ami latin american forecast 2014 se acabo la fiesta - time again to reform-2013.10.18

Latin America Forecast - 2014Se acabó la fiesta – time again to reform

October, 2013

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Table of contents

A. Global

1. Commodities

2. LatAm versus other growth markets

3. FDI

B. LatAm

1. LatAm public spending

2. Reformer list

3. Brazil

4. Mexico

5. Argentina

6. Colombia

7. Venezuela

8. Peru

9. Chile

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Global

6

Most commodity prices will continue to soften

70.0

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

2010 2011 2012 2013 2014

Oil (Brent) (price perbarrel)

Gold ($/troy oz)

Copper (cents/lb)

Industrial metals

Coffee arabica(cents/lb)

Agriculturalcombined

Source - EIU

7

56% of LAC exports are commodities, c.70% of South America’s

Source - UNCTAD

8

Latin America will underperform vs. other growth markets

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2010 2011 2012 2013 2014 2015

Latin America

China

SE Asia

India

Middle East &North Africa CAGR

Nominal USD Denominated Growth

Source - EIU

9

Latin America remains a priority FDI destination

15%

9%

17%

28%

31%

15%

5%

17%

24%

39%

SE Asia IndiaMiddle East & North Africa

Latin America

China

2010 2015Source - EIU

10

Latin America

11

Government spending grew faster than the private sector over a decade of commodity price inflation

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

LatAm public vs private consumption (USD billions)

private consumption government consumption

11.1%

13.7%

CAGR

Source - EIU

12

Governments will need to reform going forward

-5 -3 -1 1 3 5 7 9 11 13 15

Venezuela

Brazil

Argentina

Chile

Nicaragua

Uruguay

Mexico

Peru

Guatemala

Colombia

Reform Progress 2005-2013% movement towards best practice benchmark

Proven reformers will have the upper hand in leaner times

Source – World Bank

13

Brazil remains a consumption growth story

10,000

15,000

20,000

25,000

30,000

35,000

2010 2011 2012 2013 2014 2015

Number of HH earning morethan $15k

Passenger cars

Broadband subscriber lines

Growth Stories

MiningAgrifood

InfrastructureFinance

Consumer Services

tho

usa

nd

s

Source – EIU

14

Under the PT, debt levels have skyrocketed

Government debt (USD billions)

2004$97.1

2015

$170.5

Private debt (% of GDP)2004

22.69%

2015

46.30%

Source – EIU

15

Reforms in Mexico – challenging phase ahead

0 0.1 0.2 0.3 0.4 0.5

Fiscal

Energy

Telecom

Education

Labour Law

Contribution to GDP (% points)+ Employment Contracts and Temporary Employment

− Outsourcing

+ Will professionalize teacher hiring, training,remuneration, incentives and dismissals

− Teachers protest against the education reform

+ Increased competition and investment in the sector

− High barriers to entry and capital costs to invest

+ Open Mexico's energy industry to foreign investment

− Political backlash

+ More stable source of taxes (income andconsumption)

− The working poor will be hardest hit

Source – AMI Analysis

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Mexico FDI – Energy reform could provide a boost

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2010 2011 2012 2013 2014 2015

Inward direct investment (USDbillions) with energy reform

Inward direct investment (USDbillions) with energy reform

Manufacturing FDI (USD billions)

Growth Stories

ManufacturingBusiness services

EnergyMining

Consumer durables

USD

bill

ion

s

Source – AMI analysis

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Argentina – still periled by poor government

Agriculture the strongest sector Strong economic growth A pre-election minimum-wage

rise and tax cuts

• Inflation will accelerate• Depreciation of the currency• The potential for diplomatic and

trade disputes will remain high.

Growth Stories

MiningAgrifood

Retail

18

Colombia’s impressive growth shall continue

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

2010 2011 2012 2013 2014 2015

Inward direct investment(USD billions)

Nominal privateconsumption (US$ bn)

FDI

Co

nsu

mp

tio

n

Growth Stories

InfrastructureMining Energy

Real Estate & RetailConsumer durables

Source – EIU

19

Venezuela – the fantasy economy

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

24.0

25.0

26.0

27.0

28.0

29.0

30.0

31.0

32.0

2010 2011 2012 2013 2014 2015

Inflation (%)

Exchange rateOfficial (lBS/US$)

Exchange rateBlack market(BS/US$)

Bla

ck M

arke

t F/

X -

Infl

atio

n %

Off

icia

l F/X

Source – EIU

20

Peru – poised for mass consumption growth

0

20

40

60

80

100

120

140

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2010 2011 2012 2013 2014 2015

Total loans (USDbillions)

Personal computers(stock per 100 people)

Mobile subscribers(stock per 100 people)

Passenger cars (stockper 1000 people)

USD

bill

ion

s

Pen

etra

tio

n le

vels

Source – EIU

Growth Stories

MiningRetail

Consumer durablesFinancial services

Logistics

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100.0104.4

99.493.8

88.984.3

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

2010 2011 2012 2013 2014 2015

Price of cooper per pound(US$/pound)

Chilean purchasing power will weaken gradually

Inflation adjusted F/X index

Growth Stories

MiningRetailLuxury

Consumer services

Source – EIU

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Market Intelligence:

Latin America

John Price+1 (305) 773-1141

jprice@americasmi.com