Diagnosis and Transformation of a Continent
German Chancellor Angela Merkel just ended her first tour of Latin America in Mexico. This is the longest trip she has taken since she took office. Why so much interest in the region? Take a look of the macroeconomic highlights, banking penetration and telecommunications.
This is a sample of 16 Latin American economies, from Nicaragua (with a GDP of US$18 billion in constant purchasing power) to Brazil (with a GDP of US$1.838 trillion, more than 100 times larger).
By the size of their economies (in billions of US dollars), we have Brazil (1,838), Mexico (1,353), Argentina (524), Venezuela (335), Colombia (320), Chile (234), Peru (218), Ecuador (98), Guatemala (67) Costa Rica (56), Bolivia (40), El Salvador (36), Panama (29), Paraguay (27), Honduras (25) and Nicaragua (18). Sources: Federación Latino Americana de Bancos, World Fact Book and the different countries’ banking regulatory sites and central banks.
Brazil is the equivalent of a continent. Its GDP is as big as the rest of the countries combined with the exception of Argentina and Mexico, as is its population. Per capita GDP goes from Nicaragua’s US$3,140 to Chile’s US$14,246.
Latin America offers very interesting opportunities for introducing Grupo Elektra’s business model. Average economic growth in this sample of countries was 5.3 percent in 2007; with a minimum of 2.6 percent for Ecuador and a maximum of 8.5 percent for Argentina (nine countries in the sample have very attractive growth rates of over 5 percent. Mexico grew only 3.2 percent). Today, Grupo Elektra has a presence in the following countries (with their growth rates in parentheses): Brazil (4.5 percent), Mexico (3.2 percent), Argentina (8.5 percent), Peru (7.5 percent), Guatemala (5.6 percent), El Salvador (4.7 percent), Honduras (6.0 percent) and Panama (7.8 percent).
Demographics and Development
The population of this 16-country sample is 530 million people, with Brazil and Mexico representing almost 60 percent of the total. In the region, 31 percent (163 million people) live below the poverty line. Today, Mexico has the lowest poverty rate, according to official statistics, with 25 million joining the middle class over the past decade (in Mexico, 13.8 percent of the population lives under the poverty line, whereas, in the United States, the figure is 12.0 percent).
Latin America has a young population: the “oldest” country is Chile, with a median age of 31; the youngest, Guatemala, has a median age of 19. We can contrast this youth with the median age of the United States (37), Canada (40), Germany (43), or Japan (44). Latin America’s youth is a great potential if we can achieve the education, health services and jobs that have historically been absent.
Communications are an interesting factor in increasing the potential for development. Regional statistics show that countries like Argentina and Chile have almost one telephone line per inhabitant, while others like Bolivia, Nicaragua and Honduras have only one line per three inhabitants. Three-quarters of Latin America’s telephone connections are wireless.
Banking services are another factor for increasing economic development potential. The data is quite uneven. On the one hand, countries like Panama and Chile have high deposit and credit levels, whereas Central America has lower rates of banking penetration. Given the high level of banking penetration in Panama and Chile, I’ll leave them for a future discussion.
The account data is incomplete, but we can see that Peru and Bolivia have low levels of penetration with fewer than 20 accounts per 100 inhabitants, while Guatemala’s levels are noteworthy: 52 bank accounts per 100 inhabitants.
Bank deposits and credit as a proportion of GDP are also uneven. With regard to deposits as a percentage of GDP, we can divide the sample into two groups: 1) those with a penetration of 10 to 15 percent, with big growth opportunities, like Brazil, Mexico and Argentina; and 2) those with levels of between 15 and 25 percent, that continue to offer very good opportunities if we consider that in advanced countries banking penetration is even higher than GDP.
The challenge and the opportunity for governments and businessmen in the region is to provide more and better development tools to the base of the pyramid to continue strengthening the middle class. Latin America has a young population and dynamic economies. In a continent of 530 million people, tens of millions will rise out of poverty in the next 10 years, and we are positioning Grupo Salinas companies right in the middle of this transformation, which could help change the history of Latin America forever.