Analysis
6 Sep 17

Andean nations - more than mere test markets

Peru
 
Peru narrowly avoided bankruptcy in 1998 by signing an agreement with the IMF (International Monetary Fund). Today it’s one of Latin America’s fastest growing economies, the seventh largest and least volatile. It has a population of 31.1 million and GDP per capita currently stands at 6,147 USD (around 5,474 Euros).
 
The services sector, which has yet to fully modernize, contributes 60% of GDP, with telecommunications and financial services the main branches. Together, they account for almost 40% of GDP. Industry, which accounts for 35% GDP, has undergone a process of development resulting in increased employment. GDP growth in 2017 is expected to outpace all of LatAm’s major economies. Peru’s Central Bank places the figure at 4%, but private sector analysts predict a more cautious 3.4%.
 
The unemployment rate decreased from 7.7% in March 2017 to 6.8% in April, largely due to new employment opportunities within its primary sectors (mining, fishing and agriculture).
 
In March 2017, a coastal El Nino caused devastating floods that killed dozens and left 700,000 homeless. It damaged roads and the country’s already patchy infrastructure. Estimates put the rebuild cost at 9 billion USD over the next five years.
 
Mining is an important industry, Peru’s economy relies on commodities. Protests are frequent and economically painful. Mining accounts for 10-15% of tax revenue and 60% of exports. This leaves the economy vulnerable to fluctuations in commodity prices.
 
Ores and minerals make up over 50% of total exports. Stronger mineral prices and increased mining capacity are helping the sector remain buoyant. As a country rich in natural resources, Peru exports goods highly subject to price volatility and imports industrial goods. In the past, this has affected the country’s trade balance. New trade agreements with the USA, other LatAm economies and the Caribbean have opened up new markets. Other key exports include food (21% of total exports) and mineral fuels (12%).
 
Chile
 
Chile’s economy had a rough start to 2017. Copper exports took a hit due to strike action, consumer confidence has been low and business in general lacking in vitality.
 
Chile has a population of around 18 million. GDP per capital is 13,496 USD (around 12,034 Euros).
 
Towards the end of 2016 Chile’s economy faltered due to declining fixed investment and a lukewarm performance from the mining sector. This capped off a year to forget for the Andean nation. A miners’ strike in February disrupted copper production but was short-lived. Towards the end of March, workers agreed to revert to old contracts which brought an end to industrial action. However, the Central Bank estimates lost output to be serious enough to chip 0.2% of Chile’s GDP this year.
 
The labour market has been showing signs of weakness with unemployment rising. The current rate is 6.3%. The Chilean economy is growing at a much lower pace than in the past few years but public debt is small and the country has low inflation and a reliable central bank.
 
Chile’s primary export is copper. The state-owned firm CODELCO is the world’s largest copper-producing company. The country has worked hard to expand non-traditional traded goods, such as timber, wood products, food and wine. The top export destinations are China, USA and Japan. Its primary imports are Petrol (refined and crude), cars, trucks and broadcasting equipment. Top import origins are China, USA and Mexico.
 
Colombia. 
 
2016 was disappointing for economic growth in Colombia and persistent slow down in household spending (compounded by a recent VAT hike) has restrained the gradual upturn seen in Q1 2017 but analysts are anticipating an improving picture.
 
Colombia has a population of 48.2 million and a GDP per capital of 6,030 USD) (around 5,376 Euro). The current unemployment rate is 8.9%.
 
Higher oil prices, an ambitious public infrastructure programme and loose monetary policy will fuel growth this year and analysts are looking forward to the positive effect of tax reform, passed in December, and stronger economic activity, which should enable Colombia to meet its fiscal targets.
 
The signing of the historic peace deal in 2016 has helped improve the overall political picture, plus bolster tourism and investment in the once conflict-driven areas of the country. Higher commodity prices will improve GDP and analysts expect the economy to grow 2.3% in 2017.
 
By definition these are the emerging economies of Latin America, which makes them vulnerable to external forces like fluctuating commodity prices and currency values. Conversely, it also makes them attractive test markets for business development.

Authored by: Alison Pittaway