After Brexit was approved by 52 percent of British voters last week, foreign investors can’t help to speculate about the future of the UK, and of Europe as a whole. As investment volatility seems to be one of the consequences of this decision, attention is gradually being shifted to another part of the world: Latin America.
2015 showed that Latin America is a tourism force to be reckoned with. The continent’s image as a trending destination has proven to cater to every kind of traveler. This, however, should come as no surprise. Brazil capitalized on its eminence as the World Cup host and as the soon-to-be epicenter of the Summer Olympics. Colombia and Mexico have taken over billboards and Instagram to showcase its scenic beauty while highlighting its progressively sophisticated domestic economy. Peru’s growing supply of event facilities and room capacity triggered an increase in corporate leisure and convention travel. Argentina’s dramatic change in its economy is generating booming opportunities for multiple hotel segments, ranging from budget, to full service, to luxury.
As Latin America continues to be present in the consumer’s mind as an intriguing and desirable destination, there is a simultaneous growth in economic conditions and tourism infrastructure. These three factors combined create the ideal scenario for investment prospects. It is estimated that the tourism in Latin America will increase faster (3.7%) than in Europe (2.9%) all while inbound tourism rises to 6% compared to the global average of 4.9%[1]. As an international investor, it is critical to stay ahead of these trends. This is the time for LatAm and the time is now – here is why
- The continent’s total contribution from Travel and tourism was $371 billion in 2015 and it is forecasted to grow to $535 billion by 2026.[2]
- Likewise, GDP is expected to increase from 9.0% to 9.7%.
- International tourist arrivals are forecasted to grow from $45 billion to $76 billion – an additional $30 billion and 5.3% growth.
- Business spending (19%) and Leisure spending (81%) are low compared to the global average of 23%, which means there is remarkable room for growth.
The individual markets within Latin America demonstrate a latent potential that can’t be overlooked. Let’s take a look at some of the highlights:
Brazil 2015 revealed that the hotel supply in Rio de Janeiro is not enough to satisfy the emergent tourism market of the city. Although its inflation has somewhat moderated this year at around 9%, it is still above the Central Bank’s target rate, with very unlikely interest rate cuts happening in the short term. As the country gets ready to host the 2016 Olympics, it is concurrently creating an air network to feature and connect other destinations often unseen in the typical travel guides. This new travel interface is a prime example of how Brazil managed to emerge from the recent global recession relatively unscarred – all while maintaining its inflation under control, stabilizing its overall political environment and generating a thriving banking system. [3]
Argentina Argentina keeps leading the Latin American markets with the development of new hotel structures and other hospitality amenities. It remains the third biggest economy of Latin America after Brazil and Mexico, with a GDP of more than $500 billion. In fact, it is the second country with major proportion of middle class citizens, yielding therefore the smallest Gini coefficient of the region. As the Country Risk has fallen from 620 to 380 basic points between September 2015 and April 2016, a total of $22 billion domestic and foreign investment has been confirmed to date. [4]
Peru With Pedro Pablo Kuczynski winning the recent presidential election, Peru’s economy appears to be going in the right path. Kuczynski has pledged to sustain Peru’s current economic momentum by increasing investment in infrastructure[5]. The country has the lowest inflation rate in Latin America (2003-2014) and a stable exchange rate under regional average (2004-2014). These two components, mixed with a favorable legal framework for foreign investment, has given Peru an investment grade of BBB+ (S&P and Fitch Ratings) and A3 Moody’s. Its capital, Lima, is the 4th city in the Latin & North America ICCA ranking, which consequently places the country in third place in the LatAm ranking of Doing Business 2016. [6]
Colombia Colombia’s GDP has doubled over the last decade. With already 800 international airline connections that link 20 destinations worldwide, the arrival of foreign visitors has grown 33% since 2013. No wonder why it jumped 25 places (from 50th place to 25th place) in the ICCA world ranking between 2006 and 2014. Hotel chains powerhouses are quickly noticing this; reason why it is expected that in 2016 about 9,000 new hotel rooms will be added to the already existing 60,000 rooms[7]. What is more striking, however, is that Colombia claims the 1st place in the region and 6th place in the world in terms of protecting its investors according to the World Bank’s Doing Business Report 2014.[8]
Chile Chile’s appeal as an investment hub comes from its title as the best evaluated economy in Latin America. In its World Investment Report 2015, UNCTAD ranked Chile as the world’s 11th largest recipient of foreign direct investment in 2014. With an inflow of $23,000 million, Chile took second place after Brazil.[9] Its highly open economy originates from 23 free trade agreements with 60 countries and double taxation agreements with 24 countries, including the United Kingdom. [10] Overall, Chile’s economic stability, transparency and competitive environment have earned the country noteworthy credit ratings like AA- (S&P) and Aa3 (Moody’s).
Ecuador Ecuador became the subject of attention due to the unfortunate earthquake which occurred last April. As the country slowly recovers from this dreadful natural disaster, a rather optimistic side of the region has surfaced to the spotlight: tourism inflow has continued smoothly in the region, with airports, hotels and main tourist destinations operating normally. Tourism development is a priority for the nation now more than ever, especially after 1,560,429 foreign visitors arrived to the country in 2015, which resulted in a 13.7% increase in income over the previous year. Ecuador’s response to the Earthquake was efficiently potent but more importantly, it shows how resilient the country is for upholding a flourishing economic and social environment.
Mexico Mexico is showing Latin America what the future can hold. In the last decade the country was stigmatized as just an all-inclusive beach resort destination. However, with its brand new slogan of being “The Place You Thought You Knew”, Mexico is doing a remarkable job of emphasizing its second tier destinations and encouraging travelers to take longer trips.
Cuba 2015 was undeniably the year of Cuba. Over 3.5 million tourists arrived in the area, which yielded a 17% growth in relation to 2014 – with 44% revisiting the country. This new tourism influx instigated a 10.7% increase in direct income from tourism compared to the previous year. The current hotel development pipeline envisages 134,300 available rooms by 2030, with an expected potential of 273,500 if tourism keeps growing exponentially. Indeed, by the end of 2016, 14,000 new rooms are expected to enter the market. Cuba is claiming the spotlight as the investing jewel of Latin America, and shareholders are quickly starting to notice this.
While the Latin American region’s potential for investment is outstanding, international investors are acknowledging a sense of urgency, of first come first serve basis. This is why the time for investing is now. The upcoming SAHIC event to be held in Guayaquil, Ecuador on September 26-27 2016 is a rewarding opportunity to learn about the numerous investments prospects not only in the host country Ecuador, but also in the rest of this prosperous region.
To learn more about SAHIC and to register, click here: http://sahic.com
[1] http://www.cronista.com/negocios/Se-fusionan-dos-empresas-de-hoteleria-para-atraer-inversores-chinos-y-arabes-al-pais-20160610-0055.html [2] World Travel & Tourism Council (WTTC). Travel & Tourism – Economic Impact 2016 Latin America [3] http://www.ey.com/GL/en/Industries/Real-Estate/A-world-of-possibility–Brazil-hotel-investment-opportunities [4] ICCA (International Congress and Convention Association). Latest ranking published (2014). Argentina Agency Investment and International Trade. Ministry of Finance of Argentina [5] https://www.focus-economics.com/country-indicator/peru/manufacturing [6] Central Bank of Reserve of Peru – IMF International Monetary Fund – Standard & Poor’s, Fitch Ratings and Moody’s – Ministry of Tourism of Peru. ICCA (International Congress and Convention Association). Latest Ranging published (2014). [7] http://www.tophotelprojects.com/en/more-and-more-hotels-colombia-undergoes-huge-tourism-growth [8] The Doing Business Report 2014. – The World Bank. – Routes and Tariffs – Tools for the Colombian exporter. – ICCA (International Congress and Convention Association) Procolombia – Invest in Colombia – EIU (Economist Intelligence Unit) [9] http://www.investchile.gob.cl/en/porque-chile/ [10] http://www.latia.org/why-invest-in-chile
