Calderón and Lula Talk Economic, Energy Ties

Mexican President Felipe Calderón visited Brazilian leader President Luiz Inácio Lula da Silva this week to talk trade. Feeling economic heat from the financial troubles in the United States, Mexico plans to “diversify and intensify relationships” with other countries, said Calderón. Latin America’s most populous countries make up 70 per cent of the region’s GDP yet trade between them stands at $7.4 billion—a figure that Calderón described as “peanuts.” In addition to hopes for stepped-up trade ties, the leaders expressed an interest in developing a strategic alliance between state-owned oil firms Pemex and Petrobras. The Mexican president also traveled to Colombia and Uruguay with a similar goal of deepening trade ties.
BRASILIA -- A leading reason for President Felipe Calderon's 3-nation trip through South America is to look for new markets for Mexican goods.

"Our fundamental dependency on the United States economy explains why Mexico was so badly affected in this global crisis and our intention is now to diversify and intensify relationships," with Brazil.

Calderon also visited Colombia and Uruguay, where he expressed a similar intent.

The president showed particular interest in Brazil, where he met with President Luiz Inacio Lula de Melo, who touted the Mexican's visit as "a new era" of bilateral relations between Brazil and Mexico.

At a press conference on Monday, Calderon said that "after this visit I am more than convinced that we, Brazil and Mexico, must build a great and powerful alliance which contributes to the well being of both nations and Latin America."

The president stressed that "it is inconceivable" that two nations which boast 300 million inhabitants between them have a mere $7.4 billion in trade.

"This is peanuts," Calderon said.

Calderon also pointed out that trade is the equivalent of one percent of their individual gross domestic product.

"Let us exploit our market potential," Calderon told Lula de Melo.

The Brazilian President was in complete agreement and said that he had little more than a year left to serve as president of his country, but that it was more than enough time to build a new era in bilateral relationships.

Both presidents discussed doing oil business through state-owned companies Petrobras and Pemex.

The two leaders called upon Brazilian and Mexican businessmen to meet more often and get closer to diminish mistrust and pave the path for a possible free-trade agreement.

Calderon was to arrive in Mexico late Monday ending his three-nation tour.Source: Copyright (c) 2009, The News, Mexico City. Distributed by McClatchy-Tribune Information Services.

Chavez and Cristina sign a billion USD trade agreement

Venezuelan President Hugo Chavez received on 11th august Argentine President Cristina Fernandez de Kirchner in Caracas to sign agreements expanding trade between the two countries. Among the deals was an accord to import as many as 10,000 cars from Argentina this year instead of Colombia.
President Chavez and his counterpart C.F. Kirchner. The deal includes 10.000 cars, farm machinery and food products

Chavez said last month he’d “freeze” relations with Colombia over the country’s plan to allow the US military to use its bases and accusations by Colombia that Venezuelan weapons fell into the hands of Colombian guerrillas.

“This bilateral meeting today is aimed at deepening our vital integration” Mrs. Kirchner said today on the steps of the Miraflores presidential palace in Caracas, following a meeting of the two leaders.

Venezuela is Colombia’s second-biggest trading partner, and last year bilateral trade rose to 7 billion US dollars.

Mrs. Kirchner and Chavez signed agreements for Venezuela to import one billion US dollars in agricultural machinery, leather goods and poultry products, Argentine newspaper Clarin reported on its Web site. The deals were signed after more than 70 Argentine businessmen arrived in Caracas Monday to meet with government officials.

Pedro Bergaglio, president of Argentine textile makers association Fundación Pro Tejer told reporters today in Caracas that Venezuela’s state importing agency Suvinca agreed to buy 100 million USD in textiles this year.

In preparation for Tuesday’s meeting, Argentina’s Production Minister Deborah Giorgi met with representatives from carmakers, including Renault Argentina unit, Ford Motor Co., Daimler AG’s Mercedes, Toyota Motor Corp. and Fiat Spa, according to a statement from the ministry.

Mrs. Kirchner also anticipated that among the bilateral agreements is “a rice export deal, the biggest ever in Argentina’s history”.

Mexican president proposes free trade agreement with Brazil

Mexico’s President Felipe Calderon has said he will propose a free trade agreement with Brazil. “Trade enriches economies,“ said Mr Calderon during a meeting with business leaders in Sao Paulo.
Calderon is on the last leg of three country visit to South America

Calderon began on Saturday a three day visit to Brazil, when he will meet President Lula da Silva and visit oil firm Petrobras.

"I offer to put the idea [of a trade agreement] out there before different industries, and political and social groups," said Mr Calderon.

Brazil and Mexico are Latin America's largest economies. The two nations are responsible for around 70% of all economic activity in the region. However

Mexico's economy has been hard hit by the recession and more recently by swine flu. The US slowdown has meant less money is being sent home by migrant workers, and Mexican exports have fallen.

Mexico sends 80% of its exports to the US, so has been particularly exposed to the US fall in consumer spending.

President Calderon also called for Mexico’s state-run oil monopoly Petroleos Mexicanos to form a “close collaboration” with Brazil’s Petroleo Brasileiro SA in all areas, including operations.

With such a partnership, Pemex, as the company is known, could turn falling oil production around and could expand production, Calderon said in an e-mail copy of a speech.

“It’s in the interest of the Mexican government to strengthen the mechanisms for scientific, technological, academic and operational cooperation between Petrobras and Petroleos Mexicanos” Calderon said.

Two years earlier, at the beginning of his six-year administration, Calderon had discussed more cooperation with Petrobras when he lobbied Mexicans and the Congress to pass an energy reform bill to help Pemex tap deep-water crude deposits.

Calderon’s energy reform plan, which called for more private investment in the oil industry, was rejected and ended up mostly as a tax cut to Pemex and a board with independent members.

Pemex’s oil production dropped to 2.63 million barrels a day in the first six months this year from 3.38 million barrels per day on average in 2004.

Perspectives: BRAZIL, CHILE, COLOMBIA, PERU, ARGENTINA, MEXICO, VENEZUELA, ECUADOR

Brazil, Chile, Colombia and Peru are top recommendations. Neutral on Argentina, Mexico and Venezuela and underweight on Ecuador.

TOP PICKS: Presidents Luiz Inácio Lula da Silva and Alan Garcia in Brazil in April. (Photo: Ricardo Stuckert/Brazilian President's Office)

BRAZIL

Brazil’s history is a continuum of commodity booms and busts, from sugar to rubber, and coffee to iron ore, Brazil always benefited from its vast mineral and agricultural wealth. The gold boom of the 16th and 17th century was one of the most prosperous times for the country, transforming the small town of Vila Rica in Minas Gerais into one of the richest cities on the planet. The town was subsequently renamed Ouro Preto, which means Black Gold. Today, Brazil is reliving another Black Gold boom as it develops its deep water oil fields.

The Ministry of Mines and Energy recently announced that international companies will be allowed to bid for the pre-salt offshore oil fields as early as next year. However, the process may be delayed since the congress needs to pass new legislation to enable the regulatory framework. The recent rise in oil prices sparked renewed interest in the offshore concessions. Brazil has almost doubled its oil production since the start of the decade, reaching 2.6 million of barrels of oil per day from an initial level of 1.4 million barrels of oil per day. This is converting Brazil into one of the biggest energy producers in the western hemisphere.

CHILE

The sudden rise in copper prices brought a much needed respite to the Chilean economy. Chile is clearly suffering the effects of the global downturn. Economic activity contracted 4.6 percent y/y in April, marking the worst downturn since 1999. Fortunately, the decline in economic activity is easing inflationary pressures. Consumer prices rose 3 percent y/y in May. This was below the market’s forecast of 3.5 percent y/y, and well within the target range of 2 percent to 4 percent set by the central bank. The easing of inflationary pressures is allowing the central bank to loosen monetary policy in a bid to jump start the economy.

However, the recession is providing the opposition with the ammunition needed to criticize government policies. Even though Finance Minister Andres Velasco won international praise for his stubborn adherence to fiscal discipline during the copper boom, opposition leader Sebastian Piñera and his economic adviser, Cristian Larroulet, criticized him for not doing enough to help small businesses. Chile clearly needs to take steps to revitalize the economy by introducing reforms to improve labor flexibility, improve education and boost productivity. Hopefully, the uptick in copper prices will provide it with some respite from the international storm.

COLOMBIA

After a sudden change of heart by President Obama on his opposition to the Free Trade Agreement, the White House appears to have cooled on the idea. Government officials indicated that the Administration would try push through the trade pact before the end of the year, but it now looks like it will revisit the issue in 2010. It is not clear whether other legislative priorities, such as addressing the U.S. economic crisis, were more important, or whether pressure from the labor unions forced the U.S. President to acquiesce. Unfortunately, Colombia is accustomed to such sudden stops and starts. Bogota always thought that the free trade pact was imminent, only to be left jilted at the altar.

Interestingly, the devaluation of the U.S. dollar against the Colombian peso is making the trade agreement a moot point. With the dollar quickly approaching the 2000 mark, Colombian exporters are losing their competitiveness. This is particularly true with regards to the manufacturing sector. Colombian textile and apparel producers are extremely price sensitive. Given that the Chinese Yuan is virtually pegged to the dollar, the appreciation of the peso is eroding their maneuverability. The Colombian central bank may need to respond by lowering interest rates in order to avert the peso from gaining too much ground.

PERU

The Peruvian economy showed signs of more deceleration. Peru’s GDP grew only 1.8 percent y/y in the first quarter, the slowest pace in more than 7 years. This was down sharply from the 6.6 percent y/y GDP growth that was posted during the fourth quarter of 2008. Exports were seriously affected by the decline in U.S. demand. Manufacturing dropped 5.1 percent y/y and fishing plunged 20 percent y/y. Peru’s mining sector also contracted during the first quarter, but the recent rise in commodity prices should offset the decline.

Fortunately, Peru’s consumer sector remains strong. Private consumption expanded 3.4 percent y/y. The banking sector is well capitalized, thus providing Peruvian households with the liquidity needed to confront the downturn. Along the same lines, the central bank is easing monetary policy to provide relief to consumers and companies. The effects of the international crisis forced us to revise down Peru’s 2009 GDP forecast to 2.7 percent y/y.

ARGENTINA

With elections only a few weeks away, and the government lagging in the polls, there is a sense that the government will need to change its behavior. The polls show that President Cristina Fernandez de Kirchner will lose her majority in the lower house and erode some of her majority in the senate. In a desperate ploy to boost his wife’s standing, former President Nestor Kirchner threw his hat in the ring. However, the government’s approval rate is hovering near 40 percent, about half of where it was a year ago.

At the same time, the economy is decelerating sharply. Automobile sales dropped 25 percent y/y in May and some economists expect the economy to contract 3 percent y/y in 2009. We still have our forecast at 0 percent growth, but will need to revise it if the data continues to show a deceleration. Moreover, the government looks like it may be forced to trim its aggressive behavior. Argentine asset prices rallied at the beginning at the beginning of June, when the Ministry of the Economy announced that it was making an early payment on the Boden 12s. Given its dwindling resources, the government is realizing it may need to tap into the capital markets to make ends meet. Therefore, it may be time to behave.

MEXICO

Mexico is enduring a barrage of international crises and domestic problems. Given the high level of integration with the United States, the credit crisis is wrecking havoc with the Mexican economy. Not only has it depressed the demand for Mexican exports, it sent remittances lower. Transfers from Mexican workers residing abroad fell 19 percent in April, the largest drop ever. The decline in remittances adversely affected many of the poorer regions, aggravating the social tensions.

To add to the economic woes, the H1N1 virus sharply depressed tourist receipts. It was bad enough that many U.S. and European households were cutting back on their vacation plans, but the swine virus was the coup de grace. The disease is also increasing medical costs, helping to aggravate the budget deficit.

Last of all, the economic downturn is providing further fuel to the narcotic wars that are ranging throughout the country. The decline in economic activity if forcing many people to turn to illegal operations. This is creating a perfect storm that will push the country into the worst recession since 1932.

VENEZUELA

Hugo Chavez is in the midst of a nationalization spree, as oil prices recover. In addition to recent takeovers in the banking and steel sectors, the Venezuelan government approved new legislation to nationalize chemical companies. Moreover, the new legislation indicated that the owners would not be allowed to take their cases to international arbitration. The move is clearly ruffling feathers throughout the region, forcing President Chavez to state that he would not nationalize any Argentine and Brazilian companies. The government’s actions are odd, given that it is also trying to attract foreign investment to help offset the decline in oil production.

In another strange move, the government approved $7 billion in new bond issues and financing. The funds will be used for further acquisitions and the modernization of the electricity sector. The government will plow $22 billion into the sector. The bond issues will be denominated in bolivars and dollars, and it could be another channel for local investors to avert capital controls. The recent rise in oil prices allowed the central bank to shift the devaluation of the bolivar to the back burner. Therefore, many local investors and businesspeople are looking for new ways to shift their capital offshore.

ECUADOR

Ecuador stubbornly continues to march to a different beat, despite being shunned by the international community. President Correa won a second term in office, winning 52 percent of the vote. With a new mandate in hand, the Ecuadorian leader successfully restructured the external debt. The government offered bondholders 35 cents on the dollar. It claims to have gained control of 80 percent of the bonds through the debt exchange and buybacks. Most of the remaining bonds consist of the 2015’s, which the government is still servicing. The rating agencies, led by Fitch, indicated that they would raise the country’s debt rating due to the successful completion of the restructuring operation.

Although Ecuador was able to engineer its debt restructuring, investors are very reticent about the government’s behavior. Capital inflows increased sharply during the second quarter, as international banks slashed credit lines. International reserves dropped 30 percent. This forced Quito to order the banks to repatriate funds in an effort to keep liquidity high.

Brazil Economy: Worst Over?

Is the Brazilian economy past the worst of its recession? Four experts share their predictions.

MORE CREDIT: The recently launched 'My House, My Life' program (Minha Casa, Minha Vida) and the expansion of credit are some of the drivers for Brazilian economic recovery, experts say.

On June 9, Brazil's national statistics agency said the country had officially entered a recession as GDP for the first quarter of 2009 contracted 0.8 percent, following a 3.6 percent decline in the fourth quarter of last year. The first-quarter drop, however, was not as steep as economists had expected. Is Brazil's economy past its worst point? What will drive Brazil's recovery? Which industries will be the first to bounce back?
Paulo Levy, economist at Brazil's Institute of Applied Economic Research (IPEA): The main difference between last year's fourth quarter and this year's first quarter was the behavior of private consumption, which dropped 1.8 percent in the last three months of 2008 and grew 0.7 percent in the first three months of this year. In both quarters, investment plunged, accumulating a 21 percent decline. The impact of the international crisis in Brazil was felt mainly through the trade, credit and confidence channels. In the first case, exports have fallen 20 percent year-to-date through May, but some reaction has already taken place since January, especially regarding commodities exports. The decline in manufactured exports, on the other hand, remains depressed and has had a strong impact on the manufacturing sector, as exemplified by the performance of the auto industry, where, even after the recent recovery, the difference in output levels when compared to last year can be assigned almost entirely to lower exports. The recovery of sales in the domestic market stems from the measures taken to unblock the credit supply. Even though credit concessions remain below their year-ago levels, especially in the corporate sector, in some cases — like consumer loans — it has already increased significantly from the lows seen in the last quarter of 2008. Another factor that might explain consumption's resilience is the so-far relatively mild impact of the crisis in labor markets, with workers' total income still growing close to 6 percent on a year-to-date comparison. Increased government transfers, including the impact of a 12 percent increase in the minimum wage, with strong impact on social security benefits, also played a role in this process of supporting consumption demand. At the same time, confidence is gradually returning in both entrepreneurial and consumer circles. These factors point to a gradual recovery of economic activity in the coming quarters, driven by sustained consumption and, if China returns to its high growth trajectory, also by exports. Given the sharp decline of economic activity in the fourth quarter of 2008, however, it will not be an easy task to avoid negative growth over the year.

Joel Korn, managing partner at Performa Partners in Sao Paulo: Notwithstanding two consecutive quarters of negative economic growth, the performance of Brazil in the period underscores its resilience and strong fundamentals. Unlike in the past, when the country had very high vulnerability to external shocks, Brazil posted a relatively moderate downturn in the past six months, despite the severity of the recession in the United States, other developed countries and worldwide slowdown in the economic activities. The pace of recovery will depend on the intensity of the gradual turnaround of the developed economies, still unclear at this point. Outlook for commodity prices and exports of manufactured and semi-manufactured products is mixed in an environment of slow and uneven growth in foreign markets, with rising unemployment. Nevertheless, largely driven by domestic demand, Brazil is very well positioned to come out of recession and resume moderate economic growth in the second half of this year. Infrastructure projects and construction will help foster economic activities. In addition, industries that benefit from the growing middle class are expected to perform well such as automobile, food processing, personal care, selected retail segments and corporate services. Discipline in current expenditures and sound fiscal stimulus policies are essential components for the sustainability of the economic recovery.

Albert Fishlow, professor emeritus of International and Public Affairs at Columbia University: Brazil was a late entrant into the current world recession, and promises to be an early leaver. Most analysts now believe that the second quarter, almost over, will show some positive growth. Whatever the doubts about the 'green shoots' of global recovery, modestly stimulative monetary and fiscal policy backed by extensive international reserves have enabled Brazil to avoid the larger downturn many had earlier predicted. For the year 2009, the growth rate may be slightly negative because of the speed of the decline in the fourth quarter, but the agenda has now shifted to creating a firm basis for resumption of faster growth. Much lower real interest rates are a positive factor, since reigniting private investment is the heart of the matter. expenditures under Brazil's Growth Acceleration Program (PAC) continue, so public contributions will not fail. Increased exports of manufactured products will help, particularly if economic recovery becomes more generalized. The challenge is not to push excessively, which conflicts with the political reality of a close presidential race in 2010.

Nei Cristofolini, chief representative in the US of Brazilian state-owned bank Caixa Economica Federal: To say for sure that Brazil's economy has past its worst point could be premature, considering that we are talking about a simple comparison between two quarters and a result better (or less bad) than expected. A deeper look at the behavior of the components of GDP like consumer spending, industrial production, investment and so forth, could provide more clues, though not certainties. But it is quite possible that the worst is behind us. What seems to be an important message from this data is that Brazilian resilience to external shocks has improved a lot in recent years. A capitalized financial system, robust domestic demand, reserves and controlled inflation provide support for the measures taken by the Brazilian government to smooth the impact of the world financial crisis and allow an easier recovery. Combining steps in monetary policy and credit, such as the expansion of credit at state-owned banks, reduction of both banking reserves requirements and interest rates, compensatory fiscal measures such as tax exemptions and an increase in public investments have shown to be effective so far. Investments in infrastructure included in the Growth Acceleration Program (PAC), the recently launched 'My House, My Life' program (Minha Casa, Minha Vida, which targets the construction of one million houses) and the expansion of credit including within the private financial sector probably are some of the drivers for Brazilian economic recovery. Therefore, it is reasonable to believe that the industries related to investments in infrastructure and housing sector, including its supply chain, will be among those that will bounce back first.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.

Latin America: Smartphone Outlook

Will smartphones remain on hold in Latin America? Three experts share their views.

BlackBerrys are appearing in businesspeoples' hands throughout the region because they are generally free with an email or data plan, experts say. That contrasts with lack of subsidized offers for other smartphones. (Photo: BlackBerry)

Latin America's smartphone market is still in its infancy, representing only 3 percent of total handset unit sales in 2008, while globally smartphones accounted for 12 percent of sales, Pyramid Research said last month. The firm predicts, however, that the smartphone segment in Latin America will grow from 7 million units sold in 2009 to 48 million in 2014, swelling from 5.4 percent to 30 percent of total handsets sales. Why has Latin America been so slow to adopt smartphones compared to other parts of the world, especially emerging markets with similar demographics and income characteristics? Will it continue to lag behind the rest of the world in 2014, even if smartphones make up 30 percent of the region's handsets? What public policies can spur faster adoption of new communications technologies in Latin America? Should that goal even be on the radar of governments in the region during an economic downturn?

Wally Swain, senior vice president for emerging markets at the Yankee Group in Boston: Latin America may be below average on smartphone penetration, but netbooks and laptops with broadband mobile modems are flying off the shelves. For all the attractions and convenience of a smartphone, they have been expensive, so expensive that laptops and notebooks are available for about the same price. Unless you really need handheld mobile data (for mobile email for example) other devices are better positioned on the price-value curve. A laptop plus a mobile broadband modem can be cheaper than a good smartphone. That being said, smartphone prices are coming down as volumes in the developed world drive the costs of basic components down. The latest iPhone retails for $100. That compares with a mid-scale phone in Latin America. Blackberrys are appearing in businesspeoples' hands throughout the region because they are generally free with an email or data plan. The primary challenge to greater penetration has to do with distribution and the common use of subsidies. Nokia, Samsung, LG, HTC—the list goes on of manufacturers with excellent smartphone offers. But in Latin America these are often only available through retail channels (not through the operators) and without subsidy. Without subsidy and side-by-side with, on the one hand, phones below $100, and on the other hand, notebooks and laptops, they suffer by comparison. Mobile operators have to educate consumers about the benefits of smartphones and wean them off the concept that all mobile phones are under $50.

Calvin Monson, principal of Alhambra Consulting in Chicago: Latin American mobile operators, especially America Movil, have focused on a business model aimed at putting as many telephones in the hands of as many members of society as possible. This has meant that the handsets they have been selling have not so much been high-end smartphones but rather simple inexpensive telephones capable of just voice calls and text messaging. So far, the strategy has proved to be profitable and has resulted in tremendous growth in the number of subscribers and in volumes of calls and messages. How does this work? The business model uses prepaid service (avoiding billing and credit issues) and Calling Party Pays (allowing service to even the lowest income members of society). In other words, if the low income customers don't have the disposable income to pay for the cost of a phone and can't pay to initiate many calls, how can they be profitable to serve? They are profitable because they receive calls that others pay for. Society is better off because they have phones. If they didn't have phones, they couldn't receive calls. Government policies on pricing calls therefore should explicitly recognize those benefits when setting the level of charges. Charges should reflect the direct network costs involved but also the costs of acquiring new customers, since these customers are almost all going to be low income and wouldn't connect otherwise.

Andres Maz, executive director of advanced technology policy at Cisco Systems in Washington: Mobile data services are now growing at triple digits across the region and all indicators suggest that the trend will continue. The deployment of new applications such as mobile banking, which by the way, has a significant impact in helping poverty reduction, also raises the value of connectivity and motivates new consumers to upgrade their subscription packages. However, this trend will only be feasible if more spectrums become available to deploy new networks. Countries that implement the right policies to attract investments in new networks will not only catch up, but will take the lead in the information economy. Putting spectrum to work is the best mechanism governments have to drive the expansion of wireless networks. In the current economic environment, it is even more important that governments move faster to make spectrum bands available, as the deployment of new networks will also generate jobs and investments in the economy. Opening spectrum does not require government investment, just the political will to navigate and sort out the political process. Another policy that does not require government funds and could push service providers to invest in rural areas is to authorize them to establish commercial agreements to share passive infrastructure, such as antennas and buildings. Sharing infrastructure via commercial agreement allows service providers to reduce capital expenditure and operating expenditure, thus making more attractive the deployment in new regions. The World Bank just published a report that takes an in-depth look at how information and communications technology (ICT) impacts economic growth in developing countries. The report is conclusive on its message to governments on the need to foster the adoption of new communications technologies. The report finds that for every 10 percentage-point increase in high-speed Internet connections there is an increase in economic growth of 1.3 percentage points. The report also identifies the mobile platform as the single most powerful way to reach and deliver public and private services to hundreds of millions of people in remote and rural areas across the developing world. Broadband networks and ICT are a critical foundational element for the information economy and countries' ability to compete.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.

Brazil: Serra's Health Card

Health could start to play a greater part in Brazil and Jose Serra is in a strong position to claim that he is the right man to handle it.Sao Paulo governor and presidential hopeful Jose Serra has useful expertise in health issues as a former health minister, the author points out. (Photo: Sao Paulo State Government)

If São Paulo state governor Jose Serra stands for the presidency next year he will find it difficult to attack President Luiz Inacio Lula da Silva's economic record. Brazil's economy has grown under Lula's administration and has avoided the worst fallout from the global economic crisis. Serra – who is well ahead in opinion polls - might be better advised to play up his track record as health minister from 1998-2002 when he led a successful campaign to combat AIDS and slashed the cost of drugs by introducing generics. Health will cast a shadow over this election in another way as Lula´s favorite candidate, Dilma Rousseff, is being treated for cancer and there are still doubts over whether she will stand.

Serra's hands-on approach contrasts with the government's unimpressive handling of the current swine flu outbreak and the recent dengue epidemic. Health is still near the top of Serra's agenda and he is currently involved in a legal battle to ban smoking in public places in São Paulo. Just as he took on the drugs companies, he is now confronting the tobacco, catering and hotel sectors.

CONSTANT ISSUE

Health is a constant issue in Brazilian politics. The state system which is used by the lower income groups is inefficient and in places primitive. The ending of the CPMF “check tax” on financial transactions in 2008 which was supposed to be destined for the health sector was a blow to Lula who claimed it had deprived the sector of R$40 billion. If Lula had been able to persuade taxpayers that the money had actually gone to improving the health service, then he might have succeeded in retaining it ,but he could not.

Health is also a crucial part of the Bolsa-Familia social welfare program for poor families, which receive a modest monthly grant providing they send their children to school and ensure they have regular medical exams.

If people can afford to, they take out private health plans, but these are expensive and most formally employed workers rely on their employers' health plans, which generally form part of the fringe benefits. More people have started to enjoy this benefit in recent years as the economy has expanded and more people have joined the formal payroll. There are now an estimated 40 million beneficiaries of these plans. This movement has benefited practically every segment involved – the employees, those health plan companies which were strong enough financially to cope with the extra numbers and the increased regulation, along with the drug manufacturers, distributors and retailers. And the government has benefited as higher corporate earnings have brought in higher tax revenues and many people have switched from the state health scheme to the private sector, thereby reducing the government´s burden.

SALES DOUBLED

Drug sales more than doubled from R$15 billion (around US$8 billion) in 2002 to almost to R$30.7 billion (US$16 billion) in 2008, according to the trade association FEBRAFAMA. The average price per unit also almost doubled in this period from R$9 to R$17, well below the rate of inflation.

Another triumph for Serra was his introduction of generic drugs in 1999 which has slashed the cost of a wide range of medicaments and made them more affordable to the general population. The first question most people now ask their doctor when a drug is prescribed is whether it is available in generic form. The difference in price is usually around 40 percent, but the discount can be much higher as drugstores compete for what is now a huge market. The fact is that generic medicines are now so popular that they are growing at a higher rate than overall pharmacy sales. Generics are expected to represent 20 percent of the sector by volume in 2010, according to Piribo, a consultancy specializing in the biotech and pharmaceutical industry. They currently account for around 14 percent of sales and 11 percent of total revenues. This compares with the United States where generic drugs have existed for 20 years and have a 35 percent share of all drugs sales.

Serra also took advantage of a World Health Organization resolution that allowed countries to break drug patents in the public interest. This paved the way for Lula to break the patent on Merck´s AIDS drug Efavirenz in May 2007 which he claimed was too expensive. He signed a law which allowed the government to buy a generic version of Efavirenz from laboratories certified by the WHO. It was the first time Brazil had broken a patent since it recognized patent protection for drugs in 1996, according to Bloomberg.

CONTROVERSIAL

This approach has been condemned by the drugs industry, trade bodies like the American Chamber of Commerce in São Paulo and others which have pointed out that drugs companies have to make massive, long-term investments and deserve the profits they make, particularly as expiring patents deprive them of their star products. However, just as few people have sympathy for big oil companies, lawyers or used car salesmen, few electors are likely to vote against any politician who reduces the price of medicine. This is particularly so among those most dependent on drugs, such as the elderly, the chronically ill and those with young children.

One can understand the arguments of the drugs companies, but it has to be pointed out that no company has pulled out of the profitable Brazilian market because of this decision; the opposite in fact, as we will see below. In any case, the whole sector is something of an oligopoly with around eight companies controlling 40 percent of the world market. This shows the companies have plenty of room to negotiate price cuts or even subsidize prices in some cases if this protects their other products.

Brazil is also a big net importer of drugs (although it exports about 5 percent of production) which is yet another motive for drugs companies to set up business here and for the government to welcome them. For all its public expressions of concern over the wellbeing of the population, the government taxes drug sales at a rate of 35 percent.

GROWING INTEREST

The attraction of lower-priced generics can be seen in the growing interest by multinationals in emerging markets. The French company Sanofi-Aventis announced in April that it was acquiring the troubled Brazilian company Medley for R$1.5 billion. One of the attractions of Brazil is the upcoming end of the patents of blockbuster drugs like Viagra, Cialis and Liptor. Sanofi-Aventis´s CEO said on June 29 that the company was aiming to buy more generic drugs companies. Meanwhile, the UK-based company GlaxoSmithKline has announced a series of licensing deals with generic drugs producers in South Africa and India while Pfizer, the world’s largest pharmaceuticals group, has entered into partnership with two Indian generic groups.

June 29 was also the day the German company Celesio announced that it had acquired a majority stake in Brazil's largest drugs distributor Panpharma. Reuters said Brazil was being seen as a key growth market for the global healthcare industry. It quoted an estimate by a market research company called IMS Health that the Brazilian pharmaceuticals market would grow by 13 percent to 16 percent a year to 2013.

RETAIL PROFITS

Finally, contrary to what might be expected, retail stores and drugs distributors are happy to handle cheaper generic drugs as the profit margins on generics are generally higher than those of branded products.

All this activity shows that health could start to play a greater part in Brazil's future political and business agenda and Serra is in a strong position to claim that he is the right man to handle it. Note: Sources for this article besides those mentioned above include the Financial Times, the São Paulo state government, the Brazilian Health Ministry, the WHO and reports and presentations by economists, researchers and equity analysts.© John Fitzpatrick 2009

Panama Canal: Transparent Process

The Panama Canal has been transparent in its multi-billion dollar bidding process, experts say.

The Panama Canal Authority is getting ready to award its contract for the third set of locks at the waterway and a European-Panamanian consortium appears to be the recipient. (Photo: ACP)

Experts praise the bidding process for the largest contract in the $5.2 billion Panama Canal expansion.

“When I left the board…my biggest concern was there would be too much politics involved in any of the contracts,” says Robert McMillan, a former chairman of the Panama Canal Commission and author of Global Passage: Transformation of Panama and the Panama Canal. “To the contrary, they’ve been extremely transparent. I give a lot of credit to Panama and [Panama Canal Authority CEO] Alberto Aleman Zubieta.”

A European-Panamanian consortium, Grupo Unidos por el Canal, is the likely winner of the contract to build a third set of locks at the waterway after receiving the best overall score on price and technical merit, beating firns like U.S.-based Bechtel and Japan-based Mitsubishi.

“Now the proposal has to be reviewed to make sure it is fully in compliance with the request for proposals,” McMillan says.

Although the Panama Canal Authority (ACP) has said that a formal contract won’t be announced until a later date, most experts believe it will end up being Grupo Unidos por el Canal (GUPC). “The formal winner of the bid [is] likely to be the above-mentioned group,” Global Insight said in a commentary today, referring to GUPC.

Meanwhile, an official at ACP told Spanish news agency EFE that GUPC is “virtually the winner of the contract” as it received the best technical score of all the bids, had the lowest price and the only one that was under the ACP budget for the contract.

GUPC offered to do the work for $3.1 billion, which was under the ACP budget of $3.5 billion. That figure was “maintained secret during the bidding and selection process,” Global Insight points out.

By comparison, the Bechtel-Mitsubishi consortium proposed to do the work for $4.2 billion, while a consortium that included Spain-based ACS Servicios and Mexico-based ICA, offered to do so for almost $6.0 billion.

Despite the big difference in price proposals, experts like McMillan believe GUPC’s bid should be realistic. “If I look at them and thought they were fragile and small I would really wonder about the pricing [but] they are very, strong companies...with vast experience in major projects,” McMillan says. “With Deloitte, a very responsible accounting firm, overseeing the whole picture [and] assuming the vetting comes out 100 percent, I feel comfortable with the proposal, which I think is good for the canal that it comes in at that [lower] level.”

The ACP, the government agency that runs the canal, will likely announce the contract the next few days, Aleman said in a statement yesterday after the ACP held a live event where it opened the price bids for the first time. It then added points for technical merit, which was the result of a four-month long process since the proposals were submitted on March 3.

More than 50 local and international experts provided on-the-ground support for the ACP’s Technical Evaluation Board, working in coordination with the official ACP Contracting Officer, while accounting firm Deloitte served as auditor and reviewed the process to certify that this committee followed the necessary procedures to evaluate the bids, the ACP said in a statement. Meanwhile, all Technical Evaluation Board members signed confidentiality and conflict-of-interest agreements, it added.

“Throughout the review period, the ACP’s Technical Evaluation Board and external auditors worked tirelessly to ensure an airtight course of action that reflects our staunch commitment to a fair, rigorous and transparent contracting process, Aleman said.

That process should help ease concerns that there was a conflict of interest. GUCP includes Panama-based Constructora Urbana, which is owned by relatives of Aleman – a fact criticized among many Panamanians.

“We’re related, but there hasn’t been any type of tip, information or benefit,” Aleman said yesterday, according to local newspaper La Prensa.

McMillan says he doubts that Aleman, the ACP and Deloitte would be part of anything that wasn’t completely transparent. “I can’t see them doing that in light of international community [spotlight],” he says. “Knowing Deloitte, their credibility is so important. If they saw one possibility of a tip off, they would have expressed themselves.”

The GUCP’s other members are Spain-based Sacyr Vallehermoso, Italy-based Impregilo and Belgium-based Jan De Nul.

The GUCP competed against a consortium consisting of Bechtel, Mitsubishi and Japan-based Taisei Corporation and a third consortium known as C.A. N.A.L. That group consisted of ACS Servicios, ICA, Germany-based Hochtief Construction and Spanish firms Acciona Infraestructuras an Fomento de Construcciones y Contratas.

In addition to presenting the lowest offer, GUPC also got the highest technical score of the three consortia - 4,088.5 versus 3,973.5 for C.A.N.A.L and 3,789.5 for the Bechtel-Mitsubishi group.

The ACP used a “best value” process to determine the winner, with technical considerations weighing more heavily – 55 percent – than the cost, 45 percent.

ON TRACK

McMillan also praises the fact that the expansion is on track despite the global economic crisis.

In October last year - while the global economic meltdown was going full speed ahead -- the ACP secured a $2.3 billion loan package from a group that include the Japan Bank for International Cooperation ($800 million), the European Investment Bank ($500 million), the Inter-American Development bank ($400 million), the International Finance Corporation ($300 million) and the Andean Development Corporation ($300 million). That followed news in September that Moody’s had given the ACP an investment grade.

The loans, along with toll revenues, will help pay for the $5.2 billion expansion, the ACP has stated.

”Even with the downturn in the economy [and] even retreating a little from toll rises, even with all that put together they will finish on time,” he says.

He’s also encouraged by the fact that the expansion will be completed under the watch of Panama’s new president, Ricardo Martinelli, a former chairman of the ACP and canal affairs minister.

Latin America: Caracas Most Expensive

Caracas becomes more expensive, while Brazil's and Mexico's top cities become less expensive for expats.

MOST EXPENSIVE: Caracas is now Latin America's most expensive city for expats and more expensive than London , Mercer data shows. (Photo: Guillermo Ramos Flamerich)

Venezuela's capital Caracas has replaced Sao Paulo as the most expensive city in Latin America for foreign executives, according to a new cost of living survey from Mercer. Caracas is now more expensive than cities like London and Helsinki and only slightly less expensive than Oslo, Mercer data shows.

The survey looks at the comparative cost of over 200 items, including housing, transport, food, clothing, household goods and entertainment in 143 cities worldwide, including 16 in Latin America.

MONTERREY LEAST EXPENSIVE

The latest survey also shows that Monterrey in Mexico has replaced Paraguay's capital Asuncion as the least expensive city in Latin America.

Caracas now has a score of 93.3 points, up from 79.3 points. Venezuela's inflation last year reached 36.4 percent, higher than the 30.3 percent registered in 2007. This year, it will likely reach between 35 to 37 percent, estimates Pedro Palma, president of MetroEconomica. In both cases that represents the highest inflation rate in Latin America and one of the highest worldwide, according to a Latin Business Chronicle analysis.

In addition to Caracas, other cities that became more expensive since the last survey include Buenos Aires, Panama City, Santo Domingo and Quito.

BUENOS AIRE MORE EXPENSIVE

Buenos Aires now has a score of 65.7 points, up from 62.7 points a year ago. “Although the Argentine peso has lost value against the US dollar, the high inflation rate observed on goods and services have caused Buenos Aires to rise in the rankings,” Nathalie Constantin-Métral, a senior researcher at Mercer, said in a statement.

Cities that became less expensive include Sao Paulo, Rio de Janeiro, Guatemala City, Bogota, Lima, Santiago, Montevideo, San Jose, Mexico City, Asuncion and Monterrey.

Sao Paulo's score fell from 97 to 74.3 points, while Rio's core fell from 95.2 to 73.9 points. That means that the two cities now are considered less expensive than Miami and Madrid.

MEXICAN CITIES

A similar pattern has taken place in Mexico, where capital Mexico City saw its score fall from 73.6 to 55.5 points, while Monterrey's score fell from 65.8 to 49.8 points. Monterrey now ranks as the world's second-cheapest city for expats after Johannesburg.

Meanwhile, Bogota and Santiago have also seen a steep decline in cost of living. Bogota's score fell from 80.1 to 65 points, while Santiago's score declined from 78.5 to 63.5 points. That means that Bogota is now less expensive for expats than cities like Pittsburgh and Detroit, while Lima is less expensive than Ottawa.

Latin America Broadband Jumps

Mexico grows most in broadband users, while Colombia sees the strongest increase in Internet usage.

Mexico is seeing the strongest growth in broadband Internet in Latin America. (Photo: Government of Navojoa, Mexico)

The number of broadband Internet users in Latin America jumped by 38.2 percent last year to 27.7 million, according to a Latin Business Chronicle analysis of new data from the International Telecommunications Union (ITU).

That was five times more than the growth seen in Internet in general, where the number of total users increased by seven percent to 156.9 million.

Those results come as sales of notebook PC’s are growing strongly in Latin America, according to new data from market researcher DisplaySearch. The number of notebook PC’s are likely to grow by 19.8 percent this year to 5.4 million units. Only China can boast higher growth, while global sales will fall by 0.1 percent. Meanwhile, sales of mini-notes (netbooks) are expected to jump by 88.1 percent to 1.9 million units, DisplaySearch estimates.

For every 10 percentage-point increase in high-speed Internet connections there is an increase in economic growth of 1.3 percentage points, The World Bank said in a recent report.

“The report is conclusive on its message to governments on the need to foster the adoption of new communications technologies,” Andres Maz, executive director of advanced technology policy at Cisco Systems in Washington, told the Inter-American Dialogue’s Latin America Advisor (see Latin America: Smartphone Outlook). “Broadband networks and ICT are a critical foundational element for the information economy and countries' ability to compete.”Mexico saw the strongest growth in broadband.

Will Venezuela Modify Patents?

Will Venezuela move to modify pharmaceutical patents? Four experts share their predictionsWill new patent laws lead to reduced international medicines in Venezuela? (Photo: Venezuela's Social Security Ministry)

Last month, Venezuela's trade minister said the government was carrying out a review of patents, including those on pharmaceutical products, arguing patents elevate the prices of goods and fill the coffers of multinational corporations. Leaders of Venezuela's pharmaceuticals industry say revoking patents and allowing drug makers in Venezuela to produce patented medications could discourage foreign investment in Venezuela and also cause shortages of medicine. Do you agree? Will more medicine reach the neediest people if patents are revoked? How much do protections for intellectual property rights matter in Latin America's health systems?

David Vivas-Eugui, deputy programs director at the International Centre for Trade and Sustainable Development in Geneva: The recent announcements by Venezuela's trade ministry and Intellectual Property Office (SAPI) on patent law and access to medicines have captured the attention of international media. These announcements indicate in broad terms the direction that the Venezuelan government plans to take in relation to patent law, access to medicines and industrial policy. While many of the measures announced are coherent with internal policies and seem in principle consistent with international obligations, a pragmatic approach is needed in their implementation in order to ensure some of the practical goals being sought are actually achieved. The orientation of the intellectual property system in Venezuela seems to be following two trends. The first one has a positive stand toward innovation, technology diffusion and access to medicines. The second trend points toward the 'nationalization' of both foreign and local private undertakings, clearly being the case with recent expropriations. This latter process could also be expanded to cover 'intangible assets.' The Doha Declaration on TRIPS and Public Health of 2001 allows countries to take measures to protect public health and encourage countries to use TRIPS flexibilities. Many of the announced measures could be developed under this framework. Nevertheless, no absolute legal assessment is possible until these announcements are transformed into actual measures or legislation. Experts in the field believe that many of Venezuela's goals in the current process could be achieved through a sophisticated set of policies driven by pragmatic reasoning and at the same time respecting international obligations. Finding options to achieve some of these goals might need more than political courage. It would take technical sophistication, political consensus and most importantly an inclusive consultative process with all relevant sectors in Venezuelan society.

José Luis Di Fabio, manager in the area of Technology, Health Care and Research at the Pan American Health Organization: Venezuelan authorities through SAPI have been for the last five years compiling the documentation related to all the patents granted in the country in order to make them accessible to the general public. This exhaustive revision has included those related to pharmaceutical products and has been coupled with the recent announcement to study each one of them in order to detect eventual inconsistencies with constitutional clauses (like the enjoyment of the right to health) while stating the will to respect and honor all international agreements, including TRIPS and other trade-related conventions to which Venezuela is party. Cooperation between trade, intellectual property and health authorities is a critical factor for an effective management of intellectual property rights that takes into account public health needs, including the use of flexibilities in the TRIPS agreement reaffirmed in WTO's Doha declaration of November 2001. IPR protection and patent enforcement are deemed to be rewards for innovation. However, monopolistic practices granted to patent holders often result in high prices for medicines, making them inaccessible for citizens and unaffordable for governments in middle- and low-income countries. Moreover, being a patent holder confers not only rights, but also responsibilities, such as transfer of technology, as acknowledged in Article 66.2 of the TRIPS agreement. Countries should therefore continue to closely monitor the linkage between regulation of pharmaceutical products and its impact on pricing and, ultimately, access, always keeping in mind what's best for public health.

Adrian Cruz, member of the Advisory Board of Cross Keys Capital: In violation of its TRIPS obligations, Venezuela has not protected data from clinical trials since 2002. The country's patent office, SAPI, has not granted a single drug patent in the same period. Intellectual property is the lifeblood of the pharmaceutical industry. If a market violates international IP agreements, it risks not only the aggrieved company leaving but other multinationals as well. Pharma companies depend on IP protection in order to be able to recoup the huge R&D investment for the drugs of the future. As president of Sterling-Winthrop, SmithKlineBeecham, and GlaxoSmithKline Latin American Region, I spent 30 years in constant dialogue with Ministries of Health explaining the importance of IP protection. We were threatened in Brazil in the late 1990s with patent violation for vaccines and in the early 2000s for retrovirals (anti-AIDS), but we were able to diffuse the issue through a ground-breaking technology transfer with semipublic health institution FioCruz. In that manner, we got to keep our patents inviolate for the private sector and FioCruz could produce, under our license, for the public sector and thus lower its costs. If the Brazilians had violated our anti-AIDS patents back in 2000, we would likely have left Brazil or at least not have launched any of the future anti-AIDS products. The mutating nature of the AIDS virus would have meant that the Brazilian government could have claimed to 'save' the poor AIDS victims of the year 2000 but condemned those patients of 2005 and beyond that may have been deprived of the newer generation of retrovirals, so expensive to develop.

Peter Maybarduk, attorney for the Essential Action Access to Medicines Project: It's worth clarifying what the Venezuelan government has and has not said. The government announced plans to review patent rules. Improving public access to medicines and generic medicine manufacturing capacity are key priorities of this review. The government has not yet announced a detailed policy, and statements by some government opponents seem to have exaggerated the substance of the announcements. A clarifying source is Venezuela's intellectual property office, SAPI, which has posted notices on the subject. Over the last ten years, generic competition worldwide has produced a revolution in HIV/AIDS treatment, reducing prices from $10,000 to near $100 per person per year, and enabling more than three million people to access lifesaving antiretroviral therapy. Competition and domestic manufacturing have helped Brazil save $1 billion since 2001, and develop one of the world's most effective HIV/AIDS treatment programs. Multinational drug companies, based almost exclusively in northern countries, routinely use patent monopolies on key medicines to keep prices at high, anti-competitive levels—often too high to enable widespread treatment, including throughout Latin America. There are several tailored ways Venezuela could improve access to medicines while contributing to pharmaceutical research and development costs, and complying fully with domestic laws and WTO patent rules. For example, by issuing compulsory licenses, Venezuela could authorize generic competition with specific patented medicines, in exchange for reasonable royalties to the patent holder. It is not true the Venezuelan pharmaceutical industry uniformly opposes revisions to patent rules. The generics chamber, Canamega, publicly supports revisions, and domestic manufacturers would benefit from flexibilities allowing them to produce more medicines. Targeted reforms to Venezuela's patent system could protect international investment incentives, while also improving market efficiency, increasing investments in innovative research and development—and supporting access to medicines for all.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.

Panama: Investors Bullish on Martinelli

Investors have high expectations from Panama's new president, Ricardo Martinelli.

Ricardo Martinelli, president of Panama. (Photo: Panama President's Office)

Local and foreign investors are bullish on the outlook for Panama with the new government of 57-year old Ricardo Martinelli, who was inaugurated on Wednesday, July 01, 2009 as president for a five-year term.

“I’m very positive on Martinelli,” says Kathryn Rooney, senior emerging markets macroeconomic strategist at Bulltick Capital Markets. “He’s extremely market-friendly and will continue the positive trend of the economy.” She especially singles out his plans to lower taxes and improve relations with the United States.

Robert McMillan, a former chairman of the Panama Canal Commission, is also upbeat on Martinelli. “Martinelli is pro business,” he says. “Not only is he a businessman, but he was also chairman of the canal.”

Martinelli, who was chairman of the Panama Canal Authority (ACP) and canal affairs minister between 1999 and 2003, understands the importance of the waterway and its workings, argues McMillan, the author of Global Passage: Transformation of Panama and the Panama Canal.

Martinelli will also be president when the canal is expected to finish its $5.2 billion expansion in 2014.

Another advantage with Martinelli is that he is making security a top issue, McMillan says. “One of the advantages Panama will have with Martinelli is that he understands the police infrastructure,” he says.

Among Martinelli’s other top priorities is infrastructure projects – including a new subway in Panama City – and securing U.S. passage of the US-Panama free trade agreement. It was signed two years ago, but has been delayed by U.S. lawmakers.

“If the FTA were put into effect, we could export more goods than we do today,” McMillan says.

“I hope … Martinelli will … set forth a program to wake up the [Obama] Administration and congress [on the urgency of passing the FTA].”

Although President Barack Obama has stated that he favors the FTA, there are growing demands from Democratic lawmakers and some U.S. officials to delay approval until Panama passes several tax and labor reforms.

U.S. officials have stated that they want Panama’s tax laws changed so it won’t continue being a tax evasion haven for Americans. “The tax issue – that could be worked out on the side [independent of the FTA],” McMillan says.

Meanwhile, some lawmakers have also urged allowing strikes for canal employees (prohibited since the United States ran the waterway from 1904 to 1999) and making it easier to organize unions in Panama. “They expect Panama to declare that unions can strike at the canal [even though] they couldn’t strike under the U.S. [administration],” McMillan says.

Obama officials have sent different signals about when the Panama FTA would be presented to Congress for a vote, but Senator Chuck Grassley, a member of the Senate Finance Committee, predicts that it won’t be approved until next year.

Latin Ports: Panama, Peru Grow Most

Container ports in Panama, Peru and Chile are the fastest-growing in Latin America.

GROWTH CHAMPION AGAIN: The port of Balboa remains the fastest-growing container port in Latin America, according to the fourth annual ranking of top ports. (Photo: Panama Canal Company)

PANAMA CITY, PANAMA – The port of Balboa easily awes any visitor to Panama’s capital Panama City. Its large number of cranes and containers can be seen from one of the city’s key roads as well as when landing or taking off at the city’s national airport Albrook.

While its growth is impressive in Panamanian terms, its expansion is just as impressive in Latin American terms. For the second year in a row, it is the fastest-growing container port in Latin America, according to the fourth annual ranking of the region's top container ports from Latin Business Chronicle. The ranking is based on data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).

Balboa last year handled a total of 2.2 million TEU’s in container cargo. That represented an increase of 334,199 TEU’s. No other port grew as much in real terms. Measured in percentage terms, the growth was 18.2 percent, which was the highest among the region’s top ten ports.

Compared to three years ago – 2006 – Balboa’s traffic has more than doubled. “Balboa …has had an impressive growth the past three years,” says Gabriel Pérez, an infrastructure and transport specialist at ECLAC.
BY JOACHIM BAMRUD, Monday, July 06, 2009

Latin America Wireless: Central American Boom

Latin America's largest wireless market Brazil leads real growth, while the smallest one, Cuba, leads in percentage growth.WIRELESS GROWTH: Honduras posted Latin America's third-highest wireless growth rate last year. (Photo: Digicel Honduras)

Central America’s wireless sector is booming. Four Central American countries are among the top ten growing markets in Latin America in percentage terms, while two are among those that are growing most in real terms.

Last year Central America reached a total of 33.0 million wireless subscriptions, an increase of 27.8 percent. By comparison, Latin America as a whole grew by 20.1 percent and worldwide growth was 18.8 percent, according to a Latin Business Chronicle analysis of new data from the International Telecommunications Union. In real terms, Central America added 7.2 million new wireless subscriptions.

And the potential for future growth is strong. Costa Rica, the second-smallest wireless market in Latin America, is expected to see a strong increase in wireless subscriptions as a result of the liberalization of its market next year, which includes the lifting of the monopoly of state-run telecom ICE.

Cable & Wireless Panama, Digicel, Movistar and Tigo have informed Costa Rica’s Superintendence of Telecommunications (SUTEL) of their decision to enter the market, while Claro (the brand owned by Mexico-based America Movil) is also expected to join, according to Signals Telecom Consulting. “These operators will represent significant competition for ICE, mainly in the prepaid market, accelerating the pace of customer acquisition,” Elias Vicente, senior analyst for Signals Telecom Consulting said in a statement. “The low level of mobile market penetration in Costa Rica, and the incipient prepaid service, makes it an interesting target with high potential for rapid growth in line numbers.”

Costa Rica was one of the markets that last year saw the strongest growth in Latin America, boosting wireless subscriptions by 25.1 percent to 1.9 million. That was the tenth-highest growth in the region. Other growth champions include Honduras (up 43.2 percent – the third-highest in Latin America), Nicaragua (43.2 percent) and Guatemala (25.6 percent).

CUBA, BRAZIL GROW MOST

Cuba, the smallest wireless market in Latin America, saw the strongest percentage growth last year – 67.3 percent to 331,700 subscriptions, according to the Latin Business Chronicle analysis.

Measured in real terms, Brazil saw the strongest growth, boosting the number of subscribers by 29.7 million.

Mexico Correspondent Banking: More Access?

Will correspondent banking increase financial access in Mexico? Three experts share their predictions.

Banco WalMart has a big advantage over other banks in Mexico - it operates longer hours, some experts point out. (Photo: Walmex)

Mexico recently approved legislation to allow financial services companies greater leeway to do business through so-called 'bank correspondents,' which enable banks to create alliances with commercial businesses to handle banking transactions at retail locations around the country. While the law aims to increase financial access for Mexico's unbanked population, estimated at 70 percent, it faced some opposition during the legislative process from traditional banks that feared correspondent banking might put them at a disadvantage in comparison to outfits like Banco Wal-Mart that already have a strong presence at commercial establishments. Can correspondent banking significantly expand financial access for Mexico's unbanked population? Which companies stand to lose or gain from the new regulations?
Vicente Corta, partner at White & Case LLP in Mexico City: Correspondent banking is certainly an expeditious and cost-efficient model to significantly expand financial access for Mexico's unbanked population. This model will allow both traditional and correspondent-oriented banks to increase their financial services offerings without incurring infrastructure and labor costs associated with the establishment of traditional bank offices, while also taking advantage of the existing client base of commercial correspondents. The new set of correspondent regulations tends to enhance effective competition conditions in the banking market and could lead to better quality services and could cut down transaction costs and commissions for the clients. However, the new regulations set forth limitations and restrictions with respect to the number of transactions that banks may perform through the correspondent model. Such restrictions and limitations seem to create entry barriers for new participants in the banking business and reduce access by unbanked population to the industry. Restrictions and limitations should be oriented to the business and moral qualifications of correspondents rather than to the number or volume of the transactions to be conducted by banks through this business model. To the extent that the new regulations can effectively create adequate competition conditions and reduce entry barriers to the market, correspondent-oriented banks will be able to exploit their business model and bring new clients to the financial services sector, traditional banks will have an opportunity to offer their more sophisticated products to the population that will now have a banking culture, and the currently unattended population will have access to competitive and cost-efficient financial services.

Tapen Sinha, the ING chair professor of risk management at the Instituto Tecnologico Autonomo de Mexico in Mexico City and professor in the University of Nottingham Business School in England: The law relating to 'bank correspondents' is supposed to inject more competition into the oligopolistic banking industry in Mexico. In Mexico, less than 30 percent of households have bank accounts. In comparison, the figure is more than 60 percent in Brazil. Unlike the Banco Popular do Brasil, the bank specifically targeting the low-income cash transacting public in Brazil, there is no such banking facility in Mexico. Four large banks in Mexico dominate the industry: BBVA Bancomer has 1,862 branches, Banamex 1,598, HSBC 1,251 and Santander 1,026 branches. The correspondent business comes with strings attached: 65 percent of a bank's operations for the first 18 months—and 50 percent thereafter can be of this nature. The law caps transaction amounts: cash withdrawals or checks cashed cannot exceed 1,500 'unidades de inversion' (UDIs), approximately 6,000 pesos (US$ 468), and deposits have a limit of 4,000 UDIs, 16,000 pesos (US$ 1,250). There are three large entities with great interest in this opportunity: Banco Wal-Mart, Banco Coppel and Banco Compartamos. These companies already have large retail outlets. For example, WalMex owns department stores (Suburbia), supermarkets (Wal-Mart and Superama) and warehouse chains (Bodega Aurrera and Sam's Club). It also owns Vips restaurants. In all, it has over 1,200 outlets. Thus, in one fell swoop, WalMex can become one large competitor in the banking sector. WalMex and others like it have a big advantage: they operate longer hours. And unlike bank ATMs that are out in the open, they have the advantage for being secure—a point very important in Mexico.

Antonio Ocaranza, corporate communications director for Wal-Mart de Mexico: Wal-Mart de Mexico has more than 3 million customers per day. More than 50 percent lack banking services. Part of our vision to improve the quality of life of Mexican families also involves having access to credit and banking services at an affordable cost. It's also convenient: customers of Banco Wal-Mart can go to the cashiers at Wal-Mart de Mexico stores to receive deposits, make withdrawals and pay services. Already, there are many financial services provided at our cashiers, from the cash-back option on payment of purchases, to tax collection or making payments for different services, such as utilities. As in the case of other countries where this mechanism has been implemented, this ready access to banking services through our in-store cashiers can have a positive effect on the unbanked population, since it provides a more convenient and easier way to access banking services and reduces the cost of money services by using existing infrastructure more efficiently.

Latin America: Strong Growth in Internet Ads

Online advertising is growing in Latin America, especially Brazil and Argentina.

LARGE MARKET: Brazil's online ad market is now larger than that of The Netherlands and Austria combined. (Photo: City of Rio Branco, Brazil)

While Latin America's ad sector is barely growing, the region's online ad market is showing double-digit growth.

This year, spending on Latin American online advertising will likely reach $651 million, an increase of 13.4 percent from 2008, UK-based ad agency ZenithOptimedia estimates. By comparison, global Internet ad spending is expected to grow by 10.1 percent this year and U.S. online ad spending should increase by 12.6 percent..

Brazil, by far the largest online ad market in Latin America, is expected to boost Internet advertising by 9.9 percent this year to $456 million. That number represents nearly a third of online ad spending in Canada. It also means that Brazil's online ad market is larger than that of The Netherlands and Austria combined.

Argentina is expected to see an even stronger increase - 42 percent to $91 million. However, Colombia's ad spending on the Internet will barely grow this year - by 1.8 percent to $56 million.

ZenithOptimedia does not track Internet ad spending in Mexico.

Next year, Latin American online ad spending should grow another 21.5 percent to $791 million. That's nearly twice the forecasted global growth rate of 11.1 percent.

Middle Class Boosts Brazilian Economic Recovery

The Miami Herald reports that Brazil’s growing middle class has played a major role in the country’s ability to rise from the global financial downturn. Nearly 28 million Brazilians joined the country’s consumer economy while, from 2001 to 2007, the country’s poorest 10 percent saw real income grow by 49 percent, according to data provided by Rio’s Getulio Vargas Foundation.

RIO DE JANEIRO -- Brazil is beginning to pull out of an economic dive triggered by the global financial crisis, but it's not the country's vaunted soybean, meat and iron ore exports that are powering the turnaround of the world's ninth-largest economy.

Instead, more than 20 million Brazilians who have joined the consumer economy in recent years and now have money to spend are playing a key role in Brazil's recovery.

"Investments and exports are down, but consumer spending is still growing, although slower than before," said Juan Pablo Fuentes, who tracks Latin American economies at Moody's Economy.com in West Chester, Pa. "People are still willing to buy durable goods like electronics and cars. It shows optimism, which is important."

Brazilians who formerly eked out a living are leading the way.

From 2001 to 2007, the poorest 10 percent of the population enjoyed a 49 percent increase in real income, said Brazilian economist Marcelo Neri, or what he called "Chinese-like growth."

Some 27.8 million Brazilians - out of a population of nearly 200 million - joined the consumer economy from October 2003 to October 2008, said Neri, who is based at the Getulio Vargas Foundation in Rio. "They could now buy durable goods like computers, maybe even a car, and get access to credit," Neri said.

Spurred in part by a federal sales tax break, Brazil's auto industry sold more cars in a single month in June than ever - 300,157. This topped the previous monthly record in July 2008 by 12,047 vehicles.

Neri credited the expansion of the consumer class to an activist government that has increased direct payments to the poor and raised the minimum wage, which is also indexed to benefit retired public workers.

After growing for five years, however, Brazil's economy contracted by 1.8 percent during the first quarter, and Neri estimated the tough economic times have caused about 2.8 million Brazilians to fall back into poverty.

"It's not a big loss," Neri said, amounting to about only 10 percent of those who joined the consumer society during the boom years. "The average Brazilian today still has money in his pocket."

Moody's Economy.com is projecting Brazil's economy to grow by 0.5 percent in 2009 thanks to a second-half rebound that's expected to offset a difficult first six months. The firm expects Brazil's economy to grow by 4.2 percent in 2010 and lead Latin America out of recession.

"The worst is over," said Paulo Levy, an economist at the Rio-based Institute for Applied Research, adding Brazil is in better shape to weather the global economic mess than it was a decade ago.

Successive governments have tamed inflation, boosted foreign currency reserves, cut foreign debt, turned budget deficits into surpluses and "sent signals to investors that they could rely on Brazil," Levy said.

Tapping into the country's currency reserves has permitted the government to boost spending on new roads and ports and direct more money to the poor.

Still, even a fortified Brazil was no match for the economic disaster that hit in October when bank loans disappeared and demand for its export products withered.

Investors pulled back, with the electronics, construction and aircraft manufacturing sectors taking a beating. Foreign investment dropped by 20 percent during the first five months of 2009, and imports plummeted by 28.9 percent during the first six months of 2009, compared with the first six months of 2008. Exports dropped by 22.2 percent.

The only bright spot for Brazil's trade: China's continuing thirst for Brazilian soybeans, iron ore and oil.

China accounted for 8.2 percent of Brazil's exports in the first six months of 2008 but 14.9 percent in 2009 - becoming a bigger market than the U.S.

"I don't know where we'd be without China," said Jose Augusto de Castro, a vice president of the Rio-based Brazilian Foreign Trade Association.
By TYLER BRIDGES
McClatchy Newspapers
Tuesday, 08.04.09

Latin America Tourism: Panama, Uruguay, DR Lead

Panama leads in arrival growth, while Uruguay grows most in receipts. The Dominican Republic remains the top per capita earner.

CRISIS? WHAT CRISIS? NH Real Arena in Punta Cana, an area that Lonely Planet calls "ground zero" in Dominican tourism.

PUNTA CANA, Dominican Republic -- While children play in one of the swimming pools, their parents are trying to keep up with the activities director in another pool. Meanwhile, other guests are strolling on the adjacent white sand beach or swimming in the Atlantic Ocean.

Welcome to NH Real Arena, an upscale all-inclusive hotel in Punta Cana, an area in the eastern part of the Dominican Republic which Lonely Planet calls "ground zero of DR tourism." The Punta Cana international airport accounts for more than half of all international arrivals to the Dominican Republic, according to deputy tourism minister Radhames Martinez.

HOLDING UP

While global tourism has been hit by the international economic crisis, Punta Cana and the Dominican Republic have largely been spared. Dominican tourism only saw a slight decline in the first half of the year and performed much better than other tourist destinations in the Caribbean, Martinez says. In May and June it even grew compared to the same months last year, he adds.

Hotels like RH Real Arena haven’t seen any decline, according to the property’s Italian manager Domenico Cacace. “We’re just as full as last year,” he says. The hotel’s rooms have been filled up by tourists from Spain, the United States and locals.

The Dominican Republic last year received a total of 3.8 million international visitors, which was virtually the same as in 2007. However, tourism receipts grew by 2.8 percent to $4.2 billion, according to the World Tourism Organization (WTO).

RECEIPT/GDP CHAMPION

That means that the Dominican Republic is again the largest recipient of tourism receipts when measured with its GDP, according to a Latin Business Chronicle ranking based on data from the WTO and International Monetary Fund. Its receipts last year were equivalent to 9.2 percent of its $45.6 billion economy.

The Dominican Republic is also the largest tourism destination in the Caribbean and the fourth-largest in Latin America after giants like Mexico, Brazil and Argentina. When measuring arrivals compared to total population, the Dominican Republic ranks third in Latin America.

All in all, Latin America last year received 72.0 million visitors, an increase of 4.5 percent from 2007 and a new record, according to according to a Latin Business Chronicle ranking based on WTO data. Receipts from tourism grew by 6.1 percent to $62.9 billion.

Arrivals last year were the equivalent of 12.7 percent of the region’s population of 569,000, but receipts were only equivalent to 1.7 percent of Latin America’s $4.2 trillion economy, our analysis shows.
PANAMA: ARRIVAL GROWTH
Last year, Panama again became the fastest-growing market.
Monday, July 20, 2009

Latin America Technology: Uruguay Leads

The latest index over telecom, PC and Internet penetration in Latin America. Which countries lead? Which lag?

Uruguay leads Latin America in technology and broadband penetration. Here a student in Uruguay using a laptop from the One Laptop per Child foundation. (Photo: US Embassy in Uruguay)
Argentina and Panama have Latin America's highest cellphone penetration, although Brazil leads in overall subscription numbers. (Photo: Government of Santa Catarina, Brazil)

Uruguay has replaced Chile as Latin America’s top technology country, while Panama has replaced Uruguay as the second-highest wireless penetration country, according to the fourth annual Latin Technology Index from Latin Business Chronicle.

The index of 20 countries provides a unique comparison of the technology level of each Latin American country by looking at the penetration rates of Internet, broadband Internet, personal computers (PCs), wireless subscribers and fixed telephone lines. It uses 2008 technology data from Computer Industry Almanac, the International Telecommunications Union and the Santiago Chamber of Commerce and population data from the International Monetary Fund and the Population Reference Bureau.

All countries improved their score, albeit at different levels. Panama’s score improved most, while Ecuador and Haiti were the worst when it came to changing their technology level.

Key developments in the 2009 index include:

Panama replacing Venezuela as the Latin American nation with the fourth-highest technology level.
El Salvador replacing Costa Rica as Central America’s top technology nation.
Meanwhile, Cuba remains the least developed tech nation, followed by Haiti and Nicaragua.

In terms of tech categories, the winners and losers are:

Wireless: Argentina leads, while Cuba is worst.
Fixed telecom: Costa Rica leads, while Haiti is worst.
PC’s: Uruguay leads, while the Dominican Republic is worst.
Internet: Chile leads, while Nicaragua is worst.
Broadband: Uruguay leads, while Haiti is worst.

Tuesday, June 30, 2009

Latin America's Top Transport Companies

Brazil dominates the ranking of Latin America's Top Transport Companies.

TOP TRANSPORT FIRMS: American Airlines is the top airline in Latin America, while CSAV is the top shipping line, according to the Top 20 Transport Company Ranking. (Photos: American Airlines, CSAV)

Brazilian aircraft manufacturer Embraer is Latin America's largest transport sector company, followed by Chilean shipping line CSAV, according to a new ranking from Latin Business Chronicle.

American Airlines is the top airline in Latin America, according to Latin America's Top 20 Transport Companies, a ranking based on data from Economatica and individual companies.
Tuesday, June 16, 2009