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April 18, 2016
With some exceptions such as Colombia and Mexico, recent news stories flowing out of Latin America have not necessarily put the region’s economy in a positive light. The surprisingly successful World Cup in Brazil whilst dazzling spectators on the pitch was hiding and against a backdrop of civil unrest and strikes. In a similarly difficult situation to Brazil, their neighbours Argentina were forced to default on their debts for the second time in just thirteen years. These high-profile stories are painting a less than rosy picture of the economic status of Latin America. It can be argued that they are in fact clouding the true scale and positive transformation that is taking place along with investment opportunities now available in the region.
At the start of the financial crisis in Europe, economists were looking at Argentina as a prime example of being in default and coming out the other side stronger. However, many economists will now be searching for other examples with Argentina being plunged back into default for the second time in just over a decade. Already in a recession, Argentina was looking for ways to repair its economy after the catastrophic 2001 crash. Whilst it was able to attract finances from the international capital market, it was dealt a major blow to both its reputation and survival when it fell into a technical default as a result of a dispute with some holdout creditors. Argentina has been engaged in a long legal battle with hedge funds led by Elliott Management and Aurelius, which refused to take part in the country’s debt restructuring with about 92% of the country’s creditors agreeing to swap debts and accept less money. The other 8% holdout funds later sued the Argentine government for full payment. With the United States Judge Thomas Griesa ruling in favour of the so-called ‘Vulture Funds’, Argentina was blocked from paying the holders of its restructured debt until it paid the hedge funds. The country subsequently and less dramatically than back in 2001, fell into technical default at the end of July 2014.
As the economies of Brazil and Argentina stumble along, other countries are seizing the opportunity to attract foreign investment with Colombia taking centre stage with Medellin being a prime example of the incredible transformation taking place. There is an overall air of confidence growing with investors in Latin America’s consumer market. For example, the recent merger between Millicon-owned telecommunications company Tigo and publicly-owned provider UNE in will create a business with an impressive U$D2bn in revenue and provide a service to over 8 million customers. Medellin has taken most of the headlines having turned over a new leaf from its infamous drug and lawless days. Being awarded the ‘World’s Most Innovative City’ in 2013 by the Wall Street Journal and implementing the wider trend of privatisation whilst expanding investment opportunities has been a complete success. During the first quarter of this year, Colombia’s GDP grew by an impressive 6.4% and the World Bank predicts that Colombia’s economy will grow by 4.6% in 2014/2015 which is in stark contrast with the stagnant economies of Brazil and Argentina, the region’s superpowers.
Exports from the UK to Latin America continue to grow at a fast pace as newer markets are no longer being restricted by their larger regional neighbours. Former UK Foreign Secretary William Hague said in 2013, ‘my message to British business is simple: go and take advantage of what the region has to offer; invest, compete and make yourselves part of Latin America’s rise’. This strong message has now pushed the UK into becoming the fourth largest investor in Colombia. This rise in investment by the UK in Colombia has a lot to do with the Colombian government’s ability to successfully implement economic policies whilst bringing security to the population.
The middle-class of Latin America has long been expanding and the continued rapid economic growth has sustained its development. Today, almost a third of families living in Latin America are considered to be middle-class and this rise has had the subsequent knock on effect of an increase in demand for higher quality consumer goods and services. As countries in Latin America begin to move their economies away from commodities, there has been an impetus on growing the service sector in the region. This rise can be seen when studying the telecommunications and media sector in Latin America which is set to continue to grow at a rate of nearly three times the global average. Boosted by these new middle-class customers, there has been a growth in investment in private enterprises that has improved the quality of services they are now receiving. Special emphasis is being placed on the telecommunications industry in these developing Latin American countries as it is an essential piece in the infrastructure transition jigsaw that will enable economies of Latin America to maintain their impressive growth rates.
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