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March 1, 2019

LATAM Business Weekly - Issue #7

Brazilian President Bolsonaro’s amendment proposal to confront nation’s pensions problem

Last Wednesday (February 20), recently elected Brazilian President Jair Bolsonaro presented Congress with his draft of a new constitutional amendment aimed at controlling pension spending by setting minimum retirement ages to 65 for employed men and 62 for women, implemented over a 12-year transition period.

According to The Economist ,

“The plan would raise contributions paid by people with higher incomes and limit the extent to which pensioners can collect more than one benefit.”

The package “seems to go in the direction of reducing imbalances significantly,” says Mario Mesquita, an economist at Brazilian bank Itaú (The Economist).

“The government is throwing its weight behind “nova previdência” (“new pensions”). The economy ministry reportedly plans a social-media blitz to argue that reform will reduce inequality, create jobs and release money for such public services as health and education.”

Mexico announces plans for a government-run mobile payments system in hopes of boosting local business and providing financial services to its unbanked population

Mexico’s recently elected Lopez Obrador administration has announced plans of a new mobile payments system run by the central bank that will allow Mexicans to make and receive payments via smartphone without charge. A pilot for the platform, CoDi, is expected to launch by March.

According to Reuters, an estimated 42 million Mexicans lack bank accounts, inhibiting growth potential for Mexican business.

Jaime Cortina, director of operations and payments at the central bank, said the goal was to develop a payment method that Mexicans could use to make payments between each other, in shops and online".

The payments platform will be powered by Mexico’s existing interbank payments system which includes established institutions like BBVA’s Bancomer, Banco Santander and Citigroup Inc’s Citibanamex.

The unbanked Mexican population is faced with a Catch-22. Most Mexicans still prefer to pay with cash over card, a trend that the government’s new payments platform is working to transform. However, CoDi requires users to have a bank account with one of these existing banking institutions, therefore defeating the purpose of providing financial services for the unbanked population.

Telefonica announces the launch of Internet para Todos Peru (IpT) to help bridge the digital divide in Latin America

This Monday (February 25), Spanish telecommunications group Telefonica announced it will be launching Internet para Todos Peru (IpT): open access, wholesale rural mobile infrastructure operator which aims to help bridge the digital divide in Latin America.

IpT, backed by Facebook, Inter-American Development Bank (IDB), and Development Bank of Latin America (CAF), will offer open-access technology and revenue-sharing models to keep costs low.

“Telefonica, the largest internet provider in Peru, said that if successful, the project’s business model can be replicated across Latin America to deliver mobile broadband to millions of people who live in remote areas” (Reuters).

The company’s goal is to bring mobile broadband service to remote communities where traditional telecommunications infrastructure has not yet been economically feasible.

According to Telefonica, about 100 million people, 20 percent of the Latin American population, do not yet have widespread access to mobile broadband.

High banking fees creating problems for the Mexican economy and individual consumers

Mexican banks are bracing for AMLO reaction, in response to high banking fees creating problems for the Mexican economy and individual customers.

According to financial consumer-protection agency Condusef, international banks operating in Mexico earn roughly one-third of local revenue from fees and commissions, versus one-fifth in home markets where there is more interest income from loans (Bloomberg).

Citigroup Inc Mexico charges a $47 fee for a bounced check, “equivalent to more than two days’ wages – while in the U.S., where average earnings are four times higher, Citi would charge $34. Citi does about 4 percent of its lending in Mexico, but earns anywhere from 15 to 30 percent of consumer-banking revenue there.”

The question facing the Mexican government is finding a solution to bring charges down and increase credit flow, whether it be via law, regulation, or political pressure.

“Lopez Obrador has a wider plan to revamp Mexican finance, and he wants the banks on board. Marcos Martinez, head of the Mexican Association of Banks, pledged last month to bring 30 million people into the banking system and turbocharge lending to consumers and small business. He said mobile-phone banking, which would be free of charge, may help.”

The Good, Bad, and Ugly for LATAM Resources and Infrastructure in 2019

According to Americas Market Intelligence report “LATAM Resources and Infrastructure: The Good, Bad and Ugly for 2019”, the election of business-friendly administrations should boost investor confidence in infrastructure and natural resources sectors this year.

“Peru’s Mining and Energy Ministry recently projected a 30% increase in mining investment in the county in 2019, from US$4.6 billion to US$6 billion, eventually reaching US$7.8 billion by 2020. Ecuador enacted plans to grow mining from 1.55% of GDP to 4% of GDP by 2021…”

In terms of “the bad”, 2019 can expect economic and political volatility in LATAM. Brazil’s Bolsonaro administration will likely confront tension with Congress, as the party lacks a stable legislative majority.

Additionally, the report claims

“the firm position defended by Bolsonaro against indigenous communities and environmental regulations will also embolden NGOs. Stronger scrutiny from international media is to be expected, which in turn will increase reputational risks for investors.“

Opposition from local communities and security concerns will be a rising challenge for LATAM infrastructure in 2019.

In the case of Mexico, the Morena party, holding a majority in Mexican legislature, “has proposed to amend the country’s mining law, calling for increased social impact studies and giving the Ministry of Economy the power to cancel mining concessions in case of ongoing conflicts” (Reuters).

Moving forward, security risks must be confronted in Colombia, Brazil, and Central America to ensure sustainable development on investment and increase profitability for infrastructure and natural resources companies in both the short and long term.

Future of LATAM Cannabis Market

As changing public and political attitudes about the legalization of cannabis fuels global growth and demand, Latin America’s cheap labor and agricultural experience could make the region a key player in the legal cannabis market.

According to the LATAM Cannabis Report, the market hit $125 million USD in 2018, with forecasts predicting growth up to $12.7 billion by the year 2028.

With the legalization of cannabis in Canada and important discusses taking place throughout Europe, some companies have taken an early interest in the LATAM cannabis market.

In 2018, Wayland Group Corp “entered into an agreement to purchase more than 800 hectares of developed agriculture land in the San Juan Province of Argentina”, a region considered to be an optimal location for the cultivation of cannabis accompanied with a strong business infrastructure. (equities.com)

Another important player is Aphria Inc. According to equities.com,

“The Canadian firm purchased assets from marijuana company Scythian Biosciences Corp, acquiring stakes in cannabis-related companies in markets such as Argentina, Colombia, and Jamaica.”

The deal, worth roughly $300 million USD, allowed Aphria to buy into the entire supply chain- giving them access to cultivation, manufacturing, and extraction- therefore allowing them to produce and export cannabis back to Canada while maintaining low costs by capitalizing on free trade agreements between Canada and LATAM.

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SoftBank's Brazilian investments, Latin American legislation's benefits for American entrepreneurs, and more...

This week, SoftBank bet big on Brazilian business, Platzi raised $6M USD in a Series A funding round, and President Andres Manuel Lopez Obrador invited Mark Zuckerberg to join him in promoting universal internet access in Mexico.

Softbank Vision Fund invests $100M in Brazil’s Loggi, Chinese ride-sharing giant Didi’s future Latin American expansion, PayPal’s Involvement in Mexican SMB lending, and more from Latin America…

This week, logistics startup Loggi became the newest Brazilian unicorn, Didi announced expansion plans for Colombia and Chile, and PayPal kicked off their new partnership with Konfio. 

Rappi announces plans to launch Visa debit card, Brazilan payments startup Celcoin raises $1.5M, Netflix collaborates with Latin American Youtubers to promote engagement, and more from the region…

This week, Rappi entered the neobanking market, Netflix tapped into their Latin American consumer base, and Finnovasta released their Mexican Fintech Report.

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