In Business Trends & Strategy, Eco-political analysis, General Interest, Mining

After the most disruptive year (2020) in over a century, Latin America investors must now navigate a region as laden with risk as it is with opportunity. COVID-19 and its accompanying lockdowns have sadly divided us far more than united us, in spite of the remarkable moments of humanity shown across the region since the pandemic struck. Even before the onset of COVID-19, Latin America was struggling with stalled economic progress, underinvestment, and flirted with political populism. Such a backdrop adds several challenges to the region’s economic recovery, which begins in earnest in 2021.


The 2024 Latin America Forecast

AMI’s leadership team offers a 2024 economic, business and political outlook for Latin America, as well as a sector-by-sector analysis of 5 major trends in the region.


Country Analyses

CHILE: The world stood in awe in October 2019 as two million Chileans marched in Santiago, protesting their government’s brash displays of insensitive policies and poor governance. Some predicted the end of Chile’s economic miracle. They were wrong. Democracy and economic growth are alive and well in Chile. In April 2021, voters will convene to elect the diverse assembly of leaders who will rewrite their constitution, a bold experiment that will once again demonstrate Chile’s nation-building prowess.  

Chile’s greatest virtue as a nation is its collective sense of prudence and restraint. The rainy day fund that they built on the back of copper royalties, combined with decades of fiscal discipline, enabled Chile to fund one of the world’s most impressive counter-cyclical economic relief programs designed to aid the most vulnerable during COVID lockdowns. Poverty levels in Chile did increase but by far fewer measure than countries like Mexico and Colombia.

Looking forward, Chile’s export mix of copper and food products enjoys rising world prices and demand, such that billions of vital foreign currency will flow into Chile over the next 24 months, strengthening the Peso and living standards of Chileans. An economic recovery that is swift and widespread will be the best antidote to any rise in populism on the heels of the 2019 protests and COVID lockdowns.

Thanks to a First World-style vaccination program that is leaps and bounds ahead of any other Latin American equivalent, Chile will reach herd immunization 3-12 months ahead of its Latin American neighbors. By mid-2021, if not sooner, droves of affluent Brazilians, Argentines, Peruvians and Colombians will fly to Chile to get vaccinated ahead of their own countries’ plodding vaccination schedules. As a result, Santiago hotels and luxury shopping malls will get a much-needed shot in the arm (no pun intended).

BRAZIL: Brazil’s thinking class shudders with embarrassment every time President Bolsonaro opens his mouth and yet the country continues to steer a net positive and sensible path when it comes to economic policy. An interesting case in point was Bolsonaro’s dismissal of Petrobras’ competent CEO, Roberto Castello Branco, replaced by an old army crony, General Silva e Luna – a perilous move that destroyed 20% of Petrobras’ market cap in 48 hours. But Petrobras is, below its highest echelons, a meritocracy, which generated $11bn USD profit in its last reported quarter. Compare that with Mexico’s Pemex, the most inefficient oil major on the planet, which continues to drain scarce Mexican government funds under the leadership of AMLO. Petrobras will survive political meddling at the top because it is institutionally sound. Much the same can be said about Brazil’s wider government, which in spite of Lavo Jato, impeachments and the Bolsonaro family, still boasts the strongest institutions in Latin America.

Heading into the COVID crisis, Brazil was the economic darling of Latin America, having tackled important reforms and promising more. Reversing almost three decades of tradition, Finance Minister Paulo Guedes pursued tight fiscal policies and encouraged the Central Bank to loosen monetary policy (lower interest rates). The strategy began unleashing the animal spirits of Brazilian investors who had repatriated billions back to their country from off-shore savings. Low interest rates have prevented Brazil’s Real from recovering lost ground caused by capital flight when COVID struck.

Now Brazil’s financial strategy has altered course again. Bolsonaro proved to be the most generous spender in Latin America during COVID, sending billions to the poor and small business. Now, in order to reign-in inflation, the Central Bank will need to raise rates in 2021, which will strengthen the Real, much to the delight of foreign investors.

Bolsonaro’s Robin Hood spending helped bolster his popularity, even while his motley coalition of small parties lost their ability to pass legislature. Now Bolsonaro is in league with Brazil’s most powerful Centrão political parties, the once maligned (by Bolsonaro) champions of pork barrel congressional politics.  Bolsonaro devotees are chastened by the new political alliance but Brazilian policy making and political stability are the better for it. The pro-business reform path remains in play and, with wider legislative support, becomes more viable, albeit somewhat diluted.

The chart below shows Brazil’s GDP growth percentage rate from 2019 to 2023 (in red), with the Brazilian real’s effective exchange rate highlighted in yellow for each of those years, so as to compare both metrics.

DOMINICAN REPUBLIC: It is a mystery to many how low the COVID death rate is in the DR (29/100,000 people) given how generally lax its social distancing rules and enforcement have been. Peru, a country of similar age and income demographics to those of the DR, where lockdowns were far more severe, has suffered a per capita COVID death toll five times greater than that of the Dominican Republic.

Such COVID exceptionalism helped engender voter support for the rapid re-opening of the DR’s vital tourism industry. As of the end of February 2021, visitors (and returning Dominicans) can enter the country without proof of a recent negative COVID test. Testing of temperatures in DR airports and random breathalyzer testing of 3-5% of passengers can lead to airport administered COVID tests but 95+% of visiting air passengers enter the country untested. The DR has led the opening of the Caribbean’s largely closed tourism sector. As a result, after plummeting more than 80% in Q2, 2020, foreign arrivals to the DR climbed each successive month from July to December 2020.

Six months into his mandate, the DR’s new President, Luis Abinader, is viewed positively by most analysts. A businessman by vocation, Abinader eschews much of the ornate protocols that still exemplify the presidency, one of the most powerful of any Latin American nation. He inherits a system of government that is rife with fiscal blubber and waste. Abinader ‘discovered’ that about 10% of the government payroll is made up of empleados fantasmas, friends and family of senior bureaucrats who draw handsome salaries in spite of never reporting for work.  This well-known tactic of corruption was purportedly used lavishly by the previous three presidential administrations. It remains to be seen if Abinader’s uncharacteristically (for the DR) efficient governing style is really a new beginning for the DR or just a timely gesture in a period of austerity.

Another point in the DR’s favor is the enormous success of the Pueblo Viejo gold mine, jointly owned by Barrick Gold and Newmont Mining. This massive mine contributes directly 4% of the nation’s tax bill (and indirectly closer to 6%) and 17.5% of its export volumes. Abinader seems to grasp that the DR’s continued growth will come from globalization: attracting foreign tourists, investors and customers. If he maintains his applauded private sector discipline, the DR will lead Caribbean growth once again. 

GUYANA: If you still can’t spot it on a map, you soon will, for Guyana is, and will remain for the next four years, the fastest growing economy on earth. The tiny nation (800,000) of cricket, pork knockers and mild curries is now home to Latin America’s 5th largest proven oil reserves (c. 9 billion barrels), ahead of Colombia and Argentina, and rivalling Ecuador. Adjoining the world’s largest oil reserve nation, Venezuela, future exploration is bound to uncover even greater black gold under the territorial waters of Guyana.

Over the last three years, Georgetown has become a boom-town, with real-estate appreciating two to threefold. Now that production has begun, Guyana can expect even greater growth. Everything from housing to skilled labor to basics is in short supply. Guyana will no longer be ignored by global players. For the politically incorrect oil and gas industry, Guyana is an economic blessing. For logistics suppliers, technology providers, and just about everyone else, Guyana’s high growth and higher prices represents a welcome exception in a region still struggling to recover from COVID.

Sector Analyses—The Good

GROWTH INDUSTRIES: E-commerce, Payments, Logistics and Digital Media

Much has been written of the impressive growth of e-commerce realized in Latin America over the last year. By some estimates, 50-60 million Latin Americans experimented with digital commerce for the first time in 2020. Similarly, it was the 2003 outbreak of SARS in China (and accompanying lockdowns) that helped make e-commerce a middle-class purchasing habit in the world’s largest online market. Though some purchases (like groceries, medicines, and clothing) will return en masse to traditional retail as the pandemic subsides, Latin America’s new digital consumers will continue buying online products that are a little harder to find in retail (books, niche clothing, sporting goods, computers) as well as those must have products and services that are unavailable with cash: Netflix, Disney+, Uber and others.

The embracement of digital commerce in Latin America has unleashed demand for digital payments, such as value-stored cards used to distribute government stipends, and various contactless payment tools. The logistics industry is still racing to catch up with the radical new structure of consumer driven supply chains. From the point of import entry to the last mile delivery to our doors, the path of products we consume has changed, forcing massive new investments from traditional logistics firms and creating new local hero fulfillment companies, including one of Latin America’s largest unicorns, Rappi, valued in mid-2020 at $3.5bn USD.

The world’s most ardent viewers of Netflix — Mexico is ranked 1st out of 190 countries in Netflix hours viewed per customer —demand more and local content, sparking massive growth in local video production. LAMAC reported in 2020 that digital content viewing in Latin America grew close to 40% that year. Netflix was not the only winner.  

MINING: After hobbling along for half a decade (2014-2019) following the collapse of metal prices in 2013, Latin America’s mining industry is back. Unprecedented global central bank money expansion (close to $10 trillion) helped raise demand for gold, putting back in play hundreds of gold, and later silver mining projects that had been mothballed across the region.

COVID mining interruptions, particularly in Chile, Peru, and Australia, where lockdowns were severe, helped boost copper prices in Q2 2020. As mines came back on-line, pricing continued to climb thanks to the revival mid-2020 of manufacturing in China and the US. What will keep copper at elevated prices moving forward is the metal’s strategic role in three promising sectors: electric vehicles, electrical grids & infrastructure programs in general, which governments will rely upon to put people back to work. Those same industries will also help attract investment into Latin America’s iron, zinc, and lithium mining.

EXPORTS OF GOODS: Latin America excels in the production and exportation of price-elastic commodities and assembly. Though economists bemoan the lack of value-added production in Latin America, the region’s commoditized export mix does give it a head-start in times of recovery.

COVID, like other global economic disruptions before it, caused massive capital flight out of Latin America (though proportionately less than in the past), and devalued its most traded currencies. Weaker currencies provide an important competitive advantage in the price sensitive global market for energy, mining, agriculture and assembly manufacturing. That helps organic food growers in Colombia displace supply in California, helps electronics assemblers in Mexico steal contracts from Chinese competitors and attracts downstream chemical producers to build plants close to Peruvian gas producers.

Greater commodity production competitiveness will be one of the engines of economic recovery in Latin America from 2021 to 2023, by which time their currencies should appreciate back to, if not exceed pre-COVID F/X levels versus the USD.

Mega-Trends—The Good

CHINA, INDIA & US GROWTH: COVID-19, a pandemic that disproportionately harmed the elderly, revealed Europe’s greatest weakness: demographics. The old continent is not only greying, it struggles to assimilate younger non-European immigrants into its ranks. As a result, global growth over the next two decades will be driven by three economies: China, India and the USA. That bodes well for Latin America for all three behemoth economies are net-importers of LAC’s largest commodity exports.

In the immediate term (2021), these three economies will together add $2.5 trillion to the global economy. While China chose to revive its economy by stamping out COVID, sealing its border of human traffic and digitally monitoring its people, the US and India unwittingly chose or were obliged (the debate will rage for a decade) to pursue the path of herd immunization.  The death toll in the US was catastrophic, blunted moderately by an impressive vaccination program. In India, containment efforts, though strict, proved futile. India’s COVID death tolls were far less than the US or Europe due to young demographics and low population density – only 35% of India’s 1.5 billion people live in urban surroundings. Three very different COVID legacies have none-the-less unified these economies in a promising 2021-2022 economic path as pent up savings are spent on pent up demand.

SEARCH FOR YIELD (LOW INTEREST RATES): One of the greatest technocrat achievements in Latin America over the last 30 years is the fostering of domestic savings, led by the creation of privately managed pension funds. Those savings, combined with bulked up foreign reserves helped stabilize the openly traded currencies of Peru, Mexico, Chile, Colombia, and Brazil which collectively represent close to 80% of Latin America’s GDP.

Those reserves and domestically invested pension funds helped Central Banks in Latin America to lower interest rates in 2020 to even negative rates (in real interest rate terms) in spite of capital flight. This seldom noted fact helped Latin America’s corporate sector evade massive bankruptcies in 2020 as they rolled over their high debt levels at reasonable rates. 2020 is a far cry from previous economic crisis in Latin America, when Central Banks had no choice but to raise interest rates to prevent overwhelming capital flight and the vicious cycle of depreciation and inflation.

REMITTANCE FLOWS: Latin America was the only region in the world to experience positive remittance growth in 2020, in spite of dropping precipitously in the month of April 2020. For several Central American and Caribbean nations, remittances are a vital life-line for the working class, contributing upwards of 20% to national GDPs.

As lockdowns began in the US and service sector reliant immigrant populations were hit disproportionately hard, many feared that remittances would dry up. Thankfully, for millions of Latin Americans under lockdown south of the US, most American Governors kept their economies open. The US construction sector, locked down in April and May, bounced back as the ‘castle economy’ took hold and Americans lavishly remodeled their homes in lieu of traveling. For recently arrived Central American and Mexican immigrants living in the US, construction is often the best paying job option.

In Latin America, the very people who rely on remittances were the worst affected by lockdown because their jobs (80+% informal) could not be transferred online. As they reached out to family and friends in the US for more remittance help, online remittance channels, now more popular than traditional brick and mortar, helped keep the money flowing.


The 2024 Latin America Forecast

AMI’s leadership team offers a 2024 economic, business and political outlook for Latin America, as well as a sector-by-sector analysis of 5 major trends in the region.


Country Analyses

AMLO’S MEXICO: Present-day context does not allow us to properly judge how disastrous of a President is Andrés Manuel López Obrador. We are, after all, in the middle of an unprecedented pandemic, free trade is alive and well, the Peso is out-performing its peers, exports are growing and the verdadero Teflon President still enjoys remarkably high approval ratings.

To his credit, AMLO is an effective communicator, constantly connected to the masses through his morning briefings. Mastering a folksy and more humble style than any Mexican President in living memory, AMLO is a refreshing change from the aloof and/or brash styles of recent predecessors, especially Enrique Peña Nieto, who was as elusive and arrogant as he was corrupt.

But humility alone does not a good leader make. In an effort to exact revenge on certain business elites, engage in class warfare for political advantage, and reconcentrate enormous power in the Presidency, AMLO has gradually dismantled some of the most important institutions that form the bed rock of Mexico’s modern democracy. The dysfunctionality of Mexico’s COVID response from containment to vaccinations exemplifies the weakened state that Mexico has become.

AMLO’s tactics, backed by the unchecked political power of the Morena party who controls all three branches of government, has frightened Mexico’s business elite into action. An estimated $284 bn USD of capital flight is anticipated through the course of AMLO’s six-year presidency. Keep in mind that all Latin American (and most emerging markets) suffer chronic capital flight, but the pace and volume of capital flight from Mexico reflects more than affluent investor diversification — it reflects fear. Often compared to Latin America’s other leading populist, Bolsonaro, AMLO is proving far scarier to business elites than his Brazilian counterpoint, if we use capital flight as a yard stick.

Mexico will not self-destruct as an economy under AMLO. A (still) independent and hawkish Central Bank keeps the Peso relatively strong. The steady migration of assembly operations from China to northern Mexico delivers employment and export dollars, and a soon to be booming US economy will continue to shine on Mexico. But during his six-year reign, AMLO (and the Morena party’s) policies will drive billions of productive Mexican business interests off-shore, the rule of law will be further weakened, cartels will grow more powerful, billions will be wasted propping up inefficient and dirty PEMEX and CFE state enterprises, and thousands of Mexico’s best and brightest will emigrate. Only decades from now, will we realize the damage done by President AMLO.

COLOMBIA: Few countries have navigated COVID unscathed. Fewer still have suffered more than Colombia. The country and people that most foreign businesspeople visit, a Colombia of sophisticated, industrious, open minded, disciplined people rebuilding a nation ravaged by civil war, is only one of two Colombias. The other Colombia is made up of the 70% of the population toiling informally, swelled in ranks by three million undocumented Venezuelans, often unprotected by the law, and dangerously exposed to Colombia’s stubbornly high crime.

Before COVID, Colombia was the 4th most unequal society in Latin America (out of 18 measured). When the Gini coefficient is next measured, Colombia may way climb to the top of that shameful rank. By imposing some of the strictest lockdowns in Latin America as a health measure but unable to afford the direct payment programs needed to keep the unemployed fed, an estimated three million more Colombians fell below the poverty line.

With less than a fraction of 1% of the population vaccinated at the end of February 2021, it remains unclear as to when the economy, schools and travel can fully reopen, even if most of the informal economy is now free to work again. Endless months of lockdown did little to prevent Colombia from achieving some of the highest COVID infection and mortality rates in the world. Colombians ask, to what end did we sacrifice so much?

A pall of frustration grips the working classes of Colombia today, angry at a government that failed to protect them, resentful of Venezuelan immigrants who erode wages, and spiteful of elites who maintained, if not grew their wealth during the pandemic. Such ripe conditions a well-known (if flawed) populist politician could only dream of to mount another run at the Presidency in 2022 — enter stage left: Senator Gustavo Petro. The two-round election system helps keep the presidency centrist.  None-the-less, the prospect of a man of Petro’s political lineage reaching the presidency frightens investors. Today he leads all candidates in multiple polls.

CARIBBEAN TOURISM ECONOMIES: The countries that were the most successful at containing the spread of COVID across the world were island nations: New Zealand, Taiwan, Australia, Iceland, Fiji but also: Cuba, Trinidad & Tobago, Jamaica, Grenada, among others. Island nations can shut their borders within hours. The sense of collective purpose found in island nations is unmatched and very helpful when emergencies require a unified response.

However, that collective sense of siege that binds islanders together during emergencies can be difficult to unwind, particularly when the enemy, in this case a virus, is invisible and often misunderstood. Around the world, politicians exploited the collective COVID fears of voters to better their standing, boost budgets and drive compliance. Unwinding that fear, in an effort to re-open their economies to tourism, is proving difficult. Most voters in Jamaica, Trinidad & Tobago, the Bahamas and other English speaking Caribbean countries prefer to keep their borders shut until vaccines fully protect them. Even while American and European tourists are beginning to venture abroad in search of sun and sanity, these Caribbean islands choose to keep them out — while the DR and Mexico welcome them with open arms.

Without tourism, there is little to sustain as many as a dozen island nations in the Caribbean. Quarantine policies in tourist origin countries like Canada, the UK and China continue to keep customers away but by the same token, the travel entry policies of many Caribbean islands prevent even the adventurous from visiting. As a result, these nations will not realize much of an economic rebound until 2022 or later.

Industry Analyses—The Bad

PUBLIC SECTOR: 2020 was a good year for many companies supplying goods and services to Latin American governments: select healthcare supplies (e.g. gloves and masks), payments solutions, logistics services, computers, and software, to name a few. Fiscally strong and/or large nations like Chile, Peru and Brazil were able to access cheap debt to fund massive spending programs. Others jeopardized their sovereign debt grades by going deeper into debt but at little cost as interest rates around the world dropped.

Now Latin American governments must tighten their belts again. In its October 15th, 2020 report, Fitch named 11 LAC countries as trending towards sovereign downgrade. It is little wonder that the sudden rise in US bond yields at the end of February sent shock waves across emerging markets, including Latin America. If yields continue to climb, the free pass given to profligate spending in Latin America will end even sooner than anticipated. Some governments will try to balance spending cuts with greater taxation on a few winning industries – take note: e-commerce, mining and agri-food sectors. Others will have little choice but to shrink deficits through austerity. Either way, Latin American governments will not be lucrative customers for the next couple of years.

HEALTHCARE: It is commonly perceived that the healthcare sector is expanding under COVID, but that is simply not the case. The service side of the business, made up of hospitals, clinics and private practices, lost 20-50% of their full-fee paying foot traffic in 2020. Programmable surgeries, regular check-ups, and preventative treatments were all postponed by either patients or medical professionals, fearful of COVID transmission. Issuing COVID tests and vaccines does not cover even a fraction of the revenue lost from traditional patients.  With fewer people at work, commuting in cars, and otherwise outside, accident volumes fell, so emergency rooms went unused for the types of medical treatments that keep the lights on in hospitals. COVID sometimes tested hospital capacities but, again, treating COVID brought in low fees that were often capped by law. While we applauded the heroics of our medical communities, their wages plummeted.

On the equipment and pharma sides of the healthcare industry, both winners and losers were created by COVID. Suppliers of testing kits, gloves, and masks realized massive profits, but the purveyors of equipment and devices used in ER and programmable surgeries saw sales drop off a cliff. In pharma, suppliers of drugs used to treat chronic diseases saw sales decline due to a lack of doctor visits, while select suppliers of anti-viral medicines and of course vaccines did very well. When all is said and done, 2020 was the worst year in decades for the healthcare industry in Latin America. 2021 will see improvements but until people feel it is safe to visit a hospital or clinic, recovery to pre-COVID levels will remain stalled.  

BRICK & MORTAR RETAIL: COVID dealt a triple blow to the brick and mortar retail industry in Latin America:

  • Lockdowns forced retailers, especially smaller ones, to close their doors for months on end. When lockdowns were lifted, upper class Latin Americans stayed away from stores, opting to buy online.
  • Mercado-libre, Amazon, Alibaba and other pure e-commerce players, with their best-in-class fulfillment models, stole a lot of market share from traditional retail, most of whose e-commerce efforts came too little and too late.
  • Unemployment, wage decline and currency devaluations continue to suppress overall demand.

Now that well over 100 million Latin Americans buy physical products online, the traditional retail sector faces even more disruption ahead. The first to go will be specialty stores, often few and far from customers. Latin American urban traffic is second only to that of Asia. Increasingly, Latin Americans will choose to buy online versus spending hours getting to and from a specialized store.

Now that e-commerce has significant volume outside of Brazil, fulfillment, returns and other vital customer service elements should improve as logistics firms invest billions in modernizing distribution models.  New, more agile fulfilment models will bring down the delivery cost of small purchases, helping e-commerce compete in all retail categories. Latin America’s relatively youthful consumer base will adapt even more quickly to e-commerce than American and European consumers have in recent years. COVID was just the beginning of the end of retail as we knew it.

Megatrends—The Bad

VACCINE DIPLOMACY VERSUS HOARDING: With the exception of Chile, Latin American vaccine programs are off to an inauspicious start, struggling to gain traction. There are many factors involved, including poor planning, a lack of inter-governmental coordination, low tech healthcare systems, fiscal scarcity, and good old-fashioned corruption and nepotism that leads to the selection of poor quality, overpriced suppliers.

Vaccines are needed to alter consumer behavior, open schools, welcome tourists and re-open important segments of the economy – so the stakes are huge. As countries like Chile pull ahead in the race to vaccinate, politicians in other nations will feel the heat of criticism. A popular scapegoat will become the list of wealthy nations that are clearly hoarding the purchase of still scarce vaccines, even while failing to deploy them. 

By one yardstick (vaccines purchased under contract), the most egregious of hoarders are Canada, Australia and New Zealand, who have signed contracts to buy far more vaccines than their populations need but have failed to deploy them. Add to those three countries another 15+ European nations who also boast a huge gap between vaccine purchases and deployment. The Americans and Brits, by comparison, have done a better job of deploying vaccines but have also been accused of hoarding supplies, albeit from Europe and Canada.

The list of European and Commonwealth hoarders are the very countries that take pride in their generous and morally irreproachable foreign aid programs, especially when benchmarked against China. The bad optics shown by vaccine hoarding promises to upset and possibly upend some of the soft power enjoyed by these countries in Latin America, opening the door for Chinese vaccine diplomacy. The consequences of this diplomatic oversight may prove damaging to future trade, procurement and investment linkages.


The 2024 Latin America Forecast

AMI’s leadership team offers a 2024 economic, business and political outlook for Latin America, as well as a sector-by-sector analysis of 5 major trends in the region.


Country Analyses

ARGENTINA & VENEZUELA: A decade ago, Latin American sales departments focused on the region’s big-7: Brazil, Mexico, Argentina, Chile, Colombia, Venezuela and Peru. Venezuela was a precarious place for investors but remained a very profitable export market for many products. Five years ago (for some even earlier), the same regional departments stopped pouring any money into their sales operations in Venezuela as the purchasing power of even the upper classes plummeted. They focused on the big-6 instead.

Today, Argentina is being dropped from the list of priority markets for many companies. Firms are divesting from a country incapable of conquering the spiral of inflation and depreciation. Government intervention in product pricing and the labor market kills profits at both ends and currency controls make it very costly to extract profits. A steadily declining per capita income has reduced Argentine consumers to the bottom half of Latin American purchasing power, a once unthinkable trend. The emigration of Argentina’s talented entrepreneurs and thinking classes leaves behind a political narrative that is rife with populism and disinformation. The failure of the Macri administration to achieve success with what appeared to be sensible policies only confirms the skeptical view that a pro-business Argentina cannot be revived. Latin America will soon be left with the big-5.

Industry Analyses—The Ugly

EDUCATION: The instinct to protect our children is one that every parent knows well. So it came as no surprise that schools around the world quickly closed their doors when COVID struck. However, after a few months of collecting COVID infection, hospitalization and mortality data, it became abundantly clear that our children are not vulnerable to the ravages of COVID. Consider the following statistics, provided by the CDC on February 24th, 2021 for the US population, where COVID mortality rates are similar to most of Latin America:

  • 204 children (ages 0-17) have died from COVID, representing 0.6% of all deaths to children.
  • In the same time frame, over 4,000 children died from car accidents, and more than 3,000 died by firearms.
  • For every million children in the US, 3 died from COVID. For those over 75 years old, 13,873 per million died of COVID

When it became clear to scientists that COVID kills the elderly, not the young, some countries in Europe and Asia moved quickly to open their schools. In Latin America, policy makers justified continued school closure on the likelihood that kids can transmit COVID, even while remaining asymptomatic themselves. This was a valid argument and a defendable one, until the same politicians re-opened supermarkets, public transit, street markets, even movie theatres. Today, most Latin American schools remain closed because of fear and ignorance that governments refuse to correct.

The instinct to protect our children has robbed them of a year of schooling, a year of social skill development, a year of friendships, a year of play, creativity and fun. It will take some time to measure the toll of Latin America’s greatest COVID policy blunder, but it will come at great cost. On an important social level, education is a great equalizer, one of the few institutions in Latin America that fosters upward mobility. Underprivileged children may prove to be the most tragic, if unwitting, victims of COVID. 

Megatrends—The Ugly

POVERTY & AUSTERITY: One of the proudest achievements shared by almost all countries in Latin America over the last thirty years is the gradual but steady decline of poverty levels. While affluent countries have suffered from worsening income disparity, Latin America has mostly improved its Gini coefficient over the last generation.

In the space of six months, COVID lockdowns reversed at least ten years of progress in poverty reduction. It was the working poor, who rely on informal employment that cannot be transferred online that bore the brunt of lockdowns. While government officials continued drawing a paycheck in the comfort of their homes, waiting for infection levels to reduce to some arbitrary threshold before lifting lockdowns, the incomes of ¾ of their citizens dropped by half. Life savings were obliterated and proud working people went hungry. In a few countries, like Brazil, Peru and Chile, monies were efficiently distributed to most of the vulnerable, but elsewhere help never came, or was insultingly meager.

A difficult situation made worse by unempathetic policy makers is going to have political consequences in Latin America. Polls in Ecuador and Peru in 2021 point to a more populist political narrative ahead. 2022 could end Colombia’s long tradition of centrist politics as the nation pivots to the left. Even in ostensibly pro-business governments, the need to close fiscal gaps will necessitate targeting successful industries with greater taxation.

Could this be the year that Latin America rewrites its social contract? Look to Chile’s efforts to rewrite its constitution. If done well, Chile may once again design a worthy blueprint the rest of the region can follow. One can only hope in the time of COVID.

Next Steps

Contact us if you’re interested in market intelligence that goes deeper in weighing these challenges in Latin America, particularly in the areas of political risk, economic risk, reputational risk, investment research and more. You can also explore our industry-specific analyses for Latin America in 2021, including energy, logistics and payments.

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