LAC Markets 2018 Forecast

Webinar – 2017.10.17

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Legal notice

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About AMI
ca

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 More than two decades of seeking to understand the region

AMI launches São

InfoAmericas is Paulo affiliate
sold to Kroll, office
forming Kroll’s
InfoMex is first market 2,000th client
founded in Office opened in Office opened in Five industry practices intelligence engagement
Mexico City São Paulo Miami are introduced division completed

1993 1995 1997 1999 2000 2002 2003 2006 2007 2011 2015 2017

First studies Tendencias InfoAmericas AMI consultants Key members of the AMI
conducted in launched, the joins the Global complete their former InfoAmericas Perspectiva
South America, most widely read Intelligence 1,000th client team form AMI, with launched.
name changed to regional Alliance (GIA) as engagement in offices in Miami and Chile
InfoAmericas intelligence its Latin American Latin America Mexico City affiliate
newsletter member office
launched.

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We deliver the intelligence
You need to make smart business decisions

Growth Risk Performance

Opportunity Benchmarking Competition Market Share

Market Assessment Unethical competitors Best Practices
Customer Research Political Brand Awareness
Investment Viability Reputational Customer Satisfaction
Partnering Economic
Strategic Planning

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Broad industry experience, Latin American focus

Payments Healthcare Logistics

• 310 projects • 225 projects • 170 projects
• Consumer & corporate • Medical equipment, • 3PL, air cargo, FTL, LTL,
cards, pre-paid cards, devices, hospital rail, ocean, port
digital wallets, mobile services, health policy, management,
warehousing,
payments, POS pharmaceuticals, distribution, equipment,
technology supplements, vaccines software

Industrial Consumer & retail Natural Resources

• 470 projects • 480 projects • 175 projects
• Transportation, • Food, beverage, snacks, • Mining – exploration,
manufacturing, appliances, beauty equipment
chemicals, lubricants, • Energy – oil & gas,
products, toys, alternatives, petrochems
metals, plastics, paper, entertainment • Agriculture – commodities,
packaging, safety fertilizers, technology

Automotive Insurance Telco, IT, Media

• 145 projects • 55 projects • 150 projects
• Cars, trucks, buses, • Accident & Health, • Telco – wireless, ISP,
OEM parts, E&O/professional liability services, equipment; IT
aftermarket, service, Insurance, general – ERP, computers &
liability insurance, accessories, AMT;
finance political risks, property Media – gaming,
insurance, re-insurance pictures, print, TV, radio

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Read our insights magazine — Perspectiva

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Insights drawn from Sector-specific analysis:
over 3,500 consulting Logistics, Payments, Natural
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Latin American and political analysis Healthcare, Consumer Goods
Caribbean markets and Services

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 Your webinar presenters
John Price
Managing Director

Mauricio Cárdenas Guillaume Corpart

Managing Director
Consumer & Retail Practice Healthcare Practice
Director Director

Diego Rodríguez
Logistics Practice Director Lindsay Lehr
Payments Practice Director

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Trends shaping the
region

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Diverging resource prices – metals are rising, energy is flat

Advantaged Disadvantaged
Peru, Chile, Brazil Venezuela, Ecuador, Colombia, Trinidad & Tobago
Energy importers – Caribbean, Central America

Divergent Prices of Natural Resources

300.00

250.00
Rising global
200.00 investment into
infrastructure
150.00

100.00

Expansion of the
50.00
U.S. energy sector
0.00 (shale)
2003M1
2003M5
2003M9
2004M1
2004M5
2004M9
2005M1
2005M5
2005M9
2006M1
2006M5
2006M9
2007M1
2007M5
2007M9
2008M1
2008M5
2008M9
2009M1
2009M5
2009M9
2010M1
2010M5
2010M9
2011M1
2011M5
2011M9
2012M1
2012M5
2012M9
2013M1
2013M5
2013M9
2014M1
2014M5
2014M9
2015M1
2015M5
2015M9
2016M1
2016M5
2016M9
2017M1
2017M5
2017M9
2018M1
Industrial Metals Energy
Source: The Economist

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Energy importers continue to prosper; exporters are catching up

Net energy imports as a % of GDP

100 86 78 64 53 49 48
50 27 18 13
0
-50 -10 -18
-35
-100
-150 -114
-200 -178
-250
-300 -268

Real GDP Growth 2016 2017 2018

Energy IMPORTERS 3.3% 2.8% 3.7%
Energy EXPORTERS -4.0% -0.6% 1.8%
Difference 7.2% 3.4% 1.9%

Source: IMF
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U.S. growth will peak in 2018, but the dollar and wages will
remain strong for the medium term

The U.S. labor pool is shrinking – The dollar will further

immigrants are needed strengthen

Full employment is The Fed plans to raise rates

driving up wages steadily (2% inflation target)

U.S. GDP and Fed Rate Forecasts (2017-2022) Business Cycle Co-Movement with U.S. Economy
Mexico 2014-16
3% 3.0% Chile
2.5%
Costa Rica
3% 2.2% 2.25%
2.1% 2.5% 2.5% Honduras

2% 1.8% 1.7% 1.7% 2.0% Ecuador

1.5% 2.0% El Salvador
Guatemala
2%
Paraguay

1% 1.0% Colombia
1.0% Panama
1% Venezuela
Mexico and Central
Uruguay
America
0% 0.0% Peru
Brazil
2017 2018 2019 2020 2021 2022 Argentina
South America
GDP Interest rates
0. 3 0. 4 0. 5 0. 6 0. 7 0. 8 0.9

Sources: IMF, Kiplinger report

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Chinese engagement strategy

• Chinese bilateral loans to LatAm since 2005 are > $150bn, ranked 1st

• China – LAC trade will reach $300bn in 2017, ranked 2nd

• Chinese FDI stock in Latin America estimated at $150+bn USD, ranked 3rd

Employ Chinese
construction
Secure long-term Sell higher-value Satisfy Chinese
companies via
natural resources Chinese goods tourists
infrastructure
projects

Source: Brookings Institute

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Business confidence is on the rise

Recent rebound in business investor confidence in LatAm

105

100

95
Confidence index

90

85

80

75
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2012 2013 2014 2015 2016 2017

Source: World Economic Outlook Database

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Scarcity breeds pragmatism; corruption breeds populism
Latin American voters reject the status quo — but will they embrace populism?
Examples of LAC political pragmatism
• Argentines elected a pro-business president
• Peruvians elected a proven technocrat
• Venezuelans elected an opposition party-
dominated congress
• Bolivians denied Evo Morales the chance to
run a 4th time
• Leftist president Lenín Moreno has proven to
be pragmatic
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Will some countries turn populist?
• Corruption hurts support for the establishment
• Temer (Brazil) – 9% support
• Peña Nieto (Mexico) – 11% support
• Santos (Colombia) – 14% support
• PPK (Peru) – 19% support
• Latin Barometer measures the lowest support
for “Democracy as the best system of
government” in its history (below 50%)
Fiscal austerity is ongoing in Brazil, Mexico and Venezuela
Chile & Peru have some latitude for fiscal expansion

Fiscal balance as a % of GDP

5.0%

0.0%

-5.0%

-10.0%

-15.0%

-20.0%
Brazil Mexico Argentina Chile Peru Ecuador Venezuela
2012 2015 2018
Source: World Bank

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Regional Forecast for 2018

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Latin America is on the mend
FX volatility exacerbates growth cycles in LatAm — 2018 will pleasantly surprise
Latin America’s Nominal GDP (USD Billions)
$6,000

$161
$121 $251
$5,000 $203 $119
$258 $230 $291
$28 $270 $362
$377 $213
$68 $257 $344
$192
$4,000 $599 $240 $34 $321 $884
$195
$291 $247 $762
$282 $648
$611
$3,000 $1,304 $545
$1,346
$1,230
$1,146
$1,159
$1,044
$2,000

$2,416
$1,000 $2,029 $2,100 $2,155
$1,772 $1,697

$0
2014 2015 2016 2017 2018 2019
Brazil Mexico Argentina Colombia Chile Peru Venezuela
Sources: IMF, AMI analysis

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The Caribbean + Central America enjoy more consistent growth

Latin America’s Nominal GDP (USD Billions)

$700

$9
$600 $8 $5
$8 $5 $6
$9 $8 $5 $15
$6 $17 $5
$5 $5 $6 $14
$16 $5 $23
$500 $6 $6 $14
$13 $15 $5 $22 $24
$12 $4 $14 $5 $21 $25 $29
$14 $20 $25
$20 $28
$27 $27 $57
$28 $26 $54
$400
$25 $52
$51 $69
$50 $65
$61
$57
$300 $53 $73
$69
$69
$69
$69
$72 $76.20
$200 $68
$59 $64

$72 $77 $83

$64 $67
$100

$83 $88 $93 $95 $98

$0
2014 2015 2016 2017 2018

Cuba DR Guatemala PR Panama Costa Rica El Salvador T&T

Honduras Jamaica Nicaragua Haiti Aruba Bermuda Barbados

Sources: Business Monitor (London), AMI analysis

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Brazil 2018
Private sector is on the mend; public sector still problematic

• SELIC cut rates dramatically over FDI flows, USD billions

the last 12 months, but cuts will
slow as inflation returns. 100
80 97
• Consumer credit growing again 75 75
85
60
after banks reigned it in.
40 56
• Investment, consumption, FDI, and 20
imports are all growing.
0
• Pro-reform block controls Congress 2014 2015e 2016f 2017f 2018f
but Temer’s weakened political
capital is limiting a rare
Brazil imports, USD billions
opportunity for deep reforms.
• Political field in 2018 is wide-open. 350
Lula will likely lose his appeal and 300 319
not run. The left may unify behind 250
Marina Silva. 243 241 252
200 221
203
• João Doria (Mayor of São Paulo) 150
and multimillionaire is the new 100
outsider to Brazilian politics. 2014 2015 2016 2017e 2018f 2019f

Sources: Business Monitor (London), AMI analysis

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Mexico 2018
Tensions over NAFTA may define Mexican politics over the next few years.

• Mexican politics and economic

future will be heavily influenced by
the ongoing NAFTA negotiations.
• NAFTA can be suspended by
presidential order but not
cancelled or dramatically reformed
without congressional support.
• US 4th round position puts the
negotiations in jeopardy. Mexico
may leave the accord, gambling
that the U.S. will elect a different
president in 2020.
• Mexico will try to re-align as best
as it can with European, Asian and
hemispheric trade partners.
• Palpable anti-American sentiment
will impact outbound tourism,
possibly also government bid
selections.

Sources: Business Monitor (London), AMI analysis

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2018 LAC Healthcare Outlook

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2018: LAC Healthcare sector trends

01 Turnaround of the Brazilian market Insights

HOSPITAL BEDS BY COUNTRY KEY MARKET GROWTH TRENDS • Brazilian market turnaround

Others, 8%
30%
• Volume growth of 3% in 2018 –
PRU, 3% BRA, 44% 20% up from 1% in 2017 – driven by
CHI, 4% 10% Brazil + Southern Cone.
COL, 9% 0% • Mexico rebound expected in as
-10% government spend increases at
ARG, 11%
-20%
end of sexenio.
MEX, 21% -30% • Smaller markets gain appeal
2015 2016 2017f amongst large players.

02 Tech solutions still limited to specific markets • Medical equipment

manufacturers struggle to sell
EMR Penetration: 38%
high-value product.
Most advanced countries: Puerto Rico and Chile
Primary market: Private
• Opportunity for cost control
03 Cost considerations lead purchase decisions mechanisms within hospitals,
notably on procurement
elements.

Source: Global Health Intelligence proprietary data and analysis

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2018: LAC Healthcare market opportunities

Penetration of low-cost (primarily Asian)

01 Growth into the middle market consumer 02 products will continue to rise

Public sector cutbacks leave an underserved middle
market for private healthcare to penetrate with
specialized, low-cost institutions.
Primary target clients: SES C / C-.
Low prices find a welcoming market. Maintaining
share will require investment in distribution,
servicing and after-market.
Target clients: Independent practices, clinics, smaller
hospitals.

SES % POP.
A/B 7%
Private coverage
C+ 14%
C 18% Opportunity
C- 16%
D+ 20% Public ASIA LATAM
D 18%
E 7%

Source: Global Health Intelligence proprietary data and analysis

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2018 LAC Payments Outlook

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2018: LAC Payments sector trends

01
Favorable demographics for growth of mobile and Insights
technology-driven payments
• Fertile conditions for adoption of
% of population aged 20-35 e-commerce/mobile payments
Peru 50% • Young urbanites should be the
Mexico 50% target for digital payment products
Colombia 50% • Banks and others struggle to find
80% of Latin Brazil 49% the correct incentives to promote
Americans live in Chile 47% adoption
cities Argentina 46%

• Unbanked continue to prefer cash-

based payment methods or card-
02 Growth of cash-based and prepaid payment methods based prepaid accounts
• Persistence of brick and mortar
Cash-on- stores
delivery
• Very little traction in digital
solutions for the underbanked
The acquiring landscape will continue to open up and
03 • A more flexible acquiring
become more competitive landscape in Argentina, Peru and
Colombia creates new
opportunities for payment
technology players

Sources: World Bank, AMI analysis

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2018: Payments sector key events
01 02
Expansion of Amazon &
Alibaba
1) Threaten traditional retail Regulatory changes in
Forecasted
2) Present partnering Mexico and Argentina
opportunities for the payment events
sector, though both firms may
become payment service
providers in LAC

A potential fintech law in Mexico could:

• Create a legal framework and customer
protections that encourage consumer adoption
• Add costs to fintechs and stifle growth

The imminent sale of near-monopoly

acquirer Prisma will:
• Enable new acquirers to enter the market
• Create a more competitive cost structure
• Present opportunities to new fintech
companies

Source: AMI analysis

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2018 LAC Logistics Outlook

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2018: LAC Logistics sector trends

01 Increased use of technology tools

 Predictive analytics, data gathering and Impact

WMS help anticipate warehousing needs • Reduce express air freight and
and optimize inventory positioning. warehousing costs
• 3PLs and 4PLs use proprietary IT
platforms to differentiate their
Expansion of cash on delivery in offerings
02 the e-commerce space
E-commerce volume, $ bn 2016
Country (captured by payment processors)
Brazil $25
E-tailers interested in COD
Mexico $15 • Selling to unbanked customers
Argentina $7 • Enlarges the e-commerce pie
Colombia $6 • New source of revenue for logistics firms
Rest of the region $10
Total $63
Risks of COD to logistics players
plus COD Total = c. $100+
• Security risks associated with cash
• Low fulfillment rates
Source: AMI analysis
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2018: LAC Logistics sector disruption opportunities
01
Uberization of first and last
mile freight transportation:
The UBER model leverages:
- Underutilized drivers and
vehicles
- Cost savings on empty back-
haul with spot pricing
02
Marketplaces for legacy
carriers:
• Shopping for logistics is tedious
Disruptive and slow. New marketplaces
players gain allow customers to quickly
traction compare pricing across carriers.
• 3PLs will soon begin licensing
such technology to manage a
fleet of subcontractors and
divest out of vehicle assets.
30 Source: AMI analysis
2018 LAC Mining Outlook

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2018: LAC Mining sector trends
Investor risk is shifting from the presidential palace to the local community

01 National governments re-embracing mining investment

Argentina
Guyana

Ecuador
Brazil
Peru

02 Investor risk shifts to local communities

Short-changed by national Emancipated by Weakened national governments

governments smartphones cannot control local communities

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2018 LAC Infrastructure Outlook

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2018: LAC Infrastructure sector trends
Project boom on hold

01 Project boom on hold

Public sector financing will remain PPPs will gain in popularity as Greater due diligence applied to
soft until new political order is institutional money returns to future projects
established in 2019 LatAm

02 Which do you expect to be the main obstacle to developing infrastructure projects in 2017?
Response Count

Sources: BNamericas.com, AMI analysis

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 2018 LAC
Consumer/Retail Outlook

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2018: LAC Consumer Packaged Goods (CPG) trends

01 E-Mobility & Connectivity Insights

By 2020:
• Always “ON” generation
World population 7.6 B • Changing behaviors
Connected Dev. 50 B • E-commerce growth
• On-time data
Dev/person 6.6
• Experiential Retail
• Bricks and clicks
02 Health & Well-Being
• “Better for you”
• Re-formulations & packages
• Changing preferences
• Trade & government responding to
Globesity

• “Me First”
03 Individualism & Premiumization
• Reject mega-brands
• Tailor-made products &
personalized brand-building
• Functional benefits
• Premium price

Sources: Cisco, Nielsen, AMI analysis

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2018: LAC CPG sector key events
Headline for 2018: “Growth with volatility”

Presidential elections in: Brazil, Chile, E-commerce giants expand in LatAm: NAFTA (TLC); 50/50:
Colombia, Mexico and Paraguay:
• Cash on the street • Amazon, Alibaba, Wal-Mart • Supply sources
• FX volatility • Mercado Libre sells for $11+ bn disrupted
• Hedging and delayed Capex • Barriers will fall • New businesses

Russia soccer World Cup: Sugar tax levies could spread in LatAm:
• Largest LatAm markets • Formulations
qualified • Labelling
• Increased sponsorships • Format sizing
• Spillover • Promotion

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LAC Strategic Planning
Best Practices

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Traditional planning methods may not work
Annual plans miss strategic shifts in the market

Forecasting • GDP • FX
1 tools
• Political events • Syndicated data
• Intelligence • Category trends

• Volatility
2 Planning challenges • Instability
• Limited information

• Too tactical
• Too political
3 Annual plan deficiencies • Difficult to upsell
• Constantly adjusted

Planning modelling • Staffing

34 • GM underrepresented — no buy-in
challenges • Lack of reliable data available

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Strategic planning best practices

Best Practices
Follow Macrotrends
trends, not & LatAm Disrupt 5-year 360 buy in/ Commit
headlines adaptation competition Strategy Metrics Align consensus resources

Leadership Shared Alignment Easier sell to Prioritization

vision HQ

Benefits

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Contact us

John Price Guillaume Corpart Lindsay Lehr

+1 (305) 441-9300 ext. 307 +1 (305) 441-9300 ext. 302 +1 (305) 873-4311
jprice@americasmi.com gc@americasmi.com llehr@americasmi.com

Remi Piet Mauricio Cárdenas Diego Rodríguez

+1 (305) 441-9300 +1 (305) 441-9300 +1 (305) 441-9300 ext. 305
rpiet@americasmi.com mcardenas@americasmi.com drodriguez@americasmi.com

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About AMI

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01 market intelligence consultancy

Our founding partners helped pioneer

02 the field of market intelligence in Latin America

Our consultants have advised a third of the region’s

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AMI consultants have conducted over 2,000 client

04 engagements in Latin America since 1993

Our holistic approach to market intelligence is unique. We combine

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05 economic forecasting in our studies. Few others do the same in Latin
America

info@americasmi.com +1 (305) 441-9300