Investing in Latin America

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Latin America is made up completely by developing and emerging markets. The country leading the region's growth is Brazil. About half the countries in the region are classified as lower middle income countries (for example: Peru, Bolivia, Colombia, Panama) and the other half is classified as upper middle income countries (for example: Brazil, Mexico, Argentina, Chile). The largest countries in Latin America are Brazil, Mexico, Argentina, Venezuela, Colombia, and Chile. These economies are driven largely by commodity production like oil, silver, and corn, but growth in services like telecommunications also has a major impact on their economies. Since all of the countries are developing and emerging markets, construction of infrastructure and expanding banking services are characteristic of many of the nations. This is particularly true of Brazil as it is home to the largest steel producer in Latin America as well as the four largest banks.

The nature of most large Latin American companies is to provide basic materials. In the 2007-2008 period, with the dollar depreciating, companies have seen their profit margins affected positively due to increased prices (after exchange).[1]

Exchange Traded Funds

Overview

Nominal GDP of Top Countries

Brazil, Mexico and Argentina top the list in terms of total GDP. However, Argentina has the fastest growth rate of the three (and overall).

Country GDP (nominal, $M) World Rank GDP Growth
Brazil1,314,000105.10%
Mexico886,400152.90%
Argentina245,600328.70%
Venezuela250,900348.40%
Colombia171,700386.50%
Chile160,800425.20%
Peru101,500557.50%
Ecuador44,500691.80%
Guatemala31,350765.60%
Costa Rica22,840856.10%

Exports of Top Countries

Mexico, Brazil, and Venezuela top the list in terms of total exports. Venezuela has a much higher export compared to the others due to its heavy reliance on oil exports.

Country Exports ($M) World Rank
Mexico248,80015
Brazil137,50022
Venezuela69,23036
Chile58,21041
Argentina46,60047
Colombia24,86058
Peru22,69063
Ecuador12,56071
Panama8,08781
Costa Rica7,93182

Labor Force Breakdown of Top Countries

The following chart breaks down the labor force according to the sector.

Country Agriculture Industrial Services Total Population
Brazil20%14%66%187,399,000
Mexico18%24%58%106,682,000
Colombia22%19%59%44,482,751
Argentina40,301,927
Peru9%18%73%28,750,770
Venezuela13%23%64%27,953,701
Chile14%23%63%16,763,470

According to the World Bank, Latin America is supposed to grow 3% next year. This will require somewhere between 350 and 400BB to finance the growth with multilateral lines of credit providing only 10% of this amount. [2]



Industrial

Latin America is home to some of the largest mining companies in the world. The region is rich in silver, copper, iron ore, and to a lesser extent, zinc and lead. Rising commodity prices, most notably in silver, have created a lot of wealth in these countries and the mining companies. In addition, steel production is in high demand with the growing infrastructure of the developing nations, in particular Brazil.

Silver Production[3]
Country Silver Production (M oz) World Rank
Peru 112.3 1
Mexico 99.2 2
Chile 62 4
Bolivia 16.9 11
Argentina 8.5 13



Major Companies


Agriculture

Latin America is the world's leading producer of coffee, orange juice, sugar, and soybeans. Brazil is the top producer in every one of those categories. Latin America is also a major producer of corn and fruit, such as bananas. Argentina is one of the more agriculturally driven countries in Latin America with about 55% of exports coming from agriculture.[4]

Corn Production[5]
Country Corn Production (M metric tons) World Rank
Brazil 41.7 3
Mexico 19.5 4
Argentina 15.8 5



Oilseed Yield[6]
Country Oilseed Yield (Metric Tons per Hectare) World Rank
Brazil 2.33 4
Argentina 2.27 5
Bolivia 2.06 7
Paraguay 2.01 9



  • Oilseed includes soybeans, sesame, sunflower, cottonseed and other seeds that provide a source of oil.


Major Companies

Energy

Mexico and Venezuela are both top ten world oil producers and new discoveries in Brazil could launch it in the top ten as well. Venezuela is the most dependent on its oil production - oil accounts for about a third of GDP and over 80% of exports.[7] Brazil, on the other hand, gets over 90% of its energy from hydroelectric power, and its large soybean production also leads to a large production of ethanol. Argentina gets about 80% of its electricity production from natural gas and hydroelectric power.[8] Colombia has the largest coal reserves in Latin America.[9]

Top Oil Producers[10]
Country Oil Production (bbl/d) World Rank
Mexico 3,420,000 6
Venezuela 3,081,000 9
Brazil 1,590,000 17
Argentina 745,000 24
Colombia 512,400 28



Top Natural Gas Reserves[11]
Country Natural Gas Reserves (cubic feet) World Rank
Mexico 969,200M 18
Bolivia 727,200M 21
Peru 245,100M 28
Brazil 221,700M 29
Colombia 132,000M 33



Major Companies

Banking

As the economies in the these developing countries start to gain wealth and expand, the banks receive more and more demand. Building the infrastructure increases the number of loans demanded and the growing middle classes are putting more money into the banks. This is best exemplified in Brazil as the country has the four largest banks in Latin America due to its large and rapidly expanding economy.


Major Companies

Telecommunications

Latin America has a mobile phone penetration of 66% as of early 2008 with about 375 million people owning phones in Latin America and the Caribbean.[12] Penetration in the rest of the world averages around 46%. Latin America is also ahead of the curve in 3G services. Brazil, Chile, Argentina, and Uruguay all have 3G networks offered by their telecom companies.[13] Brazil is the 5th largest mobile phone market in the world.[14]


Major Companies

Transportation

The largest transportation companies in Latin America are primarily made up of regional airlines. Much of the fleets consist of mid distance planes such as Boeing 737's and short distance planes like prop planes. Countries like Panama and El Salvador serve as major hubs between the US and South America and, as a result, are home to some of the larger regional airlines.


Major Companies

Political Environment

Almost every country in Latin America has a democratic form of government at this point, but that does not mean every country has political stability or is without corruption. Venezuela is run by a socialist party which gets about half its revenues from Venezuela's oil sales. Other countries like Mexico and Brazil have sub par corruption levels, but the general political environments are relatively stable. Political stability helps create confidence in the country in the eyes of foreign investors - Brazil received $37B in foreign direct investment in 2007.

Corruption

Most Corrupt Countries[15]
Country Corruption (Scale of 1-10) World Rank
Paraguay 2.1 148
Venezuela 2.3 132
Guatemala 2.5 126
Ecuador 2.5 122
Bolivia 2.5 120



Least Corrupt Countries[16]
Country Corruption (Scale of 1-10) World Rank
Chile 7.3 22
Uruguay 5.9 33
Costa Rica 4.2 51
El Salvador 4.2 54
Colombia 4 56



References

  1. http://www.ambito.com/noticia.asp?id=496095
  2. http://www.ambito.com/noticia.asp?id=496095
  3. Silverinstitute.org, Silver Supply
  4. Wikipedia:Economy of Argentina
  5. Grains.org, Corn Production
  6. Agriculture, Oilseed Yield, 2004
  7. Wikipedia:Economy of Venezuela
  8. Wikipedia:Economy of Argentina
  9. Wikipedia:Economy of Colombia
  10. Nationmaster.com, Energy, Oil Production, June 2007
  11. Nationmaster.com, Energy, Natural Gas Reserves, July 2005
  12. Budde.com: Latin America, Mobile Market, 2008
  13. Budde.com: Latin America, Mobile Market, 2008
  14. Bharatbookresearch.wordpress.com: Latin American Mobile Communications and Data Markets in 2007
  15. Nationmaster.com, Government, Corruption, July 2005
  16. Nationmaster.com, Government, Corruption, July 2005
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