The Battle to Become the Mexican Nubank Begins, CA Ventures Invests $325 Million Investment in Latin American Student Housing, Coronavirus Spells Trouble for Latin America’s China-linked Economies, and More...
Other featured stories include: MIT Technology Review Announces the Winners of Innovators Under 35 LATAM, How Brazil’s JBS Became Collateral Damage in War Between Billionaires, Peru’s Emerging Startup Scene, Galileo Financial Technologies Expands into Mexico, and Interview with Rodrigo Zambon: Managing Director for Brazil at TMF Group
The Battle to Become the Mexican Nubank Begins
Brazil’s Nubank was the first neobank in the market to challenge banks’ oligopolistic power in the region. The company was able to attract more than 15 million customers, valuing the company at an astonishing US$10 billion in its latest round. While Brazil has been the center of the neobanks’ emergence in the region, attention has recently shifted toward another country in the region: Mexico.
Mexico, the second-largest economy in the region, has a population of roughly 130 million people, but a large share of people are not integrated into the country’s formal economy.
According to the Global Findex database, 63% of the adult population do not have access to financial services, and banks haven’t been able to or aren’t interested in serving them. Due to the Mexican population’s skepticism towards banks and the country’s cash-based economy, 90% of all consumer transactions are still made in cash.
There is substantial opportunity here, given that Mexico has a digitally engaged population. As reported by Tech Crunch, Mexico is the fifth largest market for Facebook, ninth for YouTube and the third for Uber, accompanied by high smartphone penetration (85.8% according to The Competitive Intelligence Unit).
The market started to gain traction in April 2018 when Matin Tamizi raised US$2 million from Andreessen Horowitz and Kaszek Ventures to create a neobank Cuenca. This event, in conjunction with the success of neobanks in Brazil, sparked attention for the potential of the Mexican market.
A couple months later, Albo announced a Series A, raising US$7.4 million. Albo is currently the leading player in the market, with 150,000 customers and the third debit card issuer in Mexico. Shortly thereafter, Fondeadora raised a US$1.5 million seed round to enter the neobank market.
In September 2019, new entrant Klar raised US$7.5 million in equity and US$50 million in debt financing with the goal to become the “Chime of Mexico.”
Regional and international players are also becoming interested in the opportunity. In 2019, Brazilian giant Nubank officially announced that it would be expanding into Mexico. Last week, Bnext, the leading Spanish neobank, announced it would be entering the Mexican market, fueled by a fresh new round of €22.5 million. Unlike other neobanks, Bnext partners with fintechs and financial institutions to provide services to its customers via a marketplace.
CA Ventures Invests $325 Million Investment in Latin American Student Housing
CA International, the international division of CA Ventures, a U.S.-based real estate investment management company, announced it will invest $325 million USD to expand the firm’s multifamily and student housing presence in Latin America: specifically in the Mexican cities of Monterrey, Mexico City and Merida.
“Latin America continues to be a high-growth region that has attracted investors looking to acquire or develop new rental communities, particularly near major universities as housing preferences evolve,” said Tony DiBiase, principal of CA International who has led the division since its inception in 2013.
CA International currently has four fully operational projects in Latin America: LivinnX in Bogotà, Colombia; LivinnX 21, also located in Bogotà; LivinnX Barranquilla in Barranquilla, Colombia; and LivinnX Santiago Santiago, Chile.
As reported by Business Wire, CA’s first two projects, LivinnX 18 and LivinnX Santiago, are over 93% occupied. LivinnX 21 and LivinnX Barranquilla- which were completed in the last two years - are projected to be over 90% occupied within the next 12 months, demonstrating strong market reception. CA International has six additional projects in Mexico, Chile and Colombia slated to begin this year.
“As a pioneer of purpose-built student housing in this region, we’ve worked hard to collaborate with local stakeholders and investment partners in each country to bring a quality product to market, tailoring each development to the needs of the local student population. CA International’s flagship projects are changing how Latin America views student housing, offering students the chance to live away from home during their studies to gain independence and build lifelong friendships,” DiBiase added.
Coronavirus Spells Trouble for Latin America’s China-linked Economies
For an indication of how the Coronavirus and a Chinese slowdown could hurt Latin America, look at Chile, which sells about a third of its exports to China. According to Bloomberg, Chilean officials are hastily trying to offload shipments of wine, cherries, and seafood elsewhere in Asia, after Chinese purchases fell between 50% and 60% since the coronavirus outbreak first began.
As China shuts down ports, large cargos of copper - of which Chile is the world’s largest producer - linger onshore. As reported by Quartz, Copper prices are only just recovering from a 14-day tumble tied to the crisis. Over the past decade, China has gone from playing an intermediate role in Latin American trade to becoming the region’s second-largest trading partner. It is now the top importer of goods from Brazil, Peru, Uruguay, and Chile.
Graph Courtesy of Quartz
A poor first quarter for the Chinese economy would prove an unpromising start to the decade for Latin America. As a result of the virus, UBS has already slashed its growth forecast for Brazil, the region’s biggest economy, from 2.5% to 2.1%, a UBS representative told Quartz.
“Latin America, in terms of regional growth, had the lowest of all the regions in the world in the last year… In this context we also have the coronavirus situation, so it seems like external forces are not exactly favorable,” said Pepe Zhang, who leads China-Latin America research at the Atlantic Council.
Graph Courtesy of Quartz
Andres Abadia, senior economist for Latin America at Pantheon Macroeconomics, a research firm, said a Chinese slowdown could hit the region in a number of ways.
“We have to expect a big hit to Chinese demand for Latin American goods, particularly commodity prices, and disruption to China-based supply chains for a couple of months, at least, so we await the next round of business surveys from [these] countries with a degree of trepidation,” he wrote in an email to Quartz.
Investors showed their suspicion about putting money into Latin America while China is floundering as soon as the Coronavirus sparked turbulence in global markets in late January.
According to Ernesto Revilla, head of Latin America economic research at Citigroup, the initial selloffs were driven mainly by an urge to move out of risky environments, bolstered by falling commodity prices and fears about Latin America’s exposure to China.
Graph Courtesy of Quartz
“Latin America is in a difficult spot where it’s not obvious where to find a new model for growth —and investment is very weak in the region… China is playing an important role in many countries in Latin America, but a slowdown in China will decrease the level of investment from China to these Latin American countries,” Revilla stated.
MIT Technology Review Announces the Winners of Innovators Under 35 LATAM
At MIT Technology Review’s Innovators under 35 Latin America 2019 awards ceremony, which was held on January 30 at Mexico City’s Parks BBVA Polanco, 35 finalists were given the opportunity to introduce themselves and their projects. Five winners were chosen from the pool, and will go on to compete in MIT Technology Review’s Global awards.
“This list is prepared to highlight the brightest minds of young innovators who are developing technologies and initiatives to finally solve these great challenges that concern us as a society,” said Beatriz Ferreira, the Latin American director of global consultancy firm Opinno which partnered with MIT Technology Review to produce the awards (Latin America Reports).
María Isabel Amorín, from Guatemala, received the award for “Entrepreneur of the Year” for extracting biopolymers from prawn shells to absorb dyes from textile factories, a major issue in her home country where textile companies have been accused of leaking chemical waste into local water supplies.
Dr. Bárbara Tomadoni, a scientist at the Universidad Nacional de Mar del Plata in Argentina, won “Pioneer of the Year” for her work developing biodegradable hydrogel capsules from algae and crustacean shells that dissolve over time to slowly release either water or fertilizer.
Leoncio Huamán Peredo, from Peru, was awarded “Humanitarian of the Year” for his work developing multilingual glasses that use Artificial Intelligence to translate in real time for those with hearing impairments.
Jaime Andrés Pérez, from Colombia, was recognized as “Visionary of the Year” for his collaborative project to monitor water quality in remote communities, holding private businesses and governmental institutions responsible for their water waste.
Adán Ramírez Sánchez was awarded “Inventor of the Year” for developing biodegradable solar panels that harness the power of microalgae and nanofluids to clean the air and generate energy at the same time. He hopes to eventually install sensors in the panels to create a network that can monitor the environment and provide data to address climate change.
How Brazil's JBS Became Collateral Damage in War Between Billionaires
A business dispute between billionaire Batista brothers in Brazil and the heir to an Indonesian pulp and paper fortune is hindering meatpacker JBS SA’s plans to list its international operations in the United States.
The New York Times reports that the dispute stems from a R$ 15 billion ($3.5 billion USD) deal in 2017 for Jackson Widjaja, a member of the second-richest family in Indonesia, which Forbes estimates is worth $9.6 billion USD, to take over Brazilian pulp maker Eldorado Brasil Celulose SA. Widjaja’s pulp business Paper Excellence agreed to buy Eldorado from J&F Investimentos, the Batista’s holding company which also controls JBS.
The deal is now in arbitration in Brazil after the two groups couldn’t complete the second stage of the acquisition. According to a Brazilian court filing, on February 10, JBS SA accused Paper Excellence of unleashing a lobbying campaign in the United States against its interests.
JBS said in the filing that Paper Excellence hired lobbyists to argue against it getting U.S. subsidies meant for farmers suffering from the fallout of the trade war with China, and successfully convinced various members of Congress to send letters to the Department of Agriculture to withhold payments to it. The lobbyists also urged investigations into JBS - citing the Batista brothers’ confession to bribing almost 2,000 politicians in a Brazilian corruption case- and sought to prevent a U.S. listing by the meatpacker, according to the filing.
In a statement to Reuters, Paper Excellence denied the accusations, and said these are bad faith allegations to “attack the company, its shareholders and workers.” The company said it is focused on completing the Eldorado deal.
A JBS executive told Reuters that the company is proceeding with its plans to list its international operations in the United States, but without raising new money from investors. The initial IPO plans, which were drafted four years ago, have failed because of a veto from Brazil’s development bank BNDES and difficult market conditions.
The executive denied that the changes in the listing plans were a result of the lobbying pressure, and said the company expects the transaction in the first half of the year.
Peru’s Emerging Startup Scene
Latin American startup funding has doubled each year over the past two years. While most of this capital has been directed toward Brazil and Mexico, this surge is starting to have an effect on startups in the region’s smaller markets.
The heightened availability of capital for later rounds is creating more opportunities for startups to scale both regionally and globally. Although Peru may not be one of the largest countries in Latin America, the country continues to have one of the best-performing economies and fastest-growing startup scenes.
Tech Crunch reports that in 2019, a new record was set for the amount of capital invested into Peruvian startups: roughly $11 million USD, representing a 24% increase compared to 2018. Most of the money went to fintech (47%) and edtech (37%) startups. Over the past four years, more than $22.7 million in public funds went toward startup-related projects as well.
Innóvate Perú, a government-backed program, awarded approximately $13.8 million of its total investments almost exclusively to startups. Total venture capital investment will likely exceed US$25 million in 2020, doubling what was achieved in 2019, and will continue to grow from there.
In 2019, Peru’s development bank, COFIDE, announced a new fund of funds to invest in venture capital firms, mimicking similar entities such as Chile’s CORFO, Colombia’s Bancoldex and Mexico’s NAFIN. Following in the path of similar funds, the fund of funds will invest $20 million in half a dozen venture capital firms, which would in turn invest in approximately 120 startups.
Although there are opportunities to secure seed-stage capital domestically in Peru, many startups still have to look abroad for growth capital. Keynua, Xertica, Turismoi and Runa are just a few of the Peruvian startups that have secured capital from international investors to lead their rounds over $1 million.
As government support for entrepreneurs continues to pour in, the Peruvian startup ecosystem is entering a new phase. A growing number of startups are launching, graduating from accelerator programs and seeking ways to reach the next milestone.
Local early-stage investors are stepping in to fill the financing gap and have teamed up to form the Peruvian Seed and Venture Capital Association, PECAP, to share investment opportunities and lay a strong foundation for venture capital in Peru.
Galileo Financial Technologies Expands into Mexico
Galileo, the company that powers world-leading fintech companies, financial institutions and investment firms, today announced it has opened offices in Mexico City, demonstrating its commitment to expand into Latin America.
Galileo’s experience, expertise and technology - notably its API-centric payments platform - will support Mexico’s newly enabled fintechs in this growing market to make rapid advances in delivering modern payments services.
Tory Jackson, Galileo’s in-country manager for Mexico, has relocated from the company’s headquarters in Salt Lake City to lead the new office in the Torre Reforma building, in the heart of Mexico City’s financial district. Jackson will play a vital role in staffing the office with local talent and growing Galileo’s business in Latin America.
“As of May 2019, Mexico was the leading Latin American country in number of fintech startups, with 394 new companies working on financial technology solutions… The Mexican market presents incredible opportunities that our fintech solutions can answer. Our new office is the base to facilitate the success of our local and international partners that are addressing Mexico’s expanding payments needs,” said Jackson (PR Newswire).
According to EY’s Global Fintech Adoption Index 2019, Mexico’s fintech consumer adoption rate in the past six months was 72%, which indicates a growing appetite for digital payments solutions in Latin America’s second largest economy as measured by total GDP.
“In their drive to foster financial inclusion and competition, Mexican Financial Authorities welcome fintechs aiming to take advantage of the new regulatory framework to introduce technology with the potential of bringing millions of unbanked consumers into the financial ecosystem… Within this legal environment, Galileo is well-positioned to provide Mexican consumers with access to more payments products and programs than ever before,” said Adrián López, partner of Nader, Hayaux & Goebel, a leading Mexican law firm advising Galileo.
Interview with Rodrigo Zambon, Managing Director for Brazil at TMF Group
BNAmericas spoke with Rodrigo Zambon, managing director for Brazil at global business services provider TMF Group, about business risks and how an improving environment in the country is drawing investors.
TMF Group recently published the results of a poll of 1,770 decision-makers in international firms across Brazil, the US, the UK, France, India, Singapore and China.
Researchers found that multinational businesses expect trade wars and other geopolitical shocks to cause issues in 2020 – but few are taking steps to protect themselves or capitalize on opportunities. Data also suggests that Chinese businesses are more concerned about global trade issues than their US counterparts.
BNamericas: TMF Group polling data suggests that, for multinational companies, trade wars remain the biggest business risk of 2020. What’s the outlook on the trade war front for 2020?
Zambon: I think trade wars are still number one. There’s a sense [today] that there’s less anxiety associated with it. I think people understand a little bit more about the nuances. As people get more intelligence about it, they’re in a better place to make decisions. It’s still an item on the agenda of businesses.
BNamericas: Business executives at US-based multinational companies aren’t as concerned about global trade conflicts as their Chinese counterparts despite the long-running trade dispute between the two nations, according to the poll. Why the pessimism in China do you think?
Zambon: We see, and perceive, a lot of reliance of China on exporting goods to other markets, so I think they’re probably more dependent and they have more to lose in that trade war. China is also very agile in terms of acquiring, or moving into, different markets, but I think the US still represents a lot in the trade balance for them. It’s something we’re observing. I think, as the [phase one trade deal signed last month] agreement settles, things will calm down, level out, stabilize.
It would say it’s [the concern in China] probably more of a short-term reaction and I don’t see a long-term effect. It hasn’t been communicated in any of the conversations we’ve been having in the region, either with clients or at forums where that topic has been discussed.
BNamericas: Trade wars present challenges but also opportunities. How, in general, could Latin American countries capitalize on the situation?
Zambon: I can give you a very precise example. During 2019, as a result of the trade war, China became Brazil’s largest trade partner for the first time in history. It was really a quick reaction by China, with Brazil also having an interest in doing business. This is one example of opportunities generated as a result of a trade war.
In the case of Brazil, there was a short-term benefit. It increased its market share in terms of soy, protein exports to China. It started to import from China as well. There are these movements, with China continuing to grow in terms of investment in Brazil.
Market analysts [because of the signing of the first phase of a wider trade deal] are announcing potential risks in Brazilian exports of soy to China. But there’s a lot of debate about whether there will be a material impact or not. That’s something we’re following closely.
Companies that are more prepared, more agile in adjusting, could embrace opportunities.
BNamericas: Since the survey was conducted, coronavirus has become a major issue globally. How big of a concern is coronavirus among businesses in the region in general, would you say, and are you getting a sense of the mood in Brazil?
Zambon: A comment made by a banker [at a recent LatAm investment conference in Brazil] was very interesting. He said that markets were a little more volatile for a week and there are still a lot of things to unfold as a result of this, but that it seems like there’s some level of stability, at least at the market level.
Companies [however] would worry about what potential effects an epidemic would generate. In the case of Brazil, and with European and Latin American companies, there’s a similar reaction. If there’s a clear understanding of the risk of an epidemic increasing in a specific Latin American country it’s critical that companies use their business continuity plans. The immediate effect for companies is ‘how do I continue to run my business if we need to go into contingency mode?’.
Business [in Brazil] is in wait-and-see mode, with no dramatic actions being taken at the moment. If this evolves, I think there’s going to be a lot of movement in terms of contingency plans and so forth.
BNamericas: Brexit is another major concern of multinationals, according to the survey. What are they mostly concerned about and how could Brexit impact Latin America?
Zambon: We don’t see much [talk of Brexit] in business discussions in Latin America. As far as we can see, and as far as we can hear, it is a lot about what types of agreements, post-Brexit, Britain will make with Europe, for one, and, as a result of that, how that will unfold.
As far as Latin America is concerned, I think it’s more a case of being in wait-and-see mode versus anticipation of any negative impacts. Any hard position on this topic, at the moment, is very premature.
To read more on the interview, visit BNAmericas