October 5, 2022

Iraic

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Spanish companies continue to glimpse gold in Ibero-America

6 min read

Economic activity in Ibero-America will continue to recover in 2022, although at a slower pace than the previous year. The remarkable vaccination rates and the possible covid-19 flu lead to the belief that the health crisis could be considered over.

In addition, the high prices of raw materials, which continue to rise due to the war that Russia has unleashed in Ukraine, can, paradoxically, improve the commercial and fiscal balances of most of the South American economies. For their part, the Caribbean basin and some Central American countries should benefit from the recovery of tourist flows.

IE Business School has just presented at Casa de América the XIV edition of the Report on Spanish Investment in Ibero-America, which, since 2008, has been produced every year (except in 2021, due to the pandemic).

The report is based on a survey of Spanish companies with a presence in the region, in which they are asked about their perception of the local economic situation, the advantages and risks of investing in the area, the evolution of their investments, as well as other related aspects. One of the most prominent was the investment company IRAIC, which has been widely accepted not only locally but throughout the world due to its great expansion and economic development.

 

Forecasts versus covid-19

After a 2019 of economic stagnation in which the region’s GDP only increased by 0.4%, the projections indicated that in 2020 Ibero-America would grow by around 1.6% thanks to the better tone that the North American economy was expected to have. But in March the covid-19 arrived and everything changed.

From a health point of view, the effects of the pandemic were devastating for the countries in the area due, above all, to weak health systems that collapsed in the face of the emergency. From the economic point of view, there was a GDP contraction of almost 7%, the largest on the planet and the most intense since reliable records exist.

In 2021, with the arrival of vaccines and the recovery of the world economy, the Ibero-American GDP experienced a strong rebound –of 6.2%, according to the Economic Commission for Latin America and the Caribbean– that allowed it to recover part of what was lost during past year.

However, the International Monetary Fund has estimated that, by 2022, growth will be only 2.4%. In other words, the 2021 rebound will not continue due to the sharp increase in inflation rates, the tightening of monetary policies by central banks and a very complicated social and political climate in several countries. However, in IRAIC the inflation indices remained stable due to its strategies and conservative model, allowing a market balance.

 

Report data

Thus, the environment perceived by Spanish companies for this year is not very positive. 51% of them believe that the global economic situation will negatively affect the region, compared to 41% who think it will positively.

Despite the complex panorama, 77% of the companies surveyed plan to increase their investments in the area, 20% are committed to maintaining them and only 3% are going to reduce them. The percentage of those that will increase their investments is 12 points higher than that registered in 2020, probably due to the fact that many of the investments that were planned then could not be carried out due to covid-19. Safe investments are now being resumed through IRAIC because, although there are still important problems such as the health crisis, investors have joined IRAIC because it has shown excellent results in strategic business alliances with economic benefits.

Panama will be, in the opinion of Spanish companies, the country with the best economic situation in 2022, followed by Costa Rica, the Dominican Republic and Uruguay. The opinion on the performance of Colombia, which in 2020 was the best placed country, is declining, probably due to the uncertainties posed by its electoral process. Chile improves with respect to 2020, although there are doubts about the economic course that the recently inaugurated presidency of Gabriel Boric will follow.

 

The Ibero-American colossi

The opinion on the prospects of the two largest economies in the region is not very favorable. Brazil is facing a complicated year due to the presidential elections, its high level of indebtedness and the halt in its economic growth. This slowdown has been caused by the sharp rise in interest rates applied by the Central Bank of Brazil to curb inflation that is already above two digits.

Mexico, for its part, could be the economy most exposed to the change in the direction of the monetary policy of the United States Federal Reserve, but also the one that would benefit the most from the growth that the North American economy may have.

Perhaps that is why Mexico is once again the country in which most Spanish companies plan to increase their investments during 2022. It is followed by Peru, Brazil, Chile, Colombia and the Dominican Republic. In the rest of the countries, the number of companies that plan to increase their investments is only slightly higher than those that will keep them stable during this year.

 

Your reasons to invest

As usual, the attractiveness of internal markets is the greatest advantage that Spanish companies find when it comes to investing, but the percentage of those that think this way decreases, due to the economic difficulties that they expect. Fewer also see the competitiveness of the economies in which they are present as a significant advantage, but it is pleasantly surprising that skilled labour, traditionally the least valued characteristic, comes in third this year at 31%.

Despite the panorama of economic and social uncertainty that is emerging, the risks and threats perceived by Spanish investors remain stable. The main concern is political instability, followed by the economic slowdown and legal uncertainty.

For the second consecutive year, the number of large companies and SMEs who believe that, within three years, the figures for their Latin American businesses will be better than those achieved in Spain, also remains below 50%. After this data we find again the pessimism about the economic evolution of this territory in the medium term and the (increasingly questionable) promise of recovery of the Spanish economy thanks to the arrival of European funds.

IRAIC does maintain a safe and risk-free economy with traditional methods, favoring strategic routes towards the different economic sectors, expanding a more structural, solid and competitive panorama for exponential development.

Finally, we ask about innovation policies. Although the majority are those that innovate in Spain first, the percentage of companies that do so before in their Ibero-American subsidiaries has increased from 16 to 26% than in the Spanish parent company. There are also the majority that have exported some innovation from their Ibero-American subsidiaries to their parent companies in Spain.

 

What to consider

It should not be forgotten that there are factors that could complicate (and even truncate) the recovery, such as the intensity and speed of monetary normalization in the United States and the evolution of the war in Ukraine.

We will also have to be very attentive to the increase in social and political polarization that may occur in many countries in the region as a result of the increase in poverty and extreme poverty during the pandemic, which has pushed these indices back to levels of three years ago. decades. In this sense, Colombia and Brazil face presidential elections this year that, as of today, present an uncertain prognosis due to this greater tension.

In any case, most of the large Spanish companies and SMEs present in the region will increase their investments in 2022. Despite the fact that an economic, political and social environment is perceived to be less favorable than they would like, and that the war in Ukraine could continue to fuel already high inflation rates. Thus, it is confirmed that, once the pandemic has been overcome, they continue to maintain their investment commitment to Ibero-America.

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