Latin America’s turbulent political and economic history hasn’t inspired a lot of confidence for American organizations thinking of expanding there. But that doesn’t mean you shouldn’t consider Latin America for the growth of your business.
Many countries such as Honduras, Peru and Bolivia boast high GDP growth. The Central and South America region overall – which includes both Spanish-speaking countries such as Mexico and Portuguese-speaking countries such as Brazil – is embracing more business-friendly policies to attract foreign investment.
There are many reasons for reluctant American businesses to consider expansion in Latin America, according to Susana Gonzalez Murillo, recently retired vice president and country manager for Spain, Portugal, Canada and Latin America at U.S. Bank. But they boil down to three main considerations:
1. Economics. There’s long-term growth potential for U.S. business in Latin America, borne out by the region’s economic recovery, Murillo says. For instance, Brazil has posted positive GDP growth in 2017 after two years of contraction.
The growth isn’t limited to the largest economies either – over the last three years, Panama recorded average GDP growth of 5.4 percent, Bolivia grew at an average of 4.37 percent and Peru grew an average of 3.3 percent. All Latin American countries except for Venezuela are estimated to have positive GDP growth in 2018.
In addition, Latin American nations have made a concerted effort to lower the overall cost of doing business in an effort to attract foreign investment, Murillo says.
2. Culture. U.S. products are valued in Latin America. And in many countries, the middle class is often educated in the United States and fluent in English, Murillo says. This makes it easier for American businesses to find a market and local managers, while navigating their business in a foreign nation.
3. Stability. Murillo notes that for years Colombia was known for instability and violence. But the decline of narco-trafficking and the end of a decades-long civil war are leading to a renaissance of that nation’s economy and business environment. Also, Chile and Peru now enjoy political stability after years of internal strife.
Admittedly, there remain heightened risks in Latin America. Venezuela teeters on the brink of economic collapse, while Brazil recovers from a massive corruption scandal and a deep recession that saw GDP decline 3.6 percent in 2016.
These factors create the possibility of assets leaving the country, says Christine Bravo, senior vice president of International Financial Institutions at U.S. Bank. “Where there’s uncertainty, people don’t spend money, and they might also move their money out of the country,” she says.
Then there’s the previously mentioned corruption, or rather, the stereotype of corrupt Latin American rulers and bureaucrats demanding tribute as a cost of doing business, Murillo says. For example, Operation Car Wash, a Brazilian anti-corruption investigation, revealed a scandal in which leaders from across the region received bribes from construction companies in exchange for government contracts.
1. Know your nations. Latin America comprises 20 nations and more than 600 million people speaking different languages with different cultures. Bravo points out that while the risks may seem universal across Latin America, every country is different.
2. Know your markets. “You have to ask ‘Does my product fit into Peru?’” Murillo says. “‘Does it fit into Ecuador? Does it fit into Central America?’ You need to do your homework.”
Murillo recommends paying special attention to each nation’s policies toward repatriation of profits, as well as protectionism: “For example, Brazil is a highly industrial country, and they’ve protected a lot of their industry.”
3. Ask for help. Doing business in any new market is akin to a startup. You might be surprised at what help you’ll need to set up shop in Latin America. “You have to look into an accountant, a lawyer, a banker – all the services that you would typically need here in the U.S.,” Murillo says.
At U.S. Bank, for example, we’re available to answer questions that can help our clients with their analysis of a country. And we offer resources to help organizations get started. “We look at the economic factors and the political system. Not only do we have analysts in our credit department looking at economic, political and industry risks, but we do market analysis from having traveled there, meeting people and talking to local bankers,” Murillo says.
The risks and rewards of doing business in Latin America aren’t necessarily a good fit for every organization. However, businesses with a long-term vision of expansion may want to take a closer look. You may find new markets for your goods and services in Latin America.
To learn more about doing business in Latin America, visit U.S. Bank International Banking.