Magazine article Business Credit

Latin America 2000

Magazine article Business Credit

Latin America 2000

Article excerpt

Latin America is the new competitive arena for global expansion, supplanting Asia as the top market for U.S. companies focused on foreign investment and export opportunities. According to the United Nations Conference on Trade and Development, foreign direct investment in Latin America and the Caribbean jumped 32 percent in 1999, to $97 billion, compared with $84 billion in direct investment in Asia--the first time since 1986 that investments in Latin America have exceeded investments in Asia. The rush of U.S. investment in Latin America reflects a growing confidence among U.S. companies that Latin America is a legitimate market with real prospects for financial returns that surpass what's available in the United States.

Although Asian economies are expected to rebound this year, Latin America is likely to maintain its lead position as the preferred destination for U.S. companies expanding in the developing world. But European companies are increasingly challenging U.S. dominance in the region. European companies pulled ahead of U.S. firms in total direct investments in Latin America for the first time ever in 1999. Of the 25 largest foreign companies in Latin America, 14 are now European companies; 11 are American.Although U.S. companies are moving into a broader range of industries in Latin America, with new investments spreading beyond traditional infrastructure sectors to the food, banking, tourism and retail industries, European competitors are moving into these new sectors just as quickly.

U.S. companies investing in or exporting to Latin America have a distinct advantage over their European counterparts, however, in their ability to draw financing from both international financial institutions and U.S. government agencies for large and small projects representing virtually all industries. The World Bank and the Overseas Private Investment Corporation are two such resources, respectively speaking. As Latin America pulls out of the slump set off by the Asian crisis, new business opportunities will abound, and U.S. companies working through government agencies stand to gain from the spectacular growth rates forecast for the region.

Recovery in 2OOO-2OO1

According to the World Bank's latest economic forecast, the adverse impact of the Asian crisis in Latin America was not as large as some experts predicted. Falling world export prices and volumes, however, threw some Latin countries into recession. Regional GDP growth slowed from 5.4 percent in 1997 to 2.1 percent in 1998. By the end of 1998,Argentina, Brazil, Chile, Colombia, Ecuador, Peru and Venezuela all slipped into recession. Brazil's January 1999 devaluation, tighter U.S. monetary policy and political instability in several Latin countries helped spread the downturn throughout the region in 1999, with GDP falling in nine countries, compared with only four countries in 1998.The overall regional decline in GDP growth in 1999 is estimated at -0.6 percent. Nevertheless, with both commodity prices and trade volume rising, the World Bank predicts regional GDP growth of 2.7 percent for this year, accelerating to 3.5 percent in 2001.

Longer-term growth prospects for Latin America are favorable as the painful periods of reforms and massive privatizations bear fruit and foreign direct investment accelerates. Despite unfavorable international economic conditions, for the past decade most Latin American nations have maintained growth rates that are double or triple the growth rates for the mature economies of the United States and Western Europe. Chile, which has benefitted from stable economic policies, tops the chart with average annual growth of 7.9 percent from 1990-1998, followed by Argentina at 5.3 percent. Most Latin nations averaged annual growth rates of 4 percent or better from 1990-1998.

Although U.S. direct investment in Latin America rose last year, such activity declined in Colombia and Venezuela where ongoing political instability and uncertainty about government policies dampened investors' enthusiasm. …

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