The Light at the end of the Tunnel - Positive Aspects of the struggling environment in Latin America
2015 has indeed been a rough year for the Latin American Markets. With decreasing oil prices and increasing political instability in many countries of the region, uncertainty amongst investors has been growing. However, there is a light at the end of this tunnel. Positives are starting to emerge from different sources.
With a contraction last year and a projected increase of 0.1% in the overall growth in Latin America for 2016, the belief was that the World Bank would jump in to help. This has not been the case. However, China has come to rescue. From 2014 to 2015 China tripled its investment in Latin America, with its main focus in infrastructure and manufacturing. The figures stand at $29bn in bilateral loans plus $35bn in multilateral finance platform in Latin America. This presents a positive outlook for the overall health of the economies, as the IMF predicts that every dollar spent in infrastructure corresponds to $1.60 worth of economic growth.
On the other hand, this money inflow into the manufacturing sector represents an opportunity for competitiveness for Latin America following the Chinese economic slowdown. Although the investment may result in the overall growth of the economies and hence some sort of hope for investors, China’s risk in terms of political instability still remains high. Countries such as Ecuador and Venezuela that present high levels of leverage and no clear sign of political restructuring may struggle to repay.
Meanwhile in Brazil, even with political and corruption scandals with Petrobras, businesses and investors remain positive. With the recent £35bn takeover of BG Group, Mr van Beurden asserts that Brazil will be one of the key growth markets identified by Shell. He predicts an output of 550,000 barrels from Brazil by the end of the decade, more than 4 times their current combined production.
This transaction is not the only one to show optimism for long-term investments in Brazil. The last three months in 2015 were Brazil’s best fourth quarter since 2013 in M&A transactions; the total amount of deals reached $22.59bn. Currently, with 45% depreciation in the Brazilian real against the dollar, assets have become more affordable for foreign investors, attracting buyers from Europe, Asia and the US who are looking for long-term relative cheap investments at the bottom of the cycle. Petrobras in the meantime still looks to sell $15.1bn assets by the end of this year to repay debt.
Mexico and the UK finalized their Dual Year, which included common investment, trade, and tourism among other aspects. Being the 14th largest economy in the world and an emerging market, Mexico is becoming increasingly attractive for foreign investors. Last year investments amounted to $30bn, from which £264m were from British companies investing in the aerospace industry. Furthermore, Mexico’s trading figures also stand on a positive note with $700bn a year. According to Diego Gomez Pickering, Ambassador of Mexico in the UK, ‘global expectations for Mexico as an emerging market are now running high in the United Kingdom and will do for years to come.’