Latin America offers good business opportunities, with Mexico and Chile among the region’s countries singled out as particularly attractive locations in a report from Bank of America Merrill Lynch (BofA Merrill).
The latest edition of the annual report, entitled ‘Strategic Treasury for Latin America 2013’, is produced by BofA Merrill’s global transaction services business and identifies the opportunities, challenges and market variations that companies may encounter when doing business in the region.
“To outside companies looking to expand internationally, Latin America is a land of opportunity,” writes Juan Pablo Cuevas, BofA Merrill’s head of global transaction services for Latin American and the Caribbean, in the report’s introduction.
He suggests that despite recent events in Brazil, “by and large, the political instability that was once inherent in the region has given way to longer-term governments and longer-term planning as the region’s economies continue to grow.”
The report’s section on liquidity conditions states that Mexico is noted for being more liberal where liquidity management is concerned, while Chile is singled out as “an attractive business location for international corporations in light of its investment grade credit rating and stable democratic government.”
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The attractiveness of Latin America as a location for shared service centres (SSCs) is explored in a section that identifies the following characteristics:
- Economic and political stability, which are a key to cost-effective investment, although there are some exceptions within the region.
- The region’s proximity to and cultural affinity with the US, and that its time zones mirror that of the US, avoiding the need to establish overnight shifts.
- Costs for real estate, wages and infrastructure in most countries are significantly lower than in the US and in some cases lower than in parts of Eastern Europe and Asia.
An article that discusses prerequisites for companies expanding into the region recommends that they:
- Consult with legal, tax, regulatory and accounting advisors to discuss requirements for setting up operations in the region.
- Consult with banks to better understand what can and cannot be done in a particular market in order to determine if the company’s goals are achievable or not.
- Establish visibility of accounts to achieve a true understanding of the company’s cash position.
- Understand regulatory obstacles. For example, in Chile and Colombia, foreign exchange (FX) restrictions prevent companies from making foreign currency payments out of those countries.
A section on trade and investment opportunities compares the region’s economies and discusses drivers of growth. Notable data points include:
- In 2012 Latin America showed the highest growth in foreign direct investment (FDI) of any region, with Chile recording the largest increase.
- While investments in Brazil and Mexico tend to be broader based, investment in other countries tends to be focused with Peru concentrated in communications and mining (more than 50% of FDI), Colombia in oil and mining (more than 74%) and record investment in Chile in mining and services (75%).
- The economies of Chile, Colombia and Peru grew at rates of 5.6%, 4% and 6.3% respectively in 2012.
“BofA Merrill is committed to supporting our clients’ continued development within Latin America,” said Cuevas. “We hope this report goes some way to helping companies understand the nature of the Latin America market so that they can take advantage of the region’s increasingly attractive opportunities.”
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