GLOBALISATION & EMERGING MARKETS Harvard Case Solution & Analysis

Emerging Markets in South America

When we speak about emerging markets, China seems to be one of the most significant regions that gets associated with the name.Similarly, countries like India, Russia and Brazil make up the rest of the significant regions of BRIC, the term used for referring to the selected four prominent large regions or emerging markets of the world. However, with a slow growth rate experienced in China lately and the Russian economy also showing signs of uncertainty, how much confidence can be shown in the other emerging markets under question?

Surprisingly, even with uneven growth, emerging markets in South America like Latin America, Mexico and Colombia have potential and offer significant growth opportunities. Even though regions like Brazil, Chile, Argentina and Venezuela may seem more promising, the former group can offer substantial value with focused and improved governance. (Ian Bremmer, 2015)

Regions like Mexico benefit from the expanding US economy especially as the government in this area is quite eager to attract foreign investment especially in the energy sector. This means there is potential for development of tourism, construction of pipelines, ports, highways etc. (Ian Bremmer, 2015)

It’s not as though the economic slowdowns in other emerging countries have not taken their toll on emerging markets in South America since the collapse of commodity prices have also affected the latter with a negative growth recently as reported by the World Bank and IMF. (Thierry Ogier, 2015)

Macroeconomic factors may bring greater shock waves to South America in the near future such as rising interest rates in the US economy as this would reduce the financial flow into emerging markets. We can say with some element of positivity that the emerging markets of South America are better cushioned to take these shock waves than we are anticipating. Back in the 90s there may have been a greater dependency on borrowing from abroad but now there is a greater focus on direct foreign investments. The region welcomes equity and has reduced its dependency on debt financing which indicates how the region is welcoming investment. In addition to this, the region is now protected from volatility in the financial markets because of its high levels of foreign reserves. (Thierry Ogier, 2015)

Interestingly, the troubled Chinese market is also looking towards the emerging markets of South America to stabilize their economic position. Chinese mining companies have planned investments of more than $14billion in Peru underway which explains how the focus from debt financing to encouraging foreign direct investment has paid off in these emerging economies. Similarly, investments in Mexico, Argentine, Brazil and Venezuela in energy projects are also bringing in large sums of money from China. The fact that the Chinese economy is seeing a slowdown may bring this question that the FDI flowing into South America may slow down due to the Asian country’s downturn. However, according to Cynthis Sanborn, a political science professor at Universidad del Pacifico in Peru, some delays may be experienced but no significant disruption in cash flows is expected due to the slowdown of China’s economy. (Chauvin, 2015)..........................................

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