Key Emerging Markets: Brazil, Mexico, Argentina, Colombia, Venezuela, Peru, Chile
Major Industries: Oil, Mining and Agriculture
Latin America is the region of the Americas where Romance languages are primarily spoken. Before the late 15th centuries, indigenous people such as the Aztec, Inca and Maya, many of which had advanced civilizations, populated the region. By the end of the 16th century, the Spanish, Portuguese, Dutch and French colonized large areas of Latin America. However, most countries achieved independence by 1825. Despite common heritage, the geography and climate of the countries vary immensely. With such a long and rich history, the region is home to many important cultural and sacred sites such as the Lost City of the Incas.
Stability of Region
Despite having gained early independence, the region has been plagued with social and political unrest that greatly hinder its development. Latin America was ranked the third most unstable region in the world in the post-war era. Legislations and enforcement remain poor as the countries struggle with drug trafficking, immense violence, gang activities and widespread availability of firearms. These make doing business in Latin America difficult. Furthermore, the region has a long drawn strained relationship with the U.S. However, China’s interest in the region has seen it pump more investments and expand trade with Latin America, which greatly benefited its economy.
Since the “lost decade” of the 1980s, where the region’s growing economy was crippled by a major debt crisis, Latin America’s economy has rebounded tremendously, and is widely regarded as one of the foremost emerging regions today. Largely driven by the global commodities boom, the region’s annual GDP has been growing steadily at an average of 5.5% between 2003 and 2008, almost 3 times the historical average of 2.2%. More significantly, the region’s annual GDP growth has outperformed the world’s GDP growth since 2003. Hyperinflation, a perennial problem for the region, has slowly become a thing of the past, with the region maintaining single digit inflation figures over the past decade.
The region has always been highly dependent on commodities as the main engine of growth, making it vulnerable to commodity price shocks and fluctuations. Despite recent efforts to promote the growth of non-commodity exports, which have resulted in a slightly more diversified export structure, Latin America remains – on average – as exposed to commodities-related risk as four decades ago. Economic diversification remains high on the agenda for Latin American governments.
The IMF has forecasted lower growth for the region of 2.5% in 2014, down from 2.75% in 2013. Weaker level of investment and lower exports in 2013 are expected to continue in the year ahead. In addition, declines in commodity prices as a result of weaker demand from several major commodity-importing economies such as China will have a significant effect on the region’s growth. With the upcoming elections in Brazil and Colombia this year, introduction of economic reforms and policies could be a potential upside for the region.