Latin American and Argentina Development: opportunities and challenges 2008 Presentation For the University of North Florida Professors R. Feeney and M. Rossi Austral University, Argentina Some facts about Latin America 44 countries 550 million people live in this region (50% more than the US, 8% of world population) It produces 7% of the world GDP (one third of the US) Its territory is 21 million square kms (double than de US) Major world provider of soja, copper, sugar, beef, etc. and many other raw materials 25 uninterrupted years of democratic regimes in most of the countries Evolution of World GDP per Capita 1950-2003) (PPP) Evolution of the world GDP per Capita (PPP) 1950-2003 30000 US, Can, NZ, Au 25000 Western Europe GDP per Capita 20000 15000 10000 World LA 5000 Africa 0 1950 1973 1998 2003 Years Latin America Africa Western Europe US, Canada, Au, NZ Asia World World Capita GDP by Region In 1990 US International dollars (Maddison, 2006) 1950 1973 1998 2003 Growth 1950 to 2003 Latin America 2504 4513 5 837 5786 131% 1.59% Africa 890 1 410 1444 1549 74% 1.05% Western Europe 4578 11 417 18 137 19,912 334% 2.81% US, Canada, Au, NZ 9268 16 179 25 767 28 039 202% 2.11% 717 1719 3547 4434 518% 3.49% 2113 4091 5729 6516 208% 2.14% Region/ Year Asia World Annual Growth GDP Per Capita Annual % Growth Rate (Maddison, 2006 and 2007) 1913–50 1950–73 1973–98 1999-2003 Latin America 1.43 2.52 0.99 0 United States 1.61 2.45 1.99 1.6 Japan 0.89 8.05 2.34 0.5 Western Europe 0.76 4.08 1.78 3.7 Africa 1.02 2.07 0.01 1.4 World 0.91 2.93 1.33 2.6 GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007) 1950-73 1973-80 1980-90 1990-99 1980-99 1999-2003 Argentina 2.06 0.48 -2.33 3.38 0.33 -0.22 Brazil 3.73 4.26 - 0.54 1.07 0.47 0.06 Chile 1.26 1.72 1.10 4.47 2.68 1.86 Mexico 3.17 3.80 -0.31 1.16 0.38 0.06 Total Latin America 2.52 2.57 -0.68 1.36 0.28 0 Latin American Nations Ranked by Gross Domestic Product (GDP- (PPP)) in 2006 Millions of International Dollars, CIA World Rank Nation GDP (PPP) in millions US dollar 10 Brazil 1,838,000 12 Mexico 1,353,000 22 Argentina 621,100 29 Colombia 378,808 44 Chile 212,733 52 Venezuela 193,331 48 Peru 185,110 70 Ecuador 64,779 90 Uruguay 37,885 96 Paraguay 31,014 102 Bolivia 27,892 GDP per capita (PPP) 2005, CIA Rank in world Country GDP per capita 50 Argentina 14,109 56 Chile 12,983 60 Mexico 10,600 65 Uruguay 10,028 68 Brazil $9,108 81 Colombia 7,565 96 Venezuela 6,186 97 Peru 5,983 99 Ecuador 5,816 107 Paraguay 4,555 125 Bolivia 2,817 Inflation Annual average compound (Maddison, 2006, p. 153, 1999-2007 author’s estimate) 1950-73 1973-94 1994-98 1999-2007 Argentina 26.8 258.4 1.3 7.7 Brazil 28.4 268.5 19.4 7.1 Chile 48.1 71.8 6.7 3.77 Mexico 5.6 37.6 26.4 7.38 Average main Latin America countries 27.2 159.1 13.5 6.48 Poverty Line (lowest to highest) Source: CIA World Factbook[5 Year of estimate Country Population below poverty line (%) 2005 Chile 18.2 2006 Argentina 26.9 2006 Uruguay 27.37 2005 Brazil 31 2005 Paraguay 32 2005 Venezuela 37.9 2006 Ecuador 38.5 2006 Mexico 38.6 2005 Colombia 49.2 2004 Peru 53.1 2004 Bolivia 64 Unemployment Rate (lowest to highest) Source: CIA World Factbook Rank in world Country Unemployment rate (%) 80 Peru 7.20 89 Bolivia 7.80 90 Chile 7.80 100 Argentina 8.70 103 Venezuela 8.90 108 Paraguay 9.40 110 Brazil 9.60 120 Ecuador 10.60 122 Uruguay 10.80 124 Colombia 11.10 A key Variable: the Socio-Economic Conditions in Latin America Bo liv i a 30 Ha i ti 60 Pe ru Gu ate ma la Pa na ma Ch i le Pa rag ua y Br az il Co l om bia ara gu a Ec ua do r Ve ne zu e la Ur ug ua y Me x ic o C os Do ta mi Ric nic a an Re pu b li El c Sa l va do r Ar ge nt i na Ho nd u ra s Nic Income Eqaulity Index equality[12] Gini index IncomeIncome Inequality in Latin America 70 Latin America 50 40 USA 20 10 0 Central Questions about Latin America Why Latin America has not improved more rapidly after all? Why being rich in natural resources yet it is relative poor? The relationship of the US with Latin America Is Latin America ready for change, especially for regional free trade (FTAA)? Is the business environment the same across Latin America? Business Realities in Latin America the hard way… Significant differences by country and by region More than economics, institutional capacity is critical ..and accountability and transparency ..and also, the Rule of Law National cultures vs Corporate cultures Is NAFTA-Mexico a good example?…well North American Free Trade Agreement –2006 Results 2006 Total Value $868 billion Increase in the last 5 years by 32% Trade with Canada equals $533 billion, increase by 15% Trade with Mexico equals $335 billion increase by 60% Trade with Canada and Mexico accounts for almost 45% of the total U.S. trade U.S. corporations seeking to export to EU through Mexico 2005 Security and prosperity agenda (logistics, logistics, and logistics) Data: U.S. Dept. of Commerce and U.S. Trade Authority Office Brazil and Mercosur, or how Americas trade is difficult Brazil control on trade in South America strong internal fiscal control (conservative members of cabinet) strong control of currency volatility strong attraction of foreign direct investment strong opposition to U.S. subsidies strong opposition to free trade USA style Production of ethanol Argentina Basic Briefing Population 2008: 41,000,000 Capital (population): Buenos Aires (12,000,000) Life expectancy at birth: 76.32, Male: 72.6 Female: 80.24 Total surface 2,766,891 km² Where we come from? Rosario: The Center of the Agribusiness Production Area in Argentina Rosario a precios constantes de 1993 Argentina’s GDP 1993-2007 Argentina GDP 1993-2007in millions of pesos de 1993 serie desestacionalizada in constant prices of 1993 pesos Hundred of millions Hundred of mil onesofde $ pesos 370.0 350.0 330.0 310.0 290.0 270.0 250.0 trimestre III-07 I-07 I-06 2005 III-06 III-05 I-05 2000 2002 2004 III-04 I-04 III-03 I-03 III-02 I-02 III-01 I-01 III-00 I-00 III-99 I-99 1998 III-98 I-98 I-97 III-97 1995 III-96 I-96 III-95 I-95 III-94 I-93 III-93 210.0 1993 I-94 230.0 2007 Year Argentina GDP 1993-2007 Argentina’s GDP 1993-2007 in constant prices of 1993 pesos Thousand of Millions of Pesos Constant 1993 Pesos Unseasonal series 350.0 Arg Vice-Pres resigns X/2000 2004-2007 Recovery 330.0 Devaluation of the Real I/99 310.0 290.0 1989-1990 Hyperinflation III/2001 Finance Secretaries (2) Resign External Credit CutVII/01 270.0 250.0 230.0 210.0 I-93 II-93 III-93 IVI-94 II-94 III-94 IVI-95 II-95 III-95 IVI-96 II-96 III-96 IVI-97 II-97 III-97 IVI-98 II-98 III-98 IVI-99 II-99 III-99 IVI-00 II-00 III-00 IVI-01 II-01 III-01 IVI-02 II-02 III-02 IVI-03 II-03 III-03 IVI-04 II-04 III-04 IVI-05 II-05 III-05 IVI-06 II-06 III-06 XII/01 Financial Bolt 1993 1995 1998 2000 2002 2004 2006 By now (2007) Argentina’s per capita GDP is higher than the pre-crisis level The Horror Story: Inflation in Argentina (INDEC) Year Total Acumulative Inflation Index 19702005 Inflation Index 5 Years Accumulative 1970 1 1 1975 20 20 1980 2 830 142 4 139 214 1462 7 320 092 666 1768 1995 17 872 101 933 529 2441 2000 179 465 027 176 1004 2005 27 361 668 003 207 152 1985prices: 2005 27 thousand billions times 1970 1990 Inflation in Argentina (INDEC) Year Annual Inflation 1996 0.2 1997 0.5 1998 0.9 1999 -1.2 2000 -0.9 2001 -1.1 2002 2 5.9 2003 13.4 2004 4.4 2005 9.6 2006 10.9 2007 8.5 Pegged currency Recession Devaluation Recovery with increasing inflation pressure Balance of Non-Financial Public Sector, in Argentina 1995 - 2006 From Deficit to Suplus Balance of Non-Financial Public Sector, in Argentina 1995 - 2006 Argentina´s Central Bank International Reserves assets (Dec 1991- Dec 2006) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 31/12/1991 31/12/1995 31/12/1999 30/06/2002 30/06/2003 30/06/2004 30/06/2005 31/06/2006 Argentina’s Central Bank Reserves 2003-2007 International Reserves of the Argentine Central Bank in American Dollars 2003-2007 50 000 million U$ dollars 50000 45000 40000 Reserve 35000 30000 25000 20000 15000 10.000 mill 10000 US dollars 5000 Years International Reserves of the Argentine Central Bank in American Dollars 03/11/2007 2007 03/09/2007 03/07/2007 03/05/2007 03/03/2007 03/01/2007 03/11/2006 2006 03/09/2006 03/07/2006 03/05/2006 03/03/2006 03/01/2006 03/11/2005 2005 03/09/2005 03/07/2005 03/05/2005 03/03/2005 03/01/2005 03/11/2004 2004 03/09/2004 03/07/2004 03/05/2004 03/03/2004 03/01/2004 03/11/2003 2003 03/09/2003 03/07/2003 03/05/2003 03/03/2003 03/01/2003 0 Argentina’s Total Foreign Debt Millions USD Argentina's Total External Debt 107 Billion USD= 55% /ARG GDP 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dic-04 Dic-05 International Commerce Argentina´s Unemployement Rate Infrastructure and Investment: Public and Private Investment 1993-2006 in millions of 1993 pesos Inestment in Argentina 1993-2006 80000 70000 60000 50000 40000 30000 20000 10000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 Public Investment Private Investment TOTAL 2002 2003 2004 2005 2006 Infrastructure and Investment: Public and Private Investment 1993-2006 in millions of 1993 pesos Industrial activity Industry was growing year by year, after the 2001 crisis Currency The last years were characterized by a relative high peso-dollar real exchange rate Exports Exports are mostly based on commodities with low value added Complejos oleaginosos Complejos petrolero petroquímicos Complejo automotriz 10% 19% 21% Internal environment Domestic demand feels strong and sustained Threats After many years of sustained demand, the industry is close to full capacity Energy demand is climbing to a maximum, without enough investment to expand the offer Threats Domestic energy prices were kept artificially low (electricity, natural gas, gasoline, etc.) creating an adverse scenario for private investment in those areas Inflation: growing fast, being not recognized by official indexes Emerging Markets Emerging markets grew aggressively in 2007 Emerging Markets Merval index vs. DJI Since Argentine domestic markets are mostly driven by food commodities’ prices, there is a good perspective for sustain Summary of Argentina’s Macro Situation + Strong short term growth Good Fiscal performance Positive foreign trade exchange Foreign debt reduction Higher employment ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ Still a risky country Potential Inflationary risk Strongly dependent on commodity prices Poverty: 30% of the population has serious problems Weak capital and financial system Low competitiveness in many industries Weak Infrastructure Low foreign Investment Business Environment Since Argentine domestic markets are mostly driven by food commodities’ prices, there is a good perspective for sustained consumption, at least for the next 5 years If a global recession occurs, Argentina should not have problems due to: Historical high level of reserves The Banking sector is totally recovered from the 2001 crisis The sovereign debt was restructured Next short-term challenges for companies in Argentina Inflation pressures: both internal and external Labor costs: unions do not follow official indexes Energy costs: will tend to reach international prices In such an environment, companies should be more competitive improving productivity and value added Brazil Basic Briefing Population 2005: 175,468,575 Capital (population): Brasilia (1,600,000) Life expectancy at birth: male 58.96 years, female 67.73 years (2001 est.) Physicians per 1000 people: 1.47 Rural/urban population ratio: 21/79 GDP per capita: U $9,100 Brazil Economic development based in central economy Foreign investment 1998-1999 first country in the world 2004-2005 third place after Mexico and China Crisis of Confidence Crash of Stocks 3% increase in base rate since October 14 Leading MERCOSUR Chile Basic Briefing Population 2005: 16,598,074 Capital (population): Santiago de Chile City (6,000,000 metropolitan) Life expectancy at birth: 76.96 male 73.69 years, female 80.40 years (2001 est.) Total surface: 756,950 km² Chile’s Economic Miracle (chart in terms of GDP per capita) Chile’s per capita GDP Average LA GDP per cap GDP in constant value Evolution of in Chile' GDP 1973-1998 Evolution of Chile’s GDP 25s Year (in US constant dollars 200000 Chile multiplied its GDP by 3 in 25 years 150000 100000 50000 0 1973 1990 Year 1998 Competitivity and Innovation in Latinamerican countries Source: World Economic Forum 2005 Competitivity Ranking and Technological Innovation Latinamerican countries 2005 Competitivity Technological Innovation Chile 23 35 Uruguay 54 63 Mexico 55 57 El Salvador 56 70 Colombia 57 74 Costa Rica 64 56 Brasil 65 50 Peru 68 75 Argentina 72 59 Country Mexico Basic Briefing Population 2005: 105,879,171 Capital (population): Mexico City (18,000,000) Life expectancy at birth: male 69.73 years, female 74.93 years (2001 est.) Physicians per 1000 people: 1.73/1,000 Rural/urban population ratio: 26/74 GDP per capita: $10,600 (2005) Mexico Economic Development based in open economy since1988 GATT Open Economy, export oriented and Foreign investment NAFTA Interdependence, Rules of Origin and National Content Free Trade Agreements (14) European Union, Central America, Chile, Israel, Japan, S. Korea, and Australia. What is the future Latin American economic scenario? a. b. c. d. e. Speed of second generation reforms From internal producing and consuming market to an international, regional and global economy US is a regional leader in the marketplace and that is not going to change Rule of law, accountability and transparency Paradox of social inequality (human capital investments) Working force development requires to add International Education and Skills (+) Working Knowledge in: Language skills – functional level Culture at the exchange level Political, economic, and social systems. National cultures Corporate cultures abroad