latin america advisor agriculture

Transcription

LATIN AMERICA
ADVISOR
AGRICULTURE
JUNE 2016
JUNE 2016
LATIN AMERICA
ADVISOR
AGRICULTURE
JUNE 2016
CONTENTS
(Click on any section in the table of contents to jump to that part of the advisor.)
REGIONAL OUTLOOK ................................................................................................ 3
ARGENTINA ................................................................................................................ 7
BRAZIL ...................................................................................................................... 10
MEXICO ..................................................................................................................... 15
PARAGUAY ................................................................................................................ 17
URUGUAY .................................................................................................................. 19
NEWS BRIEFS .......................................................................................................... 21
CHILE ..........................................................................................................................................22
COLOMBIA .................................................................................................................................23
CUBA ...........................................................................................................................................24
ECUADOR ..................................................................................................................................25
PERU ...........................................................................................................................................27
VENEZUELA...............................................................................................................................28
US Exports .................................................................................................................. 31
UPDATES .................................................................................................................. 32
AEM Services ............................................................................................................ 35
AEM Staff ................................................................................................................... 36
SOURCES .................................................................................................................. 37
If you have any questions regarding the information printed in this issue, please contact
Barbara Schumacher at AEM.
T 414.298.4103 E [email protected]
Copyright © 2016, Association of Equipment Manufacturers (AEM). All Rights Reserved.
2 | AEM
JUNE 2016
REGIONAL OUTLOOK
Latin America continues on the path to recession, after the economy contracted by 1.3%
year-on-year in the last quarter of 2015. This
ends a five-year period of growth that averaged
3.6% yearly. Venezuela and Brazil are the main
contributors to this downswing, although not all
countries in the region are affected. Argentina,
Chile, Mexico, and Peru experienced positive
growth for the year. Anemic growth has followed
the majority of Latin American states due to a fall
in commodity prices, a slowed global economy,
and a lack in investor confidence. Overall, the region is predicted to further contract by the end of
2016 to 0.5% as the economic situations in Brazil
and Venezuela continue to worsen. These countries are projected to decrease 4% and 10% respectively. However, in 2017, an increase of
2.1% is projected as hopes are high that the two
worst performing economies will improve from
changes in fiscal and governmental policy.
Regional credit ratings are mostly stable.
Chile is the highest performer, with an AA- rating
and Venezuela with a CCC rating and a negative
outlook. Argentina is still at SD, although its outlook has recently been upgraded to stable after a
decade-long return to international credit markets.
Look for this rating is increase in the near future.
Any rating below BBB- is considered Junk and a
risky investment. Higher rates of return are present. Conversely, everything above BBB- is investment grade and rates will be lower due to
stability.
High inflation continues to wreak havoc on
Latin America. Regional rates in March leveled at
20.9%, up from 19.8% the previous month and
look to end the year at 21.9%. However, rates are
forecasted to drop to 17.2% by 2017. These high
rates are due in part to outliers in Argentina and
Venezuela, with 32.9% and 725% respectively.
The first rate can be attributed to floating the peso
(ARS) and ending capital controls which simultaneously devalued the currency. The second is
linked to overprinting the Bolivar (VEF) to cover
the deficit caused by the drop in revenue from
AEM | 3
falling oil prices and fiscal policy mismanagement. In 2015 unemployment rates were listed at
6.7% for the region and look to slightly increase in
the upcoming year.
Although Chinese investment is still prevalent, the consensus is that Latin America must
reform its economic structure so that a mutually
beneficial partnership is devised versus a one-dimensional relationship. China is currently the
largest trading partner for major economies such
as Brazil, Chile and Peru. Raw material exports to
China represent 73% of Latin America’s total,
while manufactured products account approximately 6%. China has also made loans to cover
deficits for nationals with weaker credit ratings,
such as Venezuela and Argentina, as totals have
reached USD 94 billion for investment.
Chinese investment continues to be prevalent throughout Latin America. In 2015, the
country invested USD 65 billion. Of that amount,
USD 35 billion went towards infrastructure projects and USD 30 billion was allocated to governments. Over USD 250 billion is pledged over the
next 10 years. Chinese influence can be seen in
a canal investment in Nicaragua, soy funding in
Brazil, oil-capital swaps in Venezuela, and a
Peru-Brazil cross-continent railway. However,
these jobs will be completed by Chinese nationals, so local economies will not receive labor
openings for new construction projects. It remains
to be seen how much longer Chinese investment
will be prevalent in Latin America with the slowdown in the Chinese economy.
Poverty is an endemic issue in the region.
Given the dubious title of the world’s most unequal region, where almost 30% of the population
is affected by poverty, which amounts to around
175 million people. This can be attributed to low
wages, an increasing wealth gap and limited concentration, and limited job access. Although rates
of extreme poverty have been reduced by half,
the number is still too high for any region in the
world, at 13.3%. Generous social programs exist
in certain countries like Brazil, but poverty is an
JUNE 2016
issue that affects the entire region. Income inequality continues to increase which does little to
improve the collective wealth of a society. As
close to 50% of the labor force is involved in informal labor, a lack of statues regarding fair pay and
working conditions will not aid the population in
reducing poverty levels.
Commodities are the main reason for both
the expansive growth and slowing of the economy. Oil, the primary commodity for Venezuela
and Ecuador as well as Argentina and Brazil, has
seen its value drop by nearly 65% from previous
highs to current valuation. Nearly 95% of Venezuela’s exports come from the commodity and
Ecuador follows with 50%. This decline has massively reduced growth rates and reduced capital
available for investment in infrastructure and social programs. Instead of budgeting from high income levels when prices were stable, many
countries spent the influx and are suffering from
the drop in prices. Other commodities include
copper, tin, and soybeans. Each has seen its
value fall by half which affects Peru and Chile in
the mining sector and all in the agriculture sector.
High inflation follows and reduces purchasing
power. For countries that rely on commodities as
their main source of income, this period of lows
has drastically affected public spending as well as
social program capital allotment. When attempting to reduce poverty, ever-decreasing prices are
trouble for the region. A restructured import/export base is necessary to ensure economic sustenance and reduce dependence on a single
commodity.
The Panama Papers have been indicting
businessmen and companies throughout the region. These leaked files from the law firm Mossack Fonseca discuss offshore companies and
accounts linked to athletes, politicians, and famous citizens. These shell corporations have
been traced to acts of fraud, kleptocracy, tax evasion and evading international sanctions. Leaders
such as Mauricio Macri in Argentina, who has denied any involvement with the offshore company,
are being looked on with suspicion. Prominent
governmental figures such as heads of banks and
4 | AEM
intelligence agencies in Brazil, Ecuador, Mexico,
Panama, Peru, and Venezuela are also involved.
Petrobras is also thought to have been part of the
scandal. As 11.5 million documents have been
released, it’s estimated that this is just the tip of
the iceberg that could topple regimes, send authoritative figures to prison, and rock the stability
of the region. Further results and actions remain
to be seen.
With the theme of corruption in mind, levels in Latin America are systemic. Bribes, kickbacks, vote buying, patronage, and nepotism are
all commonplace throughout the region. In Transparency International’s 2015 Corruption Perceptions Index, 15/23 countries in Latin America rank
in the bottom half. The index, which measures
perceived levels of corruption in the public sector
on a scale of 0 to 100, depicts an area where corruption is not only rampant, but also a part of life
for its citizens. The lowest score is Venezuela,
who rank 160/168 and scored a 17/100. The
highest is Uruguay with 21/168 and total a 74. Although slight crackdowns have occurred, regionwide changes have yet to be implemented. This
can be seen large-scale with Petrobras’s Lava
Jato scandal, which has engulfed Brazil, its political parties, and past as well as temporarily removed President Dilma Rousseff.
Furthermore, corruption is affecting leaders throughout the region. In Chile, President
Michelle Bachelet’s daughter-in-law has been
charged with tax fraud and acquiring insider information in a real estate deal. In Argentina, former
President Cristina Kirchner has been called to
trial over fraud inquiries and money laundering.
This is due to the substantial increase in the
Kirchner’s wealth since assuming office. In Ecuador, President Rafael Correa and his brother’s
names were uncovered as registered owners in
an offshore corporation linked to Mossaca Fonseca and the Panama Papers. The law firm declined to do business with over the corporation
fearing it could be used for illegal purposes. In
Brazil, President Dilma Rousseff was removed
from office due to accusations of political crime
JUNE 2016
regarding malpractices involving the country’s annual budget. Ms. Rousseff was forced to step
aside while under investigation, and her VP
Michel Temer is the country’s current interim
President. In Guatemala, former President Otto
Perez Molina is on trial over accepting bribes and
kickbacks. He resigned as a result of these corruption allegations. In Mexico, President Enrique
Pena Nieto has lost popularity due to the gifting of
a house his wife by a government contractor. In
addition, the government has still not closed the
case regarding the 43 students who disappeared
and are presumed murdered in the state of Guerrero in 2014. A panel of outside experts on the
case recently left the country and accused the
government of obstructing their work. Cover-ups
are common in Latin America.
The political scene is changing at a rapid
pace. Elections are occurring soon, such as in
Peru where a June 5th run off will determine the
winner between Keiko Fujimori and Pedro Pablo
Kuczynski. Fujimori is the daughter of previous
president Alberto Fujimori, a controversial figure
for his actions in the 90’s. In Guatemala, Jimmy
Morales was sworn in in January, winning the
election based off his promises to eradicate corruption from the system. In Argentina, Mauricio
Macri defeated Peronist candidate Daniel Scioli,
ending decades of rule under the old system.
Brazil is awaiting the repercussions of Michel
Temer as the new President in office. Elections in
Ecuador will take place in 2017 with President
Rafael Correa not seeking another term. In Venezuela, if 198 thousand signatures are collected
and present a later 4 million, a referendum will be
called in an attempt to recall President Maduro
from office. Pandemonium may follow. This actions reveal a change in attitude about country
leadership; the citizens want a change and desire
corruption to be no longer part of the ruling picture.
The TPP, or Trans-Pacific Partnership has
been recently signed by 12 countries, most located in the Pacific Rim and North America. However, Chile and Peru are also members. This
agreement will open up new markets for export
AEM | 5
goods and increases revenues. In addition, this
will allow manufacturers to outsource labor making it cheaper to produce goods. Advanced supply chains will be established, increasing trade
balance and creating opportunities for foreign
goods in the marketplace.
The 2016 Olympics in Rio de Janeiro are
set to begin this summer. Concerns over polluted
water, funding, construction of stadiums, evictions, and Zika are voiced frequently. Some experts believe the city is ill-prepared to host the
Games. The Zika virus, which is spread via the
Aedes Aegypti mosquito and borne in stagnant
water tanks, causes red eye, birth defects in babies, fever, and rashes. Due to the poor conditions and contaminated water, areas in Rio are
ripe for breeding grounds. However, this virus has
roots throughout the region. Cases have been
confirmed in Brazil, Honduras, El Salvador, Mexico, Colombia, and countless other countries.
This virus also has an effect on the economy.
Less people will travel to the region, causing a
shortage of income for those who rely on the tourism industry. Experts say this may account for up
to USD 3.5 billion in economic losses.
Income and gender inequalities are massive problems in Latin America. It is estimated
that women earn 19% less income than men, according to the International Labor Organization.
Although workforce participation is high, gender
discrimination creates pay discrepancies as well
as employment challenges. Almost 60% of
women are employed in either the informal economy or domestic work. These jobs are poorly paid
and contribute to high poverty levels. Daily pay
can range from USD 4 to USD 20 for minimum
wage, creating a working poor class. Wage reforms are necessary to continue lifting the region
out of poverty when aligned with generous social
programs. Moreover, these jobs often come with
no social protection. According to the World Economic Forum, the richest 10% of people in Latin
America produced 71% of the region’s wealth.
This is an El Niño year. Argentina, Chile,
Paraguay, and Uruguay have all faced substantial
JUNE 2016
rains and flooding, leading to crops being ruined
and subsequent price rises due to the lack of supply. Evacuations have also come about. Harvest
dates are pushed back meaning internal demand
may not be met. Brazil has seen both heavy rains
and drought. The drought affects the soil quality,
reducing the crop yields and production. Mexico,
Peru, Colombia, and Venezuela have all been affected by the weather pattern. The uptick in food
prices can lead to an increase in inflation. When
combined with devalued or depreciating currencies, purchasing power is decreased. This makes
it difficult for those affected by poverty to feed
themselves or their family especially while on a
low wage. Deforestation is also an issue.
Swathes of rain forest land has been cleared to
plant crops or for cattle, which also forces indigenous tribes to relocate. The majority occurs in
6 | AEM
Brazil, Nicaragua, and throughout the Amazon
rain forest. Forest fires have occurred due to
droughts as well.
Overall, Latin America is facing a series of
extensive challenges. Domestic currencies are
depreciating and as the dollar strengthens,
national consumers are affected. The region
needs commodity prices to return to previous
highs to sustain growth, infrastructre spending,
and social programs. Corruption needs to be
identified and eradicated and inequality for
gender and pay must be addressed. Only time
will tell if the above issues are solved or if the
region will continue shrinking and
underperforming.
JUNE 2016
from INDEC, the national statistics agency are
being edited for transparency after years of falsifying numbers.
ARGENTINA
COUNTRY FACTS
MAJOR ELECTIONS
October 2017
Presidential, National Congress, Provincial
ECONOMY
Indicator
Nominal GDP (in USD)
Agriculture % of GDP
Real GDP Growth
Unemployment Rate
Inflation Rate
Top Agricultural
Products
2015
579 Billion
9.3%
0.5%
7.2%
33.9%
soybeans, grapes,
corn, tobacco, peanuts, wheat; beef
Economic and Political Outlook
After years of turmoil under the former
Kirchner regime, Argentina appears to be steadily
improving under the leadership of Mauricio Macri.
Elected in November, Macri has taken action to
get the country back on track. Ending capital controls increased inflation and decreased purchasing power, but it caused the end of the dualcurrency system. Taxes were also cut. The Blue
Dollar, which showed domestic currency reflected
over inflation versus a fixed rate has been abolished. Although the official exchange rate doubled after the move, the currency is stabilizing.
Rates between the Argentine peso (ARS) and the
US dollar currently sit at 13.87:1 as of 6/3/16.
Check daily for rate changes.
Floating the peso led to a devaluation of
around 30%, with exchanges spiking as high as
16:1. However, this will make exports cheaper as
well as more competitive. Said valuation should
increase revenues as well as domestic GDP.
Macri’s pro-business economic policies are helping the country. Current account deficit, at 7.1%
of GDP, but it is estimated to be slashed to 4.8%
by the end of the year, as well as a further reduction to 3.3% of GDP by year-end 2017. Reports
AEM | 7
Interest rates are high at 24.78%. This is
in part to due to increased inflation rates from
years of excess capital printing. The Macri government has promised to lower inflation through
monetary restriction which will in turn reduce interest rates. The CDP is expected to contract by
1% this year, which is an improvement from the
3.5% contraction from the previous year. Hopes
are high that the economy will continue to increase.
Foreign currency reserves continue to
dwindle. Although a swap with China last year increased reserves, incoming debt payments and
years of propping up the peso burned through a
majority of what’s available. Current levels sit at
USD 25.6 billion. Access to international debt
markets could increase reserves to previously
higher levels.
Macri has taken other progressive steps
as well. Ending export taxes on beef, grains, and
fish, as well as reducing soy export taxes have
been beneficial for revenue. Argentina is being
viewed as more business friendly, which is encouraging to outside investors. In addition, the
country has reached a decade-long agreement
with debt holdouts, settling at 75 cents on the dollar. This payment accounts for USD 4.65 billion,
lower than what the holdouts were demanding.
An expected USD 6.5 billion is expected to be
paid out to other bond holders to completely settle the issue. This action regained Argentina access to international capital markets for loans and
investment. Talks are in the works for a new
global markets debt sale to raise capital. An increase in the domestic credit rating is expected to
follow.
Necessary austerity measures have also
taken place. Cuts have been made to education
and health care and a 300% increase on electricity prices, subsidized under the previous administration, have all been established. Over 75
JUNE 2016
thousand private sector and 25 thousand public
sector workers have lost their jobs as well. These
public sector workers, known as “gnocchi” are accused of only coming to work to receive a pay
check. Mass layoffs will do well for balancing the
public wages budget. Strikes may be forthcoming.
Corruption remains a large problem in Argentina. According to the Corruption Perceptions
Index, Argentina ranks 107 out of 175 countries.
Previous scandals have included the Hotesur
case, the murder and cover up of prosecutor Alberto Nisman, and countless other bribery, kickbacks, and money laundering issues. Macri is
introducing several bills that will increase transparency in the government and giving less harsh
penalties to those who cooperate with criminal investigations.
Recently, a judgement was made to hear
the case in the federal court. This is important because the truth in the case could come to light
and indict Kirchner. Evidence remained of her involvement and as a result, a judgment will hopefully be made in the upcoming months. Nisman
was murdered the day before he was scheduled
to present evidence incriminating Kirchner in a
cover-up to shield Iran from prosecution for participation in the 1994 bombing of the AMIA Jewish Community Center. The attack killed 85 and
left hundreds more wounded.
Economic freedom is low as well. Argentina’s economic freedom score in the 2016 Index
of Economic Freedom, 43.8 out of 100, is its lowest score ever. This placed it in 169th place of
178 countries measured. Argentina also ranks
27th of the 29 countries in the region. Macri’s
election looks to combat this rating and establish
Argentina as a viable location for foreign investment. Reaching an agreement with the holdouts
and cutting import taxes have been key successes. Economic changes will need time to become fruitful.
Argentina is slowly re-opening its doors to
foreign influence. Recently, US President Barack
Obama visited the country to dialog with Macri
8 | AEM
over human rights and market investment. Such
dialog would have been unthinkable with the former regime, which aligned itself closer to Venezuela than the US. As a result of the meeting, the
US Chamber of Commerce predicted that American companies would invest approximately USD
3 billion in Argentina over the next 18 months.
This could bode well for future foreign relations
between Argentina and other countries. Progressive steps towards a more open market will well
serve its citizens, businesses, and subsidiaries.
Argentina is also exploring bilateral trade with India valued at USD 2.5 billion. Industries involved
are automotive, mining, railway, agriculture, oil,
and gas exploration.
Macri’s government has come under fire
recently for human rights violations. Recently, Milagro Sala, an indigenous lawmaker and activist in
Argentina was detained and denied a habeas corpus plea. She is accused of fraud, extortion and
illicit association for allocating state money for a
patronage system. Amnesty International is appealing the case to get an injunction for her due
to an illegal detainment. Future results remain to
be seen. Police abuses, reproductive rights, and
prison conditions are all problematic for the regime.
Nepotism is also an issue in Argentina,
but Macri is attempting to change this. Several
ministers have come under fire for appointing
those without experience to executive positions
that they are close to or related to. By appointing
those with the highest credentials instead of family or friends, the country can continue to progress instead of being stuck in a wayward loop.
After the December elections, it’s clear that Argentina is progressing. Time will tell how successful these attempted reforms will be and what
they will mean for the future of the country.
Agriculture and Equipment Outlook
Agriculture makes up a large percentage of
Argentina’s output, employment, and GDP. Beef
production stands to increase, due to favorable
JUNE 2016
market policies pushed by the current regime.
Taxes on beef exports were eliminated to make
Argentina beef more competitive and increase
production for shipment. However, as more beef
is exported, domestic prices may rise. Trade controls have been lifted along with price suppression, which was established during the term of
former President Kirchner. The Argentine Meat
Industry and Trade Chamber (Spanish acronym,
Ciccra) estimates beef exports will increase to
300,000 metric tons in 2017 from 200,000 metric
tons last year. This is a recovery, but an overall
decrease from what was exported a decade ago.
Then, Argentina was the world's third biggest
beef exporter, with annual shipments of approximately 771,000 metric tons. The Macri regime appears to return to this trend.
Other than beef, Argentina also seems to increase its corn exports. They are estimating to
export 19 million tons of corn, an increase from
the 18 million tons that were exported the previous year. This will be its second-largest export total ever. Export taxes have been eliminated to
make the product more competitive on the international market. Total output will be an approximate 27 million tons with the majority pegged for
export. Over 3 million hectares will be devoted to
the production of organic agriculture as well.
The country’s biggest export and most value
commodity is the soybean. Unlike the previous
two products, export taxes have not been completely eliminated. However, they have been reduced; first from 50% to 35%, and now to 30%.
The end goal is the complete removal of the tariff,
in increments of 5%. Soybean production for
2016 is projected to be between 58 and 60 million
tons, which is slightly lower than last year’s 61
million tons. However, with the reduction in tariffs,
this will make the Argentina product more competitive in the global market. Exports are estimated to level at 33 million tons by the end of the
year. With increasing prices, this will bode well for
both producers and exporters alike. Harvesting
starts in April. Due to the tariff reduction, farmers
have returned to the country and the sale of their
AEM | 9
stocks has produced much needed liquidity for
domestic reserves. In addition, the influx will
lower the prices for consumers. Soybean futures
are priced at USD 911 a bushel for May and it
seems to slowly increase for the near future.
Due to the reliance on the agriculture industry, sector machinery is very important. Planters,
harvesters, tractors, and irrigation systems are all
integral components. Domestic production of agricultural machinery accounts for between 15%
and 35% of the total market. There are approximately 800 manufacturers of a wide variety of
machinery. Many manufactures rely on imported
key parts and components. The year 2016 figures
have not been released, but numbers from the
third trimester of 2015 are available. Compared to
a year earlier for the same trimester, sales have
fallen almost 9%. This can be attributed to the devaluation of the peso as well as rising machinery
costs. Sales of tractors and harvesters are projected to increase, although sales of spare parts
have decreased drastically from the previous trimester. As seen, tractors make up 40% of the
market whereas harvesters account for nearly a
quarter. Total unit sales were 3,057 with 87% of
that as domestic.
Source: indec.mecon.ar
JUNE 2016
BRAZIL
COUNTRY FACTS
MAJOR ELECTIONS
October 2018
Presidential, National Congress, Gubernatorial
Source: indec.mecon.ar
Weather conditions and deforestation are a
perennial thought in regards to the agriculture
sector. The Gran Chaco forest, which is located
partially in Argentina, has lost 2,300 square miles
over the past decade. This will reduce available
farm land which in turn decreases supply which
will increase commodity prices for the affected
products. Although climate has been beneficial
for planting crops, a locust plague has affected
crop yields. Argentina is facing its worst plague in
over 2 decades. The locusts feed on crops which
will affect supply and output. This increase is due
to a warmer and wetter climate.
The Buenos Aires Grain Exchange has revealed the number of hectares cultivated for the
year. Soy represents 800,000 hectares, and 11%
decrease from the previous year, Corn with
242,000 hectares, a 5% increase from the year,
and Sorghum at 23,500 hectares, a 2% decrease
from the year. Total planted surfaces account for
3,600,000 hectares with a 100% harvest rate.
10 | AEM
ECONOMY
Indicator
Nominal GDP (USD)
Agriculture % of GDP
Real GDP Growth
Unemployment Rate
Inflation Rate
Agriculture
Employment
Top Agricultural
Products
2016
2.35 Trillion (2015)
23%
-1.40 %
10.9%
9.28%
15% (2012)
coffee, soybeans,
wheat, rice, corn, sugarcane, citrus, beef
Brazil is currently going through its worst recession since the 1930s, and has witnessed the
second presidential impeachment process in its
history. Brazilians fought for a democracy and won
the right for direct elections (through popular vote)
in the late 1990s, and experienced its first presidential impeachment in December of 1992. Now,
a familiar struggle burdens the volatile state of the
Brazilian economy once again.
The President in office at the time of the first
impeachment, Fernando Collor de Mello, had his
administration ended prematurely due to confirmed accusations of political crimes that took
place during his campaign. Collor was accused of
influence peddling during his administration and
other malpractices such as the appropriation of
money from federal reserves and irregularities
committed by his treasurer, Paulo César Farias,
during the fundraising process for his campaign.
This event is known in Brazilian history as the Esquema PC Farias (Scheme PC Farias, in relation
to Collor’s treasurer), which turned out to be the
reason for the approval of Collor’s impeachment,
JUNE 2016
leaving him ineligible to hold political office for 8
years.
Like current popular manifestations, Brazilians went out to the streets in the 90’s to protest
against the faulty administration. Discontentment
was expressed towards the government. Like present protesters, Brazilians occupied streets and
the base of the Palácio do Planalto (Brazilian President’s workplace) and asked for change. This
popular movement was known as the Painted
Faces (Portuguese: Caras Pintadas).
gated through the operation Lava Jato (Portuguese for Operation Car wash), that has been operating since the first quarter of 2014. Cases of
money laddering and bribes involving politicians
and executive members from Petrobras remain
under investigation.
Source: Correio Braziliense
Source: El País
Nearly 25 years later, Brazil is watching the
development of its second presidential impeachment process. On April 17th of this year, the lower
house approved the impeachment of President
Dilma Rousseff. The proposal has been taken to
the Senate where it was voted on and approved.
Although Rousseff is effectively removed from office, the investigations regarding the accusations
made against her, can take up to 180 days to be
concluded. Therefore, the period of political instability in the country is prolonged. In the midst of
suspicions against Rousseff, there are accusations against administrative dishonesty, involving
the annual budget among other charges related to
irregularities in her administration.
However, the main argument for impeachment from the opposition is the involvement of
Rousseff in the scandal of the national giant oil
company Petrobras. This scandal is being investi-
AEM | 11
On May 12, 2016, at 6:30 am, the Senate has
accepted the impeachment process of Rousseff
after a voting session that lasted over 21 hours
registering 55 votes in favor, 22 against the motion, and no abstentions. Now, the Brazilian people
will greet the current VP Michel Temer as their new
leader and interim President as he takes office for
180 days until accusations made against Rousseff
are under investigation.
Temer has clearly expressed his desire to be
the first in his party PMDB (Brazilian Democratic
Movement Party; Portuguese acronym) to become
President. This demonstration became more evident after Temer played an important role in putting an end to the alliance between PMDB and
Rousseff’s Workers’ Party (PT; Portuguese acronym). It is important to remember that Temer,
throughout all of this turmoil, counted on the support of Eduardo Cunha, former President of the
Chamber of Deputies and active during the early
days of the current impeachment process.
During her speech addressing the population,
on April 12, following the decision of Senate,
Rousseff returned to call this impeachment process a “golpe” (Portuguese for coup d’état), stating
that the opposition had no criminal basis to convict
JUNE 2016
her. She also stated that the motives for this motion trace back to her refusal to protect Cunha,
when he himself was being investigated by Swiss
and Brazilians authorities, against accusations of
hiding $5 million in Swiss accounts.
Despite the uncertainties about a possible
Temer administration, whom also had his name
linked to the investigations of the Lava Jato scandal, experts defend that the market sees Temer as
more “business friendly”. These arguments are
supported by the appreciation of the Real (BRL)
against the US dollar immediately after the announcement of the presidential impeachment process being taken to the Lower House.
Starting in 2010 building up until 2012, Brazil
was considered to be the best destination for investment and seen as the “New Land of Opportunities”. Though it still has all the attractiveness
found years ago, the country’s current economic
state should not present any drastic change in the
near future as once dreamed. In order for significant changes to become reality in Brazil, the country must lessen the difficulties of conducting
business, which would make its economy more attractive for foreign direct investment, consequently
fueling growth. Another measure that must be seriously considered by Brazilian leaders is to move
towards the eradication of corruption (or a more realistic short term objective, “control” it), creating
then a much more stable and efficient environment
for businesses practices. Meanwhile, Brazilian politicians have their hands full trying to reorganize
their house, meaning that another 12 to 16 months
could pass before any significant progress can be
spotted in Brazilian economy.
Brazilian GDP growth rate has suffered a
drastic decline in comparison to the first years of
this decade. However, it wasn’t until the beginning
of Rousseff’s second term that the country saw its
GDP decline considerably, registering a -5.9%
GDP growth rate during January 2016 in comparison to 2.4% during January 2014.
12 | AEM
Source: Trading economics / instituto brasileiro
de geografia e estatística (IBGE)
The inflation rate was recorded at 9.28% in
April of 2016, accounting for the lowest inflation
rate since June 2015. Unemployment was at
10.90% in May of 2016; unemployment rate has
increased over 3% since February 2016. In comparison to 9.0% at the end of 2015 and 7.9% recorded exactly a year ago. On April 27th Brazil’s
Central Bank has announced the interest rate at
14.25%, maintaining the same percentage for the
sixth consecutive time. The current scenario of political instability has played a big role in deciding to
maintain the benchmark rate regardless of the latest decrease in the inflation rate.
In contrary to a recessionary economy, the
Brazilian export and balance of trade in April of
2016 registered a trade surplus of USD 4.86 million, surpassing the market expectations of USD
4.7 million. Changes year-on-year in export and
imports were also recorded, with 1.4% increase for
exports and 28.3% down for imports. Up to this
point, Brazil has recorded a surplus of USD 13.25
billion.
Just prior to stepping down as Brazil’s Agriculture Minister, Katia Abreu, authorized on May 11th
of this year, the increase in R$ 140 million (USD
40 million) to Moderfrota, (Program of Moderniza-
JUNE 2016
tion of Agriculture Tractors and Implements Associated to Harvesters), for the 2015/2016 harvest.
The USD 40 million would be relocated from other
programs, bringing the total number of resources
assigned to the Moderfrota to R$ 4.85 billion (USD
1.38 billion). Moderfrota was created to assist producers and cooperatives, in the financing of tractors, harvesters, cutting decks, sprayers, planters
and seeders, by offering better financing options,
than of those offered by private banks and financing institutions. On May of this year, Abreu’s decision to increase the programs budget was
suspended due to the high level of political instability and changes in office personnel, including the
end of her own term as the minister.
The new administration recognizes the importance of investing in the program, assuring the
needed assistance for producers in the acquisition
of more up to date machinery. July 1st will mark
the end of the 2015/2016 harvest, and beginning
of the 2016/2017, which will also be the first year
harvest under this ministry’s new administration.
The ministry will announce a new Agricultural Plan
for the upcoming harvest. The secretary of Agricultural Policy, Neri Geller, stated on June of this year
that contrary to the previous administration, the
current office wants to relocate resources from one
program to another, instead of asking the Brazilian
Development Bank, (BNDES: Portuguese acronym), for more money. The secretary also stated
that the plan is to redirect R$ 1.5 billion (USD 430
million), to Moderfrota, accounting for a total R$
7.5 billion (USD 2.17 billion). Geller did not comment on the interest rates, leading to believe that
they will remain at 7.5%, for producers with annual
gross income under R$ 90 million, and 9%, for
those that exceed the R$ 90 million gross income.
This interest rates have been the same since April
of 2015, when it respectively went from 4.5% to
7.5% and from 6% to 9% per year.
Considering the current political and economic state that the country is found, a plan that
involves reallocation instead of budget increase, is
more acceptable. Although, it is still uncertain that
the federal government will leave the sector free
AEM | 13
from budgetary cuts, when interim President
Temer has announced a new plan for a budgetary
reform.
The plan was created after the concerning
projections of a federal budgetary deficit of R$
170.5 billion (USD 49.26 billion). This measure has
already resulted in the extinctions of some ministries and possible reductions on the budget of several others. Confirmation about the changes
affecting Moderfrota are expected to be announced on the first week of July of this year.
The National Monetary Council (Portuguese
acronym: CMN), accepted a new plan for agriculture on May 6th 2016, where new credit limits were
adjusted, allowing producers to have more financing options. The adjustments are for example, a
new credit limit of R$ 1.32 million (USD 380 thousand) per producer, as well as incentives to programs such as the Program of Incentive to
Irrigation and Storage, (Moderinfra). A limit of R$
2.2 million (USD 630 thousand) per beneficiary
and R$ 6.6 million (USD1.88 million) per collective
enterprise, with interest rates at 8.5% and 9.5% respectively. These measures will become active
starting on July 1st.
As experts in grains production, Brazil continues to innovate and aggregate knowledge with the
goal of maintaining its domestic and global supply.
These skills have sparkled the interest of members
of the USDA, who travelled to Brazil on May 10th of
this year, for an exchange visit to Brazilian grain
producers, in order to understand peculiarities of
grain crops, climate contributions, and technology.
The visit coincided with the publishing of the forecast of grain crops and the management of the climate impact on the harvests.
Studies on winter crops, presented by the
Company of National Supply (Conab: Portuguese
acronym), highlighted wheat as one of the only
commodities with increasing production. Wheat
production is expected to be at 5.8 million tons this
year, representing a 5.3% increase in comparison
to the 2014/2015 harvest.
JUNE 2016
The 2015/2016 total grain crops are expected
to report lower numbers as a consequence of
droughts. The crops are expected to reach 202.4
million of tons by the end of 2016. This will represent a reduction of 2.5% (5.3 million of tons) in
comparison to the 2014/2015 harvest, which registered 207.7 million tons.
Soy still a major item and is responsible for
47.9% of the total national grain production. Soy
production is expected to register higher numbers
in comparison to the previous harvest due to the
increase of 3.1% in cultivated area. The expected
increase is at 677.1 tons in comparison to the
2014/2015 harvest, representing a total of 96.9
million tons.
Brazilian corn farmers had a drop in productivity in the second harvest of 2016. As a result of
the decrease in corn supply, the federal administration has adopted several measures since the
beginning of this year, to ensure the national supply of the grain, especially to poultry farmers,
swine breeders, and milk producers. The second
harvest of corn in 2016 is expected to be 52.9 million tons, roughly 3% less than the 2014/2015 cycle, according to studies presented by the
Company of National Supply (Conab: Portuguese
acronym).
In order to lessen the effects of this decrease,
measures have been taken. On April 2016, the
government approved the reduction of import tax
on grains from 8% to 0%.The country has sold 500
thousand tons of stocked corn since February this
year. In addition, another 135 thousand tons are
expected to be sold by the end of this upcoming
July. After this period, it is expected that over 160
thousand tons will be commercialized by the end
of 2016. Negotiations are still under development
in regard of new sales of stocked grains. The goal
is to achieve 1 million tons of grains sold by the
end of the year.
As a consequence of the increase of soy
crops, the first harvest of corn is projected to be
reduced by 10.6% in area. During its second harvest though, corn crops are expected to increase
14 | AEM
in cultivation area by 6.4%. Even though corn, rice
and cotton are expect to decrease in total production, due to a reduction in total cultivation area, the
total area of planting of grains should increase by
0.3% in comparison to 2014/2015 reaching 58.1
million hectares.
The agricultural sector’s trade balance registered at a surplus of USD 7.1 billion on April of this
year. This represents an increase of 14.3% in exports in a year to year comparison to 2015. With a
sum of $8.08 billion, the agriculture sector represents 52.5% of total exports. Brazilian agriculture
seems to be the grout that is holding the economy
together during turbulent times. While various sectors are struggling to remain profitable, agriculture
has turned into an option for sectors that are looking for new opportunities. Construction equipment
manufacturers is one of them. The makers of yellow line products are going into the agriculture
market as they adapt specific machineries that
have common functionalities that can be applied to
the agriculture use.
Despite the positive performance from the
sector, agricultural professionals are still unsure
about their future. Interim President Temer, a day
after taking office on May 13th, has named Blairo
Maggi as the new Minister of Agriculture. Maggi is
a very successful soy producer and exporter. His
family owns the world’s largest private soybean
producer (AMaggi Group). With a history of environmental scandals, Maggi has received the
Greenpeace’s Golden Chainsaw Award, as a result of accusations of being responsible for the destruction of the Amazon’s rain forest, with the
intention to plant more soybeans. The uncertainties hovering around the sector exist due to the inability to predict if all of the measures recently
approved will survived the administration of the
new minister.
JUNE 2016
peso, changes will have to be made. Pemex accounts for 20% of the national budget. Oil exports
have fallen by 46% due to the drop in prices.
MEXICO
COUNTRY FACTS
MAJOR ELECTIONS
July 2018
Governmental, National Congress, Provincial
ECONOMY
Indicator
Nominal GDP (in USD)
Agriculture Employment
Real GDP Growth
Unemployment Rate
Inflation Rate
Top Agricultural
Products
2015
1.30 Trillion
13% (2013)
2.5%
4.15%
2.87%
Corn, sugarcane,
citrus, beans,
coffee, bananas.
Mexico is the second-largest economy after
Brazil in Latin America and in far better fiscal
shape. With GDP growth rates approaching 3%,
the country also benefits from its close ties to
northern neighbors the US and Canada. NAFTA,
the free-trade agreement between the three countries also provides a buffer so that economic woes
afforded to the rest of the region do not affect it as
negatively. In terms of currency, the Mexican peso
(MXN) has been very volatile. The peso has been
devalued by almost 50% over the past 18 months.
This reduces domestic purchasing power, but
makes exports cheaper and therefore more competitive.
Mexico is the 11th largest producer of oil in the
world and the 13th largest exporter. As a result,
with falling oil prices, revenues from the commodity are affected. Pemex, the state-owned oil company faces a massive cash flow shortage and
mounting debts. After previous quarter losses of
USD 10 billion, the company is struggling. The
government, which recently has depended on the
company’s revenues for approximately 30% of its
spending, faces massive treasury losses. When
combined with the continuously falling value of the
AEM | 15
Mexico recently joined the Trans-Pacific Partnership (TPP) along with 11 other countries. Member nations include several Pacific Rim
economies, as well as the US, Australia, Canada,
and Chile. Entry into the TPP gives Mexico an opportunity to keep diversifying its exports and markets to regions with vastly dynamic economies. In
addition, advanced supply chains will be created
to further facilitate global imports and exports. Both
emerging and advanced markets are involved.
The credit rating for Mexico is BBB+ along with a
stable outlook. This means that Mexico is a favorable candidate for foreign investment and with low
domestic wages, plenty of manufacturing opportunities exist. By reducing energy subsidies and increasing the tax base, the country’s credit rating
has managed to weather the impact of Pemex’s
downward slide. Holding an investment-grade rating will continue to prove favorable for Mexico’s future.
The country is a popular investment destination. Total 2015 foreign direct investment (FDI)
reached approximately USD 28.4 billion, with the
US contributing to 53% of that total. Other countries involved include Spain, Germany, and Japan.
Mexico’s 2014 FDI totaled USD 22.57 billion which
represents a year-on-year increase of 26%. This
can be linked to acquisition to domestic firms.
As a complex economy, Mexico’s top exports
include oil, automobile parts, and computers. The
top export destinations of Mexico are the United
States, Canada, China, Spain, and Brazil. The top
import origins are the United States, China, Japan,
Germany, and South Korea. Mexico has a current
account deficit of USD 725 million, likely contributed to the fall in the price of oil, the largest export.
However, low unemployment, inflation, and interest rates will continue to keep Mexico performing
well in a stagnating region. One cause for concern
is an increasing government debt to GDP ratio at
31%, an increase from the previous year. Low
JUNE 2016
wages promote manufacturing outsourcing although this does not bode well for domestic laborers. China, Japan, and Taiwan all have vested
interests in establishing manufacturing outlets in
Mexico.
Mexico faces substantial problems with income and class inequalities. 40% of Mexico's income is owned by just 10% of its population. Even
more substantial, the top 1% has an income 47
times that of the bottom 10%. As a result, more
than 55 million citizens live in poverty, over half of
the country. Low wages add to the disparity. With
the current exchange rate, the daily minimum
wage is at an approximate USD 4.25. Although this
only covers 13% of occupations, the average daily
wage is still an estimated USD 18. With purchasing
power falling due to the devaluation of the peso,
many families remain below the poverty line. Low
wages in turn reduce purchasing, which can slow
the economy.
Migrants are becoming a problem for Mexico.
Recently, a Human Rights Watch Report published that the government is doing little to aid migrants entering or passing through the country
from other Central American locales. Few receive
asylum and even fewer are granted visas. Extreme
violence and poverty drive these movements.
Mexican and US authorities apprehended nearly
75 thousand children from Guatemala, Honduras,
and Nicaragua in 2014, and 68 thousand in calendar year 2015. That includes accompanied as well
as unaccompanied children.
Corruption is commonplace throughout Mexico. According to Transparency International’s
Corruption Perception Index, Mexico ranks
97/167, which indicates widespread bribery, unresponsive public institutions, a lack of criminal enforcement, and corporate backroom deals. There
is little faith in the justice system to put a stop to
cartel violence and fix inefficiencies that affect
commerce, security, and daily life. Corruption is
endemic and systemic in Mexico. Many public officials, including President Peña Nieto have either
been indicted of or accused of corruption. This
century-long battle reduces the faith both domestic
16 | AEM
citizens and outside investors have in the country
and its leaders.
El Chapo, or Joaquin Guzman, Mexico’s most
notorious drug lord, was recaptured in January. He
led the Sinaloa Cartel and is facing extradition to
the US after multiple escapes from prison. However, his arrest has coincided with a massive spike
in cartel violence. Homicides have increased by almost 8% which has resulted in a slight drop in
overall life expectancy. Disappearances are also
common. The war on drugs has cost Mexico
countless lives, dollars, and innocent victims.
Agriculture is a significant industry in Mexico.
It is the world’s 12th largest food producer, thanks
to a diverse landscape, beneficial climate, and diversification of commodities. Its top supplier in the
US, whose 72% of inputs are in place due to
NAFTA. This ensures a stable trade relationship
between Mexico, the US, and Canada. As a member of the TPP as well, Mexico’s agriculture market
will be opened to advanced supply chains, foreign
economies, and an increase of revenue and opportunities from trade.
During 2014, the agriculture GDP grew at a
rate of 4.3%, a pace was nearly twice that of the
whole economy. In 2015, the favorable performance continued, with an increase in sector GDP
of 3.1%, which is above the aggregate trend. In
Asia, Mexico is increasing economic ties with
China and Japan. In December, protocols to export corn, tobacco, berries, beef, and dairy to the
Chinese market were signed. For Japan, further
consolidation of an existing trade agreement will
allow the country to increase exports of beef, pork,
poultry, pineapple and sugar. Due to these efforts,
Mexican tomatoes, berries, avocadoes, beer,
beef, pork, and tequila are successfully competing
in over 100 global markets. In 2015, food exports
reached USD 26.6 billion, which is an increase of
4% over 2014. More importantly, Mexico’s food
and fisheries trade balance registered a trade surplus as well.
JUNE 2016
Roughly 13% of the population are employed
in agriculture-related jobs. Popular products produced in the Mexican farmland include sugarcane,
corn, banana, sorghum, orange, wheat, tomato,
lemon, green chilies, and potatoes. The cultivable
area in Mexico is immense, as about 13% of the
land has been used for agriculture.
Mexico is the second-largest export market for
agricultural equipment for the US, at USD 1.1 billion in 2014. Exports related to fresh produce and
livestock approximately 12% and 8% of total exports, respectively, valued at USD 127.5 million
and USD 88.1 million. Agricultural sprayers accounted for 7.6% of total exports, around USD
82.2 million. Parts exported to Mexico were worth
USD 577.1 million in 2014, an increase of 6% from
the previous year. Nearly 80% of total parts exports were for tractors.
Unionization should better the working conditions of the Jornaleros, or day laborers. President
Peña Nieto has expressed a promise to help these
workers, but what will actually happen remains to
be seen. The Jornaleros are an important piece of
the agriculture economy and allotting them better
conditions will increase happiness and productivity. In addition, an increase in pay and living conditions will not only produce more output, but also a
more sustainable model for families in the field.
Children are paid less than daily averages, which
can range from USD 6-15 per day. Long hours are
common.
Approximately 15% of useable land is allotted
to crops, which account for half of all output. Fifty
percent of useable land is given to livestock. Mexico’s agricultural products come mainly from three
parts of the country; the Gulf of Mexico, the Bajia
region, and the Chiapas Highlands. A partnership
with the US allows for secured exports. Around
50% of Mexico’s crops are exported to its northern
neighbor. As agriculture accounts for around 3%
of Mexico’s GDP, the demand for heavy machinery
is high as well. Domestic tractor production is insufficient to meet national needs, so the market for
foreign manufacturers is well-established. Mexico
AEM | 17
does not significantly establish locally price controls for agricultural machinery.
PARAGUAY
COUNTRY FACTS
MAJOR ELECTIONS
April 2018
Presidential and Municipal
ECONOMY
Indicator
2015
Nominal GDP (USD)
29.5 Billion (2014)
Real GDP Growth
3%
Unemployment Rate
5.8%
Inflation Rate
5.1%
30% (of male populaAgriculture
tion only, 2012)
Employment
23% (of female population only, 2012)
Top Agricultural
Soy, corn, sunflowers,
Products
cattle, wood
While the region experiences stagnant
growth, Paraguay remains a bright spot economically. Its GDP growth that is projected at 3.8%.
With both sales and income taxes at lessened levels, coupled with excellent growth in manufacturing, increase in foreign investment has followed.
Low labor costs and friendly tax rates have set up
operations in Paraguay, and firms from Europe
and Japan have increasingly expressed interest in
following suit. Proximity to both Peru and Argentina increases business opportunities, tourism,
and revenues. Regulations for business are favorable to work with.
Inflation and interest rates are moderate, but
trending high. Current credit rating sits at BB and
outlook is stable. This denotes investment grade
and will help Paraguay in its capital markets. High
government spending in the construction sector
assists with unemployment.
JUNE 2016
As a result of the country’s status as a net importer of oil and natural gas, the drop in oil prices
has been profitable. Furthermore, the country
meets most of its energy consumption needs
through the Itaipu dam, which produces 75% of its
energy. While Paraguay is still reliant on commodity exports, the country has seen substantial
growth in the industries of textiles, pharmaceuticals, and auto parts. These sectors account for a
quarter of the country's total exports.
Corruption has been a past problem for the
country. Transparency International ranks Paraguay 130/168 countries, which is an improvement
from previous years. One example is a nepotism
case from the National University of Asunción
(UNA). The chancellor is accused of paying inflated salaries to family and friends in a country
where the average after-tax monthly salary is
around USD 350. Student protests followed and
the Chancellor resigned. Counterfeit goods are
also a reality. In 2014, legislation was passed to
strengthen fiscal oversight. This should reduce
corruption cases and increase accountability.
Paraguay benefits from having a young population. The average age of a citizen is 27 and 1/3
of Paraguayans are between the ages of 15 and
33. They are supported by a government whose
policies have resulted in low debt levels and a stable currency. The Guarini (PYG) is relatively stable
against the US dollar. Commodities exports are
based off agriculture, which can easily be relocated if the market continues to decline.
Agriculture in Paraguay has traditionally been
a driving force in the economy. Accounting for
nearly a quarter of GDP and half of employment,
this market is diversified and well-attended to. With
over 4 million hectares of arable land, farming is
commonplace. Major commodities include cassava, corn, soybeans, wheat, and sugarcane. As
a result of falling prices, Paraguay’s crops have
been less profitable. Soy is the country’s most important crop. There are nearly eight million acres
18 | AEM
planted domestically and it accounts for 12% of
GDP. Paraguay is the world’s fourth-largest exporter of the crop. The 2016 figures are expected
to increase by nearly 9%, to approximately 8.8 million tons.
Although a major revenue provider, reliance
on one crop is not without risks. Deforestation in
the Gran Chaco forest area led to a reduction in
available land, which in turn can result in land overuse. Due to newer farming practices, only one
worker is needed for every 1,100 acres, promoting
unemployment. This adds to the massive disparity
in land ownership, where 3% of the population
controls 86% of available area. As a result, the
country is home to the world’s most unequal land
distribution. As Paraguay is more of a rural society,
unrest and increasing poverty have resulted from
these new methods. The need for agrarian reform
has led to strikes and marches by rural farmers.
As this sector is concentrated in the hands of
a few, Paraguay suffers from high poverty numbers. Over half of its citizens live in poverty, with
approximately 17% in extreme poverty. New agriculture approaches that include genetically modified seeds and pesticides have caused the
degradation of the fertile lands and loss of biodiversity across the country and the indiscriminate
use of agrochemicals. These practices have increased the disappearance of forests, water, and
air pollution.
Mass deforestation has been problematic.
Originally employed to establish cattle ranches,
the technique is now used to plant soybeans, corn,
and wheat. In 2013, the Chaco forest had the highest rate of deforestation in the world at 2,000 hectares per day. However, the majority of soybeans
are used in exports for either grain or extracted oil,
leaving 4% for domestic use. This results in massive soil turnover, as the most fertile soils have
been employed for soybean growing. In turn, domestic food production decreases.
Beef is another important export for the country. In the first two months of 2016, Paraguay exported 36,028 tons of beef to 35 different markets.
JUNE 2016
This is valued at USD 136 million. The country is
also looking at diversifying its market shares. It recently started exporting to Egypt, where shipments
can sustain 3,000 tons monthly. Total exports last
year amounted to 400,000 tons. Major markets include Russia and Brazil, as well as future deals
with the UAE and the European Union. The industry is export-centered as less than 20% of production is consumed domestically. Paraguay is the 8th
largest beef exporter in the world.
In December, heavy rains contributed to immense flooding. The Paraguay River reached
more than 16 feet above its normal level last December. Thousands of acres of cropland were under water and likelihood of the spread of mosquitoborne disease like dengue fever and the Zika virus
increased. This led to a decrease in output and a
subsequent rise in the cost of commodities.
Despite being small and landlocked, Paraguay presents both a stable present and a promising future. Beef prices, after a spike in late 2014,
have stabilized to offset the drastic drop in soybean prices. If the country can stem deforestation
and continue exporting through its successful beef
industry, returns will be promising. Although commodities have been losing value, gains from the
beef market will act as a buffer. In a region where
growth looks nearly non-existent, Paraguay offers
stable growth as well as profitable exports without
the burden of restrictive governmental business
policies.
URUGUAY
COUNTRY FACTS
MAJOR ELECTIONS
October 2019
ECONOMY
Indicator
2015
Nominal GDP (USD)
55.71 Billion
Real GDP Growth
2%
Unemployment Rate
7.7%
Inflation Rate
10.6%
Agriculture Employment
13%
Top Agricultural
Soy, rice, wheat,
Products
beef, fish, dairy
Uruguay is the second-smallest country in
the region with a population of approximately 3.4
million people. However, its reduced size has not
hindered advanced economic development. Uruguay boasts some of the highest wages in the region, a multi-lingual and educated workforce, and
a liberalized business-friendly climate. Per capita
GDP is high and income inequality is lower than
other surrounding countries. The economy has
slowed from 2014 to the 2015, going from a growth
of 3.5% to around 2%. Outlook is negative and a
further decrease is projected at 1.6% for 2016.
This can be linked to anemic growth throughout
Latin America as well as falling commodity prices
for its primary exports. Soy, pulp, and meat are
Uruguay’s main revenue generators. Economic
growth is projected to remain low for the next 2
years.
Inflation is a problem in Uruguay. With
rates surpassing 10%, this increases costs and decreases domestic purchasing power. As a result,
interest rates are high at 9.25% to counter the inflation. In addition, the peso (UYU) has been depreciating rapidly. It has lost 24% of its value over
the past year due to portfolio shifts from falling exports and decreasing commodity prices. However,
Uruguay’s shock tolerance is moderate, due to its
AEM | 19
JUNE 2016
status as a net exporter of agriculture products and
a net importer of oil. Reserves have been slightly
reduced to USD 14 billion to account for revenue
losses and assisting the peso.
Despite the slight downturn, Uruguay’s
credit rating remains stable. A BBB grade with a
stable outlook denotes investment grade, which is
necessary to attain foreign investment and credit.
The country must retain this status as lesser rates
and depreciating currencies in neighboring Argentina and Brazil may influence Uruguay. FDI inflow
represents around 5% of GDP, at USD 2.8 billion.
Uruguay began its term on the United Nations Security Council in January. It will hold the
seat for two years, replacing Chile. The Security
Council is responsible for maintaining global
peace and responding to world crises. Other newly
initiated members include Egypt, Japan, Senegal,
and Ukraine.
Uruguay is a member of the trading bloc
Mercosur, which also consists of Argentina, Brazil,
Paraguay, and Venezuela. Mercosur is looking to
establish a trade agreement with the European
Union to unlock far-ranging markets and help promote competitive exports via Latin America as well
as increase trade revenues. Uruguay is the current
chair. Other free trade agreements are being evaluated for feasibility. Within Mercosur, ones with India and China are the most likely. This will provide
Uruguay with more advanced supply chains as
well as open up new markets for domestic products. With the depreciation of the peso, Uruguayan
exports should become cheaper and therefore
more competitive. An increase in GDP from export
revenues is expected.
The country declined invitation to join the
Trans-Pacific Partnership (TPP), citing it as a
threat to trade. Other members in the region include Chile and Mexico. Instead, Uruguay will promote a Mercosur-China trade deal. This will further
open China’s markets and provide export and
other business opportunities for domestic enterprises.
20 | AEM
Export partners are heavily concentrated in
the region. Brazil and Argentina make up the bulk
of exports, with China and the US contributing to
the total. The same countries account for the largest percentage of imports as well. However, the
economic downturn in both Brazil and Argentina
has resulting in a decrease in exports. In addition,
their weak currencies do not bode well for purchasing exported goods. Uruguay needs to diversify its
import and export bases to be able to continue to
sustain themselves on the global marketplace.
According to the World Bank’s Doing Business index, which ranks countries based on business-friendly policies, Uruguay lists 92/189 and
13th in Latin America. In South America, Uruguay
occupies the 3rd position behind Peru and Colombia. In addition, from Transparency International’s
Global Corruption Index, Uruguay ranks 21st out of
169 places, establishing itself having a clean and
efficient public sector. This gives it the number one
spot in all of Latin America.
In July, President Tabare Vazquez announced plans for a USD 12 billion infrastructure
investment program. Approximately, USD 4.33 billion will be earmarked for the energy sector, USD
2.36 billion for roads, USD 1.87 billion for social
infrastructure and USD 1.32 billion for housing.
Lesser amounts will be allocated to upgrading
communications, water and sewers, ports and railroads. A portion of the funds are projected to come
from the private pension fund which caused an
outrage. The investment package will be portioned
out over 4 years.
Agriculture is essential to the domestic economy. There are four times as many cows as people
and nearly as many acres of farmland as inhabitants. The country is the world leader in arable land
per person, with 15 million hectares. Responsible
soil usage prevents erosion and keeps the land
suitable for farming. This in turn allows Uruguay to
produce enough food to feed its citizens easily as
well as contribute to exports. A favorable climate
JUNE 2016
means that the sector can flourish year-round. The
country produces enough food to sustain 28 million
people and projections place future accommodation levels at 50 million.
Agribusiness accounts for nearly 10% of domestic GDP. Soybeans and beef are the primary
exports. Other products include rice, powdered
milk, and wood. All of these commodities account
for around 50% of sales. However, ever-decreasing commodity prices hurt the economy. Soy has
lost around 40% of its previous 5-year high and
beef prices have been reduced by over 20%. This
is a main reason why Uruguay’s growth is
slowed.
Uruguay is world-renowned for its beef. The
country instituted a tracking system for livestock
which tags all cattle at birth. Data is stored electronically and means that customers know exactly where their beef comes from. Every single
producer takes part in this monitoring, which is
covered by the government. This action increases
accountability and trustworthiness on the part of
producers. Cows are grass-fed and exports accounted for USD 1.5 billion in 2014.
Weaker exchange rates also lowers the price
on international markets, which in turn will raise export revenue. As the cattle population is substantially larger than the human one, Uruguay can
continue to reap the benefits of its most profitable
industry. Exports to China account for 25% of Chinese beef supply and a deal was recently signed
with Russia to reduce import tariffs from 50% to
15%. This will undoubtedly produce benefits for
both countries.
El Niño has triggered strong rains throughout
the region. This has resulting in mass flooding in
Uruguay and an evacuation of 2,000 people from
their homes. River levels have risen as the Uruguay River is expected to rise 12 meters (approx.
40 feet). Flooding could also lead to the inundation
of crop fields which could in turn reduce yields. As
Uruguay is such a large producer, any losses
would not affect the overall supply substantially
and therefore prices would remain stable.
AEM | 21
Land prices continue to rise in the country. According to the Direction of Agricultural, the average
price per hectare in 2002 was USD 385 while in
2014, it amounted to USD 3,934. In 12 years the
price of land has increased tenfold, and taking into
account that Uruguay has 16.42 million hectares
of agricultural use, the estimated total value of land
in Uruguay increased from USD 6.3 billion in 2002
to USD 64.6 billion in 2014. Land leasing has also
increased sevenfold from USD 24 per hectare to
USD 174 in 2014.
Source: Uruguay Agriculture Ministry, land
registry agency
Agriculture employment represented 16% of
the total labor force in 2014. Of this total, 66% is
involved in agriculture production within cattle and
soybeans. Both forestry and fishing account for
small employment statistics as well.
Uruguay exports to the EU have increased
compared to previous years. Citrus is becoming a
popular product. In 2015, Uruguay's exports accounted for more than 45% of the total citrus exports, valued at USD 33.5 million. Beef and
soybeans are also significant. Uruguay posts a
surplus due to its agriculture goods and the EU is
an important trading partner.
Opportunities are present to invest in or to export to Uruguay. In recent negotiations, Uruguay
aims to file a proposal within Mercosur that would
allow member countries to negotiate bi-lateral
trade agreements with non-members. This act
would substantially increase export opportunities
and open new markets to agriculture goods. If the
currency continues to weaken, this would prove
profitable for domestic commodities. Although
JUNE 2016
growth is slowed, it still is higher than the regional
average and with sustainable farming techniques,
the country is well placed to continue succeeding
for the future.
NEWS BRIEFS
CHILE
Major Elections in Chile
December 2017
A reliance on commodity revenues has
slowed what was once dynamic economic growth.
Hampered by copper prices that have fallen over
50% since the 2011 peak, Chile has gone from
growing by nearly 6% to an approximate 2.3% in
2015. Copper accounts for around half of exports
and one-fifth of government revenue generation.
The country is the world’s largest copper producer
whose total exports have decreased by 15% its
production has not declined in lieu of falling prices,
so the market has not yet stabilized.
Top exports include refined copper, copper
ore, raw copper, wood pulp, and fish fillets. Imports
are both refined and crude petroleum, cars, delivery trucks, and planes. Top export destinations include China, the US, Japan, Brazil, and South
Korea. Top import destinations are the US, China,
Brazil, Germany, and Argentina. China is Chile’s
top trade partner, with exports valued at USD 16.7
billion, with imports at USD 1.9 billion.
Interest rates at 3.5%, inflation at 4.5%, and
unemployment at 6% are all moderate. As a result
of the decrease in trade, the peso (CLP) has lost
around 30% of its value. Due to this reduction, purchasing power has decreased as well, leading to
an increase in inflation. Goods become more expensive, lessening sales, which in turn pushes inflation. An A+ credit rating with a stable outlook
denotes investment grade and is promising for investors. Low public debt keeps borrowing at a minimum and an efficient government allows the
country to function well on a bureaucratic level.
22 | AEM
The strongest sector is the primary sector,
which includes agriculture, mining, and forestry. A
growth rate of 5.6% was attained during last year.
However, output in the mining sector within the primary sector dropped 0.2 % during the year. This
signals that Chile’s agriculture sector is strong.
The decrease in the mining sector is linked to falling commodity prices, layoffs, and a decrease in
new mining construction. The Maricunga gold
mine may be shut down due to environmental
damages. If this comes to fruition, 250,000 ounces
of gold will be idle. This will also have an effect on
the labor market, as layoffs will most likely occur
for those working in the mine.
Political scandals have been ongoing recently
in Chile. Current President Michelle Bachelet as
well as former Presidents Sebastián Piñera and
Eduardo Frei are accused of taking campaign
bribes. Bachelet is facing another scandal involving her son and her daughter-in-law. They are accused of receiving insider information to complete
a land deal in 2013 worth USD 10 million. Both of
these have intertwined with her reduction in approval rating; falling below 25% in February from
highs of 85%. Her vocal support of President Dilma
Rousseff in Brazil may reduce this figure even further.
Corruption is not a major influence in the
country. According to Transparency International’s
Corruption Perception Index, Chile ranks 23rd out
of 168 countries. It receives a score of 70 out of
100, with 1 denoting high corruption and 100 signaling clean institutions. It ranks as the second
cleanest country in Latin America behind Uruguay
and the fourth in the entire Americas region, trailing Canada, and the United States as well. The average score in the Americas is a 40, which is well
below the Chilean average.
Chile was recently integrated into the TransPacific Partnership (TPP). Mexico and Peru are
also members. This looks to open up Pacific Rim
and Far East trade supply chains, which will continue to benefit both exports and the domestic
economy. It completely eliminates tariffs on manufacturing exports and will help leverage trade away
from Chinese influences, who are not included in
the deal.
JUNE 2016
COLOMBIA
Major Elections in Colombia
May 2016
Presidential, National Congress
Along with a few other select countries, Colombia is performing well economically. Its growth
rate of 3.3% is well above regional averages, although this has slowed recently. This slowdown is
due to the massive fall in oil prices. Colombia
heavily depends on oil to produce revenue for
state programs and taxation. Every USD 1 reduction in the oil price cuts an estimated USD 200 million from state revenues. As a result, the nation’s
capital has absorbed a USD 10 billion shortfall,
equivalent to nearly 4% of GDP. Forcing spending
cuts and tax rises have been necessary keep the
budget deficit within 3% of GDP. Oil prices have
fallen nearly 60% since 2014.
The fall in oil prices corresponds to the depreciation in the Colombian peso (COP). Its value has
fallen over a quarter over the past year and continues to drop. As oil accounts for over half of Colombia’s exports, any price decrease is going to have
an adverse effect on the domestic currency. The
currency has fallen from previous lows nearly 50%
over the past years compared to the dollar.
With a depreciating currency, inflation becomes higher. As of recent, the domestic inflation
rate was at nearly 8%, with the central bank keeping rates high at 6.5% to combat it. High inflation
reduces purchasing power, so less products can
be purchased with the peso. Unemployment is
also high, at 10%. This can also be attributed to
falling oil prices, whose industry cuts jobs as prices
become unsustainable. However, as oil prices are
slowly recovering, the peso is appreciating in
value. Via Standard & Poor’s, domestic credit rating sits at BBB. This denotes investment grade
and a negative outlook, mixed reviews for outside
investors.
Outside of oil, Colombia’s other exports include coal, gold, and coffee. Top export partners
include the US, China, Panama, India, and Spain.
AEM | 23
Top import partners include the US, China, Brazil,
Mexico, and Germany. Coal exports have decreased by 27% as a result of slow demand, low
prices, and a high supply which has flooded the
market. A mild winter also reduced the need for
coal, so global exports fell in tandem. Coffee output is down due to drought, although numbers this
March increased by 18% for 800 thousand bags
compared to a year ago. Coffee production is expected to reach 1.2 million this year, compared to
14.175 million in 2015.
El Niño has drastically affected the domestic
economy last year. A drought resulted in a lack of
supply which pushed up prices as well as inflation.
A fall in the peso increased import costs and inflation may soon reach 9% in 2016. Inflation is targeted at 3%, which seems unlikely in the short
term. Food costs rose 12.35% from 2015 from a
lack of rain that severely affected fruits and vegetables.
Peace talks between the Colombian government and the Revolutionary Armed Forces of Colombia (Spanish acronym, FARC) are expected to
be completed by the end of April. After 3 years of
negotiation, both sides are confident that a ceasefire will be reached. The terms of the final agreement will attempt to bridge 50 years of fighting. The
main talking points are disarmament of FARC rebels, who desire the same of their opposition, as
well as re-integration and avoiding jail sentences.
However, as the deal nears completion, the country has witnessed a spike in paramilitary violence.
This is due to their demand that a high leader, sentenced to 60 years in prison, be released. Hopes
are high that a ceasefire can be reached and the
conflict put to rest. The FARC rebels were formed
in 1964 to protect farmers. They are active in rural
and dense jungle regions and number over eight
thousand fighters. Since its conception, Colombia’s conflict has claimed the lives of 220,000 people and left millions displaced. The resistance
costs Colombia an estimated 1-2% of its GDP per
year due to financing a large military, re-pairing
JUNE 2016
damaged infrastructure, and fighting a never-ending drug war. All eyes will be on the country to see
if a peace deal will finally be signed.
China and Colombia are expected to
strengthen ties through investment opportunities
and trade ties, as well as people-to-people exchanges. China would like to invest in Colombia’s
infrastructure and agricultural sectors, which have
taken a hit recently. Further cooperation has yet to
be established.
Coca production is booming in the country.
Planting has increased by approximately 47,000
hectares since 2014. This is the highest level since
2007. The government has tried to eradicate the
crop, which allows 156,000 families to earn their
livings, via UN data. However, the FARC deal and
planting coca are interrelated. Experts fear the lucrative business may tempt some FARC factions
to break ranks and join criminal gangs for control
of the trade. This would create yet another cycle of
violence and production for one of the world’s
deadliest drugs. Alternatives have not been offered by the government for crop replacement.
Overall, Colombia needs a rebound in oil
prices to get the economy back on track. A ceasefire with the FARC will aid domestic relations, although end results remain to be seen.
CUBA
Due to a 2015 loosening on travel restrictions,
Cuba is expected to benefit economically.
Although still in place, business travelers,
students, and professionals enjoy more relaxed
statues, allowing them access to a country
previously shut off from American investment.
Permits to visit take 2-3 months to apply for and
obtain, but the process is continually becoming
easier. Hopes are high that in a few years,
American companies and travelers will gain
access to the same benefits that other nationals
have been privy to. This looks more likely when
President Raul Castro’s term ends in 2018. He has
elected to not re-run, opening the position to an
24 | AEM
outsider. A regime change will result in many new
business opportunities.
Cuba is still in a rough economic situation.
Although GDP growth approached 3% in 2015,
monthly salaries of around USD 30 indicate a
society in dire poverty. Food is rationed and
nationals stand in long lines to make purchases.
Cubans live in government-owned housing and
purchases are limited due to food rationing. The
US embargo restricts access to goods, and for
industries that rely on imports such as medicine,
doctors cannot get the necessary products to
provide care. Access to food, running water, and
electricity can be limited.
With the increasing number of tourists, Cuba
seeks to foreign investment to strengthen its
economy. The country is seeking USD 8.2 billion
for 326 investment projects in an attempt to bring
USD 2 billion in foreign direct investment yearly.
As the private sector begins to open up,
opportunities will arise in many sectors. They will
be most present in healthcare, tourism,
transportation, construction, agriculture and
renewable energy. This is also done in part to
reduce over-dependence on one market. As
Cuba’s main trading partner is Venezuela, exports
and commerce has been steadily shrinking from
Venezuela’s economic crisis. Cuba swaps oil for
medical services as well.
Top exports include raw sugar, petroleum,
refined tobacco, medication, and nickel matte.
Expect the market to continue to open up as the
embargo ends, perhaps as soon as the Castro
regime steps down. Cuba’s balance of trade is
negative, as imports massively outweigh exports,
creating a negative trade balance greater than
export figures. However, this deficit is tied to the
government production model and the limited
private sector. Once the market opens more to
foreign investment, one could expect to see a
greater export production and levels. Every aspect
of life in Cuba is tied to the government. Seventyfive percent of workers are employed by the
government while the other 25% expects to take
JUNE 2016
advantage of private sector benefits like greater
income and opportunities.
As Cuba imports the majority of its products,
manufacturers and distributors can take
advantage of limited market competition. Irrigation
machinery, which represents 34% of all imports,
offers product manufacturers a window into a
closed
economy.
Sugarcane
harvesting
machinery, necessary for the crop, also needs
modernization, giving opportunities to those who
produce the equipment. Large tractors will also be
useful for farming. Agriculture machinery exports
in 2014 totaled USD 2.6 million, establishing the
need for imported machinery.
An Alabama company has recently been
granted permission to build tractors in Cuba.
Cleber LLC may be the first American
manufacturer to open operations in Cuba in over a
half century. A USD 5 million to USD 10 million
factory at the Cuban port of Mariel will be selffinanced by company owners to build small
tractors for sale to private farmers and builders in
Cuba. Under US terms, Cleber will be eligible to
sell freely to private contractors. The base model
will be priced from USD 8,000 to USD 10,000.
ECUADOR
Major Elections in Ecuador
February 2017
Presidential, National Congress
Ecuador is facing a precipitous future. The
economy is estimated to shrink by 2% for the year
due to an overreliance on oil revenues. The commodity, whose value has dropped by over 60%,
accounts for 40% of domestic spending. In addition, as oil covers over half of exports, Ecuador’s
trade balance has been massively reduced. Unemployment is moderate at 5.65% and inflation is
low at sub 3%, but interest rates remain high at
8.86%. This spike is due to the fall in revenues to
try and stabilize the economy as growth slows and
recedes. Most companies rely on contracts from
AEM | 25
the state-owned oil companies and as a result,
have unpaid bills. Oil prices are approximately 1/3
of previous 5 year highs, and although the price
has rebounded from below USD 30 per barrel, recovery is still slow. The commodity’s value is expected to continue increasing by the end of the
year, but only slightly higher that what current levels are priced at.
The country uses the US dollar as their domestic currency. This has been in place since
2000 and was implemented to combat high inflation and economic instability. In addition, the dollarization of the economy has resulted in lower
inflation than regional neighbors. The use of the
dollar ensures a strong currency, assuming that
the US economy remains stable. As a result, this
increases purchasing power in foreign markets,
and when coupled with depreciating currencies, allows manufacturers to purchase foreign goods at
a discount.
Environmental conditions are worsening in
Ecuador. In April, a 7.8 magnitude earthquake
struck Portoviejo. The death toll stood at 350 with
thousands more injured. After the earthquake, aftershocks stuck over 100 communities and caused
building destruction as well as knocked out access
to electricity, water, and communications. As many
as 100,000 people may need assistance for housing, food, water, communications, and relocation.
An estimated USD 600 million in credit has been
allocated from lenders for disaster relief assistance.
This disaster has been combined with El Niño
to produce destructive effects on the country’s agriculture sector. The same region where the earthquake occurred has seen torrential rains and
heavy flooding. High water levels have resulted in
washed-out roads and damaging infrastructure.
The province specializes in agriculture where coffee, cacao, bananas, rice, and citrus fruits are all
produced. By lowering the supply of these commodities in the market, the price will increase, although a high level of purchasing power will only
nominally affect purchases. The provinces’ size
JUNE 2016
and climate make it an ideal location for agriculture
production.
Oil exploration and producing oil have had
negative effects for foreign enterprises. Recently,
a court ordered that Chevron must pay USD 9 billion in damages for oil pollution in remote Amazon
rain forest areas. This is due to the company’s
dumping of sludge into rivers and waterways, polluting them and rendering them useless for local
consumption. As Chevron did not engage in
cleanup efforts, the recompense is necessary. Millions of gallons are thought to be dumped. This
lawsuit has been forthcoming for 18 years, when
Texaco started operations in Ecuador. When
Chevron acquired Texaco, it also assumed the
lawsuit burden. Oil contamination does needless
damage to both the residents and environmental
aspects.
President Rafael Correa will not run for reelection in 2017 when his term ends. However, his
current term is not viewed favorably by citizens.
Correa has spent as much money between 2007
and 2015 as the previous governments spent in
the past 30 years. With patronage applied to state
jobs, Correa faces an approval rating of 31%. At
least 28% believe what the President says and his
spending is hurting the country, as cash flows from
oil revenues continue to dwindle.
Ecuador is attempting to drill for oil on the
edge of the rainforest in Yasuní. This rainforest is
inhabited by two of the last tribes in the world living
in voluntary isolation. Drilling is expected to take
place in the Ishpingo Tambococha Tiputini (ITT)
block, where 30% of the remaining oil reserves are
located. By drilling, the opposition says that Ecuador stands to lose significantly biodiverse areas as
well as infringe on the lives of the indigenous tribes
who occupy the block. It doesn’t make sense to
exploit such a diverse area in a bear market, where
prices continue to drop and will do so if supply increases. Because of its location, Yasuní is one of
the most biodiverse places on Earth. The park is
thought to have more species of plants, animals
and insects per hectare than anywhere else on the
globe.
26 | AEM
Chinese investment remains large in Ecuador.
In regards to rainforest drilling, the Chinese stateowned firms of China National Petroleum Corp.
and China Petroleum and Chemical Corp. purchased the rights to explore two oil blocks in the
Amazon that cover an area of 500,000 acres. The
deal is worth approximately USD 80 million. The
purchase was verified by Chinese consortium Andes Petroleum. This group has invested USD 3.5
billion in Ecuador since 2007 and is expected to
continue increasing investment. Protests have
been occurring, declaring the project illegal and a
land usurpation. However, Ecuador’s dependence
on China continues to increase. As oil prices fall, it
seeks loans from Beijing to stimulate the economy.
This January, Ecuador announced that it had
signed USD 7.5 billion in new financing agreements with Beijing, even though an existing debt in
the billions of dollars still exists.
Several political figures have been named in
the scandal regarding Panamanian law firm Mossack Fonseca. The mayor of Guayaquil, Jaime
Nebot, and lawmaker Andres Paez are named.
Paez is renowned for offering to fight President
Correa to settle a debate. Both of these men have
been heavily involved in anti-government protests
again the current regime. Also named are current
Attorney General Galo Chiriboga, former president
of the Central Bank of Ecuador, Pedro Delgado,
and Javier Molina, an ex-member of the National
Intelligence Secretariat. All of these men are linked
to the Correa administration, spurring talks of corruption after the association with offshore tax havens.
Freedom of the press has been affected in Ecuador. The country has one of the worst records
on press freedom in the Americas, as President
Correa tries to silence his critics. According to Fundamedios, who reports on free press, more than
370 incidents of verbal, physical or legal harassment of the media by authorities and Ecuadorian
citizens in 2015 were documented, an increase
from 254 in the previous year. Correa also shuts
down and fines any newspapers, radio stations,
and television networks who criticize him and his
JUNE 2016
policies. Criminal defamation laws are employed
to imprison journalists. The government has also
been accused of censoring the internet, in blocking
web sites and access to internet across the country. These motives are common of a communist
country, but severely restrict journalists and other
media professionals who attempt to paint an accurate picture of the Correa regime as well as the
state of the nation.
PERU
Major Elections in Peru
April 2016
Even with grappling with falling commodity
prices that have stunted the country’s rising economy, Peru is expected to outgrow its neighbors in
the region with an expansion of 3.3% this year.
This is a downturn from previous years, where the
country grew at an average of 5-6%. This can be
attributed to the rise in Copper prices, Peru’s main
commodity. As the metal has lost nearly half its
value from 2011 highs, Peru’s growth has simultaneously slowed. However, the country significantly
outperforms regional averages and is expected to
increase for the following year, to a projected 3.9%
in 2016. Peru is the 3rd largest producer of the
metal globally.
Copper is the key to Peru’s economic success. Peru is the world’s third-largest copper exporter, as ores and precious metals account for
half of the country’s exports. Gold is another key
export. With copper prices recovering from a previous 6-year low, the country has increased production to account for lower valuation levels.
Copper production increased by 70% this February, gradually increasing the price and can be attributed to an increase in operations by Sociedad
Minera Cerro Verde, due to plant expansion. Production, exports, and jobs are all involved in commodity extraction. Copper output in Peru is
potentially doubling by 2017 with the start of the
Las Bambas mine and the Cerro Verde expansion.
AEM | 27
Peru’s credit rating is BBB+ with a stable outlook. This denotes investment grade and positively
corresponds to increases in foreign direct investment. The country offers moderate inflation at
4.3%, unemployment at 7.2%, and an interest rate
at 4.25%. Inflation and interest rates adjust to offset gains or losses. The Nuevo sol (PNS) has lost
14% of its value against the dollar over the last 12
months. Exchange rates change daily. Central
bank rates have been recently raised to cover the
increase in inflation from the currency depreciation. Overall, fiscal policy remains stable. Due to
increased copper output, trade balance has lessened but still remains significant at negative USD
188 million. Prolonged production of the commodity at current levels should continue to reduce this
balance.
A free trade agreement with South Korea was
implemented in March. Peru would reap automobile and electronic products while it would be able
to export farming and fishery products. Proposals
for synergies in the sectors of health, infrastructure, and e-government were also tabled for the future. As South Korea looks to invest in natural
resources and energy, Peru would be able to increase commodity exports and continue to reduce
its current account deficit.
Although Peru is mostly dependent on its
commodities, agriculture plays a nominal role in
the economy. The Ministry of Agriculture and Irrigation (Spanish acronym, Minagri) stated that exports in January and February amounted to USD
827 million dollars, which is a 2% increase over the
same period of 2015. Grapes, mangos, and asparagus are the main exports. Agriculture trade balance is a positive USD 193 million with exports
reaching 110 countries. The US accounts for
nearly 30% of total agriculture sector investment.
El Niño has contributed to heavy rains and
flooding in the country. The highest temperatures
seen in two decades have also affected Peru. Immense flooding destroys harvests, reducing the
supply of products and therefore increasing the
price in the market. It has also caused a drought in
JUNE 2016
the southern highlands, which also would reduce
crop yield.
Peru is making commercial moves to increase
global exports. Its recent inclusion to the Trans-Pacific Partnership will open new markets to Peruvian
goods and reduce its dependence on metals and
minerals. In addition, Peru also has developed a
strategic partnership with China. Peru is China's
second largest investment destination in Latin
America, and has received more than USD 14 billion in Chinese FDI. One such project may be the
culmination of a cross-continent railroad which
stretches from Brazil’s Atlantic Coast to the Peruvian port of Bayover. It stretches for approximately
2,741 miles, (about 4,400 kilometers), and will cost
at least USD 3 billion. Named the South American
Twin Ocean Railway, it remains to be seen when
this project will be finished, let alone started.
Elections occurred on April 10th for President.
Keiko Fujimori, the daughter of controversial former president Alberto Fujimori, ran against Pedro
Pablo Kuczynski and Veronika Mendoza. As 50%
is required to win office outright, Fujimori’s 39%
versus the others 22% and 18% respectively did
not guarantee her the position. Protests were held
to prevent her from running while support from her
father’s policies is visible. After a second round
run-off that took place in June of this year, Kuczynski became the president after winning a very
close vote count, revealing a country that is basically split in half. The new president will have to
face falling commodity prices and compete for
more foreign direct investment. It remains to be
seen what future Presidential policies will hold for
the country.
VENEZUELA
Major Elections in Venezuela
December 2018
Parliamentary
Venezuela edges closer and closer to the
ubiquitous failed state designation. President Maduro’s approval ratings sit at 15% and disintegrate
28 | AEM
more daily. The economy is projected to contract
by 8% and unemployment nearing 20%. The price,
which accounts for approximately 96% of the
country’s oil revenues, continues to fall to 13 year
lows, hurting Venezuela’s economy. The commodity is currently worth 1/3 of older valuations and to
make matters worse, the country needs USD 200
per barrel to break even. With prices around USD
43 per barrel, the country will not be able to climb
out of its current predicament anytime soon. A rise
in prices is unlikely due to producers not cutting
output in the Middle East.
In addition to a depletion of funds from the
crippled oil market, Venezuela is also home to the
world’s highest inflation rate. Inflation is estimated
at 720% which has in turn decimated the domestic
currency. This is due to printing money to cover
deficits. Prices change daily, even hourly due to
ever-changing inflation. The bolivar (VNF) has two
rates; one given by the government and one reflected via the true rate of inflation. The government’s current exchange rate to the dollar is 9.98:1
but the actual value is much higher. When calculated, as of 4/20/16, the bolivar was valued at
1112:1. In real terms, this means that the bolivar is
worth less than one penny. At this black market
rate, the value of the highest-denominated currency, the 100 bolivar note, is listed at less than a
dime. Plans are in the works to establish higher
denomination bills at 500 and 1,000 bolivars. This
has the potential to depreciate the currency even
more.
Foreign investment is leaving the country in
masse. Due to the near-worthless bolivar, holdings
in the domestic currency make no sense to keep.
Major companies such as GM and Ford have
taken fiscal losses due to operating in Venezuela
and others will follow suit. In addition, there is always the threat of government expropriation, similar to what occurred with Empresas Polar. This
February, Venezuela was listed as the most miserable country in the world based on inflation, unemployment, and interest rate data. According to
the report, the country scored a 106. Argentina
came in second with 68. With poverty rates at
JUNE 2016
90%, the country continues to spiral deeper into
the abyss.
While the bolivar continues to lose value, the
country’s stock of goods is quickly depleting.
Standing in line at supermarkets for household
items can take hours and one isn’t even guaranteed purchases when they enter. Shortages are
commonplace and price-controls keep costs high.
When accounting for inflation, the price of these
goods can increase daily. Government stores
have items that are up to four times cheaper than
black market stores, who profit from supply, but
these are often taken and sold across the borders
for profit.
As the currency has lost 93% of its value and
exacerbated poverty levels, crime levels rose exponentially. Caracas is now the most violent city in
the world. NGO’s place year-end levels to around
28,000 murders, which averages out to 120 per
100,000 people. This is expected to worsen in an
increasingly violent and lawless society where the
government does not adequately protect its citizens. Lynchings and beatings in the street are becoming more common. It is not safe to walk around
at night, due to increasing gang presence.
Smog, polluted water, power outages, and
electricity rationing are the norm in Venezuela versus an outlier. Water trucks are robbed and when
water is present, it can often be polluted. This yellow water causes skin problems from which there
is a shortage of medicine, causing problems for
curing it. The smog, called calima, is a meteorological phenomenon that involves ash and dust
clouds. This contributes to sore throats, congestion, and eye infections. Power outages are occurring more and more due to energy rationing. The
government has created more public holidays to
ration energy levels, 15 malls are reducing their
hours because of a lack of light, and women are
encouraged not to blow dry their hair to conserve
energy. President Maduro is even attempting to
change the time zone in a warped notion that this
action will ration electricity more.
However, this shortage is related as well to a
lack of hydroelectric dam levels. The country's
largest dam, the Guri complex, which provides almost 2/3 of the country's power needs and 75% of
the power to the capital city Caracas, has seen water levels drop to record lows. Experts say that if
water levels fall below 240 meters above sea level,
the plant will have to be shut down to avoid turbine
damage. This in turn would increase rationing. Via
the latest official figures, water levels sit at 243 meters above sea level. This does not bode well for
domestic energy consumption.
There is a high chance the country soon defaults. With external debt levels nearing USD 200
billion, it’s almost impossible to see the country not
defaulting. Default odds placed by traders are at
88%. In February, with crude leveling in the low
USD 30 range, Nomura Holdings said Venezuela
had approximately USD 20 billion in oil revenues
coming to it in 2016. From that number, it has to
allot USD 35 billion to pay for imports and USD 12
billion to cover capital outflows. This is in addition
to USD 10 billion in repayments. As a result, the
people of Venezuela will continue to suffer under
the mismanagement of monetary policy and export
reliance on a single commodity.
Human rights violations run rampant in Venezuela. Extrajudicial killings are mounted and the
police is not kept in check by their superiors. The
abuses do not end here. Allegations of mass arbitrary detentions, maltreatment of detainees, forced
evictions, and the destruction of homes are all levied at the government. Daily protests do little to
stem the violence and the country is slowly descending into mayhem. These governmental
abuses are eroding the social structure in an already-struggling country. As citizens can face
beatings, jail time, eviction, or mistreatment, the
state does little to protect them. This is not the
mark of a functioning society. If Venezuela wants
to right its current situation, the mass harassment,
detention, and murder of its people is to be
stopped immediately.
The Supreme Court recently annulled an amnesty bill that would have freed political prisoners
AEM | 29
JUNE 2016
due to unjust and substantiated claims. This act
shows that the country does not value freedom of
speech or demonstration, especially when it goes
against the government. The Maduro regime has
utilized many tactics to silence its critics, such as
jail time on trumped up causes as in the case of
Leopoldo Lopez. Lopez, who leads an opposition
movement, has been jailed since September on a
14 year sentence for inciting violence after leading
protests against the regime. A movement exists to
grant him amnesty on falsified charges, but this is
just one example in a country where the rights of
citizens to criticize governmental actions are denigrated.
Citizens are calling for President Maduro to
step down. Over 2/3 of the country believes a regime change would be beneficial for recovery as
well as social and economic strengthening. The
President blocks legislation that doesn’t give more
power to the government. He has gone so far as
to threaten the country with dissolving congress if
a coup is attempted. Controlled by Maduro, the Supreme Court nullifies any revolutionary rulings to
maintain the power structure. Although congress is
controlled by the opposition majority, any actions
proposed are futile until the Supreme Court starts
to side with its citizens instead of its benefactors.
In not ruling with the common good of the people
in mind, the country will continue to deteriorate unless drastic actions are taken.
This Venezuelan crisis is not easy to solve. It
will years and a definite regime change before progress can even be considered. However, there are
steps the country can take to better its situation for
citizens and the economy. The first step is to elect
a supreme court who votes according to the people instead of the President. Second, Nicolas Maduro needs to be removed from power and a
capable leader, who is willing to make drastic decisions, is elected. Any laws that may benefit the
country will not be enacted until there is a change
in government.
Bank of America has released data related to
the need to open up closed markets to encourage
investment and help struggling industries recover.
30 | AEM
As proposed, these changes can come about by
unifying and floating the currency, eliminating price
controls, and raising gasoline and electricity prices
to international levels. In addition, the country will
have to replace the system of indirect subsidies by
a direct transfer program, open up the country’s oil
and mining sectors, privatize unprofitable stateowned enterprises and bring fiscal and current account deficits to levels compatible with long-term
sustainability. In unifying and floating the bolivar,
Venezuela will not have the dual-system in place
where the official exchange rate is over 100 times
the black market rate. The two currencies will
align, and whereas the merger will align the value
at closer to the valuation of 1100:1 and inflation will
increase, the bolivar will stabilize over time. This
will also be encouraging for investors, as it will
make exports undoubtedly cheaper. Price controls
reduce the quality and quantity of the available
products, as a shortage of materials leads to
skimping on quality. If the regime drops the price,
it will result in excess demand and a reduced supply, leading to, as seen in super markets, empty
shelves. Although a 6,000% tax was instituted on
gasoline recently, the country still has the cheapest in the world. This increase is projected to save
the country USD 800 million, but with USD 10 billion in maturing debt, prices have to increase substantially for the savings to accumulate more. The
average fuel price is around USD 1 per liter and
Venezuela’s price needs to average out around
this level to fill their reserves. Oil production also
need to be cut to help salvage the economy. As it
attributes for nearly all exports, less supply dictates higher prices, which is what the country
needs. If Venezuela allows the private sector to
dictate its economy, there should be an upturn.
Prices will increase but stabilize over time and efficient practices will help revenue streams and allow experts, rather than the government, to
manage these businesses. However, if none of
these actions take place, Venezuela will continue
its descent until pure chaos engulfs the country.
JUNE 2016
Top 10 US Ag Equipment Export Partners
(based on 2016 Q1)
Millions (USD)
$0
$100
$200
$300
$276
MEXICO
$250
$242
$50
$46
$61
BRAZIL
$24
$39
$40
CHILE
ARGENTINA
COLOMBIA
URUGUAY
PERU
$21
$16
$22
$10
$12
$12
$3
$10
$8
2016 Q1
2015 Q4
2015 Q1
$8
$9
$11
GUATEMALA
$5
$9
$7
ECUADOR
$6
$8
$8
VENEZUELA
$7
$6
$16
Find more information like this in the Global Markets Report or contact Benjamin Duyck at [email protected]
For import/export statistics reports focused on your products and
countries of choice, contact Barbara Schumacher at
[email protected]
AEM | 31
JUNE 2016
US EXPORTS
USD
Source: AEM Market Intelligence Global Markets Report
US AG Equipment Exports to:
2016 Q1
2015 Q1
Y/Y
2015 Q4
Q/Q
$170,364
$65,072
$527,532
$251,238
$1,520,992
$37,373
$70,479
$3,566,626
$13,820
$4,871,239
$928,870
$17,857
$35,798
$5,361,597
$8,975
$3,549,525
$1,162,354
$275,558,624
$8,944
$1,422,786
$3,148,402
$20,393
$4,213
$319,861
$394,201
$2,534,571
$77,668
$74,759
$2,959,772
$35,749
$4,788,848
$1,492,600
$13,723
$75,151
$7,008,067
$47,177
$2,150,946
$975,339
$242,107,551
$0
$2,609,529
$2,816,750
735%
$87,833
94%
1445%
$32,024
103%
65%
$393,076
34%
-36%
$536,471
-53%
-40%
$2,211,754
-31%
-52%
$74,153
-50%
-6%
$220,107
-68%
21%
$4,487,466
-21%
-61%
$45,401
-70%
2%
$5,227,341
-7%
-38%
$748,204
24%
30%
$0
0%
-52%
$113,884
-69%
-23%
$8,796,214
-39%
-81%
$712,434
-99%
65%
$63,432
5496%
19%
$4,044,850
-71%
14%
$249,920,621
10%
0%
$0
0%
-45%
$4,185,510
-66%
12%
$5,169,365
-39%
$985,448
$1,909,603
-48%
$1,991,219
-51%
Region Total
$303,283,915
$272,416,471
11%
$289,061,359
5%
Argentina
$21,153,996
$1,372,993
$49,543,452
$24,377,358
$9,517,679
$6,416,037
$2,877
$749,305
$915,789
$7,787,536
$3,215,672
$21,963,688
$3,712,539
$60,989,679
$39,670,277
$11,560,148
$7,924,720
$0
$801,092
$2,479,994
$11,496,983
$7,739,242
-4%
$16,141,940
31%
-63%
$3,039,912
-55%
-19%
$45,880,810
8%
-39%
$38,919,220
-37%
-18%
$11,742,290
-19%
-19%
$7,564,637
-15%
0%
$13,005
-78%
-6%
$712,434
5%
-63%
$2,262,754
-60%
-32%
$8,986,297
-13%
-58%
$9,603,476
-67%
$6,731,935
$15,766,745
-57%
$6,147,756
10%
Region Total
$131,784,629
$184,105,107
-28%
$151,014,531
-13%
Total Caribbean, Central &
South America
$435,068,544
$456,521,578
-17%
$440,075,890
-8%
Antigua and Barbuda
Aruba
Bahamas
Barbados
Belize
Bermuda
Central America & Caribbean
Cayman Islands
Costa Rica
Dominica
Dominican Republic
El Salvador
Grenada
Guadeloupe
Guatemala
Haiti
Honduras
Jamaica
Mexico
Montserrat
Nicaragua
Panama
Trinidad and Tobago
Bolivia
Brazil
South America
Chile
Colombia
Ecuador
French Guiana
Guyana
Paraguay
Peru
Uruguay
Venezuela
32 | AEM
JUNE 2016
AEM | 33
JUNE 2016
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JUNE 2016
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AEM | 35
JUNE 2016
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JUNE 2016
SOURCES
Agribusiness Intellifence
agra-net.com
Agweb
agweb.com
Agweek
agweek.com
Americas Quarterly
Americas Society and Council of the Americas
Andina
Barrons
Bloomberg
Bolsa de Cereales
British Broadcasting Channel
americasquarterly.org
as-coa.org
andina.com.pe
blogs.barrons.com
bloomberg.com
bolsadecereales.org
bbc.com
Buenos Aires Herald
buenosairesherald.com
Business Insider
businessinsider.com.au
Business Wire
businesswire.com
Carta Capital
cartacapital.com.br
CCTV America
cctv-america.com
China Daily
chinadaily.com.cn
CIP Americas
cipamericas.org
CNS News
cnsnews.com
Conab
conab.gov.br
Correio Braziliense
Council on Hemispheric Affairs
Cuba Journal
Daily Business Review
Deutsche Welle (DW)
Doing Business
Dolar Today
Drovers
EBC Agência Brasil
EBN
EIA Independent Statistics and Analysis
El Comercio
El Pais: Brasil
European Commission
Explorando Mexico
FAOSTAT
Farm and Ranch Guide
Farming Machine
Financial Times
Financier Worldwide
AEM | 37
correiobraziliense.com.br
coha.org
cubajournal.co
dailybusinessreview.com
dw.com
doingbusiness.org
dolartoday.com
cattlenetwork.com
agenciabrasil.ebc.com.br
ebnonline.com
eia.gov
elcomercio.com
brasil.elpais.com
trade.ec.europa.eu
explorandomexico.com
faostat.fao.org
farmandranchguide.com
farming-machine.com
ft.com
financierworldwide.com
JUNE 2016
Focus Economics
Forbes
Fox News Latino
Fresh Plaza
FX Street
Global Forest Coalition
Global Meat News
Hellenic Shipping News Worldwide
focus-economics.com
forbes.com
latino.foxnews.com
freshplaza.com
fxstreet.com
globalforestcoalition.org
globalmeatnews.com
hellenicshippingnews.com
High Plains Journal
hpj.com
Human Rights Watch
hrw.org
Info Escola
infoescola.com
Insight Crime
insightcrime.org
Institute of National Statistics, Argentina
indec.mecon.ar
Institutional Investor
institutionalinvestor.com
International Banker
internationalbanker.com
International Trade Administration
trade.gov
KQED
kqed.org
Latin American Herald Tribune
laht.com
Los Angeles Times
Mercopress
latimes.com
en.mercopress.com
Miami Herald
miamiherald.com
Ministério da Agricultura
agricultura.gov.br
MWC News
mwcnews.net
New China
xinhuanet.com
Nikkei Asian Review
Numbeo
Open Democracy
Panamá Post
Phys.org – News and Articles on Science and Technology
Plastic News
Portal Brasil
Portal dos Equipamentos
Reuters
Scotiabank Global Banking and Markets
Sea Side Mexico
Stratfor
Successful Farming
Summit County Citizens Voice
Sun Herald
Telesur
38 | AEM
asia.nikkei.com
numbeo.com
opendemocracy.net
panampost.com
phys.org
plasticsnews.com
brasil.gov.br
portaldosequipamentos.com.br
reuters.com
gbm.scotiabank.com
seasidemexico.com
stratfor.com
agriculture.com
summitcountyvoice.com
sunherald.com
telesurtv.net
JUNE 2016
The Ecologist
The Heritage Foundation
The Hill
The Huffington Post
The Jewish Press
The Observatory of Economic Complexity
The Produce News
The World Bank
Think Progress
Time
Toronto Sun
Trading Economics
Transparency International
theecologist.org
heritage.org
thehill.com
huffingtonpost.com
jewishpress.com
atlas.media.mit.edu
producenews.com
worldbank.org
thinkprogress.org
time.com
torontosun.com
tradingeconomics.com
transparency.org
U.S. Meat Export Federation
usmef.org
UOL notícias
uol.com.br
Uruguay XXI
uruguayxxi.gub.uy
Value Walk
Wall Street Daily
Wall Street Journal
Washington Post
World Bank
World Economic Association
valuewalk.com
wallstreetdaily.com
wsj.com
washingtonpost.com
data.worldbank.org
worldeconomicsassociation.org
Sources: Any information and/or content published in this newsletter is produced in-house with data taken from
these listed sources.
Disclaimer notice: AEM makes every effort to verify the accuracy of any information presented in this newsletter
from all these sources. AEM cannot accept any responsibility or liability for reliance by any person on this information.
AEM | 39

latin america advisor agriculture

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