fortune. They have come a very long distance in terms of their fiscal situation,” Smith said. Nevertheless, according to the IMF, the nation will still have to work on its public finances. It will post a government structural balance deficit equivalent to 6.2 percent of its potential GDP, one of the largest in the region. Guyana has to solve other problems. One of them is inflation, which climbed to an estimated 5.3 percent in 2013 from 3.5 percent in 2012. It must also encourage economic diversification in order to remain competitive as it depends too heavily on mining, agricultural and fishing exports. Corruption is yet another challenge. The nation ranked 136 out of 175 countries on the 2013 Transparency International ranking released in December. Hence the future for this nation of over 795,000 looks auspicious, but there is nothing assured. The IMF estimates that GDP growth will level off at 3.4 percent around 2017, a rate similar to most Latin American countries. Guyana has to make the choice to really turn good fortune into lasting development, or to sink into the murky waters of mediocre economic performance in a couple of years. Joseph A. Mann Jr. reported from Miami.
PHOTO: © ISTOCKPHOTO.COM/ PROMESAARTSTUDIO
BY JOSEPH A. MANN, JR.
TELECOMMUNICATIONS
Bogotá Telecommunications Enterprise (ETB) president, Saul Kattan Cohen (L) and Movistar CEO, Ariel Ponton (R), talk during the auction of the radio spectrum licenses to operate mobiles of fourth generation (4G) technologies in Bogotá.
THE PERFECT SCENARIO With the arrival of 4G services, the creation of a nationwide fiber optics network and the entry of new technology competitors, Colombia’s telecommunications industry appears to have everything in its favor for consolidating this year.
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olombia is living through a small telecommunications revolution, thanks to the establishment of national policies aimed at broadening the coverage of broadband connectivity services throughout the entire country and the generation of more investment by all companies in the sector. This industry looks like one of the main engines of growth this year. Through its Ministry of Information Technology and Communications (ITC), the government has created an ambitious integrated plan called “Live Digitally,” which aims to bring in new infrastructure, create local digital services and change public policies to stimulate consumption of technological goods. One of the main hopes is that the culmination of the National Fiber Optics Project, with an investment of almost $670 million, will deliver broadband connections to all of the country’s 1,103 population centers. “Our goal of having 700 municipalities connected has already been exceeded. This year, we will achieve total coverage using ground- and satellite-based microwave technologies in remote regions such as Amazonia and the Pacific,” said ITC Minister Diego Molano. Added to this is the auction of frequencies for fourth generation mobile networks (4G) that were awarded last year to five operators, who will start offering services in the first quarter of 2014. In addition to generating $375 million for the state, which is to be earmarked for the development of social programs, the arrival of 4G is driving investment in renewal of technology by all the winning operators. Telefónica Colombia alone has invested more than $340 million.
For Jaime Alberto Peláez, president of Level 3 Colombia, the arrival of 4G networks will represent a new paradigm in the way the Internet is used in the country. “4G represents a shift of all the benefits that fixed broadband had for mobiles, and this will generate greater efficiency and productivity,” he said. For now, the government has guaranteed that resources will continue to flow into this transformation during the year. “2013 was a record year for investments by the TIC ministry, with amounts of more than $470 million,” said Alberto Yohai, president of the Colombian Chamber of Information Technology and Telecommunications (CCIT). “About $500 million has already been approved for 2014.” This money will also help to create content and local applications that contribute to ensuring that more organizations will use the new tools offered on the Internet to raise their efficiency – for example cloud computing. At present, 60 percent of small and medium-sized companies in Colombia have Internet access. In summary, analysts expect that more new competitors will continue to enter the local market in 2014, especially companies in software development and cloud services, which are taking advantage of these new conditions of connectivity. “Together, with the consolidation of the new fixed and mobile networks with state resources plus the arrival of new competitors, we are definitely in a perfect storm in the technology and communications sector – in the best sense of the word,” concluded Yohai. Alejandro González reported from Bogotá.
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PHOTO: ©ISTOCKPHOTO.COM/ ROHANCHAK
BY ALEJANDRO GONZÁLEZ
TECHTRENDS
THE
E-COMMERCE
EXPLOSION
Online retailers and old-fashioned storefronts turn to easy-to-use o-us -u platforms, mobile apps and cross-border trade to compete for swelling e-commerce sales.
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or many consumers, spotting a shoe they want in a magazine, on a billboard or somebody’s feet can be exciting. But each step to buying a pair, from driving to the store to finding parking and the right size in stock, and then waiting to pay, can be a drag. Enter Netshoes, an online sporting goods store. The São Paulo-based company launched a shoe-finding app in 2013 that enables users to snap a photo of shoes on a smartphone. The app locates the exact shoes and allows the user to buy a pair for shipping home with just one click. This is the latest technology to hit Latin America as online retailers compete in a swelling e-commerce market against oldfashioned local and foreign retailers. Adding new apps and beefing up technology “helps to generate acquisition traffic and more reengagement,” said Nico Berman, a partner at Kaszek Ventures, a venture capital firm with stakes in e-commerce sites in Latin America including Netshoes, comparison-shopping engine
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ComparaOnline and food ordering service PedidosYa. “When you see that the service is better and has better applications, you go back.” This is reason enough for merchants to invest in e-commerce technology. Online sales are growing robustly as broadband connections spread, the middle class grows and more customers opt for easier shopping, lower prices and wider product selection than can be crammed into a shop. Forrester Research estimates that online retail revenues in Argentina, Brazil and México – the three largest markets in the region – will more than double from almost $20 billion in 2013 to $47 billion in 2018. Competition is growing as steadily. Online retailers like MercadoLibre took the plunge first in the late 1990s. But the pace picked up in the late 2000s with the entry of traditional retailers, helping to bolster consumer confidence in shopping online. The fastest growth has been in Brazil, where leading retailers like
ILLUSTRATION: ©ISTOCKPHOTO.COM/ OTO.COM/ RYCCIO
BY CHARLES NEWBERY
TECHTRENDS
Lojas Americanas have become fixtures. “Brazil’s traditional retailers realized early on that e-commerce was going to be a significant opportunity,” said Zia Wigder of Forrester Research. They rolled out platforms and gained market share even as global players held out of Latin America – or pulled out. French retailer Carrefour closed its online operations after a brief effort in Brazil. U.S.-based Amazon so far only sells e-books and apps in much of the region. Others like the U.S. companies Staples and Wal-Mart are making a splash. “We see an enormous opportunity in Latin America,” said Juan Carlos García, vice president of e-commerce for Wal-Mart in México and Central America.
CROSS-BORDER SALES Fernández said merchants also are turning to e-commerce and online payment methods to sell outside their domestic market via eBay and other marketplaces. Brazil may be big enough for companies to sustain growth, but the rest of the countries “lack scale to justify the investments in state-of-the art platform,” he said. “Success will depend on having a multi-country platform.” The opportunity is vast. Estimates suggest that the global cross-border market will reach $100 billion in 2015, or three-times larger than the domestic Latin American market, said Fernández.
HELPING MERCHANTS TOOLS FOR BOOSTING SALES A number of trends are emerging for turning this opportunity into revenue. Retailers are designing easy-to-use shopping platforms and mobile commerce apps and offering reliable delivery to enhance customer shopping comfort, confidence and loyalty. Retailers even show videos of models wearing an outfit. “Many tools can be created to make it easier for clients to shop and to increase shopping frequency,” said Gonzalo Santander, director of retail, e-commerce and merchandising in Argentina and Brazil for office supply retailer Staples. These tools include offering plentiful product information and displaying merchandise at checkout. Staples allows customers to store shopping lists on the site for easier refills. The efforts have helped boost the online percentage of total sales in Argentina to 85 percent in 2013 from seven percent in 2005 even with new store openings. “We expect to triple our e-commerce sales in 2014,” Santander said. Wal-Mart is taking similar steps in México. It assembled 60 programmers to work on improvements to its platform, beefed up customer service, built a 216,000-square feet distribution center and rolled out exclusive online offers for imported bedding, patio furniture, toys and other items.
MOBILE COMMERCE The latest push is to tap a fast-expanding platform of mobile devices. A year after launching its first mobile e-commerce app, mobile sales now account for 40 percent of total e-commerce sales for Wal-Mart in México, García said. Next comes game consoles and TVs. “Consumers are all the time more connected, and if they connect to videogames, we want to be there as well,” García said. Many of these advances come from employing the best practices of global leaders. These run from in-store returns, allowing customers to filter products by different attributes, making it easy to quickly navigate to discounted items, offering multiple product images and a magnifying glass function for close-up views. “Consumers want to save money, save time and find a broader inventory,” said José Fernández da Ponte, head of PayPal South America (except Brazil). “The best payment technology is the one that is invisible.” In 2013, PayPal introduced its Beacon service at a Suplicy Cafés Especiais coffee shop in São Paulo. The Bluetooth low-energy device connects to a customer’s PayPal app when they enter a store and checks them in. Have a coffee, say you’re paying by PayPal and the transaction is automatically completed with a receipt sent by email.
In Brazil, Buscapé is taking steps to lure merchants to list more products and services on its comparison-shopping service, for which it takes a commission on referrals and sales. The company, controlled by Naspers, South Africa’s largest media group, traditionally took a commission on customer clicks to compare services. Now it offers merchants the option to pay a larger fee based only on completed sales. “With this model, the merchant can display their entire portfolio of products, not just a few products,” said Pedro Guasti, Buscapé’s vice president of marketing intelligence. The company also allows merchants to target ads and emails to customers based on their searches on Buscapé. This has boosted sales by 10 percent for merchants in terms of per-customer spending, Guasti said.
CHALLENGES There are challenges for e-commerce growth. Credit card use and broadband connections remain limited, mobile data plans can be expensive, especially in Brazil, and mobile network speeds can be too slow for transactions. And, some market-building practices are cutting profit potential. Online retailers in Brazil, for example, launched with a policy of free overnight and two-day shipping to metropolitan areas. “That’s tough to sustain long-term if your goal is profitability. A lot of companies are losing money,” said Forrester’s Wigder. “But nobody wants to be the retailer that breaks away from the offering.” Indeed, Brazilian catalog sales companies Hermès filed for bankruptcy protection in November 2013 on excessive spending and poor revenue from its e-commerce site Compra Fácil. Another challenge is getting products to customers in a region of slow and unreliable postal services. “They are finding solutions,” said Hana Ben-Shabat, a partner at A.T. Kearney, a management consulting firm. These range from store pickups to creating pick-up points closer to the customer, she said. Companies are willing to satisfy customers because of the huge expansion and profit potential of e-commerce. Instead of opening costly new storefronts, a retailer can invest a smaller sum in marketing to lure clients to an e-commerce site with more sales potential. “You can reach much more population online,” she said. So too can competitors, even international companies like U.S. department store chain Macy’s, which is increasingly shipping abroad, including to Latin America, she said. “Online competition will heat up.” Charles Newbery reported from Buenos Aires.
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TRENDS
MONEY IN “BIG DATA”
Companies in the region are slowly realizing that Big Data technology can help them anticipate the market and make more timely strategic decisions.
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very time you use an automatic teller machine, comment on a Facebook picture, make a call from your cell phone or review traffic conditions on your car’s GPS, you are also creating a record of this activity, which is stored in databases that might be located in any part of the globe. A report from IBM states that the planet produces about 2.5 quintillion bytes every day from electronic devices, the Internet and digital networks. To give you an idea, Facebook is storing more than 50 billion photos, and Wal-Mart has a database of its transactions of more than 2.5 Petabytes (a Petabyte is equal to a million Gigabytes). Now, imagine that you could take all this data that’s sloshing around the planet and combine them with those of your company in real time, to obtain a precise analysis of the market, to make strategic decisions and predict the future based on true, real and timely information. That’s the big promise of Big Data and its analytics. Thanks to its analytic technologies, Etihad Airways can predict mechanical damage on its aircraft and anticipate the needed repairs. The city of Lyon improved vehicular traffic by identifying points of congestion and the precise times it happens. The Weather Channel places advertising tied to the day’s weather in each city on its website (for example, a special shampoo for cities where it’s raining). Latin America has barely scratched the surface of Big Data’s potential. “During the last 10 years, we have seen major efforts on the part of our companies to automate their business processes, with which they have gained the ability to become more efficient and capture huge quantities of information,” said Roberto Arteta, Oracle’s director of market development for business analytics. “The next step is to incorporate analytic capabilities to obtain competitive advantages and move to new levels of excellence in their management processes.”
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In Colombia, for example, the use of Big Data together with advanced analytics has enabled Colpatria Bank to cut response times for client loan requests from 24 hours to one hour, improve its portfolio by giving priority to the best prospects, optimize collections management and improve its ability to accompany clients throughout their life cycle with the bank. Other companies incorporating Big Data into their processes in the region are HSBC in Argentina, Banco de Crédito in Perú, Banorte and El Palacio de Hierro in México, Cervecería Polar in Venezuela and Grupo Ramo in Colombia. Each of them has prepared a customized solution for its own needs, while using common platforms that take advantage of their structured data and the unstructured data coming from independent databases and the Internet. Even so, the Big Data technology and analysis of this information still have challenges to establish themselves in the region. First, its creators must make sure that the same businessmen who recognize its benefits decide to implement it in their daily operations. According to a survey by EMC in Brazil, 93 percent of the companies think they could improve their businesses by using Big Data analytics; however, 43 percent of them still don’t have plans to implement these solutions. According to Juan Carlos Puentes, manager of SAS Colombia, the region is at a stage of evangelization, where the potential of these technologies is known, and companies have started to prepare to adopt them. “In many cases, they first have the task of verifying the quality of their own information and their databases. Only then can they adopt advanced analytic solutions,” he said. Big Data and its analytic tools are about to become one of the big applied technology trends of businesses, to the extent that the organizations understand its potential and organize their own information. Alejandro González reported from Bogotá.
PHOTO: ©ISTOCKPHOTO.COM/ ROHANCHAK
BY ALEJANDRO GONZÁLEZ
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CFO SERIES MÉXICO
THE STRATEGIST Rafael Contreras Grosskelwing of Grupo Comercial Chedraui won Latin Trade’s CFO of the Year 2014. BY DAVID BUCHANAN
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afael Contreras Grosskelwing was chosen for his “passion for future business, CFO track record and accomplishments,” said Ramón Leal Chapa, the Alfa CFO and last year’s winner, who presented him with the award. Latin Trade spoke with Contreras Grosskelwing to find out some of the secrets behind his success, and what the current challenges and Mexican economic outlook hold for the company.
SECRETS TO SUCCESS “During my time as CFO for Grupo Comercial Chedraui, I have led the firm’s acquisition of Carrefour, a move which led to 40 percent growth in sales and introduced us into the México City market. In 2010, I led the company’s initial public offering in the Mexican stock market, which further boosted our growth opportunities,” Contreras Grosskelwing said. “We saw an opportunity to grow more quickly, and the market was in a situation where a company like ours, in the retail sector,
Our projections are that with the growth the U.S. is already showing, sales in our stores there will improve, while in México, the growth in GDP that will come from the U.S. recovery will also lead to an acceleration in consumption. was going to be well received,” he said, referring to the 2010 public offering. Chedraui is now present in 25 of México’s 31 states.
CHALLENGES AND OPPORTUNITIES The retail sector in México is changing, and some of the players, such as Comer-
WHAT THE FUTURE HOLDS Chedraui plans to continue growing in México, albeit at a slower pace than previous years. “We had to slow down our growth rate due to a slower capital flow, but there are certainly growth opportunities.” Amidst a growing interest by the U.S., Canada and México to bolster ties, Contreras Grosskelwing believes there are many opportunities “particularly with Canada, which would help the Mexican economy to be less dependent on the United States. I think Canada could see important growth and if we can do more business with that country, it would have a positive effect for the Mexican economy.” David Buchanan reported from México City.
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PHOTOS: ALEJANDRA GUTIÉRREZ
Rafael Contreras Grosskelwing, Director of Finance and Administration, Grupo Comercial Chedraui, 2014 CFO of the Year – México; Mark Ludwig, Contributing Editor, CFO Events, Latin Trade Group
cial Mexicana, want to get out. “I think the challenge is to be able to take advantage of the space that will be left by the companies that are for sale, or are thinking about it,” Contreras Grosskelwing said. By taking those opportunities, Chedraui will be able to expand into the remaining six states and become a nationwide supermarket. “But the challenge not only lies in the purchase of those chains, but in carrying it out successfully.” In the U.S., the winter freeze and a slowdown in sectors with a large Latin American workforce, such as construction, have had an effect on consumers in the company’s operations in the Southern states. In addition, the same circumstances have led to lower remittances to some states, which could affect consumption in México. “But these effects are temporary. Our projections are that with the growth the U.S. is already showing, sales in our stores there will improve, while in México, the growth in GDP that will come from the U.S. recovery will also lead to an acceleration in consumption. In addition, the measures the government will put in place to boost the economy, such as infrastructure and spending, consumption in México will improve most likely in the third quarter this year, and have a positive effect on our sales.”
CFO SERIES MÉXICO
Ramón Leal Chapa, CFO, Alfa; Rafael Contreras Grosskelwing, Director of Finance and Administration, Grupo Comercial Chedraui, 2014 CFO of the Year Award – México; Mark Ludwig, Contributing Editor, CFO Events, Latin Trade Group
CFO Advisory Board members: Víctor Bravo Martín, CFO, Empresas ICA, Latin Trade 2012 CFO of the Year – México; Mayela Rincón de Velasco, CFO, Bio-Pappel; Philippe Schrader, President, CHPS International LLC, Latin Trade 2011 CFO of the Year – Multinational
GROWTH IN SIGHT
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éxico has reached center-stage in the global economy, thanks to a radical series of reforms enacted by President Enrique Peña Nieto. But, the reforms are not without their challenges. These challenges, and the opportunities they present, were studied at Latin Trade’s CFO event at México City’s Four Seasons Hotel on February 18. Attending the event were CFOs, finance directors, credit and country controllers and top executives from 32 top Mexican and
PHOTOS: ALEJANDRA GUTIÉRREZ
Rocío Ruiz Chávez, Undersecretary of Competitiveness and Business Regulation, Secretariat of Economy of México
international companies. Guests exchanged experiences and ideas in two interactive workshops, foreign exchange management, and mergers and acquisitions. The event was also the stage for Latin Trade Group’s CFO of the Year award, won by Grupo Comercial Chedraui’s Rafael Contreras Grosskelwing. Carlos Capistrán, director and chief México economist at Bank of America Merrill Lynch Global Research, and guest speaker Rocío Ruiz
Andrew Michael Barker, CFO&COO, Interlingua; Juan Gómez, Vice President of Finance, SAP Latin America; Alfredo Padilla, Vice President, Treasury Sales, GTS Sales México – Corporate, Bank of America Merrill Lynch
Chávez, undersecretary of competitiveness and business regulation at the Mexican Ministry of Economy presented México’s economic outlook. An increase in taxes and remittances and a drop in consumption of Mexican goods in the U.S. due to the winter freeze have driven consumer confidence to record lows. There is growth in sight. The Mexican peso is the least depreciated in Latin America, reserves have reached historic highs, the energy reform is set to lure foreign investment, and the U.S. is showing recovery signs.
Carlos Capistrán, Director – Chief México Economist, Bank of America Merrill Lynch
Edgardo de la Rosa, Finance Director, Grupo Cargill de México & Cargill-Sofom; Alfonso Taboada, Finance Director, Brose Puebla, S.A. de C.V.; Victor Tapia, Finance Director, ACE Fianzas Monterrey; Sebastian Rzezak, Treasury Director, Bunge, México
Enrique Bretón, Treasury Director, Poly Rafia S.A. de C.V.; Mario Janssen, CFO, BMW Group Financial
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LUXURY A U TO M O B I L E S
Autos that satisfy demanding Latin American customers. BY DAVID HASKEL
PHOTO: © ISTOCKPHOTO.COM/ IMAMEMBER
FINE WHEELS
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ALFA ROMEO GIULIETTA
AUDI A8
BMW 740I
The 2.0 JTDM 150 HP engine has the best fuel-consumption-to-performance ratio for engines between 130 and 150 HP. It has LED headlights with daytime lights that turn on automatically. The rear lights offer more intensity, and thus better safety, than traditional lights, thanks to the extremely short turn-on times. It has five Euro NCAP stars, the highest standing in terms of safety. It has a voiceoperated Unconnect radio and navigator.
This is one of the innovation leaders in the luxury class. It comes with a programmable eight-speed Tiptronic gearbox, which makes it fast and smooth. The front seats can be fitted with heating and massaging capabilities. The rear seats can be adjusted individually. The new A8 has blind spot detectors on the sides and an MMI control element in the central console, which includes a touchpad where the driver can trace letters to search for stored information. This feature makes it easier to control the numerous navigation and multimedia functions, and reduces distractions for the driver.
The latest sedan has LED lights, the most luxurious cabin with optimized noise levels and a very wide range of optional equipment, such as transit sign detection, cameras to tell the driver the speed limits, lateral cameras installed at front-wheel level that show on a screen the sides of the car when it enters a narrow side-street or when there is poor visibility, and an infrared camera for night vision.
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PHOTOS: COURTESY OF BOLDRIDE.COM
he presidents of major companies with a presence in Latin America are particular about their means of transport. Many prefer cars of European origin to Asian ones, or even to those assembled in the United States. In addition to design, what is truly important to them is the innovation and technological development they find onboard. Here’s a look at some of the most coveted cars that make CEOs’ wish list.
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LUXURY A U TO M O B I L E S
2014 Mercedes-Benz S-Class
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JAGUAR XF
MERCEDES BENZ S-CLASS
PORSCHE PANAMERA
This car has a series of devices to help minimize fuel consumption and emissions. It has an automatic 8-speed transmission, and a 3.0 cc engine. It also features an automatic Stop/Start system or a TSS start-up system which helps start the motor faster and more efficiently. The headlights adapt the beam to the direction of the steering wheel, and change automatically between highand low-beam.
The shapes of the new S-Class series combine distinction and style with sporty elegance. The S-Class equips each rear seat with a small folding table and heated cup-holders. The vehicle uses a network of four interconnected cameras and offers realistic omnidirectional vision for parking and maneuvering. It’s possible to get a bird’s-eye view of the car and its surroundings on the display of online commands, so the driver can also detect obstacles located below the window line.
The most powerful model, the Turbo S, has 551 HP, although there are more modest models such as the 250 HP diesel. The front seats are electric with 14 adjustments, and the buyer can choose a memory package for more comfort. This package takes into account the extension of the seat surface, back support and electrical steering wheel adjustment. The individual seats have 4.7 inches of extra space in the footrest area, and it features active ventilation. David Haskel reported from Buenos Aires.
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PHOTO: COURTESY OF BOLDRIDE.COM
he level of customization also plays an important role in the selection of a car. Finishing, interior design, gadgets and multiple electronic devices make a difference. These aren’t vehicles for all budgets, but with their connectivity, security and sophistication, there are definitely people who pay for them.