South America has, for years, been a mixed bag for investors. The continent has seen high growth in some regions, mixed with political and economic uncertainty in others. A new report, from Frontier Market Asset Management, examines the state of the continent’s nations, as they stand right now.
The report assumes very little foreknowledge about the continent of its readers. First of all it, examines the current state of the countries of the region by basic economic metrics.
As can be seen above, in the four regions studied, there is significant commonality between the countries. All exhibit high levels of inflation, with Argentina well ahead of the bunch at 26%.
All four country’s have high levels of literacy and significant portions of their populations are young. Unemployment rates in all four regions is around 6%-7%.
There are, however, significant differences, and those emerge in some of the most important categories. GDP growth is zero in Argentina, where governmental mismanagement has wiped out potential, in Brazil it is sluggish because of low commodity pricing.
The report, in a rather interesting analysis, attempts to measure trends, in order to get a picture of what the economy may look like in 2050. Clairvoyance is an unproven talent, and the report acknowledges the large margin of error in such an analysis.
That does not take away from the interest such speculation drives. The analysis relies on several measures, the main among these include Human Capital, Investment, and Government.
These are combined in order to come up with a Z-Score. The standard deviation of the country’s statistics around this figure are used to rank them in order of future growth. The table showing the results is below.
The results of the analysis show the South American countries, correlated with each other, showing up in the middle of the chart. The countries are clearly correlated with each other, and have minimal growth prospects going forward, compared to other nations.
The most highly ranked countries are, in general, from East Asia. This is not really surprising to any following the current macroeconomic trends.
The analysts suggest that these numbers may not be a guide to long term growth in the region, though they hope it provides something more accurate than a random guess.
Culture is a separate topic covered in the report. Using an analysis of “Subjective Well Being” against GDP per capita in the countries. The following chart is the result of that analysis:
The line is clearly not an exact fit, and is a very loose trend among all of the countries. Data on subjective well being is, usually up for subjective interpretation, making this type of analysis difficult to prove accurate.
The takeaway from the chart is that money does, in general, buy happiness. There is also, according to the chart, cultural bias toward positive traits. Nordic countries exhibit the highest levels of happiness, while former soviet republics, and other Eastern European Nations exhibit much lower levels of the same.
Latin American countries, including the ones the report concentrates on, take their place well above the trend line. These countries are almost as happy as those in northern Europe, with a much lower level of income.
The report’s conclusion is choc full of caveats. It is impossible to predict the future, and major political events simply cannot be foreseen.
There are trends in the global economy that may allow analysts to guess at the directions the economy will head in general.
The charts above suggest that there is little chance of the Latin American countries becoming Tiger economies, but they seem to be in for steady growth in the coming years.
Latin America does not seem likely to expand to its potential any time soon, despite a young educated population, and other factors in its favor; political instability, inflation, and dependence on primary markets seem to detract from the continent’s prospects.