LATAM Business Weekly - Issue #8
Ford Motor shutting down plant in São Bernardo, Brazil in response to rising regulatory expenses
Although President Jair Bolsonaro’s administration has promised business-friendly policies that have boosted consumer confidence to a multi-year high, Ford’s total earnings fell substantially last year, with a reported loss of $678 million in South America.
According to Fortune,
“The automaker expects to record $460 million in charges related to exiting the heavy-truck business in all of South America… It’s halting production this year at its São Bernardo do Campo assembly plant, which employs almost 2,800 workers building Cargo, F-4000 and F-350 trucks, plus the Fiesta small car.”
Ford’s President and CEO Jim Hackett is leading the company’s global restructuring. As rising regulatory expenses in Brazil threaten Ford’s profitability, Hackett has emphasized the strength of Ford’s commercial truck business in other parts of the world.
“Ford shares extended gains on the news, finishing up 3.4 percent, the biggest jump since Jan. 9. The stock has jumped 15 percent this year after plunging 39 percent in 2018.”
Is Latin American e-commerce platform MercadoLibre the next PayPal?
Latin American e-commerce retailer MercadoLibre is making strides in the payments and fintech sectors.
For the first time, the company’s payments operation, MercadoPago, showed an outperformance in its “off platform” payments (merchant services, mobile points of sales, wallet payments, etc.) vs. the company’s online marketplace platform.
MercadoLibre shares spiked in fourth quarter earnings, rising up to 22%: the company’s highest level ever.
MercadoLibre’s growth has reminded some analysts of the growth trajectory of PayPal, which was originally purchased in 2002 by EBay as a payments service but eventually outgrow the parent company threefold.
“While MercadoPago is part of the larger company with a market cap of $20 billion, analysts like HSBC’s Ravi Jain have used the multiples of its payments competitors in Brazil – which is MercadoLibre’s largest market – to estimate that MercadoPago could be worth as much as $8 billion on its own” (Bloomberg).
TripAdvisor’s reservation platform company, TheFork, acquires Restorando to expand reach into 8 LATAM countries
Restorando, founded in 2011, has a user base of over 4.5 million people in Latin America per year. This acquisition will expand TheFork’s reach into eight countries including Argentina, Mexico, Colombia, Uruguay, Panama, Chile, Peru and Brazil.
PhocusWire reports that “the acquisition will add 3,500 bookable restaurants to TheFork’s network, bringing the platform’s total number of bookable restaurants around the globe to 60,000”.
According to Marcos Alves, head of Iberia, Australia and LatAm at TheFork,
“Restorando is an innovative company that has shown a great ability for technological development, something key for us… “They have the right DNA and culture fit to help us develop our business and boost restaurant digitalization in Latin America: a pioneering spirit, determination to strive for the best, strong relationships with restaurants and a fantastic knowledge of this region of the world.”
The future of UK-LATAM and Caribbean trade post-Brexit
On February 25, The British Foreign Policy Group held an event entitled The Future of UK-Latin American and Caribbean Trade after Brexit. Panel members included Ambassadors, Minister Counsellors, and Trade Representatives from a dozen LatAm countries as well as International Relations scholars and professors.
The panel reached a general consensus that the problem inhibiting an increase in trade between the regions is not distance or a lack of appetite from LatAm market. The focus instead should involve changing perceptions about LatAm trade in the UK. Representatives expressed the importance of continuing to increase Latin America’s voice in international institutions like the OECD to help improve overall attitudes.
According to a report published by the BFG,
“The Embassy representatives showed concern about the political toll that Brexit has taken on the UK as so much energy is being spent on just the process of exiting alone. This has led Embassy representatives to be wary as it is unclear when the UK will have the time to consider any new free trade agreements that address issues like regulatory alignment in a meaningful way.”
However, panel members expressed positive outlooks looking about the capacity of cultural cooperation in the future to help improve post-Brexit relations.
“As also noted by several Latin American Ambassadors, British tourism has increased in recent years as direct flights to Latin American and Caribbean countries have become more widely available. This has allowed for increased awareness of Latin American countries among the public which can contribute to changing perceptions.”
Upgraded China-Chile FTA creates new opportunities for foreign investors
Beginning March 1, an upgraded China-Chile FTA will open new opportunities for foreign investors and expand bilateral trade.
In 2016, Chilean exports to China were over double the value of Chile’s exports to the U.S.
According to China Briefing,
“Bilateral trade between China and Chile reached US $42.8 billion in 2018, showing an increase of about 24 percent year-on-year. This accounted for almost one-third of Chile’s total foreign trade.Chile’s major exports to China are mineral and forestry products like copper, fruits, and seafood. China’s key exports to Chile are textiles, light industrial products, electronic and machinery products.”
This updated FTA creates considerable opportunities for Chilean businesses operating in Chinese markets. The food sector will be especially profitable, as the FTA allows free export from Chile to China while local Chinese production cannot keep up with the Chinese population’s internal demand.
“As living standards in China improve, Chinese consumers seek higher quality, imported food. China’s total food imports added up to US$58.28 billion in 2017, which was a 25 percent increase from the year before.”
LatAm logistics: The good, bad, and ugly for 2019
A combination of recovering economies and growth in e-commerce creates a high flow of goods throughout LatAm, therefore increasing logistics revenues.
According to America’s Market Intelligence report, “It’s estimated that Latin America’s e-commerce volume will expand to US$118 billion in 2019, and of this nearly $60 billion will come from retail e-commerce traffic.”
LatAm logistics companies are responding to this e-commerce boom by changing warehouse approaches, introducing warehouse automation using robots, and utilizing big data and analytics to analyze how their fleets operate in efforts to increase efficiency.
A problem that LatAm logistics must confront, however, is the issue of high return rates for products purchased via e-commerce.
“The pain of less-than-stellar reverse logistics operations in Latin America will be felt particularly with cross-border e-commerce products. Often, companies are just shipping new products to customers to avoid the cost and headaches of customers trying to ship back products that were incorrectly shipped or faulty.”
According to AMI, ‘the ugly’ for 2019 logistics in Latin America is that “Disruptors are pressuring companies to drop their prices to compete, and this is on top of global price pressures. This has meant that many companies have had to slash costs by laying off employees and shedding unproductive assets. While moves like this may improve the balance sheet while potentially creating more efficiency, the cost-cutting could also reduce their capabilities to serve existing and future clients, causing loss of business.”
Video: Definitive timeline of Venezuelan crisis
Previous issues of our LatAm Newsletter have discussed the state of crisis in Venezuela.
Under the presidency of Hugo Chávez, Venezuela was the richest economy in Latin America with huge oil reserves. Today, however, the country has entered an economic and humanitarian crisis.
This video by CNBC provides a timeline of the turmoil in Venezuela and insight on international intervention and potential futures for the nation.