What Is Next for the Andean Region in 2017?

What is Next for the Andean Region in 2017?

2Bonds, Loans, & Derivatives Andes 2017

Disclaimer

Wherever possible, AMI has verified the accuracy of information provided by third parties, butdoes not under any circumstances accept responsibility for such inaccuracies should theyremain unverified.

It is expected that the reader will use the information provided in this presentation inconjunction with other information and with sound management practices. AMI therefore willnot assume responsibility for commercial loss due to business decisions made based on theuse or non-use of the information provided.

32017 Latin America Forecast

Regional Forecast


LAC will return to growth but will still underperform

2017 will end Latin America’s commodity-driven recession, but future growth will not come easily

-0.5%

-1.1%

1.3%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2015 2016 2017

GDP growth

World Industrialized countries Emerging markets LAC


The uneven commodity bounce

Metals up, energy flat: Winners – Chile, Peru, Brazil; Losers – Venezuela, Ecuador, Colombia, Mexico

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M1

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M7

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M1

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M7

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07

M1

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M1

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M4

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M7

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M1

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M7

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M7

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M1

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M7

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M4

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M7

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M1

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M1

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M4

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M7

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M1

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M1

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M7

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14

M1

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20

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M1

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M7

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M7

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M1

0

Diverging commodity prices (indexed pricing)

Industrial metals Energy

Driven by a global infrastructure spend boom

Driven US energy output expansion


Throw ‘em out

Latin America’s embrace of center-right parties is a rejection of incumbents, not an embrace of neo-liberalism

Argentina President Macri

✔

Chile President Bachelet

✘

Bolivia President Evo Morales

✘

Peru President Kuczynski

✔

Venezuela President Maduro Ecuador President Correa Mexico President Peña Nieto

✘✘✘


The Trump factor

America’s economy under Trump will deliver both growth and risk. How much of each is the question.

Positive Changes Threatening Changes

• Lower corporate taxeso Higher investmento Capital repatriation

• Less regulationo Expanded capital investmento Resource industry boost

• Infrastructure programo Much needed productivity boosto Short-mid-term stimulus

• Protectionismo Tax on business and consumerso Risks global trade war

• Building the wall & deportationso Will provoke populist political

backlash in Mexico – end to NAFTA

• Restrict immigration & visaso Deprives US business of talento Raises wage inflation – higher Fed


Yellen vs Trump

The Fed’s anti-inflation mandate may be the greatest threat to Trump’s fiscal & debt stimulated growth strategy

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2007 - Q3 2008 - Q3 2009 - Q3 2010 - Q3 2011 - Q3 2012 - Q3 2013 - Q3 2014 - Q3 2015 - Q3 2016 - Q3 2017 - Q3

US Fed rate


Make way for Saudi-America

US energy expansion is the greatest exogenous threat to the Andean region

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

US share of global oil consumption

US share of global oil production

US share of LNG production

Source - EIU


Brazil and Argentina will fuel regional growth

In both 2017 and 2018, Brazil and Argentina will combine for 70% of the region’s dollarized GDP growth

-644

23

202289

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-157

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80

62.9

-113.6

117.8

131.3

-86.5

-5.6

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26.4

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Net change in LatAm GDP (billions of USD)

Brazil Mexico Argentina Colombia

Chile Peru Uruguay Central America

Dom Rep Rest of Caribbean Ecuador

112017 Latin America Forecast

Country Analysis


Colombia

Resolving post-conflict challenges in Colombia may prove as difficult as negotiating with the FARC

• Fulfilling the peace requires fiscal measures that Colombia cannot afford

• A re-emerging US energy superpower directly threatens Colombia’s terms of trade and currency strength

• Two years with a weak peso has helped re-industrialize portions of Colombia’s economy

• Fulfilling FDI potential requires continued streamlining of bureaucracy and the tax code

-

500

1,000

1,500

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3,500

2011 2012 2013 2014 2015 2016 2017

Colombian foreign exchange rate, USD to Peso

12.7% nominal increase in USD spending power in 2017


Colombia sector forecast

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Education

High Tech

Transportation

Consumer Goods

Wholesale Distribution

Retail

SME

Healthcare

Financial Services

Industrial Manufacturing

Professional Services - Engineering

Professional Services - Legal & Accounting

2017 forecast real growth

Positive Drivers• Foreign Direct Investment• Import substitution• Demographics

Negative Drivers• Government austerity• Weak Peso• High consumer debt

Foreign capital began to flow again into Colombia in 2016


Peru – making peace politically

If Kuczynski can learn to share the spoils with Keiko, Peru can fulfill its growth potential

• PPK’s rocky starts reveals both his naivety and the bitter electoral resentment of Keiko Fujimori

• The “Kambio” party will have to share power with congress or face more confrontations

• Infrastructure boom should boost base metal prices and mining investment

• Bold infrastructure plans will attract new FDI growth

• Chinese investment will lead new FDI monies

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2014 2015e 2016f 2017f 2018f

FDI flows, USD billions


Venezuela – what comes next?

Venezuela’s reserves dropped 31% in 2016. The vultures are circling.

• Gold reserves fell 31% in volume, 23% in value in 2016.

• Three scenarios:

• PSUV hangs on till 2019, negotiates impunity and exits with election

• Default coupled with humanitarian crisis leads to refugee crisis, some form of OAS led intervention

• Approach of default leads to Venezuelan military intervention in with US blessing, transitions to elections. $0.0

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Gold reservesUSD billions (left) versus millions of oz (right)


Ecuador – a change of party would help induce more FDI

Competing in a strong USD environment will require greater FDI and productivity gains

• Lasso (opposition - CREO) holds a narrow polling lead in run-off election vs Moreno (incumbent party - PAIS).

• Alianza PAIS won a legislative majority.

• Regardless of run-off, likely shift towards pro-investor

• New government inherits over-valued dollar, stagnant growth, declining reserves

• Country needs more FDI0.0

0.5

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2013 2014 2015 2016 2017 2018

FDI flows, USD billions

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the field of market intelligence in Latin America

03Our consultants have advised a third of the region’s

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market research, competitive intelligence, political analysis and economic

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John PriceManaging Director

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What Is Next for the Andean Region in 2017?

Economy & Finance

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