The Global Transaction Services business at Bank of America Merrill Lynch has published its annual report on the Latin America market, entitled “Driving Growth in Latin America.” The report, which appears in Treasury Management International magazine (TMI), includes a series of articles summarizing the challenges and opportunities for companies conducting business in the region.
“Clients around the world increasingly tell us that Latin America is a crucial part of their strategic growth objectives. It’s no wonder. Foreign direct investment (FDI) is booming. Latin America and the Caribbean hit a historic high of $184.92 billion in 2013 – 5 percent more than in 20121,” said Juan Pablo Cuevas, head of Global Transaction Services for Latin American and the Caribbean. “In addition, Mexico – which has just implemented a number of investor friendly reforms – is expected to enjoy a significant boost to FDI, perhaps overtaking Brazil as the largest recipient of FDI in the region. Meanwhile, Chile, Peru and Colombia now have economies that rank as some of the most open among emerging market countries.”
“Driving Growth in Latin America,” which is available to BofA Merrill clients and through TMI, features articles on the following topics:
- The impact of the expanded remit of the treasury function.
- The growth of non-bank financial institutions and public sector entities doing business in the region.
- Best practices of in-house banking.
- The appeal of Latin America to U.S. middle-market companies looking to expand internationally.
- The role of escrow in managing risk, including M&A-related risk.
- What treasury professionals should look for when investing in money market funds.
- How the integration of trade finance and foreign exchange can lower a company’s costs and risks.
- A new era for supply chain finance in Latin America.
“Facilitating the Growing Strategic Role of Treasury” examines the parallel evolution of the growing importance of the treasury function with the expansion of companies into international markets, including Latin America. “Corporate treasury has become a linchpin in supporting a company’s growth strategy in an increasingly complex global environment,” states the article, which goes on to offer guidance on managing risk, enhancing visibility and control, and knowing when to centralize treasury operations.
The regional opportunities for non-bank financial institutions and public sector entities are examined in “Latin America’s Growth Drives Search for Global Solutions.” The article notes that one driver of this trend is the increase in consumer spending, particularly on auto, health and other insurance products. This in turn has been fueled by the growth in the region’s middle classes, which it is estimated, will outnumber the region’s poor by 20162.
“In-House Banking: Is the Time Right for You?” looks at how the changing regulatory landscape and the desire to harness internal liquidity is spurring companies to restructure their cash management structures. The article provides an explanation of in-house banking and identifies the characteristics of best-in-class models.
In the article, “Latin America Opens Up to the U.S. Middle Market,” Brazil and Mexico are identified as the primary expansion targets for many U.S. companies given their size. However, as noted in the article, the two countries have different characteristics. Brazil is a complex and challenging country in which to operate while Mexico is generally seen as the easiest. The article further discusses that Chile, Colombia and Peru are often secondary target markets once a company is established in Mexico and Brazil.
“Mitigating Risk in Latin America” examines the crucial role of escrow services as a risk management tool for multinationals as they increase their business in Latin America. Escrow services can be effective tools to manage M&A-related risk, as well as transaction, regulatory and counterparty risk.
Money market funds historically have been among the most liquid and stable investments available. Despite this, treasury professionals need to carefully vet funds’ investment risk to ensure a fund manager’s risk appetite aligns with their risk tolerance. “Dissecting Risk in Money Market Funds” details how to assess and select approach that selection.
In the article, “FX and Trade Finance Convergence Delivers Benefits,” the author explains how integrating trade finance and foreign exchange can lead to lower costs and reduced risks. For example, purchasing goods in local currency can allow companies to negotiate more competitive local pricing and avoid overpaying for their imports.
“Supply Chain Finance in Latin America: A New Era” discusses the current environment for supply chain finance in the region, where banks have successfully adapted their products and support to reflect the specific needs of buyers and suppliers in Latin America.
“Our goal in writing this report was to showcase our advisory expertise across treasury and transaction services, and to demonstrate our commitment to supporting companies doing business in Latin America,” said Cuevas. “We hope that clients will benefit from the intelligence that we’ve shared, and as a result, will continue to invest in the region.”
1 Foreign Direct Investment in Latin America and the Caribbean 2013, Economic Commission for Latin America (United Nations), May 2014
2 Social Gains in the Balance, World Bank, February 2014
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