1. February 19, 2014
THE 2014 LATIN AMERICAN BUSINESS
ENVIRONMENTS:
BRAZIL AND CHILE
Purdue CIBER
Terry L. McCoy
University of Florida
tlmccoy@latam.ufl.edu

2. Presentation
Current Environment for Business and Investment in Latin America
•Snapshot of 2013 environment
•Outlook for 2014
•Differentiating Countries: Brazil and Chile
Evolution of the Latin American Business Environment at Krannert
•2009: Coping with the Global Financial Crisis
•2010: Robust Recovery
•2011: The New Latin America?
•2012: Growing Uncertainties
•2013: Mild Recovery, Long-term Challenges
2014: Consolidation of Post Recovery Environment
•Continuity for most countries
•But important outliers

3. Components of the
Latin American Business Environment
Global
Economic
------------Financial
Domestic Environment
Political
Regional
Social
Policy
--------------Legal

5. Regional Profile: Moderating Growth

6. With Moderate Inflation

7. And Slower Export Growth

8. In Softer External Environment with
Weaker Commodity Prices

9. And Slowing Capital Flows

10. With Growing External Debt

11. And Weakening Fiscal Accounts

12. Are Rising Standards of Living Theatened?
Economic
Reform
Sustained Growth

13. Outlook for 2014:
Cautiously Optimistic but . . .
External Environment
•Increased global growth (3.2% from 2.4%) led by rich countries
•Tailwind: Stronger trade (but subdued commodity prices)
•Headwind: Volatile capital flows (“Emerging Markets Rout”)
•Shifting regional blocs (Pacific Alliance vs. Mercosur)
Domestic Environment
•Economic: Modest uptick in growth and inflation
•Social: Increasing mobilization and protests from civil society
•Political: Elections unlikely to produce significant re-alignment
•Policy: Reducing inflation and growing external and fiscal imbalances
while stimulating growth
Significant Country Differences

14. Attractive Environments (9)
Defining Features
Sustained growth with
moderate inflation
Diversified export base
Growing middle class
Centrist democratic politics
with power sharing
Social market policy
consensus and continuity
Protection of property rights
Transparency, accountability
Strong credit ratings and FDI
Countries
▼Brazil*
▲Mexico*
=Chile*
=Peru*
=Panama*
?Colombia*
=Uruguay*
?Costa Rica
=Dominican Republic
*Investment grade rating

15. Problematic Environments (4)
Defining Features
The Populist ALBA bloc
Power concentrated in reelected presidents
Interventionist states
Weak legal environment and
high rates of corruption
Energy export dependence
Growth with moderate inflation
Significant poverty reduction
High risk countries with
growing dependence on China
Countries
▼Venezuela
------------------------------------=Ecuador
=Bolivia
---------------------------=Nicaragua

16. Mixed Environments (5)
Defining Features
Slowing growth with high inflation
Rich commodity base
Strong middle class
Increasing state control of economy
and serious macroeconomic
imbalances
--------------------------------------------Slow growth
Weak terms of trade
Heavy US dependence
Widespread poverty
Drug-related violence
--------------------------------------------Poor but growing
Countries
▼Argentina
------------------------------------=Guatemala
=El Salvador
=Honduras
------------------------------------▲Paraguay

17. Brazil and Chile:
Important Latin American Markets

18. Economic Environments
Brazil
Chile
GDP ($bn/11)
2, 310
GDP Growth (Av.%/04-12) 3.9
GDP Growth (%/13/14)
2.5/2.5
Inflation (%/13)
6.5↑
Exports ($bn/12)
282.4↓
Current Account ($bn/12) -54.2↑
Net FDI ($bn/12)
68.1↑
External Debt ($bn/12)
312.9↑
Debt/GDP (%)
11.8↓
Fiscal Balance (%GDP/12) -2.0↓
FX/US$ (13)
-6.9
Stock Market (%/13)
-15.9
300
4.6
4.4/4.5
0.9↓
90.9↓
-9.5↑
9.2↑
117.8↑
31.0↓
0.6↓
-5.4
-15.9

19. Natural Resource Economies
Brazilian Soy Beans
Chilean Copper

20. Social Environments
Brazil
Population (m)
Pop. Growth Rate (%)
Illiteracy (%)
Per capita GDP ($ppp)
HDI Rank (of 186)
Poverty (%/11)
Inequality (Gini)
Unemployment (%/12)
Homicide Rate (/100,000)
Chile
200.0
0.8
9.7
11,909↑
85
20.9↓
54.7↓
5.5
21
17.6
0.8
1.4
22,352↑
40
11.0↓
52.1↓
6.4
3

21. Modern Cities
Sao Paulo
Santiago

22. Political Environments:
Dictatorships to Consolidated Democracies
Dilma Rousseff
Michele Bachelet

23. Institutional Environments
Brazil
Rule of Law (%)
51.7
Corruption Rank (of 159) 69
Econ. Freedom Rank (186)100
Property Rights Rank (%) 50
Start a Business (days)
119
Country Risk Rating (13) BBB
Global Competitiveness
Rank (of 142)
56
Chile
88.2
20
7
90
8
A
34

24. Conclusions
Brazil and Chile are important markets
•Chile is fundamentally stronger (less risk) but Brazil is bigger (greater
upside)
•Companies need employees who know these counties and know how
operate with, and in, them
Acquiring competency to business degree
•Become familiar with the country
•Learn Spanish and/or Portuguese and the local culture
•Do a study abroad or internship in Chile or Brazil
•Research firms (profit and non-profit) with business in the country
•Build a network of contacts (beginning here at Krannert)
Take the first step – Study Tour Brazil or Chile

25. And have fun!
Ipanema
Chilean Vineyard