2021 LAC Outlook: the good, the bad & the ugly

Our firm just published a series of Latin America outlook articles related to our predictions of the year ahead. For my part, I tackled a prediction of how leading economies and industries will fair in 2021. Click here to access the full article (caution: it's a tome of analysis with 5,000+ words and 15+ graphs & tables). Below is a republishing of a small portion of the GOOD portion of the analysis.

Countries:

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).

Other GOOD countries featured in the full article: Brazil, Dominican Republic, Guyana

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. 

Other GOOD industries featured in the full article: Mining, Exports

Mega-trends

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.

Other GOOD mega-trends featured in the full article: Negative (real) interest rates, Remittance flows

In the full article, another set of countries, industries and mega-trends is analyzed under the segment BAD and yet another set under the segment UGLY. I hope that you find the article as informative as it may prove entertaining.