Thinking investing in Latin America and The Caribbean is frequently wrong perceived, on topics like security, political, social, cultural and economic. We blame clichés, generalizations, media, and an unavoidable factor: not being there. And that is why we commonly find ourselves guiding our decisions by stereotypes. So let’s talk about Risk and Potential.
Investing in Latin America and The Caribbean requires to defeat perception. For example politics.
1. Heterogeneity
First consideration. Take a chalk and write 100 times on the blackboard: “Latin America is not a country”. After traveling and working through more than 15 countries in Latin America and The Caribbean we can tell you that in spite of the physical and cultural similarities (weather, food, language, music, etc.) each country has its particular way to see and act in politics, and even small traits make all the difference. But you think in the risk and potential? That’s why the keystone is to analyze case by case, depending on the product or service to introduce, the cultural, political and economic aspects. You can read in this article more about this topic.
2. Macroeconomic Cycles
There are basically two macro-economic cycles in Latin America and the Caribbean countries. Basically, South American Countries that have its economy based on commodities, exporting mainly to China; and Mexico and some countries in Central American and the Caribbean exporting commodities and manufactured goods to the United States. When the world economy is going well because of commodity prices and Chinese and Indian demand, South America does well. Then if the US is not doing especially well, then Mexico and the other manufacturing countries suffer.
One other thing not to overlook, is that in Latin America and The Caribbean, the seasons of the year are not synced, this means that while in the southern cone countries like Brazil, Chile, Argentina or Peru are enjoying a 40-Celsius-degrees-Summer, at the same time in all the countries above the Equator (Central and North America) are in the heart of the Winter; this makes all the difference in social, economic and political dynamics.
3. Social Unrest and Good Governance
The region is very active in terms of social movements and there are significant problems. Venezuela poses the biggest problems nowadays. There exists a few other in Argentina, Haiti and in the last four years in Nicaragua facing a repressive government. But in the last 10 years, there have not been coups anymore in Latin America, no revolutions or big armed conflicts.
4. Violence
Violence is maybe the most visible problem of Latin American countries: drugs run across borders in exchange for dollars and guns; gangs and cartels fight for territories and people die. That is a sad reality. But I shall emphasize that it is not a situation of generalized violence, with the exception of Venezuela or some cities in El Salvador.
So, our first suggestion is to map the cities where the violence indicators are high and not take as good the national indicator. Our second recommendation is to analyze who are the people murdered, investigate the numbers or ask local consultants about how the dynamics of the violence is. Even in highly violent cities, business can succeed, the key is all about risk management. Remember the parachute paradox?
5. Corruption
According to International transparency, Latin America continues to be one of the most corrupt regions in the world. Bribery represents a significant barrier to access key public services. Not a good landscape for America Latina, but much better than for Sub-Saharan Africa or some regions in Asia.
Not all is bad news, it has become more common to see courts working to punish corruption at political level. These indicate that transparency and judicial institutions are evolving and becoming stronger, due to social participation, media opening and the sole fact that the internet itself makes a more transparent world.
So there’s a recommendation for business in Latin America to be established, make a map with potential corruption risks.
6. Assessing the Risks
We suggest you a holistic risk map for a company examining the dynamics of frequency and severity as they relate to each risk. Assigning a probability of occurrence against the estimate of future magnitude of possible loss, the risk managers can form the basis upon which an administration can focus on risk areas in need of action. If the company don’t have a branch or a trustworthy contact in the country, we highly recommend hiring a local consultancy and make a field visit, to have a realistic insight from people immersed in the social, economic and cultural environment. You can read more about the topic on this article.
We can help your business growth and expand to Latin America, contact us for more information abot Risk and Potential.