Geopolitics

Latin American Multinationals, A New Force On Global Markets

The proliferation of Latin American multinationals - multilatinas - is the surest sign that the region is freeing itself of its 20th century central vice: selling raw materials to a single patron power.

Bimbo Chairman Daniel Daniel Servitje (second from right) speaks with then Mexican Economy Minister Bruno Ferrari
Bimbo Chairman Daniel Daniel Servitje (second from right) speaks with then Mexican Economy Minister Bruno Ferrari
América Economia

SANTIAGO — A frequent joke with Latin American economists in the 1980s was that every time the United States sneezed, Latin America caught a cold. It followed the assumption that opening your economy to free trade – a necessary step toward globalization – would leave developing countries at the mercy of the economic cycles of advanced nations.

But it was not so much globalization in those days as dependence on another developed economy. The concept is illustrated by the American mortgage crisis of 2008, which became a financial crisis then recession for the U.S. and much of Europe, but had little effect on Latin American economies bar Mexico, which was linked to its northern neighbor by the NAFTA free-trade agreement.

For this time, a more globalized Latin America had its eggs in various baskets. China was its other big trading partner and the prices of raw materials our region sells remained high in the face of Chinese demand, even as demand shrank in the rich West.

Now that Chinese demand has slowed and our commodities' prices are in decline, have we merely exchanged one senior partner for another? Will we catch a cold when China sneezes?

Not entirely. Certainly globalization, the fruit of commercial and economic liberalization and deregulation, makes every economy more dependent on others. And smaller economies are clearly more vulnerable to the vicissitudes of international markets.

Still, opening up to the international market is also the only way for small economies to grow. It means they produce and sell goods and services to the world - a marketplace of 7.3 billion consumers - instead of selling to the 15, 40 or 90 million people living in their own country.

Admittedly, opening an economy initially brings confusion, bankruptcies and job losses. In Chile for example, the first country to cut import tariffs more than 30 years ago, cheap foreign textiles destroyed the local clothing industry, leaving producers bankrupt and their employees on the street.

But just as globalization bankrupted local industries unable to compete with foreign markets, it also opened the doors to the rise of more competitive and innovative firms in the region: what we can now proudly refer to as Latin American multinationals. These are firms that have invested and settled in neighboring states, before moving to invest across the region and the world. They are our most innovative firms.

These pioneering firms - which we in América Economía have identified and termed multilatinas - barely existed 20 years ago, aside from a few state-affiliated mining giants. Today the 100 principal multilatinas have annual sales worth almost $1 trillion equivalent to the Gross Domestic Product of Argentina, Chile and Peru together.

Continental bonds

Certainly the list of Latin multinationals includes state-owned oil, energy and raw materials superfirms like Pemex, Petrobras, Venezuela's Pdvsa, Colombia's Ecopetrol, Argentina's YPF (nationalized again in 2012) or Chile's Codelco. These are inevitable multinationals for their size, and have been for some time.

But hundreds of other private multinationals have emerged over the last decade, in all sectors. You have Colombian financial groups like Sura, retail giants like Cencosud, Falabella and Ripley, diversified food conglomerates like Gruma and Bimbo of Mexico, Brazil's JBS-Friboi and Peru's Alicorp. We should not forget the world's largest cement firm, Cemex, the first regional firm of global dimensions.

Cemex is global empire, founded in Mexico in 1906. (photo - Martin Lopatka)

América Economía Intelligence has identified about 300 multilatinas with annual sales of over $250 million, and chosen from these, in keeping with levels of internationalization and information provided, a shortlist of the top 100 firms for 2014. We published the ranking in September on our website.

A recent phenomenon is that some of these firms began outsizing and outselling the state-sector giants internationally. The value of Chilean oil firm Copec"s sales began to exceed those of Codelco in 2011, with Cencosud crossing the same threshold in 2013.

Another effect of the Latin multinationals' emergence has been their impact on regional integration through business. Movements of executives and professionals between regional capitals, brands and products that have crossed frontiers and investments in each other's countries, all help us better understand our neighbors and seek better ways to collaborate. Peacefully resolving frontier disputes is imperative when all countries have investments and firms in neighboring states.

The Chilean examples are no coincidence. Chile was the first Latin American country to embrace globalization and today has the most firms in the list of 100 Latin American multinationals, when comparing its number of multinationals with the size of its economy. The same exercise done with other countries - dividing the number of multilatinas by the size of its economy - gives us after Chile, Colombia, Mexico and Peru. All these have opened their economies to global flows, and stimulated competitiveness and innovation among private firms, several of which have become world-class.

Some of the multinationals, and likely others yet to emerge, may well become the Walmarts, Airbus, MetLifes or Facebooks of the second half of this century. Welcome globalization.

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Geopolitics

Iran-Saudi Arabia Rivalry May Be Set To Ease, Or Get Much Worse

The Saudis may be awaiting the outcome of Iran's nuclear talks with the West, to see whether Tehran will moderate its regional policies, or lash out like never before.

Military parade in Tehran, Iran, on Oct. 3

-Analysis-

LONDON — The Iranian Foreign Ministry spokesman Saeed Khatibzadeh said earlier this month that Iranian and Saudi negotiators had so far had four rounds of "continuous" talks, though both sides had agreed to keep them private. The talks are to ease fraught relations between Iran's radical Shia regime and the Saudi kingdom, a key Western ally in the Middle East.

Iran's Foreign Minister Hossein Amirabdollahian has said that the talks were going in the right direction, while an Iranian trade official was recently hopeful these might even allow trade opportunities for Iranian businessmen in Saudi Arabia. As the broadcaster France 24 observed separately, it will take more than positive signals to heal a five-year-rift and decades of mutual suspicions.


Agence France-Presse news agency, meanwhile, has cited an unnamed French diplomat as saying that Saudi Arabia wants to end its costly discord with Tehran. The sides may already have agreed to reopen consular offices. For Saudi Arabia, the costs include its war on Iran-backed Houthis rebels fighting an UN-recognized government in next-door Yemen.

The role of the nuclear pact

Bilateral relations were severed in January 2016, after regime militiamen stormed the Saudi embassy in Tehran. Amirabdollahian was then the deputy foreign minister for Arab affairs. In 2019, he told the website Iranian Diplomacy that Saudi Arabia had taken measures vis-a-vis Iran's nuclear pact with the world powers.

It's unlikely Ali Khamenei will tolerate the Saudi kingdom's rising power in the region.

He said "the Saudis' insane conduct toward [the pact] led them to conclude that they must prevent [its implementation] in a peaceful environment ... I think the Saudis are quite deluded, and their delusion consists in thinking that Trump is an opportunity for them to place themselves on the path of conflict with the Islamic Republic while relying on Trump." He meant the administration led by the U.S. President Donald J.Trump, which was hostile to Iran's regime. This, he said, "is not how we view Saudi Arabia. I think Yemen should have been a big lesson for the Saudis."

The minister was effectively admitting the Houthis were the Islamic Republic's tool for getting back at Saudi Arabia.

Yet in the past two years, both sides have taken steps to improve relations, without firm results as yet. Nor is the situation likely to change this time.

Photo of Iranian Supreme Leader Ali Khamenei in 2020

Iranian Supreme Leader Ali Khamenei in 2020

commons.wikimedia.org

Riyadh's warming relations with Israel

Iran's former ambassador in Lebanon, Ahmad Dastmalchian, told the ILNA news agency in Tehran that Saudi Arabia is doing Israel's bidding in the region, and has "entrusted its national security, and life and death to Tel Aviv." Riyadh, he said, had been financing a good many "security and political projects in the region," or acting as a "logistical supplier."

The United States, said Dastmalchian, has "in turn tried to provide intelligence and security backing, while Israel has simply followed its own interests in all this."

Furthermore, it seems unlikely Iran's Supreme Leader Ali Khamenei will tolerate, even in this weak period of his leadership, the kingdom's rising power in the region and beyond, and especially its financial clout. He is usually disparaging when he speaks of Riyadh's princely rulers. In 2017, he compared them to "dairy cows," saying, "the idiots think that by giving money and aid, they can attract the goodwill of Islam's enemies."

Iranian regime officials are hopeful of moving toward better diplomatic ties and a reopening of embassies. Yet the balance of power between the sides began to change in Riyadh's favor years ago. For the kingdom's power has shifted from relying mostly on arms, to economic and political clout. The countries might have had peaceful relations before in considerably quieter, and more equitable, conditions than today's acute clash of interests.

If nuclear talks break down, Iran's regime may become more aggressive.

Beyond this, the Abraham Accord or reconciliation of Arab states and Israel has been possible thanks to the green light that the Saudis gave their regional partners, and it is a considerable political and ideological defeat for the Islamic Republic.

Assuming all Houthis follow Tehran's instructions — and they may not — improved ties may curb attacks on Saudi interests and aid its economy. Tehran will also benefit from no longer having to support them. Unlike Iran's regime, the Saudis are not pressed for cash or resources and could even offer the Houthis a better deal. Presently, they may consider it more convenient to keep the softer approach toward Tehran.

For if nuclear talks with the West break down, Iran's regime may become more aggressive, and as experience has shown, tensions often prompt a renewal of missile or drone attacks on the Saudis, on tankers and on foreign shipping. Riyadh must have a way of keeping the Tehran regime quiet, in a distinctly unquiet time.

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