The Andes region is home to three dynamic – and often internationally overlooked – economic powerhouses: Chile, Colombia and Peru. The combined GDP of these economies is 65% that of Mexico and is forecasted to grow faster than both Mexico’s and Brazil’s over the next five years, in part because of rising foreign direct investment (FDI).
There are other reasons why Chile, Colombia and Peru should rank high in the strategic planning of global companies.
Increasingly, they are being viewed as an economic bloc that is serving as a new driver of regional dynamism. They have free-trade and investment agreements, and in 2010 their stock exchanges merged to form the Integrated Latin American Market (MILA). This bourse boasts Latin America’s second-largest market capitalization, after Brazil’s Bovespa, and has the largest number of listed companies. The three countries are also planning to connect their electricity grids. Indeed, integration seems to be the driver underlying their attractiveness.
But integration can only be possible when a number of common threads emerge – as they have in the Andean Three. Chile, Colombia and Peru all have market-friendly, fiscally prudent democracies that favour free trade and investment.
- Chile is ranked 11 on the Heritage Foundation’s Index of openness to trade, while Colombia and Peru have moved up in rank to 45 and 41, respectively. By contrast, Brazil ranks only 113 and Argentina 138.
- Despite high growth, all three of them have kept inflation in check.
- All three nations posted balanced budgets from 2005 to 2008. After running deficits in 2009, Chile returned to a balanced budget in 2010, and Peru ran only a 1% deficit. Brazil and Venezuela, by contrast, have run significant budget deficits since 2006.
The private sector is also an important integrating force. Chile’s LAN Airlines has its main South American hub in Lima and is planning another in Bogotá. Other companies, such as Chilean retailers Falabella, Ripley and Cencosud, and financial institutions such as CorpBanca from Chile, BCP from Peru and Sura from Colombia, are increasing their presence with sizeable acquisitions and alliances to cover this corridor and effectively capture the immense market opportunities it offers. Cross-border mergers and acquisitions within the bloc rose from an average of 16 per year between 2003 and 2006, to 40 per year between 2007 and 2010.
All in all, these three countries should be a core focus of any company with serious plans for Latin America.
Author: Jorge Becerra is Senior Partner and Managing Director, Boston Consulting Group, Chile
Image: The city of Santiago, Chile REUTERS/Martin Thomas