Cash & Liquidity ManagementCash ManagementAFP 2016 report: Testing times in Latin America

AFP 2016 report: Testing times in Latin America

Latin America has 36 nations, many of which have suffered devaluations, high debt and economic troubles recently. Its recovery will rest on Brazil, Mexico & Argentina delegates at the Association for Financial Professionals' (AFP) conference heard, while listening to the experiences of Uber & Adidas.

Can Brazil’s economic star rise again? Will years of volatility in Argentina be ended by the reform programme now in place? Delegates at the 2016 Association for Financial Professionals’ (AFP) annual conference in Orlando, US, were offered a short-term economic outlook for the two nations, which have recently suffered from testing times, as has the other member of the Latin American ‘big three’ Mexico.

The experiences of two multinationals in the region – Germany’s iconic Adidas sportswear brand and Uber, the fast-growing alternative to taxi services – were also shared by Steve Donovan, managing director of Citi’s Latin American treasury and trade solutions unit.

He began by noting that the region has 36 countries and a total population in excess of 600m. In Brazil, Latin America still has the world’s ninth-largest economy despite that country’s well-publicised problems in recent years since the commodities boom ended, while fast-rising Mexico is the 15th-largest global economy.

Citi’s forecast for Latin America in 2017 is one of “cautious optimism”, said Donovan. Gross domestic product (GDP) growth should start to improve after two tough years, inflation should start to recede from relatively high levels and the currencies of Brazil, Colombia, Mexico and Argentina are likely to undergo a more modest devaluation after sharp falls in 2015 and 2016 – although debt to GDP levels are likely to continue rising. The testing times may continue for a little while therefore, but not forever.

Regional overview

In Argentina, new president Mauricio Macri still enjoys relatively strong approval ratings as he executes his agenda of economic reform – one in which investment replaces consumption as the main driver of growth. 2017 is set to be “a year of adjustment”, before a hoped for fuller recovery.

Meanwhile in Brazil there is less support for President Michel Temer, who succeeded the impeached Dilma Rousseff. However, Brazil’s battered economy is “probably over the worst” suggested Donovan, with good prospects for a modest recovery next year that gains traction in 2018 and 2019.

Mexico has experienced a marked slowdown in second half economic growth this year, a steep decline in oil production and rising inflation. At the same time, this month’s US presidential Trump-Clinton election debates have underlined the fact that the nation is reliant on the US as a major trading partner, and uncertainty about Trump’s plans for the relationship have spread unease. Regardless, the peso currency has recently made gains.

The green shoots of economic recovery may await the ‘big three’ nations after their short-term troubles. The three key markets of Argentina, Brazil and Mexico “constitute 60% of the region’s GDP growth”, Donovan told the AFP conference so much rests on their economies recovering.

Further afield, in Colombia, the ratings for President Juan Manuel Santos have been in modest decline, exacerbated by his recent loss in the referendum about whether or not to authorise a controversial peace deal with the FARC revolutionary Marxist group that has been waging war in the country for decades. Voters narrowly rejected the peace deal. Economically, the country’s recent growth is expected to moderate this year after recent gains, but contraction is not yet on the agenda and an uptick may come next year as the government implements its infrastructure agenda, according to an OECD report released this summer. However, the current account deficit remains high and inflation is accelerating.

Treasury trends

For corporate treasury departments in Latin America an increased focus on control, liquidity and managing currency volatility during these testing times was recommended by Donovan in his AFP conference presentation. He also noted an extension of centralisation trends from shared service centres (SSCs) to regional treasury centres (RTCs).

Costa Rica has proved to be a favoured location for many RTCs in the region, with strong competition now being posed by Panama, which has persuaded a number of financial professionals to relocate from Brazil and Venezuela after the economic battering that both countries have recently suffered. This exodus can be expected to continue in the short-term.

Uber and Adidas case studies

After the economic overview of the region the experience of two very different multinationals in Latin America was presented to the AFP conference delegates. Representatives from Uber and Adidas discussed how best to operate in the locality and the lessons they have learnt.

San Francisco-based Uber has already established a strong footprint in Latin America (LatAm), “where it typically launches its service in a capital city and spreads outwards from there,” said David Watt, senior treasury manager for Uber Tech.

Uber began 2015 with a treasury team of three and operations in 15 LatAm cities. This has swiftly grown to seven staff and 73 cities and is soon set to grow even further to eight or nine staff and 100-plus cities. “We’d love to do more in Argentina, but it’s a tough market,” said Watt, although the company has been surprised by its “tremendous success” in other countries such as the Dominican Republic, Chile and Colombia.

“Uber regards its drivers as ‘partners’ and the challenge is to grow their number in the face of unrelenting demand from customers.” He added that local currencies are converted into US dollars and, as yet, Uber doesn’t carry out a great deal of cash pooling in the region.

As a relatively young company it has learned from the experiences of others. Among its current tasks is to develop a platform from which to pay its ‘partners’ (i.e. informal employees) globally. Uber’s treasury also works closely with its tax and legal teams when setting up operations in a new country.

According to Thiago Lacerda, treasury and credit management director for Panama-based Adidas Latin America, the German-owned sportswear group decided that managing treasury operations in the region from its home base created too many challenges. Different time zones was just one consideration, but local knowledge, norms, volatility and expertise were other drivers for its recent decision to set up its own LatAm RTC.

Adidas has been established in the region for more than 10 years and has 320 LatAm stores with a target of increasing this to 500. Among the top reasons for recently establishing an RTC in the region – which tallied with the results of a recent Citi poll of other multinational corporates (MNCs) – was closer proximity to its corporate commercial activities. The local availability of suitably qualified treasury professionals and language skills were other drivers.

“Panama isn’t the cheapest location in which to do business,” Lacerda added, “But it is quite conveniently situated with most other countries in the region fairly easily accessible by air.” The establishment of an RTC will also enable Adidas to have a core team of just 13 in treasury, compared with one central and 21 locally-based employees when it originally set up operations in Latin America.


Looking further ahead, Uber’s Watt regards Mexico and Brazil as among its top five markets for Uber’s further growth “so it’s worth investing the time and the energy [in them].” He also regards Argentina as “very promising” and is hopeful that market conditions there will get easier over time.

For Lacerda, one of Adidas’ main challenges is continuing to comply with the region’s complex regulations. “It’s a constantly changing landscape and your perspective on various areas changes by the day. It forces you to adapt. It is nonetheless worth persevering in LatAm as potential growth is strong, thanks to a growing middle class.”

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