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Investment opportunities in Latin America's frontier markets (Cuba, Peru, Dominican Republic, Colombia and Central America) are proliferating, but remain distinctly less well understood, whereas in Mexico and Brazil, the engine rooms of regional growth, opportunities are starting to diminish as incumbents - both domestic and international - entrench their market share. The Business Outlook for Latin America's Frontier Markets 2008 argues that, as your competitors gear up to the new era, it is imperative to start focussing now on the opportunities (and risks) in other high growth markets where the competitive environment is less challenging.
The Business Outlook for Latin America's Frontier Markets 2008 provides essential risk analysis and market forecasts for these high growth 'Frontier Markets'. It highlights the opportunities available for investors looking to exploit the domestic market, where growth rates will remain well in excess of more developed states. Crucially, the report also evaluates the key trade offs that investors must make between the strong opportunities available and the political risks that continue to dog the region. Life 'beyond Castro' is not the only opportunity available as companies evaluate the strategic positioning - both geographically and economically - of many newly-emerging states.
Strong macroeconomic growth - which translates into high earnings potential for domestic companies and investors
Rapid economic development - will means huge opportunities for capital investment across all sectors servicing local economy - utilities, communications, transport, industry
Diversification hedge - these states offer unique opportunities to exploit opportunities in states where growth dynamics do not correlate with more established states
'Last decade costs' - low labour costs in contrast to more developed states will confer competitive advantage to those able to unlock the potential
Strategists - Scope out the commercial opportunities available within Latin America's smaller markets, and, more importantly, the synergies available to your company's core regional strategy via diversification, cost reduction and new market acquisition.
Risk Managers - Develop a broader understanding of the risk/reward trade-off for both your existing business model and more innovative growth strategies via a more holistic view of the Latin American market.
New Business Managers - Assess the relevance of your current portfolio of products/services for these rapidly-growing markets where those that offer greater differentiation stand to benefit most.
Financial Planners - Critically evaluate the assumptions underpinning your medium-term financial forecasts by incorporating it's economic assumptions of Frontier Latin American states into your projections.
Diversification benefitsWhile the performance of Frontier Markets is linked to the global economy, organic growth drivers - especially within commodity producing states - are more significant. The result is that while there are country-specific risks, investment and trade with these states offers a hedging strategy against falling performance elsewhere.
Immunity from the US downturnIt used to be said that the states of Latin America would catch pneumonia if the US sneezed. No more. Certainly, economic linkages to the US are vital. However, high levels of foreign reserves, floating exchange rates and strong fiscal accounts will enable many not least Peru and Colombia to withstand the US downturn. Furthermore, smaller commodity producing states are now more exposed to China where growth will remain close to 10% annually - than they are to the US in this rapidly globalising region.
Policy risks remainWhile the rewards are significant, so are the risks. Political risk - in terms of uncertainty, and the predictability of anti-market stances by senior regional politicians - are a key danger for investors. The risks posed by populists in El Salvador, Honduras, Panama and Costa Rica are high, although upside potential remains in the region; indeed we assess the possibility that the 45-year trade embargo on Cuba will be lifted.
Infrastructure bottlenecks constrain even greater potentialWhile rapid expansion is the hallmark of many Frontier States, we believe that the growth potential of many has yet to be fully realised. For example, growth in Panama has strong upside potential as construction investment in areas other than the expansion of the canal will boost re-exporting opportunities in the 'Dubai of Latin America'.
Table: Frontier Markets - key data and projection for top 10 countries
Chart: Frontier Markets To Lead The Growth RaceTop 20 Countries Projected Real GDP Growth From 2008-2012,%
Table: GDP per capita, US$ (in order of % increase)
Table: Diversify through Frontier Markets - correlation coefficients Jan 2004 - April 2008
Index Development A Positive Step
Official Agencies Playing A Part
Table: Frontier Market Indices
Chart: Election Season Looming
Central America - Short-Term Political Risk Ratings
Chart: Social Problems A Drag
Central America - Long-Term Political Risk Ratings
Chart: Hopefully A Repeat Will Be Avoided
Central America - Economic Indicators In 2001 Downturn
Chart: Northern Exposure
Remittances, As % of GDP (LHS) And Per Capita (RHS)
Chart: Hats Off To Panama!
Panama - GDP By Economic Activity, % chg y-o-y
Table: Central America - Aggregate Regional Economic IndicatorsPeriod 2004-2009, nominal gdp (Us$bn), population (mn), gdp per capita (Us$), real gdpgrowth (%), inflation (%), exports (Us$bn), trade balance (Us$bn), current account balance(Us$bn), current account (% of gdp)
Cuba - Life After Fidel: Investment Implications
Chart: Impressive Economic Expansion
Latin America - Real GDP Growth (%)
Chart: Time To Talk Cuba?
Cuba - Herzfeld Caribbean Basin Fund, US$
Chart: Havana Good Time Of It
Cuba - Tourism Income & Arrivals
Chart: Ofshore Potential
Cuba - Map Of North Cuba Basin
Table: cuba macreconomic data and forecastsPeriod 2003-2012, nominal gdp (Us$bn), population (mn), gdp per capita (Us$), real gdpgrowth (%), annual inflation (% eop), fiscal balance (% of gdp), exports (Us$bn), imports(Us$bn), trade balance (Us$mn), net external debt (Us$bn), net external debt (% of gdp)
Chart: Dropping To Third Place
Short-Term Political Risk Rating
Chart: Perus Security and Social Stability Scores Drop
Breakdown of S-T Political Risk Ratings
Chart: Keep An Eye On Construction
Peru - Output Contribution to GDP, %
Chart: Credit-Driven Growth?
Peru - GDP by Output, % ch y-o-y
Chart: Peak Of Recovery Behind Us
Dominican Republic GDP By Expenditure, DOPbn & % chg y-o-y
Colombia - Resilience Despite Risks
Chart: Hey Big Spender
Colombia - Private Sector Credit, % chg y-o-y
Chart: Balance Tipping?
Colombia - Trade Balance, US$mn
Chart: Can The Highs Be Maintained?
Colombia - GDP Growth, % chg y-o-y
Chart: In Good Health
Colombia - Net Foreign Direct Investment (US$mn, 12mma)
Chart: Investing In Infrastructure
Colombia - Total Area Approved By Bulding Permits (m²)
Chart: Bottom Of The Bourses
Latin America - Stock Market Performance (% chg ytd)