Mexican Startup Credijusto Raises $100M and Seeks to Boost Loans, Coronavirus Forces Brazil to Seal Borders as Region Struggles to Control Pandemic, Uber’s LatAm Antitrust Challenges Regarding its $459M Acquisition of Cornershop, and More from LatAm...
Other featured stories include: Mexico Downgraded to BBB by S&P, Oil Price Shocks; Utilizing Online Marketplaces For Business Growth In Latin America; Mexico’s President Rules Out Company Bailouts or Requesting IMF Line; AMLO Begins Muting Virus Skepticism and Urges Workers Be Sent Home; Which Airlines Were The First To Appear In Latin America?; and Latin American Leaders Take Different Approaches to Coronavirus.
Mexican Startup Credijusto Raises $100M and Seeks to Boost Loans
Mexico City-based fintech startup Credijusto has raised $100 million in debt from Credit Suisse Group, a deal that will help it extend more loans to small and mid-sized businesses as banks work to navigate the impact of coronavirus, their joint CEO said.
Although the deal was in the works before the coronavirus epidemic intensified, it closed last week amid significant upheaval in financial markets, Credijusto Co-CEO David Poritz told Reuters.
Small and medium-sized companies (“SMBs”) have struggled to access financing from Mexican banks: a problem that could worsen if financial institutions take a more conservative stance in response to the market turmoil triggered by the pandemic.
With the Credit Suisse (CSGN.S) cash infusion, Credijusto is better equipped to help bridge the financing gap, Poritz said.
“There is a massive market opportunity of strong, creditworthy businesses that banks are shutting their doors to,” he said.
The Mexican government has said it is looking to fintechs to help boost financial inclusion in the country, where more than half the population lacks a bank account. As investors seek stability during the current market turmoil, entrepreneurs fear the budding tech sector could see difficult days ahead.
“It is going to be a more challenging time for raising capital and that’s not just in Latin America, that’s everywhere,” said Michael Sidgmore, a partner at venture capital firm Broadhaven Ventures, which has invested in Credijusto.
Sidgmore added that the market turmoil could create opportunity for Credijusto, noting that the startup has “seen an uptick of interest from small and medium-sized business in recent weeks,” according to Reuters.
“Small and medium-sized enterprises in Latin America are massively underserved to begin with, and any shock like this tends to make banks retrench,” he stated.
Coronavirus Forces Brazil to Seal Borders as Region Struggles to Control Pandemic
Last Thursday, Brazil closed its borders with eight neighboring countries, joining other South American nations in a continent-wide quarantine as authorities struggle to control the spread of the coronavirus.
The measure taken by Brazil, Latin America’s largest economy, applies to Argentina, Bolivia, Colombia, Paraguay, Peru, Suriname, Guyana and the French overseas department of Guiana. Brazil’s border with Venezuela was already closed, while the border with Uruguay remains open for now.
The Wall Street Journal reports that Brazil has a total of about 10,000 miles of land borders with its neighbors, and all but about 650 miles of them, with Uruguay, are now closed.
In recent days, countries across Latin America have made swift moves to seal national borders as coronavirus cases rise, leaving thousands of travelers stranded. Concurrently, the downturn in China has drawn fears of a protracted slowdown for the region’s predominately commodities-driven economies and a tougher rebound.
“South America was caught flat-footed, and now they’re trying to catch up. 2020 was already going to be a year of sluggish growth. Now, the virus is clearly going to add downward pressure,” said Eric Farnsworth, who tracks the region for the Americas Society/Council of the Americas, a Washington-based policy group.
Some of the region’s biggest businesses are being forced to ramp down operations. Chilean-based Latam Airlines Group announced it was canceling 90% of its international flights, while asking workers to take a 50% pay cut.
“The combination of declining external demand for goods and services, worsening terms of trade, significant tightening of domestic financial conditions, and the economic impact of the rapidly escalating measures to deal with Covid-19 outbreaks within national borders” prompted the revisions, said Goldman Sachs economist Alberto Ramos.
Corporación Nacional del Cobre de Chile, or Codelco, the world’s biggest copper producer, said it was cutting back operations in Chile to protect the health of workers as President Sebastian Piñera on Thursday announced a $11.7 billion plan to support the economy.
“We all understand the anguish and uncertainty from this crisis and the threat from the coronavirus pandemic. We need unity,” said President Piñera.
In Peru, the government has implemented a nighttime curfew, fish exporters halted shipments to China, and miners like gold producer Yanacocha are also reducing activities.
Oxford Economics, a London-based consulting firm, said many countries in the region will “struggle to implement countercyclical fiscal policies to support the economy during the downturn due to their debt.” Additionally, sharp depreciation of most of the region’s currencies against the dollar is likely far from over.
“Prolonged currency weakness is a key transmission channel to the real economy in this scenario,” the firm said.
Brazil, which has reported 63 deaths from the virus (as of Thursday, March 26), closed its land borders with its neighboring countries for 15 days, with the possibility of an extension, according to the official government newspaper. Brazilian citizens and residents are still allowed to enter the country, as are foreign citizens working for international organizations or otherwise authorized by the Brazilian government. Trucks carrying commercial goods are also permitted to cross the border.
São Paulo and Rio de Janeiro recommended the closure of shopping malls, gyms and other businesses where people gather. As layoffs ripple through the region, Brazilian workers are feeling the impact.
“We’re worried there won’t be enough demand, we’re worried about our jobs, about paying the rent,” said Jose Roberto Paoli, who works in an optician shop in the center of São Paulo. Business is down about 95% from two weeks ago, he added.
Last Thursday, Colombia also said travelers, including Colombian citizens, would be barred from entering the country beginning next week. The move is the latest drastic measure taken since President Ivan Duque declared a state of emergency earlier last week as Colombia struggles to contain the spread of Covid-19 and cope with the turmoil of global financial markets, where the value of the national currency, the peso, has dropped nearly a third of its value against the dollar.
The Duque administration has ordered a mandatory six-week lockdown for elder citizens as the number of confirmed coronavirus cases amounts to 491, as of Thursday, March 26.
“We’re going to have to make even tougher decisions going forward. It’s painful, but it’s necessary,” President Duque said.
Uber’s Latin American Antitrust Challenges Regarding its $459 Million Acquisition of 51% of Cornershop
In October 2019, Uber announced an agreement to acquire majority ownership of Cornershop, a leading online grocery company in Latin America. The terms of the deal outlined a reported $459 million for 51% of Cornershop – an impressive valuation that puts the company in close proximity of achieving unicorn status.
Following the deal announcement, Dara Khosrowshahi, Uber’s CEO stated: “We’re excited to partner with the team at Cornershop to scale their vision, and look forward to working with them to bring grocery delivery to millions of consumers on the Uber platform.”
Prior to the Uber deal, the startup had raised $31.7 million over the course of four VC funding rounds from firms including Accel Partners, Jackson Square Ventures, Mexico-based ALLVP, and European VC firm Creandum, among other early backers.
The recent deal, however, has been impeded by antitrust regulators in Latin America, even before the global economy was hit by Covid-19, which has now created a new set of problems for pending M&A transactions. Fortunately for Cornershop, demand for their online grocery delivery service has surged dramatically during the coronavirus pandemic (and the subsequent economic fallout).
As reported by Medium:
“On January 24th, the FNE in Chile announced an extended “phase 2” review of the proposed Uber-Cornershop transaction, claiming that the transaction could harm competition because: 1) it could give rise to unilateral anti-competitive effects by eliminating the entry of a potential new competitor (Uber) into the grocery delivery market in Chile; 2) it could diminish the incentives of the merging parties to innovate in related markets; and 3) it could create merger conglomerate risks.”
This is not Cornershop’s first run-in with antitrust regulators in Latin America, however. In September of 2018, Walmart announced the acquisition of Cornershop for $225 million, a deal that was promptly approved by the Chilean National Economic Prosecutor (“FNE”), the antitrust regulator in Chile. But in Mexico, it got delayed for months by COFECE, the Mexican antitrust regulator, before the agency ultimately nixed it.
It’s now back to square one with the Uber and Cornershop deal.
Although the company has become a Latin American startup success story, competition is fierce in the online grocery delivery market. The market is highly dynamic, with little to no barriers of entry, and new offerings and companies have risen at multiple levels, including:
1. Incumbent grocery stores
The major grocers in the region have substantial financial resources and have already built (or are in the process of building) their own online delivery options. In Mexico, incumbent grocery stores include Chedraui, Costco, HEB, La Comer, Soriana, and Walmart de México, in addition to a number of regional players and multi-formats. In Chile, there are four major grocery chains including Walmart (Líder), Cencosud (Jumbo), Falabella (Tottus) and SMU (Telemercados).
Additionally, many grocers are experimenting with new outlets to reach customers online such as “dark stores,” or retail outlets or distribution centers that cater exclusively for online shopping. For example, in the United States, retailers are experimenting services like curbside pick-ups or delivering groceries directly to customers’ fridges when no one is home, using smart-entry technology and wearable cameras.
2. Other food delivery apps
There are various platform competitors to Cornershop in Latin America. Regional players include Colombia’s Rappi (which received $1 billion investment from Softbank in 2019 and operates in 9 countries), Uruguay’s Pedidos Ya (acquired in 2014 by Germany’s juggernaut Delivery Hero), Brazil’s iFood (Latin America’s largest delivery app), Supermercado Now (acquired this year by Brazilian online retail company B2W); and Spain’s Glovo (operational in 20 countries globally, including Central America plus Argentina, Ecuador and Peru).
In addition, international delivery apps such as China’s DiDi entered the Mexican food delivery market in 2019, and the door remains open for U.S. delivery platforms like as DoorDash, Postmates or Instacart.
3. Other e-commerce players
Amazon is already offering grocery delivery in Mexico, the UK, U.S. and elsewhere, and could continue expanding to other Latin American countries.
Meanwhile, Argentina’s Mercado Libre – the largest online commerce ecosystem in Latin America with 274 million users – has already entered grocery delivery in Mexico and will do so soon in Argentina and Brazil. The company announced a “moto-boy” app in Argentina and Mexico that will compete with Rappi, Cornershop and Fedex. The company invested $2 billion across Latin America in 2018, with about a quarter of that focused on logistics.
Mexico Downgraded to BBB by S&P on Virus, Oil Price Shocks
On Thursday, Bloomberg reported that S&P Global Ratings cut its sovereign credit score for Mexico by one notch to BBB, asserting that shocks from the spread of coronavirus and an oil price rout will harm the country’s already grim economic outlook.
The ratings company also said that Mexico will remain on credit watch negative, reflecting the possibility that its rating could be cut a second time within a year or two.
“Prolonged poor fiscal performance and a resulting rising debt burden, or the risk of potentially weak policy implementation, could lead us to lower the rating,” wrote analysts Lisa Schineller and Joydeep Mukherji in the decision.
While this is not surprising given the deteriorating economic environment, the downgrade demonstrates the increasing difficulties faced by the administration of President Andres Manuel Lopez Obrador this year.
“Some analysts are warning that Latin America’s second-largest economy could face an activity slump similar to that of the so-called Tequila crisis in the mid-90s, when gross domestic product contracted almost 6%” (Bloomberg).
Mexico’s peso reversed gains and fell 1.4% to 23.2630 per dollar after the downgrade.
The S&P analysts also noted potential increases in contingent liabilities from state oil company Petroleos Mexicanos, which has been hit hard by the oil price plunge this year.
According to Bloomberg, investors have long feared that the Mexican government would be required to do more to support the company as it struggles under a debt burden of more than $100 billion.
In the decision, S&P highlighted the shift in energy policy under AMLO, which the analysts said has increased Mexico’s reliance on the oil company. Business confidence in the country “remains low” and hasn’t improved since an infrastructure plan announced in November, S&P added.
“If the government’s fiscal profile remains weak for a prolonged period… Pemex’s poor operational and financial performance and technical capacity constraints could pose a more material contingent liability for sovereign creditworthiness,” the analysts added.
Utilizing Online Marketplaces For Business Growth In Latin America
As Latin America undergoes a period of rapid change and development, the region is experiencing a digital overhaul in several traditional sectors, including agriculture, finance and retail. The emergence of online marketplaces in the region is likely a response to the increased uptake of technology, particularly smartphones. As consumer behavior changes to adjust to these disruptions, businesses must adapt.
Online Marketplace Activity in Latin America
The World Bank noted in 2013 that “moderate poverty fell from more than 40 percent in 2000 to less than 30 percent in 2010.
As reported by Forbes, this decline in poverty implies that 50 million Latin Americans escaped poverty over the decade. Economies experiencing consistent job growth and GDP may generate increases in disposable wealth. Latin America’s markets are also receptive to disruptive technologies that can impact both buyers and sellers.
According to Craig Dempsey, Managing Director of Biz Latin Hub, convenience is the name of the game in markets where disposable income is on the rise.
Businesses currently operating in Latin America, as well as new entrants, should take note of the opportunities to develop their sales and brand awareness in well-known regional online marketplaces. The rapid growth in e-commerce activity is transforming the way businesses must market themselves to stay ahead and grow in the region.
“In 2019, 155.5 million people in Latin America are expected to buy goods and services online, a dramatic increase from 126.8 million in 2016.” This increase in online purchasing is expected to translate into $79.7 billion (U.S.) worth of retail e-commerce sales from $49.8 billion in 2016.
Benefits Of Online Marketplaces For Business Development
As a small- or medium-sized enterprise, your international reach may be limited. With a household online marketplace name, you can work to solve that issue.
Listing your products on a recognized international sales platform increases brand exposure, which is especially helpful with reaching younger generations in the region who are more accustomed to finding what they want through IoT devices.
You can also reduce your own website development and shipping needs by selling on a well-established platform. Some major players in Latin America, like Amazon, offer sellers the opportunity to store their goods in fulfilment or distribution centers, allowing businesses to send bulk shipments of goods to the company, which will package and ship them.
While there is value in having your own website, it may be harder for consumers to find, in comparison to well-known online marketplaces in Latin America. Operating through an online marketplace also gives your business the opportunity to offer new options to those who can’t easily find that variety in their immediate surroundings.
According to Forbes, there’s also great business-to-business (B2B) potential in utilizing online marketplaces that could become a valuable element of your sales strategy. Individual customers aren’t the only ones visiting these marketplaces, as other businesses will be scouring their options to find quick and efficient local sources of materials and goods.
The Major Players In Online Marketplaces
Many world-renowned marketplaces feature prominently in Latin America as well: Amazon, eBay, Alibaba, Apple, Walmart and Google are all popular online retailers in the region.
Latin America’s most popular local operator is MercadoLibre. According to May 2018 data from Statista, MercadoLibre attracted 56.3 million unique visitors to its site that month, soaring ahead of Amazon sites in second place with 22.4 million visitors (Forbes).
Other top-ranked regional marketplaces include B2W Digital (16.1 million visitors), CNova (9.1 million visitors) and Buscapé (6 million visitors). With MercadoLibre, these four online marketplaces showed an aggregate visitor count of 87.5 million people. The foreign retail companies mentioned above attracted a collective 67.3 million people.
Finding The Right Online Marketplace For Your Business
Pay attention to regional favorites, as world-renowned marketplaces like Amazon may not give you as much exposure as popular regional operators.
It is also beneficial to check the features of the online marketplace from a seller’s perspective: Does the marketplace facilitate the delivery of your goods through fulfillment centers? Does it offer your customers the option to make bulk purchases?
Consider a mix of the regional and global when you’re gauging the right online marketplaces for your business. Understanding the potential for business development, especially as an SME, is vital to take advantage of household e-commerce names to sell your products in Latin America.
Mexico’s President Rules Out Company Bailouts or Requesting IMF Line
President Andres Manuel Lopez Obrador said Mexico’s companies should not expect bailouts or tax amnesties, and that the nation won’t tap a standing credit line with the International Monetary Fund – even as other economies take substantial measures to fight a slump in activity.
As reported by Yahoo Finance, economists are quickly slashing their outlooks for Mexico and now expect the economy to contract 3% this year – citing the impact of coronavirus on the local economy and a likely recession in the U.S., Mexico’s top trading partner.
Mexican authorities have so far avoided some of the most drastic measures taken by other nations for fear of halting economic activity.
“Don’t stop going out, we are still in phase one. I will say when not to go out…Keep taking the family out to eat,” Lopez Obador said in a video filmed at a traditional Mexican restaurant in the state of Oaxaca and posted on his Facebook page this weekend.
Business lobby groups – including the country’s factory-for-export association, which comprises the top maquiladoras – wrote to Lopez Obrador and his top tax official last week to plead for the postponement of annual tax payments due at the end of March and other reliefs.
“International organizations, analysts and governments do not doubt that there will be a strong negative impact in global growth. Our country is not, and will not be, an exception,” Luis Aguirre, the head of the Index maquiladora lobby, said in the letter to the president.
The lack of counter-cyclical policies in Mexico contrast with the stimulus measures taken by the U.S. and other Latin American countries. On Friday in the U.S., Treasury Secretary Steven Mnuchin announced that U.S. taxpayers would get an extension until July 15 to file and pay taxes. Last week, Chile announced a major stimulus package that included tax deferrals for smaller companies.
In Novemeber, the IMF renewed Mexico’s flexible credit line for two more years, while cutting it to $61 billion. The new facility is down from a previous $74 billion. Mexico first received such credit line in 2009 during the global financial crisis, and was initially set at $47 billion.
AMLO Begins Muting Virus Skepticism and Urges Workers Be Sent Home
Despite President Andres Manuel López Obrador (“AMLO”)’s initial resistance, the Mexican President has changed his tone in response to the coronavirus pandemic. On Thursday, he called on companies to send their workers home.
As reported by Bloomberg, Mexico formally announced this week it’s heading into a so-called Phase 2, or “community transmission of the virus”. Wednesday night, the government said all non-essential government employees would have to work from home.
“If you are a company that doesn’t have a basic social function, businessmen should help us, at least this month, until April 19, by sending their workers home with benefits,” Lopez Obrador said at his morning news conference.
The president also told Mexicans in the U.S. not to travel unless it’s vital. However, the government has not cancelled any scheduled flights into Mexico from the United States.
AMLO has been called out by some medical experts. On Thursday, Human Rights Watch criticized him for recommending that people go about their daily routines to avoid an economic shutdown (which he’s repeated as recently as last Sunday).
The Mexican government’s relatively relaxed attitude towards Covid-19 sharply contrasts with both the U.S., where lockdowns are happening in several big cities, and also to other Latin American nations.
“President Andres Manuel Lopez Obrador is putting the people of Mexico in grave danger with his reckless disregard for providing accurate information on the Covid-19 pandemic,” Human Rights Watch said in a statement.
Mexico had 475 confirmed cases of coronavirus and six deaths as of Thursday night.
Which Airlines Were The First To Appear In Latin America?
The first airline that appeared in Latin America was founded by three Germans and six Colombians, created on 5 December 1919 under the name Sociedad Colombo Alemana de Transporte Aéreo, or SCADTA. Today, the airline operates under the name Avianca.
A few years later, two U.S. citizens founded a new carrier in Mexico, which would be known as Mexicana de Aviación. Although Mexicana de Aviación no longer exists, there are talks of its revival.
In 1925, another group of German immigrants founded an airline in Bolivia, called Lloyd Aéreo Boliviano. This small airline ceased operations in 2010, although there is a movement trying to revive Lloyd Aéreo Boliviano.
As reported by Simple Flying, the first airline to appear in Brazil was called Varig, founded by German aviator, Otto Ernst Meyer-Labastille in 1927. Right around the same time, another Brazilian carrier emerged: Serviços Aéreos Cruzeiro do Sul, and is linked to the first Deutsche Lufthansa.
Avianca turned 100 years old last year. It is one of the oldest existing airlines in the world, along with KLM.
Other players in Latin America that are over 90 years old include LATAM Chile, which launched operations in March 1929 under the original name Línea Aeropostal Santiago-Arica. In 1932, the Chilean carrier took its more widely known name: Línea Aérea Nacional, or LAN. In 2010, LAN merged with TAM Airlines, and rebranded both airlines as LATAM.
Aeropostal Alas de Venezuela, the State airline of Venezuela, appeared in July 1929. The third Latin American carrier to appear in 1929 was Cubana de Aviación. The Cuban State airline still operates, although it has faced enormous problems over the last few years.
Video: Latin American Leaders Take Different Approaches to Coronavirus
Latin American Leaders Take Different Approaches to Coronavirus