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Latin American and Argentina Development: opportunities and challenges

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Latin American and Argentina Development: opportunities and challenges 2008 Presentation For the University of North Florida Professors R. Feeney and M. Rossi – PowerPoint PPT presentation

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Title: Latin American and Argentina Development: opportunities and challenges


1
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
2
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

3
Evolution of the world GDP per Capita (PPP)
1950-2003
US, Can, NZ, Au
Western Europe
World
LA
Africa
4
World Capita GDP by Region In 1990 US International dollars (Maddison, 2006) World Capita GDP by Region In 1990 US International dollars (Maddison, 2006) World Capita GDP by Region In 1990 US International dollars (Maddison, 2006) World Capita GDP by Region In 1990 US International dollars (Maddison, 2006) World Capita GDP by Region In 1990 US International dollars (Maddison, 2006) World Capita GDP by Region In 1990 US International dollars (Maddison, 2006) World Capita GDP by Region In 1990 US International dollars (Maddison, 2006)
Region/ Year 1950 1973 1998 2003 Growth 1950 to 2003 Annual Growth
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
Asia 717 1719 3547 4434 518 3.49
World 2113 4091 5729 6516 208 2.14
5
GDP Per Capita Annual Growth Rate (Maddison, 2006 and 2007) GDP Per Capita Annual Growth Rate (Maddison, 2006 and 2007) GDP Per Capita Annual Growth Rate (Maddison, 2006 and 2007) GDP Per Capita Annual Growth Rate (Maddison, 2006 and 2007) GDP Per Capita Annual Growth Rate (Maddison, 2006 and 2007)
  191350 195073 197398 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 
6
GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007) GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007) GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007) GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007) GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007) GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007) 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
7
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
8
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
9
Inflation Annual average compound (Maddison, 2006, p. 153, 1999-2007 authors estimate) Inflation Annual average compound (Maddison, 2006, p. 153, 1999-2007 authors estimate) Inflation Annual average compound (Maddison, 2006, p. 153, 1999-2007 authors estimate) Inflation Annual average compound (Maddison, 2006, p. 153, 1999-2007 authors estimate) Inflation Annual average compound (Maddison, 2006, p. 153, 1999-2007 authors 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
10
Poverty Line (lowest to highest) Source CIA
World Factbook5
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
11
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
12
A key Variable the Socio-Economic Conditions in
Latin America
13
The Gini Index
  • The Gini coefficient is often used to measure
    income inequality.
  • Here, 0 corresponds to perfect income equality
    (i.e. everyone has the same income)
  • and 1 corresponds to perfect income inequality
    (i.e. one person has all the income, while
    everyone else has zero income).

14
Income Inequality in Latin America
15
Income Inequality Indexes Comparison

Country UN Richest 10 to poorest 10  
Haiti 71.7
Colombia 63.8
Brazil 57.8
Chile 40.6
Argentina 34.5
United States 15.9
Australia 12.5
Canada 9.4
France 9.1
16
The Human Development Index (HDI)
  • It is a comparative measure of life expectancy,
    literacy, education, and standard of living for
    countries worldwide. It is a standard means of
    measuring well-being, especially child welfare.
  • An HDI below 0.5 is considered to represent low
    development
  • An HDI of 0.8 or more is considered to represent
    high development.

17
The Human Development Index (HDI) Ranking for
Latin America
Country HDI
 Argentina 0.863
 Chile 0.859
 Uruguay 0.851
 Costa Rica 0.841
 Mexico 0.821
 Panama 0.809
 Brazil 0.792
 Colombia 0.790
 Venezuela 0.784
Peru 0.767
 Ecuador 0.765
 Paraguay 0.757
 Dominican Republic 0.751
 El Salvador 0.729
 Nicaragua 0.698
 Bolivia 0.692
 Honduras 0.683
 Guatemala 0.673
 Haiti 0.482
18
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?

19
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

20
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

21
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

22
What variables have a critical role for the U.S.
to induce FTAA?
  • Addition of Eastern European countries to EU
  • National security in the continenta premium
    variable for the U.S.
  • Political stability in the continent
  • Sustainable economic growth
  • But, is the U.S. Congress ready?

23
What are the regional political variables that
collide with U.S. interests?
  • Venezuela the expansion of the Chavez model
  • Cuba -the transition to democracy
  • The political left expansion Brazil, Argentina,
    Bolivia, Ecuador, Peru, Chile, Nicaragua.
  • Lack of real economic improvement (per capita)
    due to trade

24
  • Yet, the U.S. Dept. of Commerce is seeking to
    reactivate negotiations by
  • sparking and sustaining innovation
  • creating solutions in education and workforce
    development
  • designing successful global supply chain
    strategies
  • fostering small business development and growth

25
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

26
Where we come from? Rosario The Center of the
Agribusiness Production Area in Argentina
Rosario
27
Argentinas GDP 1993-2007 in constant prices of
1993 pesos
Hundred of millions of pesos
1993
2002
2007
1998
1995
2000
2004
2005
Year
28
Argentinas GDP 1993-2007 in constant prices of
1993 pesos
1989-1990 Hyperinflation
1993
1995
1998
2000
2002
2004
2006
29
By now (2007) Argentinas per capita GDP is
higher than the pre-crisis level
30
The Horror Story Inflation in Argentina (INDEC)
Year Total Acumulative Inflation Index 1970-2005 Inflation Index 5 Years Accumulative
1970 1 1
1975 20 20
1980 2 830 142
1985 4 139 214 1462
1990 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
31
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
32
Balance of Non-Financial Public Sector, in
Argentina 1995 - 2006
From Deficit to Suplus
33
Balance of Non-Financial Public Sector, in
Argentina 1995 - 2006
34
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35
Argentinas Central Bank Reserves 2003-2007
50 000 million U dollars
10.000 mill US dollars
2003
2005
2007
2004
2006
36
Argentinas Total Foreign Debt
107 Billion USD 55 /ARG GDP
Millions USD
37
International Commerce
38
Argentinas Unemployement Rate
39
Infrastructure and Investment Public and
Private Investment 1993-2006 in millions of 1993
pesos
40
Infrastructure and Investment Public and
Private Investment 1993-2006 in millions of 1993
pesos
41
Industrial activity
  • Industry was growing year by year, after the 2001
    crisis

42
Currency
  • The last years were characterized by a relative
    high peso-dollar real exchange rate

43
Exports
  • Exports are mostly based on commodities with low
    value added

44
Internal environment
  • Domestic demand feels strong and sustained

45
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

46
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

47
Emerging Markets
  • Emerging markets grew aggressively in 2007

48
Emerging Markets
49
Merval index vs. DJI
  • Since Argentine domestic markets are mostly
    driven by food commodities prices, there is a
    good perspective for sustain

50
Summary of Argentinas 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

51
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

52
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

53
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54
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

55
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

56
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 

57
Chiles Economic Miracle (chart in terms of GDP
per capita)
Chiles per capita GDP
Average LA GDP per cap
58
Evolution of Chiles GDP in 25 Year (in US
constant dollars
Chile multiplied its GDP by 3 in 25 years
59
Competitivity and Innovation in Latinamerican
countries Source World Economic Forum 2005
Competitivity Ranking and Technological Innovation Latinamerican countries 2005 Competitivity Ranking and Technological Innovation Latinamerican countries 2005 Competitivity Ranking and Technological Innovation Latinamerican countries 2005 Competitivity Ranking and Technological Innovation Latinamerican countries 2005
Country 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
60
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)

61
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.

62
What is the future Latin American economic
scenario?
  1. Speed of second generation reforms
  2. From internal producing and consuming market to
    an international, regional and global economy
  3. US is a regional leader in the marketplace and
    that is not going to change
  4. Rule of law, accountability and transparency
  5. Paradox of social inequality (human capital
    investments)

63
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
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