The Fastest Growing Latin American Industries for 2013-2015

April 26, 2012. Strong commodity pricing, growing consumer markets and low interest rates underpin continued economy growth in Latin America. What do market experts predict for the region’s fastest growing industries? What do creeping protectionism, increased competition and corruption spell for international companies in places like Brazil, Argentina and Mexico?

We pose these questions to John Price, Managing Director of M-Brain (formerly GIA) Partner, Americas Market Intelligence, based in Miami, USA.

Q1: What industries have great potential for growth over the next 3-5 years?

“Consumer credit will continue to grow at 8% to12% per year in Latin America over the next few years – after growing at more than 20% per year since 2003.

The region remains under-banked and a rising middle and working class now demands and deserves access to credit. Servicing those credit needs will be both banks, who wish to focus on upper and middle income consumers (about 15-25% of the population) as well as non-bank lenders such as utilities, retailers and others. Non-bank lenders are leading the charge to offer credit to the base of the consumer pyramid, in order to lure them into their principal business, be that telephone services or the sale of refrigerators.

The expansion of credit and rising incomes bode well for the further expansion of retailing, extending from Wal-Mart style discounting stores all the way up to luxury brand shops.

At the other extreme of the supply chain is manufacturing. Mexico has made gradual improvements to its production efficiencies and costs, while Chinese assembly costs are soaring due to a tight labor market. As a result, Mexican manufacturers are taking back some of the assembly contracts they lost to Chinese competitors over the last 10-15 years. That trend will continue.”

Q2: What trends do you see in the consumer and retail industries

“I see some interesting trends in the generic drugs and automotive industries, consumer behavior, as well as medical tourism.

Most Latin American health systems are still dominated by the public sector. Though government coffers are healthier these days thanks to high commodity prices, most new monies are earmarked for infrastructure expansion, not operational expenses like pharmaceuticals for their hospitals. Thus the growth of generics in countries like Argentina, Brazil, and Mexico has been a blessing to public health budgets. Several governments, led by Argentina, go out of their way to aid the growth of generic firms, many of which are homegrown, by forcing prescriptions to name only the generic title of a drug, rather than the innovating brand name. This trend is likely to grow.

Buying a car is a large expense for almost any consumer. Selling cars is next to impossible if credit cannot be extended to customers. The expansion of credit access in Latin America is the principal driver behind the explosion of car sales across the region. Per capita car ownership in Latin America has more than doubled over the last decade and will do so again over the next ten years.

Latin American consumers increasingly buy beyond their cash reserve means thanks to the newly granted access to unsecured credit. Whereas middle class consumers paid for cars with cash or lay away plans in the past, today they step up their brand ambitions and spend twice as much on their next car as their last.

In Mexico, Central America and even Ecuador, the first seedlings of a medical tourism market are growing. The prize is the imminent retirement of the US and European baby-boomers, many of whom have travelled at one point in time to Latin America. These destinations offer cost-effective nursing and other services as well as access to US-trained doctors, not to mention sunshine, warmth and culture. They often build medical tourism style resorts within the compounds of walled enclosures, in order to mitigate the security concerns of would-be retirees. Increasingly, international hotel brands are lending their names to these investments as a further stamp of excellence to the project.”

Q3: What major trends do you see in the manufacturing and industrial sectors?

“Mexican manufacturing is resurging thanks to its increasingly competitive labor rates vis-à-vis China and its logistical cost advantage as the neighbor to the US.

Mexican export assembly is particularly competitive with physically heavy products like aerospace, white goods and automobiles. Mexico is the fastest growing aeronautical assembly market in the world today with over 100 manufacturers investing over the last eight years.

In Brazil and Colombia, both infrastructure and consumption booms have helped boost the prospects of domestic manufacturing. While strong currencies in both countries have curtailed their ability to export manufactured goods, the booming domestic market has more than made up for the loss of markets overseas.”

Q4: Can you elaborate on trends you see in the telecommunications and media sectors?

“Today, there are 110 mobile phones for every 100 Latin Americans. The region is one of the most penetrated in the world. However, only 10% to 15% of those mobile phones are smart phones. That will change over the next five years as more than 150 million smart phones are sold across LatAm. The jump in data exchange will strain existing 2.5 G and 3G infrastructure and spur the need for 4G infrastructure.

At the lower end of the income stream, non-traditional lenders, selected banks and new start-ups are all chasing the promise of mobile payments. Turning every phone owner into an electronic payment maker is not as far fetched a goal as it once seemed. In Latin America, the lack of bank infrastructure in rural and small town areas, security issues and the international transaction needs of remittance recipients all underpin the demand for mobile payments.”

Q5: Massive investments are being made in infrastructure projects. How do you see China’s involvement in all this?

“Infrastructure spending is entering a frenzied period as Brazil races to meet its commitments to host the Olympics (2014) and the World Cup (2016). Then you have the Colombian take on the ambitious task of connecting their topographically isolated cities and towns and the Peruvian move to better connect the Sierra with the coast. The Chileans continue the reconstruction efforts after their devastating 2011 earthquake, while Panama races to complete its $15 billion canal, and Mexico catches up on decades of under spending in roads, hospitals, schools and ports.

The new player in the infrastructure game is China. Much of the $70 billion that they have lent since 2007 is earmarked for infrastructure. The Chinese want to help Latin America deliver its natural resources from often isolated deposit areas to their ports. Improving commodity throughput will help Chinese manufacturing stay competitive. Along with Chinese monies comes the offer of Chinese engineering prowess and Chinese construction equipment. While the Chinese entry helps boost the size of infrastructure spending, those new projects are often off-limits to non-Chinese suppliers.”

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