Underappreciated Hispanoamérica

Tuesday, 07 October 2014

In discussions of emerging markets, the BRICS have captured much of the world’s attention for almost 20 years now.  In Latin America, the scale of opportunities in Brazil – and the growth that Brazil has enjoyed - is hard to ignore.  Many of her smaller neighbours have seen similar growth, but often overshadowed by instability. 

Argentina in particular continues to suffer from an unstable political environment, Honduras is a failed state, and Venezuela has managed to accelerate its failure to exploit its many natural advantages.  In contrast, Colombia, Peru, Mexico, and Chile – and to some degree Ecuador and Panama – are showing us the potential of Hispanoamérica.  How long before Hispanoamérica will be appreciated for all that it offers to investors and businesses looking for new markets to explore?

Hispanoam‚rica at a Glance_v1-2_v1.3Taken as a whole, Hispanoamérica (Spanish-speaking Latin America, from Mexico to Chile) is on par with Germany in terms of total GDP, with a growth rate similar to India’s (for the past three years, at least). The individual markets are tied together by a common language, limited time zone differences, and a number of free trade agreements (both internal and external to the region). 

In addition, most of the region is enjoying a peace dividend (with the exceptions noted above).  Post-Pinochet Chile has had the longest period of stability, while Peru and Colombia are now enjoying the compounding effect of political stability, sustained investment, and ever-increasing market confidence.  Panama is a smaller market, but enjoying its role as a trade and banking center.  Mexico is moving ambitiously to open its markets and drive more inclusive growth. 

The Alianza del Pacífico (Pacific Alliance) comprising four nations - Chile, Colombia, Mexico and Peru - is the most recent effort to tie these markets together more closely. The trade bloc promises a common market, normalisation of tax and regulatory functions, free movement of capital and labor, and increased integration through education and cultural exchange. 

These markets are not without risk.  Chile was tripped up by a natural disaster. Colombia is still engaged in negotiations with the FARC rebels – facilitated by Cuba, nonetheless.  Peru is struggling to provide infrastructure to support growth while Mexico is grappling with having to extinguish often shocking internal violence.  All are dependent to some degree on commodity exports.  If there was no risk, however, all of the opportunities might be claimed.

Hispanoamérica’s Potential

The combined GDP of the 17 countries that make up Hispanoamérica was USD$3.45 trillion in 2013, and according to IMF estimates, is expected to reach over USD$4.33 trillion in 2019. Foreign Direct Investment (FDI) in the region surpassed US$120 billion in 2013, and is expected to grow more than three times in the next three years.  

From a demographic perspective, the region includes 360 million people whose median age is 28.  While we are seeing some of the same aging trends that we see in developing counties, this population still represents a relatively well-educated and affordable workforce.  Moreover, the purchasing power of the emerging middle class promises continued growth in consumer markets. 

   Hispanoam‚rica at a Glance_v1-1_v1.3

Windows of Opportunity

With this context in mind, there are several windows of opportunity opening up – with a time frame of the next decade or so: 


Across the region, the energy industry is opening up to private investments much more than in the past.  Mexico is leading the change with an ambitious reform package; the first open bidding opportunities are expected before the end of 2014.  Despite its current difficulties, Argentina is looking to foreign investment to support the development of the “Vaca Muerta” shale deposits.  Peru, Colombia, and even Bolivia are developing their energy sectors.  Major global oil players (Exxon, BP, Shell, ENI) have entered Mexico and increased their operations in the country to participate in the new post-Pemex regime; while regional companies like EcoPetrol, Petrobras, and others are also evaluating opportunities.  The investment of these firms and others will drive opportunities throughout the sector and throughout the region. 

Photo_RGB_R_CAN_TR_D4_CM1_6799Financial Services

The emerging middle class, as well as a general population enjoying longer and healthier lives, will continue to drive growth in the financial sector.  Countries like Peru, with only 30% of the population participating in the formal banking sector, represent opportunities for dramatic growth.  The rapid penetration of smart phones in Hispanoamérica will make digital channels a likely path for disruptive new entrants, particularly in areas such as mobile payments.  With a more stable inflation environment in most countries, and the corresponding (hopefully) stable interest rate environment, demand for a variety of savings, investment, and insurance products will increase rapidly (albeit from a low starting point).   We are already seeing some consolidation at a regional level, with players such as Sura looking to compete with local and international firms.


Mexico’s established automotive sector continues to grow, with six of the biggest companies operating in the country (Nissan-Renault, Mazda, Honda, Audi, Mercedes-Benz, and BMW) and investing over USD$7,000 in production sites.  Colombia has seen an increase in investment, to go with an increase in demand for cars, with Peru also looking to the sector for growth.

Photo_RGB_R_CAN_VC_D3_CM2_0488Retail & Consumer

As part of the peace dividend in markets like Colombia, we are seeing increased demand for durable and non-durable goods.   This is generating opportunities locally and regionally.  The ‘Amazon effect’ is driving a move to e-commerce, with the side effect of a demand for more choice from customers.  Established players like Chile’s Falabella will have an advantage, but digital disruption threatens them as much as it provides an opportunity.  On-going investments in infrastructure in Colombia and Peru, in particular, will support efficiency and growth in the overall market. 


While the current trends point to investment in healthcare infrastructure to meet the current lack of capacity in most markets, we see an increasing focus on overall wellness.  Mexico, in particular, is suffering from the ill effects of prosperity, evidenced by a frightening increase in childhood obesity. Policy efforts to combat obesity and other chronic conditions will be important to manage costs in healthcare systems that are already facing funding shortages.  Opportunities exist for new or existing players, especially those who can capture both core healthcare spending and related spending on wellness.  As the disposable income of the emerging middle class grows, the winners in the healthcare sector will help these customers spend efficiently on healthcare and wellness, not just spend more. 


The need for investment in infrastructure in the region is undeniable. The government is trying, with budgets over US$460 billion targeting projects involving highways, bridges, ports, railways and airports.   Panama has been the most ambitious, with the expansion of the Canal almost completed.  Nicaragua may offer its own alternative canal in the future.  Lima’s subway is expanding actively, planning new lines.  Colombia is beginning a series of major investments in road infrastructure.   Mexico has an ambitious capital plan to build a new airport (in Mexico City), hospitals, and a railway system.  Many of these projects are developed through Public-Private Partnerships (PPP), offering opportunities for investors and supporting businesses.


There are many reasons why the region has been underappreciated – or unnoticed – in the recent past.  There are just as many reasons why Hispanoamérica now deserves appreciation – and investment. 

Latin Americans, including Brazilians, are increasingly recognising these opportunities, and acting on them.  Firms in other parts of the world should take notice as continuing stability, economic growth, investment in infrastructure, and increasing consumer confidence coupled with positive demographic trends collectively point to an era of prosperity for Hispanoamérica. 


Christopher Turner | Management & Risk Consulting Leader, Hispanomérica Advisory Services
Website | +1 312 543 5657

Mariano Errichiello | Clients & Markets Officer, Hispanomérica Advisory Services
Website | +52 55 5263 6619


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