Latin America Business: Best in 2018

The best news in Latin America business in 2018.

BY LATINVEX EDITORS

The best events in Latin American business this year, according to Latinvex editors.

#1 NAFTA Mostly Intact

Nearly two years after Donald Trump became US President amidst threats to pull out of the North American Free Trade Agreement (NAFTA), it now looks like it survived largely intact, albeit with some negative setbacks.

This month, Trump signed the United States-Mexico-Canada Agreement (USMCA), which aims to replace NAFTA.

The USMCA is neither ideal nor as good as NAFTA, but clearly better than no deal, which would have significantly damaged the North American economies  -- including the key automotive sector -- after nearly 25 years of trade integration.

Unlike NAFTA, the USMCA is limited in time. It will take effect in 2020, and be reviewed every six years and could expire in 2036 or extended to 2056, according to an overview in USA Today.

NAFTA led to a trade boom between the United States, Mexico and Canada.  Exports of U.S. goods and services to Mexico jumped from $51.9 billion in 1993 – the last year before NAFTA entered into force – to $243 billion last year, according to a Latinvex analysis of US Census Bureau data.

“It would seem that this entire impulse to redo NAFTA and create the USMCA missed a key factor which is “if it is working, don’t fix it”,” Juan Francisco Torres Landa, office managing partner for Mexico City at Hogan Lovells, told Latinvex. 

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#2 Team Bolsonaro  

Just as Mexico is seeing a sharp turn towards investor uncertainty and nationalist energy policies (see Latin America Business: Worst in 2018), Brazil is cementing the market-friendly course it has had since May 2016, when Michel Temer became interim president (after President Dilma Rousseff resigned after being impeached).  Temer started to clean up Brazil’s economy after severe mismanagement by Rousseff. Although he leaves office in a few weeks amidst record low approval ratings, local and foreign investors praise Temer's efforts at turning around Latin America’s largest economy.

President-elect Jair Bolsonaro – who was not an investor favorite before winning the first round in presidential elections in October – is planning on continuing Temer’s policies and has signaled support for the badly-needed pension reform once he assumes office on January 1.

Investors have been particularly pleased by appointments to his economic team, with many key posts going to University of Chicago trained economists deemed market-friendly.

Paulo Guedes has been named a super minister for the economy, responsible for the current planning, finance and industry ministries. Guedes is widely respected among investors due to his pro-business plans for Brazil, Latin America’s largest economy. He is one of the co-founders of Banco Pactual (now BTG Pactual), a partner at Bozano Investimentos and holds a PhD in economics from the University of Chicago, where he was taught by the late Nobel laurate and free-market guru Milton Friedman.

At state oil giant Petrobras (Latin America’s largest company on the Latinvex 500), Bolsonaro is putting Roberto Castello Branco in charge. He is a former Petrobras board member, a former executive at Brazilian miner Vale and former central bank member.

Roberto Campos Neto was named Central Bank president. He is an executive at Banco Santander and will be working to get formal autonomy for the bank as well as continue the widely-praised monetary policies of outgoing president Ilan Goldfajn.

Bolsonaro also surprised by naming Joaquim Levy as head of Brazilian development bank BNDES. He was Rousseff’s finance minister for a year (2015-16). While unsuccessful at changing Rousseff’s policies, he was widely respected among economists and investors.

Salim Mattar, the founder of Brazilian rental car company Localiza, has been appointed to head a new privatization secretariat.  He is expected to choose which of Brazil’s 138 state-owned companies are privatized and under which model, including regional banks, port administrators, transport companies, wind power plants, and the 324-year-old national mint, Bloomberg reports.

Meanwhile, Rubem Novaes was named head of state owned Banco do Brasil, while Pedro Guimaraes will head state-owned Caixa Economica Federal. Novaes -- University of Chicago-trained -- has experience from BNDES and leading economic think tank and education institution Getulio Vargas Foundation, while Guimaraes has experience from investment banks Brasil Plural and BTG Pactual (where he worked with Guedes).

#3 Chile Reverses Course

After four years of economic and investment slowdowns due to the policies of President Michelle Bachelet (including tax and labor reforms harshly criticized by business), Chile is now back on track to regaining investor confidence thanks to new President Sebastian Piñera and his team, including widely respected Finance Minister Felipe Larrain.

Piñera, who assumed office in March after also serving as Chile’s president 2010-14, plans to partly redo the tax reform as well as implement a pension reform aimed at boosting the private system with public money.

The tax reform was well received and seen as a key reason why business confidence is growing again after being in negative territory during Bachelet’s government.

The International Monetary Fund predicts 3.9 percent GDP growth this year, a clear improvement over last year’s 1.5 percent expansion. In fact, Bachelet presided over lackluster performances in 2014, 2015 and 2016 as well, with growth averaging 1.8 percent versus 5.3 percent growth during Piñera’s first government.

#4 Offers & Mergers

The year saw several key deals and offers. Major deals include the $11 billion merger between Brazilian pulp companies Suzano and Fibria (the largest in Latin America so far this year), the $5.3 billion Boeing joint venture with Brazilian airline manufacturer Embraer, the $4.1 billion purchase of Chile-based SQM (the world's largest lithium producer) by China-based Tianqi Lithium Corporation and Advent's purchase of 80 percent of Walmart in Brazil, for an undisclosed amount.

On the IPO front, Brazilian insurer PagSeguro in January 2018 raised $2.3 billion (the largest IPO since April 2013 and the largest on NYSE since the Snap offer in March 2017), while Brazilian health and dental care provider Hapvida in April 2018 raised $985 million a few days after Brazilian Notre Dame Intermedica raised $790 million.

#5 Panama Canal Success

The expanded Panama Canal this year reached several major achievements. It increased traffic by 9.5 percent to a record tonnage of 442.1 million Panama Canal tons (PC/UMS) during its 2018 fiscal year 2018.

Meanwhile, on December 10, it welcomed its 5,000th Neopanamax vessel through the waterway. Neopanamax ships are the ones that could not pass through the canal before its June 2016 expansion.

In May, the 82km waterway linking the Atlantic and Pacific Oceans also welcomed the Norwegian Bliss, the largest passenger vessel to ever transit the 104-year old canal.

In August, Fitch Ratings (for the third year) affirmed the Panama Canal Authority's (ACP) 'A' investment grade rating with a stable outlook for its long-term issuer default rating and its senior unsecured notes. That followed the July 2018 decision by Standard & Poor's (S&P) Global Ratings to improve the Canal's outlook from “stable” to “positive.”

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