Latin America seems to be geographically off the investment radar for the average UK investor. This is largely due to concerns that it was an economic and political minefield. Those investors are potentially behind the curve; Latin America has changed dramatically in the last decade and its strong growth looks set to continue.
Latin America is home to almost 8.5% of the world’s population and what’s more, many of its citizens are now entering the consumption and production ‘sweet spot’, the prime 25 – 59 age group1.
The region’s economies have certainly benefited from strong commodity prices, which have helped to produce trade and fiscal surpluses. However, while it is true that the region contains a huge wealth of natural deposits ranging from metals, ores, soft commodities, bio-fuels and one of the biggest discoveries of oil in recent times, there’s more to Latin America than just exports. In fact, commodities are just one of the three C’s driving growth and development within the region and creating what we believe is Latin America’s virtuous circle.
Brazilian exports have grown rapidly in the last two decades, creating a new generation of wealthy entrepreneurs. Brazil has some of the lowest costs of production in the world. Major export products include aircraft, electrical equipment, automobiles, ethanol, textiles, footwear, iron ore, steel, coffee, orange juice, soybeans and corned beef.
Brazil is benefiting from strong demographic trends as its young population grows quickly. Its dependency ratio has fallen from 90:100 in the 1990s to 48:100 today2 . This means the number of people dependent on each working-age adult is a fraction of what it has been historically.
Brazilians are enjoying the highest disposable incomes in a generation and, as a result, are able to access credit at affordable rates and on improved duration terms. With more job certainty, individuals can purchase their first homes, buy their first refrigerators and insure their first cars. This, in turn, creates demand for infrastructure and development which enhances demand for natural resources, creating what we believe is…
… Brazil’s virtuous circle.
Note: This information does not constitute investment advice and should not be used as the basis of any investment decision, nor should it be treated as a recommendation for any investment.
1 Source: UN population database 2008
2 Source: Economist, July 2010