The Best of Times Must Be Improved

Latin America is living in the best times in its economic history, said Gabriel Stoliar, executive director of planning and business development at Vale, a global mining company that originated in Brazil. “We now have the chance to insert our economies in the global picture in a very competitive mode,” Stoliar said during a panel discussion at the fifth annual Latin American Business Conference sponsored by the student-led Latin American Business Group at Harper Center on April 12.

However, the most conspicuous absence in Latin America’s future is a concrete plan for continued growth, he said. “The regulatory framework should be improved to incentivize investment,” Stoliar said. “Because informality is so high, right now small and medium companies must cohabitate with tax evasion. If they paid all of their taxes, they would not survive. It’s very difficult to bring companies of such informality to the capital markets, because you must have full transparency and responsibility to shareholders.”

Providing financial services to the mass market in Latin America is very difficult, said Andre Xavier, partner and managing director of Boston Consulting Group. “Serving these consumers entails developing a very different perspective from what you’re used to doing in developed market economies,” Xavier said. “You need to be vastly more flexible and vastly more creative. You need to develop new products and new pricing schemes.”

Consumers need to be educated about how to buy a product and how they can use it, he said. “Eighty percent of people we surveyed said they don’t trust banks because they are too expensive, so they keep their savings at home,” Xavier said. “That would not be remarkable except that the basic savings account in Brazil is actually free and has been free for the past 100 years or so. That gives you an example of the types of challenges these companies face.”

A series of trickle-down effects occur in many industries when Latin American governments intervene in the markets or suddenly alter tax policy, said Frank Ravndal, president of Cargill Grain and Oilseeds Americas’ www.cargill.com marketing group. Leaders need to consider the benefits those challenges may create for some sectors and the challenges they may pose for others, Ravndal said.

“For example, you might be expecting to load three vessels in the next couple of weeks, and you have customers who may be waiting for that product,” he said. “Ocean transportation is fairly expensive now, and you’ve got boats headed to Argentina to load up product and maybe head to Peru or Ecuador. Do you cancel the contract? Do you wait for a couple of days? It’s costing you $50,000 a day.”

The two key issues the panel stressed are that Latin America must improve its educational system and that institutions must become more involved in the policy framework for business, said Jorge Senties, co-chair of the Latin American Business Group. “Institutions must start participating and start being more part of all the policies,” Senties said. “Latin America is definitely on the right track, with key people identifying key issues and key problems. There are many solutions, but as business students and future leaders, we will hopefully know which paths to take.”

—Phil Rockrohr