LatinFinance - May/June 2014 - 18

moody's - potentially only underscoring the post-election economic
retrenchment.
one result of all this, says enrique corredor, a new York-based
partner at BtG Pactual, will be seen in the primary equity capital
markets: while mining and resources deals remain a difficult sell
across the region, consumer-related deals will be increasingly harder
to do in Brazil. "the growing middle-class consumption story is no
longer the driving factor in Brazilian equity issuance," says corredor.
as mexico's consumers struggle to rise (see box), can South
america's other large market-orientated nations - colombia and
Peru - take Brazil's place and keep the latin american consumer
growth story alive? GDP growth, while slowing, will remain at
roughly 5% in Peru and colombia in 2014. Some see Peru as the next
Brazil, given the growth of its consumer sector.
Peru's president, ollanta Humala, is comparable to Brazil's
similarly pragmatic leftist former president, luiz inácio lula da
Silva, and as such, Peru is enjoying a "mini lula effect" in terms
of the growth of its middle class, says the head of latin america at
one of the global investment banks. He says the consumer sector
accounts for the biggest chunk of his bank's deal pipeline in Peru.
"issuers are tapping into that demand for domestic growth stories
in Peru," agrees navarro at itaú BBa. "consumer-related firms will
still drive issuance in Peru and colombia."
Peru's consumer sector remains a likely target for buyouts by
foreign groups, says another banker. He points to nutresa, the

colombian foods processing company, which has yet to make an
acquisition in Peru. chilean retailers cencosud and falabella, and
chilean shopping malls developer Parque arauco have already
entered Peru (although Brazil still accounts for more of cencosud's
sales than colombia and Peru).
Still, these countries are much smaller in population than Brazil
(30 million people in Peru and 50 million in colombia, compared to
200 million in Brazil). and while Peru may in some respects be "the
next Brazil" investing in the consumer sector through Peru's stock
market remains a challenge, not least because sectors like mining
and fishing continue to dominate the index.
Despite optimism for Peru's growth prospects, an ebb in chinese
demand for Peruvian raw materials contributed to its stock market
decline in the first quarter of 2014 - the world's worst performing
bourse in that period. the 2012 iPo of Peruvian retailer inRetail
gave investors a much sought-after way to tap into the growth of the
Peruvian consumer. But higher expenses led to a decline in profits at
inRetail in 2013.
consumer lending at Banco de crédito del Perú, Peru's biggest
bank, also slowed to around 15% in 2013, compared to around 20%
in 2011 and 2012. Gianfranco ferrari, BcP's head of retail, says he
expects growth rates to remain at this lower level. "it is not coming
from such a low base," he says. "the size of our consumer business
has more than doubled in the past five years, and the overall level of
credit penetration in the country is now much higher." LF

Mexico

The region's sleeping consumer stirs
if any country can sustain the rise of the latin american consumer
in the coming years, it is mexico, with its population of 120 million.
the mexican government's reforms, particularly in the energy
sector, have sparked hope that the country could replicate the
kind of mass entry to the middle class seen in Brazil.
Ben laider, HSBc's head of americas research, points out that
real wages in mexico have barely risen for the past decade, while
it has one of the world's lowest loan-to-GDP ratios (less than 20%).
"We foresee a cyclical and structural GDP recovery in mexico that
will benefit the consumer over the long term," he says.
low interest rates and household indebtedness mean a lot
of scope for mexican retailers like liverpool and Grupo famsa
to boost sales via in-store credit, says michael Reynal, fund
manager at RS investments. Scotiabank is one lender hoping to
see consumer credit growth in mexico via agreements with local
retailers like oxxo.
"on paper it looks like the mexican economy should improve,
and the mexican consumer with it," says Reynal. a low loans-toGDP ratio may be partly a result of foreign banks' dominance, he
says, but american banks are becoming more aggressive, while
Spanish banks are less constrained on capital.
local microfinance lender compartamos is also starting to give
more individual loans to clients with a history via group loans.
the bad news for mexico's story is that up to now, the
government's focus on reforms has come at the expense of short-

18 l atinfina nce.com - May/June 2014

term growth. the region's sleeping consumer has not awoken yet:
mexico's economy underperformed even Brazil last year, barely
surpassing 1% growth, and consumer confidence in mexico has
fallen accordingly.
a survey at the end of last year by US consumer research firm
nielsen showed only argentine and Venezuelan consumers felt
worse than mexican consumers. "While fewer consumers felt in
recession in colombia, chile, Peru and Brazil, more people felt
their country was in recession in mexico and Venezuela," the
survey said.
the recovery in the US, and greater scope to ease
macroeconomic policy (at least compared to Brazil) is cause for
some optimism, however. But even the most bullish observers
say it will take time for the benefits of reforms, if they prove
successful, to filter down to the consumer.
lending as result of the energy reforms will start with
corporates and projects, not consumer credit. moreover, given
mexico's proximity to the US, and its relatively low wages, foreign
investors and investment bankers still tend to see the country
primarily as more of an export and manufacturing, rather than
consumer, story.
"mexico has not even started its middle class revolution," says
Will landers, latin america fund manager at Blackrock. "it could
happen in the next five to ten years, but it's a long term story." LF

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