Latin America – A Region of Great Promise Despite Itself
Nearsourcing and a growing middle class are presenting great opportunities for Latin America.
However, despite these opportunities, potential road blocks may result in the region from reaching its fullest of potential.
Not surprising, infrastructure is among the most challenging for this region. Mexico, Brazil, Chile and other Latin American countries have all announced plans to expand and improve on infrastructure. For example, announced in mid-2013, Mexico’s $300 billion plan calls for new highways, rail lines and telecommunications infrastructure, as well as port upgrades that will help improve logistics for the country's exporters. Meanwhile, Chile is expanding its infrastructure towards its rural regions while Brazil works furiously to complete infrastructure projects before the World Cup which it is hosting in June.
The success of these and other Latin American countries varies and in many ways depends on the stability and openness of each country’s government. In fact, according to a 2012 survey conducted by Miller Chevalier and Matteson Ellis Law PLC, Paraguay, Venezuela and Guatemala were ranked the top three countries with the highest index for average government corruption. For the same year, these three countries also were ranked low on the World Bank’s Logistics Performance Index. Since 2012, Paraguay and Venezuela have made strides in logistics improvements and have advanced from 113 and 111 respectively to 78 and 76.
For many countries within the region, there is a tendency towards protecting and promoting domestic industries. For example, in Brazil, there is a 60% tax on electronics goods not manufactured in Brazil itself. To avoid this tax, several companies including LG, Sony, Samsung, and Nokia maintain manufacturing plants in Brazil.
Another example is that in Argentina which earlier this year, introduced new restrictions on online shopping as part of efforts to stop foreign currency reserves from falling any further. Anyone buying items through international websites will now need to sign a declaration and produce it at a customs office, where the packages have to be collected.
Still, the expansion of the Panama Canal is expected to bring great opportunities to countries within the Caribbean as well as in Central and South America. As such, Colombia has invested in airport expansions while Jamaica looks to promote itself as a logistics hub/transshipment location within the Caribbean. Costa Rica, located in Central America, is also attracting interest as in 2013 UPS acquired two companies - Union Pak de Costa Rica S.A., a small package delivery company, and SEISA Brokerage, a freight brokerage services provider.
Finally, Brazil, the largest economy in the region which this year will host the World Cup and in 2016 the Summer Olympics. Much investing in its infrastructure has been made but will it be ready? We shall see as all eyes will be on this country.
Despite hindrances such as infrastructure and questionable government practices and regulations, Latin America is indeed a region with great promise thanks to its proximity to the US market as well as an expanding middle class that is encouraging increasing domestic demand. The Panama Canal is expected to bring opportunities to countries as possible transshipment and warehousing locations. Meanwhile Brazil will be on the world stage as it hosts two great sports events even as questions surround the status of infrastructure projects throughout the country.