CESCE analyzes the situation and opportunities in Latin America

Within the framework of the Madrid Platform

CESCE estimates a possible rebound in claims and offers solutions to cover the risks of non-payment; The insurer has subsidiaries in Brazil, Chile, Colombia, Mexico and Peru.

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CESCE has analyzed the situation and Latin American opportunities in the “International Seminar on business and opportunities in Latin America”, organized within the framework of the Madrid Platform, the first international business hub between Europe and Latin America, which has hosted 500 companies and more than 1.500 meetings.

 

 

The round table, moderated by the general director of International Trade and Investments of the Ministry of Industry, Commerce and Tourism,  Mª Paz Ramos Resa, has had the interventions of the general director of Trade Policy of the Ministry of Industry, Commerce and Tourism, Juan Francisco Martínez; the director of Country Risk and Debt Management of CESCE, Ricardo Santamaria; the general director of Internationalization of the ICEX Company, Javier Serra, and the director of CESCE Branches, Jesus Urdangaray.

 

Ramos opened the debate by highlighting that "the American continent is present among the strategies of all companies and that they contribute to modernization, creation of wealth and employment and the reduction of poverty" in the area. Likewise, he has pointed out that “Spanish business with Latin America amounted to 31.000 million euros annually in 2019 and that figure is equivalent to 5% of the entire Spanish foreign trade with the rest of the world”. Regarding Spanish exports to the area, he explained that “they focus fundamentally on industrial products, services and supplies for industry.” Latin America, he added, “absorbs 150.000 million euros of Spanish investment stock, which represents 32% of all our investment issued to the rest of the world, just behind the EU (39%); Mexico, Brazil and Chile are the main destinations for the implementation of Spanish companies”. Latin America, he noted, “also accounts for 9,3% of global investment from third countries in Spain.” Regarding the region's recovery prospects, Ramos noted that “the region could grow almost 3% in 2022, according to the IMF".

 

Strong investment weight in the region

 

From the Country Risk and Debt Management department of CESCE, Ricardo Santamaria has reviewed the current situation in the area and has highlighted the importance of Latin America as a destination for our investment. “Latin America has transcendental importance for the Spanish economy, as a destination for our investment. As for the export of goods and services, it barely represents 5% of total exports of goods and even decreased last year to 4%.”

 

For this reason, Santamaría said, “more than as a destination for exports, Latin America is important for investment, for the presence of companies in the area”. In this regard, he has cited as an example that “24% of IBEX35 revenues are generated in Latin America; Telefónica, BBVA and Santander They bill more than 45% of their income in Latin America; Within the energy sector, Repsol or Iberdrola invoice more than 25% of their income there; In the insurance sector, CESCE has five important subsidiaries there and Mapfre invoices 30% of its income and, in the hotel sector, the Meliá group, 30%.” “What happens in Latin America is substantial for our country because investments there have reached a value equivalent to 20% of Spain's GDP, although the investment flow has decreased by 50% in the last five years,” he said.

 

 

7.000 SMEs and 17.000 Spanish exporters currently operate with Latin America, a region that generates 24% of IBEX35 revenues

 

Instability factors

 

Santamaría has pointed out that “the Latin American economy has especially suffered from the pandemic, affecting Spanish companies and our interests there.” But, as he pointed out, in addition to the pandemic, there are previous factors that date back to the 2008 crisis. “Since the outbreak of the last international financial crisis in 2008, all those economies suffered especially. This meant that most countries entered into recession and that many of them relied on the exploitation of raw materials and oil to promote a slight recovery in the following years. But in 2014 the raw materials crisis broke out and that meant a substantial drop in oil prices.” “There are countries like Venezuela, whose export income depends 80% on oil; Colombia or Ecuador They depend on it by 30%; In Mexico, oil accounts for 8% of its GDP and in Brazil, 12%. There are economies like Chile where 50% of exports come from the export of copper or the economy of Bolivia, which depends 26% on gas exports,” Santamaría recalled.

 

"During those years, foreign direct investment began to severely withdraw from the area, the result of greater mistrust and exposure to the nervousness of international markets." Therefore, he has explained, “Latin America's economic model suffers from lack of investment”. To this, he said, we must add the high rate of informality, which exceeds 50% of GDP. “There is an exhaustion of the economic model of Latin America”, where 99% of the business fabric is made up of SMEs, and in that situation COVID19 broke out, “which explains why the impact has been more serious there than in other countries.” Other circumstances such as the high incidence of the pandemic, denialism in some countries and the overload of the health system in Latin America are also influencing, he said.

 

“The dependence on raw materials and tourism, the very high informality of the region and the very strong concentration of some American economies in their Exports to China and the US have also aggravated the situation", has explained. In fact, she added, “74% of Mexican exports are directed to the US.”

 

A 'pressure cooker' of social inequality

 

One of the most important risk elements in the area is the substantial increase in poverty and inequalities, especially relevant in Latin America. “In Mexico alone, for example, there are 9 million more poor people and 34% of the population of Latin America is below the poverty line,” Santamaría denounced. To this we must add the high levels of corruption and the general discontent of the Latin American population: 64% think that the rulers follow private interests. “"There is a notable increase in dissatisfaction with democracy of more than 70%," has pointed out Santamaría, who has referred, for example, to the disturbances that are being registered these days Colombia (Cali) but that other countries such as Peru and Chile. “Latin America is a 'pressure cooker'”, she stated, to which we must add one more ingredient: over-indebtedness. “The challenge for recovery,” she said, “is going to require a lot of help: greater integration, cooperation between American countries and multilateral financial institutions.” “The sensitivity of financial institutions to the situation in Latin America is absolutely crucial,” she concluded.