Sunday, August 21, 2011

Resurgent Latin America swims against the current of Recurring Global crisis

¨This is the second time crisis affects the world, and for the second time Brazil is not trembling¨, declared Brazilian President Dilma Roussef last week.

“This is our time and we must help them (EU and US) solve their problems. Because when Brazil, Paraguay and Bolivia were in trouble a group of ‘gringos’ landed every time to tell us what to do.. now it’s their turn to listen to us.. North-American and European leaders should know that a politician should have character, I think they are lacking political initiative¨ said former President Lula.

"When did the American dream become a nightmare? When will USA learn to control financial speculation, which has brought ruin on the world?¨, asked Argentine President Cristina Fernandez in a speech at the Buenos Aires Stock Exchange last month. She said, ¨The Americans thought that money just reproduces by itself, and only in the financial sector, without having to produce any goods or services". In 2002, the US Treasury Secretary Paul O'Neill had mocked Argentina saying , "They like it that way. Nobody forced them to be what they are." The Argentines ask who forced USA now?

The Latin American Schadenfreude is understandable. They used to be on the receiving end of lectures and taunts by the Europeans and Americans in the past. They are now in a position to return the favour.

Crisis, Debt, Default, Deficit – the bad news from US and Europe since September 2008 does not seem to stop…. The prospects for them in the near future are not bright either. Contrast this with the Latin American bullishness.

¨Will 2011 be the dawn of the Latin American decade?¨ is the title of the webcast by Standard and Poors in January 2011.

¨Laying the foundation for a Latin American Decade¨, was the theme of the World Economic Forum on Latin America held in Rio de Janeiro in April 2011.

“The decade of Latin America and the Caribbean- a real opportunity¨ is the title of the new book of Luis Alberto Moreno, President of the Inter American Development Bank launched in July.

"This can and should be the decade for Latin America," declared Colombian President Juan Manuel Santos during his speech on 17 August at the Economic Commission for Latin America and the Caribbean (ECLAC) headquarters in Santiago, Chile.

¨Nuestra Hora (our time) ¨is the title of a new book by Raul Rivera who talks about the new Latin American mindset of the Twenty First century.

¨The New Latin America and the New India- synergies and complementarities, is the title of the seminar to be held by the embassy of India in Buenos Aires on 5 December.

In the olden days, if US and Europe caught cold, Latin America would sneeze. Not any longer. During the global financial meltdown of 2008-9 not a single bank or financial institution collapsed in Latin America. The region weathered the storm without any serious damage and bounced back quickly with an impressive GDP growth of 6% in 2010. BBVA, the Spanish Bank in its ¨Latin America Report¨ of August, says that in spite of the global turbulences, the Latin American economy will expand by 4.8% (same estimate as those of ECLAC and World Bank ) in 2011 and is optimistic about the region’s growth possibilities in the coming years.

Earlier this month, the World Bank's chief economist for Latin America and the Caribbean, De la Torre, remarked, “ Latin American economies have developed strong immune systems against global contagion. Over the last 20 years the region has experienced a silent economic revolution that has provided a shield against external shocks, as we have witnessed in the previous crisis and those reforms are still in place. Latin America could absorb the financial shocks from the global turmoil through greater exchange rate flexibility, maintaining reasonable growth rates.” The Latin American economies have become more resilient and less vulnerable to external shocks. The policy makers are better prepared now, after having having gone through hell in the olden days. According to the 13 August issue of Economist, ¨they have more policy weapons available than most rich-world economies¨.

Some economists have suggested that US and Europe could learn from the experience of Latin America which has successfully resolved their debt crisis. The title of a blog of the Washington DC- based Council on Hemispheric Affairs on 18 August is ¨Mounting Debt: the U.S. could Learn from Latin America¨. The US public debt to GDP ratio has increased from 60% in 2003 to 96%in 2010 while in the case of Latin America the ratio of external debt to GDP has decreased from 39.9% in 2003 to 19.2% in 2010.

The main driver for the ongoing growth in Latin America is the domestic demand. The Inclusive Development policies have lifted 40 million people out of the poverty line in the period 2003-8 alone and the middle class has been expanding significantly. In the case of South America, the high Asian demand and the soaring prices of commodities have offset the negative impact of EU and USA.

According to the UN Economic Commission for Latin America and Caribbean (ECLAC), the GDP growth rates of some of the Latin American countries in 2010 were: Argentina (9.2%), Brazil (7.5%), Paraguay (15.0%) and Uruguay (8.5%), Panama (7.5%), Dominican Republic (7.8%) and Peru (8.8%). The growth figures of Latin America are not just one-time wonders. In the period 2003-8 the region had a consistent growth which was an annual average of over 5%. The growth is only one part of the new story of Latin America. The region has been strengthened by sound macroeconomic fundamentals of the economies and the prudent policy disciplines of the governments.

Here are some indicators of the fundamentals, from the July 2011 report of ECLAC :

- Sustained economic growth is enhancing the economies’ employment-generating capacities and the unemployment rate is expected to come down again in 2011, to between 6.7% and 7%. What is more, indicators for the first part of 2011 show formal wage employment rising as a proportion of total employment in several countries, suggesting that the new jobs being created are of better quality. Continued economic growth and jobs rising in both numbers and quality should usher in fresh gains in poverty reduction.

-GDP growth was driven by strong domestic demand in the form of both consumption and investment and by buoyant external demand.

-Inflation of the region in 2010 was 6.6% and is expected to increase to 7.5% in 2011 due to the higher global prices of food and fuel. The average inflation of the region is in single digit since 2003 and it had gone down to 4.7% in 2009.

-Current account deficit of the region in 2010 was just 1.2% and is expected to increase slightly to 1.5% in 2011, although it was much lower at 0.4% in 2009. From 2003 to 2007, Latin America experienced an unprecedented current account surplus that averaged 1% of GDP.

-Eleven countries of the region recorded nominal appreciation of their currencies in 2010 and early 2011, in particular Brazil, Colombia and Uruguay but also, to a lesser extent, Chile, Costa Rica, Mexico and Peru.

-Foreign Exchange reserves of the region reached a record level of 715 billion dollars in June 2011 from 160 billion in 2002.

-Total gross external debt of the region as a percentage of GDP declined to 19.2% in 2010 from 39.9% in 2003.

-Net Foreign Direct Investment increased to 70 billion dollars in 2010 from 38 billion in 2003.

Even with all these strong points, obviously Latin America cannot escape the adverse impact of the ongoing global crisis. Mexico and Central America, which are more exposed to the US market will suffer more than South America which can count on continued exports of commodities to China and India. The region has also its own longterm challenges such as poverty, education, infrastructure, corruption, urban crime, drug trafficking. The Latin American economies need to go further down the road of structural reforms.

The Argentines say that they ended up in a mess after implementing the IMF prescriptions in the eighties. After 2002, they refused to listen to IMF advice and did exactly the opposite of what they were told. The result speaks for itself. Argentina came out of its historic crisis of 2001-2 remarkably and has shown consistent growth since 2003 and is flourishing. The Latin Americans who transitioned from dictatorship to democracies in the eighties were advised to follow neoliberal policies by the Washington Consensus at that time. As a consequence, the Latin American situation became worse and the eighties came to be known as the Lost Decade for Latin America. This triggered an anti-neo liberal reaction and turn to the Left.

Having seen and suffered the consequences of the flaws and follies of US and Europe, the Latin Americans no longer look up to them as role models. They are now diversifying their economic relations and reaching out to new markets. They are inspired by the success stories of India and China. They want to learn from the value system of these new Gurus. In his latest book ¨Basta de historias (enough of the past)¨, launched in Buenos Aires on 16 August in Buenos Aires, Andres Oppenheimer, the popular columnist of Miami Herald has advised the Latin Americans to focus on education which has unlocked the potential of countries such as India

The Latin Americans have now found their own home-made solution and their own path to development based on their experience. They are moving towards the centre with polices of Inclusive Development along with market-friendly approach. It is a pragmatic balance of pro-Favela and pro-Wall Street policies as practised by the former Brazilian president Lula. Lulaism, as some describe, has become not only the new dominant trend but also a vote winner. Ollanta Humala, the radical leftist won the Presidential elections in Peru in June this year because of the promise that he would follow Lulaism. In 2009, the Mujica, the ex-guerilla fighter of Uruguay won the elections by assuring the voters that he would govern like Lula. Lulaism is also called as ¨Brasilia Consensus ¨ as against the externally imposed ¨Washington Consensus¨. This is the new mindset of the resurgent Latin America. It is based on this solid foundation of new confidence, vision and optimism that a New Latin America is emerging.

Tuesday, August 02, 2011

The risk of doing business with Colombia is …falling in love….

The risk of visiting Colombia is that you might stay on… Says the Colombian tourism advertisement. But there is also another greater risk … The risk of ...falling in love...

This is what happened to three Indian IT guys Mohan, Atul and Kaushik who went to Colombia for an IT project. All three were captured, kidnapped ...and taken to the altar... The Indians were, of course, not innocent. They were willing victims.. and now lead happy married life with their Colombian wives.

The three went to Colombia as employees of an IT company. Soon, they quit their jobs and founded their own company Sophos Banking Solutions. They will not tell me which came first - love or entrepreneurship. It does not matter. They conquered the market but let themselves be conquered by the Colombian women.

Colombian women are among the most beautiful in Latin America. Those from Medellin and Calli are the prettiest in the region. When I was in Medellin in July this year, my eyes almost popped out while sitting in the outdoor cafes and bars. The streets of Medellin are like catwalks. The women walk ...parade though they are models. It was like watching Fashion TV - a non-stop out door fashion show. It reminded me of the Brazilian composer Antonio Jobim and poet Vinicius de Moraes who used to sit in a bar in Rio de Janeiro and saw a girl passing by often. This inspired them to compose the famous song, ¨Garota de Ipanema- the girl from Ipanema¨. The bar is located near the Ipanema beach and known as the Garota de Ipanema bar.

The Colombian women are like the emeralds of the country- exquisite and sparkling. They are charming, sweet, elegant, graceful and intensely feminine. Besides their natural endowments, some get cosmetic surgeries done to enhance their attractiveness. Cosmetic surgery is a thriving business in Colombia.

Colombian women make good wives and parners with their committment, loyalty and sincerity. They are family oriented, affectionate and caring. I have a number of Indian and foreign friends who are married to Colombian women happily for many years with more mature love, as described in the song in the film ¨Love at the time of cholera¨ based on the novel of Gabriel Garcia Marquez.

Hay amores que se vuelven resistentes a los años,

como el vino que mejora con los años,

There are loves that come to be resistant to years

Like the wine becoming better with years.

Here is the song

It was this book ¨Love at the time of cholera¨ which put a spell on me and got me passionate about Latin America for the last fifteen years. I was fascinated by the incurable romantic Florentino who is hopelssly in love with Fermina even when she rejects him and gets married to another. He waits for over fifty years with the same pure love and comes to propose to her at the age of seventy after the death of her husband.

Oops.. I got carried away…. I forgot to mention the fourth member of the Sophos team, Amitt. He is the exception. His parents seemed to have had knowledge of Colombia. They were not taken in by the title of the book ¨One hundred years of solitude¨ by Marquez. They knew it was just magical realism. They would not believe that there could be any solitude for bachelors in Colombia. So they made Amitt marry an Indian girl Vidushree before he could also fall a victim to the Colombian magic. She speaks fluent spanish and has become almost a Colombian.

Sophos provides IT solutions for banks and financial instituitions besides BPO and other services. They work with partners such as Infosys and Oracle. They have 90 Colombian and 12 Indian employees and are adding more.

I visited the Sophos office in Bogota. In the picture below you can see Amitt in the left and Mohan in the right with their Colombian staff, whom they describe proudly as their extended family.

The office of Sophos is strategically located in the heart of the financial district of Bogota. They own the office and recently bought an adjacent space also as part of their expansion. The company is growing as the Colombian clients have gained more confidence in Sophos. Atul told me the secret…If he and a Colombian were to compete for a IT contract from a Colombian client, he as an Indian, had a better chance. Yes.. Indian name gives a competitive edge in the IT business in Colombia as in US.

Atul Malhotra is from Chandigarh, Mohanraj is from Coimbatore, Amitt is from Agra and Kaushal is from Mumbai. All the four guys work like Indians and have fun like the Colombians. They work typically an average of 13 hours a day. Every Sunday they have a video conference to review the past week and plan the next one. Guess what time.. At 0630 hrs. I am sure the video line will be absolutely clear and uncongested at this ungodly time when the whole of Colombia will be enjoying their Sunday morning sleep.

Atul who lives and works in Medellin is a connoisseur of the night life in Parque Lleras , where he took me out for an incredible evening. Mohan, who has the typical conservative and quiet Coimbatore smile was transformed completely into a Colombian Fiestero (party man) after a couple of aguardientes (local spirit) at the famous Andres DC Bar in the Zona Rosa of Bogota.

The Colombian wives have adapted well to their hard working husbands, confused in-laws and curious Indian relatives. They have learnt Indian cooking and know how to make their Indian husbands cry …with their hot Indian food.

I asked the Sophos guys about the experience of their Colombian employees. They are happy with the quality of Colombian human resources and their commitment. The Colombians are willing to work late in the evening or on a weekend whenever there is need. This has reconfirmed my own opinion that the Colombians have the best work culture in the Andean Community region and among the best in Latin America.

These days, Colombia is the hottest destination in Latin America for foreign investment with lots of opportunities and investor-friendly government policies. President Santos surprised the Indian Ambassador Warjri when he himself came forward to meet all the Indian participants in an Indian engineering exhibition last year. The Colombian embassy is the only Latin American mission in India to have an Investment Promotion Officer. The Colombian Ambassador in India Juan Alfredo Pinto is known for his proactive Economic Diplomacy with his background as an economist and entrepreneur. With the third largest population (48 million) in Latin America, Colombia is the third largest destination of Indian exports to the region. Reliance, ONGC, United Phosphorous Ltd, and Havells Sylvania are the major Indian investors in Colombia.

So here is a strategy for Indian companies to conquer the Colombian market. Send the bachelors in your export departments. They will have an extra motivation to establish long term exports and business of your company with Colombia.They will be inspired by Shakira's song ¨Sale el sol¨

uno y uno no siempre son dos

Cuando menos piensas sale el sol

One plus one is not always two

The sun starts shining , when one least expects

Here is the full song