The Social Media Secret’s Out! Now, Share It!

I have recently been considering the marketing applications of the ‘dictator’s’ dilemma as coined by Clay Shirky*. It strikes me that social media, which has been used so successfully by the masses politically in the Philippines, China, Spain and Thailand and is feared by the governments there, is exactly the application and embodiment of effective marketing that is also being pursued by Facebook; recently Venezuela enacted a new law to tighten control of the internet and this could be a sign that President Hugo Chavez fears the power of social media.

Facebook in particular is proving to be a phenomenal hit in the Americas, and here are recent figures for Facebook usage in selected markets in the Americas:

Country	Users Dec 2009 Rank	Users Dec 2010 Rank	Growth
US	101,303,240	145,749,580	44%
Mexico	6,505,040	18,488,700	184%
Argentina	7,387,120	12,359,260	67%
Colombia	7,243,520	11,665,860	61%
Brazil	2,413,900	8,821,880	266%
Chile	5,808,020	7,586,060	31%
Venezuela	4,952,340	7,552,760	53%
Peru	1,510,480	3,888,560	157%

Note that all of these countries are in the top 30 global markets for Facebook, demonstrating a real interest in social media in the region. The main social networking site in Brazil remains Orkut (owned by Google) for the moment, but the explosive growth of Facebook there may threaten this status as happened with MySpace elsewhere.

Targeted advertising to Facebook accounts, which is how the social networking site earns revenue, sees friends having the choice whether to recommend the ads to other friends. Facebook has been one of the first to pick up on the power of this advertising technique in a big way. Conveyance by social media is good, but not always enough; real effect comes in the two step process, where the message is seen via social media, but then importantly transferred to a close associate, friend or family member. A recommendation from someone known is far more influencing than from a stranger and the fact that it is being conveyed through an admired medium, technology, is also legitimising.  This has the effect of both media influence and then conversational influence.

It is like learning: when it is reinforced and engaged with, it is remembered and embedded. It is in this second step that opinions about buying or not buying are formed. Mass texting of shared communications saw this second conversational step form political opinions and action in China, Thailand or the Philippines. This social ratification and recommendation is very powerful. In the commercial world it is what every brand is hoping for; it creates an intense bond between the product and the consumer and then potential friend of the consumer. This is the essence and aim of viral marketing and social media is the mechanism by which it happens.

There are clearly lessons to be learned from modern political struggles and regimes who have tried to clamp down on access to media like Google and The New York Times online. Some have even closed down whole networks to avoid viral response, but in so doing, they have also closed down their business communications and negatively impacted their economy.  Such lessons convince me of the power of viral marketing especially when you want to reach distant/remote populations such as in the Andean regions. Although, it has to be noted that effective viral marketing often takes place in compacted populations. Then products can most easily be located and distributed to large concentrated populations e.g. in Sao Paulo, Mexico City or Bogota. Concentrated populations, being touched by viral communications, offer rich pickings potentially, but the message has to be targeted, clear and meaningful.

It has to be remembered that social media is not only the Internet, but probably more importantly for Latin America, and arguably for the rest of the world as well, cell phones, especially smart phones. Vodaphone has seen this opportunity and it has introduced a fairly simple phone in India in July 2009, marketed at an accessible price point, and has determined relevant features for the target market including text, calculator and radio. This then gives a greater population improved communication and obvious personal and business benefits; it also provides access to information which is socially relevant and even health related and urgent. This however presupposes a certain amount of numeracy and literacy. Still, it gives marketers an opportunity to reach distant and dispersed segments of society in a very economic and personal way and a way which may well encourage a sharing of this marketing information for compounded effect!

This also means that viral marketing – using social media – is creating a fairer playing field for SMEs as it has been doing for uniting opposition to unfair political practices around the world. As authoritarian or conservative governments fear social media, so do large corporations and oligopolies with huge marketing budgets.  Introducing a product which is clearly superior to theirs, and which begins to erode their market share, will no doubt generate a backlash. Social media is however not only a good marketing mechanism in order to introduce a product; it is also a relatively cheap defence mechanism against such corporate responses. In the past, prohibitive marketing and advertising costs, especially in order to reach remoter less concentrated markets, would have made this impossible for SMEs. Today this is not the case. The question then is which products or services lend themselves to viral marketing in Latin America, America or elsewhere for that matter of fact. Is there any that do, more than others? Are there any limits? I’m not sure that there are.

Another question again is culture; does it raise its head? Personally, I think not. From my experience of living and working on four continents, I think that technology not only physically crosses all borders, but social media communications, through the means of technology, is also more trusted than many face to face communications with ‘strangers’. Technology is not a strange bed-fellow; in fact it is a desirable one which is part and parcel of marketing targeted at people who aspire to be ‘more’. People want to improve and be seen to be improving; technology facilitates that and social media messaging for viral marketing can benefit from that receptiveness.

*Sirky, C. (2010) The Political Power of Social Media Technology, The Public Sphere and Political Change Foreign Affairs Volume 90, No.1, pp. 28-41.

Authored by Pam Mason

Is Doing Business in Latin America Getting Easier or Harder?

As always with Latin America, we do not think that there is one single answer as the region is not one homogenous unit but a myriad of different markets and cultures.

The Doing Business Project, launched by the World Bank in 2002, publishes an update each year with objective measures of business regulations and their enforcement across 183 economies, including all of the LatAm markets. It offers measurable benchmarks for reform, and serves as a resource for everyone interested in the business climate of each country.

The recently published Doing Business in 2011 Report has significant detail on all of the markets measured, and also gives good examples of reforms achieved. One example quoted that demonstrates the effect of red tape is for a business in Kenya that wished to export to the UK:

Consider the story of Bedi Limited, a garment producer in Nakuru, Kenya. After spending 18 months pursuing a trial order for school items from Tesco, one of the largest retail chains in the United Kingdom, Bedi lost out on the chance to become part of its global supply chain. Bedi had everything well planned to meet a delivery date set for July. But the goods were delayed at the port. When they arrived in the United Kingdom in August, it was too late. The back-to-school promotion was over. Changes to regulations and procedures can help improve the overall trade logistics environment, enabling companies like Bedi to capture such growth opportunities.

In terms of regional performance, Latin America & the Caribbean had the lowest percentage of economies in which at least one reform  was made that make it easier to do business (47% vs. 84% of economies in the Eastern Europe & Central Asia area). Many of the reforms introduced have involved simplified online procedures.

The following table gives the respective 2011 and 2010 ranks for ease of doing business for selected countries:

Country	DB2011 Rank	DB2010 Rank
US	5	5
Mexico	35	41
Peru	36	46
Colombia	39	38
Chile	43	53
Panama	72	62
El Salvador	86	80
Guatemala	101	100
Paraguay	106	105
Argentina	115	113
Nicaragua	117	119
Uruguay	124	122
Costa Rica	125	121
Brazil	127	124
Ecuador	130	127
Honduras	131	128
Bolivia	149	148
Venezuela	172	170

The ranks are relative to the 183 markets measured, so a drop in the rankings does not necessarily mean that business has become more difficult but rather that other countries have reformed more. In fact over the last 5 years, only two LatAm markets have in fact become more difficult in which to do business: Argentina and Venezuela; unfortunately these were also the lowest ranked two countries globally in which doing business has become harder.

Over the same 5 year period, several LatAm economies have made significant reforms to make doing business easier: Colombia, Peru and Mexico. Chile, which is now ranked #4 in LatAm for ease of doing business, made few reforms over the period, but the Chilean President, Sebastian Pinera, has made it clear that it his government’s intention to be more business friendly. Brazil, which has potentially the most to gain from reform, has made some progress, but it needs to do more and faster if it is to make real progress.

In terms of ease of importing goods, the averages for the region are as follows:

Documents required to import: 7.5

Time to import: 22 days

Cost to import (US$ per container): $1,441 (excluding any tariffs or duties)

These figures of course mask wide variances within the area. In Venezuela the report estimates that a typical imported container will take 71 days and cost US$2,868, as opposed to 9 days and US$915 in Panama.

In terms of ease of exporting goods, the averages for the region are as follows:

Documents required to export: 7.1

Time to export: 19 days

Cost to export (US$ per container): $1,310

Again, looking at the same countries as an example, in Venezuela it takes 49 days to export a typical container and costs US$2,590, whereas in Panama it takes 9 days and costs US$765.

The protection for investors shows some of the highest variance in the region: Colombia is ranked #6 globally, but neighboring Venezuela is a very poor 179, perhaps not surprising given the arbitrary expropriations made by the Venezuelan President, Hugo Chavez.

Registering property in the region is generally complex, taking 7 procedures and 69 days on average; often it is because visits to different agencies and in Brazil there are 14 separate procedures required. Brazil could also benefit from tax reform; at present the project calculates that a typical entrepreneur in Brazil takes 2,600 hours each year to process the tax payments.

Our own experience with trade in the region typically correlates with the information provided by the Doing Business Project, and certainly it is generally far easier doing business in countries such as Mexico, Colombia, Peru and Chile as opposed to Venezuela in particular, but as we have noted it is Brazil that has the most potential to gain from fresh initiatives and cutting red tape. With elections due in a number of countries we hope that new administrations will take bolder and wider reforms and push LatAm forward faster.

Is Peru the Cheap Chile?

Peru has come a long way since the dark days of the insurgency led by the Shining Path movement that, although still not entirely ended, significantly wound down around ten years ago after 20 bitter years of internal conflict. It now represents an excellent example of what Latin America can achieve with thoughtful, progressive reform and a will to break with the past; together with Colombia, Peru represents perhaps the most improved Latin American country since 2000, and a positive counterbalance to unorthodox policies of Chavez’s Venezuela.

The country has a rich, almost magical history, perhaps best symbolized by the glorious Incan city of Machu Picchu. The famous Nazca Lines, left by a long-vanished civilization, have evoked theories as exotic as the use of hot air balloons hundreds of years ago to a runway for extraterrestrials.

The estimated GDP growth in 2010 was 8.7%, and is forecast to be at or above 5% p.a. over the next five years, with inflation in a 1-3% band, and the current account is only -0.2% of GDP; despite these positive numbers and the fact that its 30m citizens represents a population almost double that of Chile, Peru often appears to be overlooked by multinationals looking to business in the region, even exporters that struggle with the duties of the Mercosur trading group, and the cost of entry to the market is generally more favorable, especially with a concentrated central population in the capital, Lima.

Key indicators include the following:

GDP (PPP) per capita $8,626, 87th out of 181 markets measured (Source: IMF 2010)

Ease of doing business: 36th out of 183 nations (Source: World Bank 2010)

Human Development Index: 63rd out of 169 (Source: UNDP 2010)

Economic Freedom: 45th out of 179 (Source: Heritage Foundation 2010)

Corruption Perception: 78th out of 178 (Source: Trasparency International 2010)

Competitiveness Rank: 73rd out of 139 (Source: World Economic Forum 2010)

Peru compares favorably to Chile on many of these indicators, and generally ranks ahead of Colombia, which appears to be getting far more positive press than Peru. Only in competitiveness does Peru rank outside the first or second quartile of the markets measured by each respective indicator, a long way from Venezuela, which more often than not ranks in the fourth quartile.

Since 2006, Peru has signed trade deals with the US, Canada, Singapore, and China, concluded negotiations with the European Union, and begun trade talks with Korea, Japan, and others, and the country has committed itself to endorsing free trade.

A wide open presidential election in April 2011 and a run off likely in June perhaps do not help with the markets, which always dislike volatility and the unknown, but the current incumbent, Alan Garcia, has managed to sustain growth following the reforms made by his predecessors, Alberto Fujimori and Alfredo Toledo, despite a previous term as president in 1985-1990 that is accepted generally as disastrous. In the last election, President Garcia narrowly beat Ollanta Humala, a left leaning ex-army Lieutenant Colonel supported openly by Venezuela’s Chavez, which gave rise to concerns about the true political progress made by Peru and was a reminder of its “flawed” democracy.

The country still needs to make progress in a number of areas, particularly its over dependence on commodity exports, and education as more than one-third of 15 year olds are classified as borderline illiterate by the OECD, but an orderly transition to the next government and a continued independent and orthodox central bank should ensure that Peru continues to grow faster than the rest of Latin America and together with at least Colombia will join Chile in a group of truly emerging nations. As with similarly placed markets it is the emerging middle class that offers the greatest opportunities in the medium to long-term, particularly as many of the presidential candidates are pledging to reducing the current 35% poverty rate (down from 44.5% in 2006).

A Tale Of Two Cities: Bolivia

Bolivia, a landlocked country in the heart of the South America land mass, perhaps represents the popular image of old of Latin America best: it has struggled with political instability (and more coups than any other nation), conflict with its neighbors in which it has lost more than half its territory, a diverse multi-ethnic population, and economic difficulties best represented by mega inflation that hit 60,000% on an annualized basis in mid-1985. To put the inflation in context, we heard the anecdote that the rate for a taxi ride from the La Paz airport to the city center would double on the return trip. A friend once told us that he was in a restaurant in La Paz at the time and when it came time to pay a fellow diner took a stack of notes and a ruler and measured out the payment.

It is here that Butch Cassidy and the Sundance Kid met their end, Che Guevara perished at the hands of the CIA and the local police, and Klaus Barbie and other Nazis fled to after WWII. Many of the indigenous women wear bowler hats as part of their “traditional” costume, yet these hats were introduced to them from Britain by an enterprising company in the 1920s.

Bolivia itself is divided politically between its two largest cities, La Paz and Santa Cruz, and the contrast between these two could not be greater. Visitors to Latin America often remark on the differences between cities in the same country, such as Sao Paulo and Rio de Janeiro in Brazil, or Quito and Guayaquil in Ecuador, but La Paz and Santa Cruz are far more polarized and diverse, both geographically and culturally.

La Paz is the highest capital in the city in the world at around 3,800 m, approx. 1,000 m higher than the second highest, Quito, and visitors arriving at the airport in El Alto are often plagued by ferocious headaches. It is the seat of most of branches of government, ethnically has a highly indigenous population, a relatively cold climate in the oxygen starved altiplano, and economically has a large informal sector and on the whole light industry. There seems to be little dynamism and many parts of the city often appear to be mired in its colonial past.

In comparison, little visited Santa Cruz is a hot, dusty new-town, a melting pot of ethnic and cultural diversity and famed for the beauty of its women. It’s a brash, often chaotic city that is proud of its zestful nature and the wealth generated by its proximity to the gas fields; its inhabitants want everyone to know that they are independent of La Paz and often tell you that their town is now the largest and most important in Bolivia (which is technically true but La Paz and neighboring El Alto form a larger overall urban conurbation). Santa Cruz appears to want international trade to succeed, and perhaps with other cities such as Cochabamba seems to offer Bolivia a real hope for the future; international brands are everywhere and many of the businessmen ask foreign visitors why no one has heard about them.

On paper perhaps Bolivia does not appear to offer very much: a population of 10 m, one of the lowest GDP per capita in Latin America (approx. $4,700 on a PPP basis), and a populist president, Evo Morales, that appears to often get his cue from the economically incompetent president of Venezuela, Hugo Chavez. In addition there has been strife with the US over its willingness to tackle the drugs trade (not helped by the fact that President Morales was previously head of the coca farmers union), which has led to the removal of certain trade preferences, and the government has often mishandled political challenges (and its reputation is not helped by the botched attempt to cut fuel subsidies recently).

Nevertheless, despite the frequent political turmoil a surprisingly orthodox fiscal policy and strong commodity prices have allowed economic growth to continue, hitting around 6.1% in 2008, with forecast growth just below 4% p.a. for 2011 and the medium term; no China or India indeed, but comparable to that forecast for most of the rest of Latin America. We would also expect the middle class in more dynamic areas such as Santa Cruz to grow much faster than that, offering modest but real potential for an exporter willing to brave trade with this distant market.

Watch Out President Chávez : You’re Opening Pandora’s Box!

Former Venezuelan President Carlos Andres Perez, who died on Saturday, December 25 in Miami, is said, by President Hugo Chávez, to have led governments from 1974-79 and 1989-93 that violated citizens’ rights and were subservient to US interest. This is what we can politely term ‘the pot calling the kettle black!’ Speaking from the grave through his daughter, Maria Francia Perez, who confirmed that, despite rumors, her father would never have agreed to be buried in Venezuela while the ‘antidemocratic’ government of President Chavez remains in power; the two arch enemies continuing the fight even from different worlds!

After ten years as president, Hugo Chávez has polarized Venezuela even further, and arguably has the “Don’t Cry for Me Argentina” magnetism of Evita Peron, charming the poor with projects like Take El Valle, a hillside slum on the edge of Caracas. Over the past few years it has seen social programs: Cuban medics manning a health clinic, soup kitchens and supermarkets with subsidized rice prices. According to government figures, extreme poverty dropped from 16.9% to 7.9% between 2000 and 2007. These figures are not only challenged by the opposition, but also by failure to address day to day issues like frequent muggings and the soaring price of milk.

Maybe it is the bubbling social consciousness that is being created that is the most important legacy so far, and the gradual awakening of the poor to their rights. Pandora’s box, now opened, and there will be no going back, but for the same poor to then exert their rights. This 21^st century socialism, however, like revolutionary Cuba before it is showing similar reactions to overt opponents like those on the Tascón list. They are reported to be excluded from the government’s benefits and even blacklisted. The national identity numbers of more than 2.4 million Venezuelans who had signed a petition for a recall referendum against President Chávez was published, though later recalled, and the continuing persecution of this politically segregated people is suspected. Democracy? Social Reform? Students protested Cuba forty years ago. Looks like Venezuela is the new Cuba right enough.

Meanwhile President Chávez remains the US’s most uncensored critic. What is the US’s reasoning? What does oil have to do with it? (A rhetorical question)

By Pam Mason

Don’t Cry For Me Argentina

In the Peron tradition, Argentina continues to be governed by the few who charismatically engineer smokescreens that seduce its proletariat. For those of us who have traveled to Argentina and fallen in love with its charm, we also want to be able to believe the latest government figures. The charming people we meet there make us want to return and do more business, but the government figures defy belief and make it impossible for the time being to have the confidence to do so without considerable caution.

Superficially at least, Argentina appears to be re-emerging as a global player, providing its own indicators of creditworthiness.  It is a member of the G-20 club, ranks among the top 30 global economies, and it is a stable and peaceful democracy; many of its main economic indicators, including per capita income measured in current dollars (>$9,000), look very healthy for a developing country.

Urban unemployment is stated at around 8%, down from 20%, and many low value-added jobs in inefficient companies have disappeared. Commodity export price booms have created a significant trade surplus and stimulated higher investment and output, most notably in agriculture. Consequently, merchandise export earnings have more than doubled over ten years to $60 billion annually in 2008-2010.

Argentina has therefore seen an unprecedented expansion of government income with revenues at 33% of GDP from that of about 21% in late 1990s, witnessing higher private sector incomes and government spending. Unfortunately, Argentina does not have a market-based exchange-rate regime, as the Argentine Peso would have benefited from the flood of foreign exchange. The Central Bank of Argentina’s interference has weakened the currency by 36% in nominal terms while most Latin American neighbours have appreciated. Instead Argentina has been significantly building its dollar reserves, with $50 Billion in the first six months of 2010. Currently, external debt liabilities are at an all time low of two-and-a-half times the level of reserves, representing a foreign debt level which is compatible with higher sovereign credit ratings.

The problem is that the current administration is delusional if it believes that the rational among us, those not in the ‘Don’t Cry For Me Argentina’ camp, are convinced.  Argentina, for the present and immediate future, has lost its allure. When private pension funds are ‘nationalised’ to save them, effectively hijacked, what could foreigners expect? A rhetorical question and most of us don’t suffer from memory loss.

Argentina is the only G-20 member government that is in default on its loan obligations to its fellow members – and it has been in default to them for nearly a decade. Potential foreign investors in, and lenders to, Argentina are likely to get ensnarled in the claims as a concession to any future accord between Argentina and its official creditors. Argentina bears the burden of the debts to the Paris Club – $7 Billion, $1 Billion arbitration awards, with many pending through the ICSID (84% of all cases brought against any of the G-20 member nations) and $850 Million protracted arrears to foreign commercial banks and suppliers. It is the only G-20 member that refuses to abide by its treaty obligations to the International Monetary Fund (IMF), blatantly committing transnational financial crimes. Until debts are settled international credibility, as a trusted player, is a tarnished reality. Argentina has to step up and pay up.

The international comparative platform further supports the conclusion that Argentina remains a stealth operator and a relatively oppressed and non-business nor investment friendly place. Argentina ranks 115th in the World Bank’s “Ease of Doing Business” category, out of a total of 183 economies, 87th in the World Economic Forum’s Global Competitiveness Report 2010-2011, out of a total of 139, and 105th place out of 178 countries in Transparency International’s 2010 Corruption Perceptions Index and is 135th out of 179 countries in the Heritage Foundation-Wall Street Journal 2010 Index of Economic Freedom.

Therefore, there is clearly a great deal of country risk that is not captured by the Argentinean government produced indicators. Steady now in rushing to invest in Argentina! Argentina has been on a spending spree with this inherited revenue leaving little to meet the existing or what would become new public indebtedness. The IMF, producing more comprehensive figures, configured on an accrual rather than cash basis, has realistically included all payments due to be made by the government and revealing operating deficits not surpluses.

Then there are the serious accusations concerning the accuracy and integrity of official inflation data generated by Argentina. Notably, the IMF’s leading publication, the World Economic Outlook, refers to Argentina as the only country in the world whose inflation and GDP statistics need to be accompanied by a footnote explaining that the numbers cited have been challenged by private analysts.

Government inflation figures showing an average of 8.4% per year while independent analysts challenge them with an average of 20.5% and some suggesting as high as 30%. Argentina, being the only G-20 country to refuse inspection of its books by the IMF, does nothing to refute this. This translates to prices not having risen by 50% but 130% since 2006 and infers unsound and imprudent fiscal and monetary policies featuring unsustainable exchange rates which eventually, once the ‘Don’t Cry for Me Argentina’ camp has come out of its trance, will turn emotive tears and compliance into national social and political unrest.

Despite substantial market and default risks, Argentina has nevertheless managed to raise $3 billion through to the end of October 2010, offering bond yields mostly in the range of 9½% to 12½% while European and American bonds unattractively offer only 1 to 5%. The problem is that these attractive returns are based on high risk, single B rated credits. Replacing a culture of capital flight, some global investors are also making a showing in stock purchases and equity investments there, and should be credited with bravery as well as short term memory loss.

Santa Claus is apparently savvier than some, avoiding exporting to Argentina this Christmas, as he knows that he may not get his sleigh back and Rudolph might even become Christmas lunch. But, being a smart Santa, he’ll be keeping an eye on Argentina as Christmas has not permanently ended there; it will be celebrated again, just not quite sure when. Until then, we will indeed not forget Argentina. While we all enjoy the sentiment of the song, we are waiting for the Argentinean people to forego it, for its leaders to acknowledge that statesmanship is more than entertaining the masses and to open up to global opportunities that will give the country back its self respect.

Now sing along with Evita … I mean President Kirchner … err … whoever … (will bow out myself if you don’t mind!)

‘Don’t cry for me Argentina
The truth is I never left you
All through my wild days
My mad existence
I kept my promise
Don’t keep your distance

And as for fortune, and as for fame
I never invited them in
Though it seemed to the world they were all I desired
They are illusions
They’re not the solutions they promised to be
The answer was here all the time
I love you and hope you love me

Don’t cry for me Argentina’

(Lyrics: ‘Don’t Cry For Me Argentina’)

Author: Pam Mason

Is Venezuela Headed to Become Cuba?

On September 28, 2010 voting took place for the National Assembly, due to commence on January 5th 2011; the result of the election is that the opposition, who decided to boycott the last elections in 2005 and thus handed President Hugo Chavez complete control of the Assembly, gained approx. 40% of the 165 seats (note that the opposition in fact gained more than 50% of the popular vote, but blatant gerrymandering by Chavez before the election meant that they ended up with proportionately fewer seats.

Since the elections tensions have risen in Venezuela in recent weeks as Chavez has been put into an uncomfortable position as he requires a two-thirds majority to pass important legislature, and that will be very difficult given the seats to be controlled by the opposition.

There have been a series of articles published that express increasing concern that we would like to examine here and ask the question as to whether Venezuela really is headed to become Cuba? This is taking place at a time when Cuba, which is highly dependent on significant transfers of oil of around 100,000 barrels per day from Venezuela to balance its finances, appears to be headed in a different direction.

The economy, after several years of rapid growth, has been the worst hit in Latin America and is not forecast to start growing again until 2012, inflation at 28% is one of the highest rates in the world, and there is a significant budget deficit – Oil production, on which Venezuela depends for FX and government revenue, appears to be in significant decline and the state company, PDVSA, is poorly run and over staffed. In addition, importers face a plethora of highly bureaucratic obstacles to obtain FX through three different schemes (in addition to a black market for those brave or desperate enough).

On December 17 Chavez used his control of the Assembly to put through an Enabling Law, called a Christmas gift to Chavez by the Economist Intelligence Unit. The Enabling Law has been put in place just before the opposition take their seats using the pretext of recent floods in Venezuela, and in essence allows Chavez to rule by decree, without the support of the National Assembly, for 18 months. According to the BBC “His new powers extend beyond relief and reconstruction to cover areas including infrastructure, banking and finance, rural and urban land use, telecommunications, defence and security.”

On December 20 the BBC has also reported that the Venezuelan parliament has voted to tighten internet rules, which could lead to further censorship in a country where several news organizations that Chavez believes are favoring the opposition have been harassed or even closed down.

Miguel Octavio, who runs a great weblog in English on Venezuela called The Devil’s Excrement (which is a term coined by a Venezuelan poet for oil in case you are wondering), is very concerned and goes so far to say “To all those that always say that Venezuela is a democracy under Chavez, the President’s proposal that the Enabling Bill extend for up to 18 months is simply a Constitutional coup and a disregard for the mandate given by the people to the new National Assembly that will be sworn in on Jan. 5th.”

Armando Duran, Resident Fellow at the University of Miami’s Center for Hemispheric policy has just published a paper “Cuba and Venezuela: Long Live the Revolution!” in which he concludes “Under the Cuban banner of “socialism or death,” now begins a new stage in the transition from representative democracy to totalitarian socialism in Venezuela, with unknown consequences for the rest of Latin America.”

Chavez himself faces presidential elections just before the Enabling Law ends in 2012, and now observers at looking at his administration to see whether any semblance of democracy survives. The real test will come if Chavez loses the popular vote in 2012, as it seems unlikely that he will hand over power peacefully. There is far greater risk of violent confrontation between supporters of Chavez and the opposition and social unrest in the months ahead.

Does Lula Have The Highest Approval Rating Of Any President Leaving Office?

We just saw a comment stating that Brazil’s President Luiz Inacio Lula da Silva, better known as simply Lula and due to leave office shortly after two terms, has the highest approval rating of any president on the planet and that managed to get us thinking if there were any truth to what we initially believed was a tongue in cheek comment.

Sure enough we quickly found an article in the Washington Post ‘Brazil’s Silva sees record approval rating’ and saw that Lula has a whopping 87% approval rating according the Ibope polling institute, up from an already very high 83% a year ago. We checked a few other sources and they all appear to confirm that Lula is leaving office with an unusually high approval rating and held this during his second term, which is no mean feat; presidents have hit higher numbers than this, for example during times of crisis, but not for an extended period.

We had a further look around the world and could not find any higher ratings so we would be interested to hear if anyone knows of any. Looking at the US, President Bill Clinton left office with a 65% approval rating, which appears to have been the highest in the post war US Presidential ratings measured by the Wall Street Journal; in comparison the fondly remembered President Ronald Reagan’s approval rating peaked around 68% during his entire two terms and was considerably lower than this when he left office.

Other notables include Colombian President Alvaro Uribe who left office with a 75% approval rating, and of course South Africa’s President Nelson Mandela had 72% (although this was still a post apartheid country so this may in fact be an even more impressive number).

The Cultural Dimension of Doing Business in Latin America

The Cultural Dimension of Doing Business in Latin America!
There is no doubt that doing business with another country is a challenge, and when there are cultural differences as well, it can seem formidable. Although different Latin American countries have certain similarities, there are also some profound cultural differences, some of which are comforting to USA and UK exporters. Since all aspects of consumer behavior are culture bound, there is an increased need to identify and integrate this interaction and its’ impact on global advertising and marketing. Geert Hofstede’s work can be used to explain the differences between countries and act as a guide in increasing global efficiency in marketing. Geert Hofstede summarises cultural comparisons very elegantly and is quoted below (www.geert-hofstede.com).

Across all Latin American markets there are profound cultural similarities that in turn pertain to business operations with US and UK enterprises. High Uncertainty Avoidance and often Low Individualism prevail (see below for definitions of these terms). Based on studies and data, the large majority of predominantly Catholic countries (those with Uncertainty Avoidance as their highest ranking Dimension) have a low tolerance for ambiguity. The combination of Catholicism and the cultural dimensions shown in the Hofstede Graph on his website reinforce a philosophy predicated in the belief that there is an absolute “Truth.” As Geert Hofstede explains about peoples with a high Uncertainty Avoidance Index, their attitude is, “There can only be one Truth and we have it.” This creates a highly rule-oriented society that institutes laws, rules, regulations, and controls in order to reduce the amount of uncertainty within the population.

USA: There are only seven countries in the Geert Hofstede research that have Individualism (IDV) as their highest Dimension: USA (91), Australia (90), United Kingdom (89), Netherlands and Canada (80), and Italy (76).

The high IDV ranking for the United States indicates a society with a more individualistic attitude and relatively loose bonds with others. The populace is more self-reliant and looks out for themselves and their close family members. The next highest Hofstede Dimension is Masculinity (MAS) with a ranking of 62, compared with a world average of 50. This indicates the country experiences a higher degree of gender differentiation of roles. The male dominates a significant portion of the society and power structure. This situation generates a female population that becomes more assertive and competitive, with women shifting toward the male role model and away from their female role. (World averages shown above for comparative purposes with USA are: Power Distance Index [PDI] 55 – IDV 43 – MAS 50 – Uncertainty Avoidance Index [UAI] 64 – Long-Term Orientation [LTO] 45).

The United States was included in the group of countries that had the Long Term Orientation (LTO) Dimension added. The LTO is the lowest Dimension for the US at 29, compared to the world average of 45. This low LTO ranking is indicative of society’s belief in meeting its obligations and tends to reflect an appreciation for cultural traditions. The next lowest ranking Dimension for the United States is Power Distance Index (PDI) at 40, compared to the global average of 55. This is indicative of a greater equality between societal levels, including government, organizations, and even within families. This orientation reinforces a cooperative interaction across power levels and creates a more stable cultural environment. The last Geert Hofstede Dimension for the US is Uncertainty Avoidance (UAI), with a ranking of 46, compared to the world average of 64. A low ranking in the Uncertainty Avoidance Dimension is indicative of a society that has fewer rules and does not attempt to control all outcomes and results. It also has a greater level of tolerance for a variety of ideas, thoughts, and beliefs.

UK: Is virtually a carbon copy of USA!

We now take a look at a selected number of Latin American countries according to Geert Hofstede’s Dimensions : Argentina, Brazil, Chile, Colombia, El Salvador, Guatemala, Mexico, Peru, Uruguay.

One striking difference between the Latin American countries examined and the US and the UK is the high Uncertainty Avoidance Index (UAI) ranking:

Country	UAI
Argentina	86
Brazil	76
Chile	86
Colombia	80
El Salvador	94
Guatemala	101
Mexico	82
Panama	86
Peru	87
Uruguay	100
Average Latin America	85

This high Hofstede Dimension of Uncertainty Avoidance (UAI) across Latin America indicates societies with a low level of tolerance for uncertainty. In an effort to minimize or reduce this level of uncertainty, strict rules, laws, policies, and regulations are adopted and implemented. The ultimate goal of this population is to control everything in order to eliminate or avoid the unexpected. As a result of this high UAI characteristic, the society does not readily accept change and is very risk adverse.

Another difference is the low Individualism (IDV) ranks for a number of the Latin American markets:

Country	IDV
Chile	23
Colombia	13
El Salvador	19
Guatemala	6
Mexico	30
Panama	11
Uruguay	36
Average Latin America	21

The scores on this Dimension indicate that the societies are Collectivist as compared to Individualist. This is manifest in a close long-term commitment to the member ‘group,’ be that a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount, and over-rides most other societal rules and regulations. The society fosters strong relationships where everyone takes responsibility for fellow members of their group.

Other noteworthy points on the Hofstede Dimensions for Latin America include the following:

Brazil: Brazil has a slightly higher Individualism (IDV) rank of 38 compared to the average Latin population score of 21. However, virtually all the Latin countries are considered to be collectivist societies as compared to individualist cultures. This is manifest in a close long-term commitment to the member ‘group,’ be that a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount, and over-rides most other societal rules.

Colombia: The Power Distance (PDI) ranking of 67 indicates a level of inequality of power and wealth within the society. Colombia has one of the higher masculinity rankings in Latin America (64). This indicates the country experiences a higher degree of gender differentiation of roles. The male dominates a significant portion of the society and power structure.

Guatemala: Guatemala also is tied with Panama for the highest Power Distance (PDI) ranking among Latin countries with a 95, compared to an average of 70. This is indicative of a high level of inequality of power and wealth within the society. This condition is not necessarily subverted upon the population, but rather accepted by the culture as a whole.

Guatemala has the lowest Individualism (IDV) ranking at 6, compared to other Latin countries (average 21). Of special note is that Guatemala has the largest divergence of Power Distance (PDI) to Individualism (IDV) of any country surveyed in the world, with a difference of 89 (PDI-95 minus IDV-6 = 89). Panama is next with 84 and Malaysia third with 78.

Mexico: Mexico has the second highest Masculinity (MAS) ranking in Latin America (69). This indicates the country experiences a higher degree of gender differentiation of roles. The male dominates a significant portion of the society and power structure. This situation generates a female population that becomes more assertive and competitive, although not at the level of the male population. Another Dimension in which Mexico ranks higher than other Latin neighbors is Power Distance (PDI) with a rank of 81, compared to an average of 70. This is indicative of a high level of inequality of power and wealth within the society. This condition is not necessarily subverted upon the population, but rather accepted by the culture as a whole.

Panama: Panama has Power Distance (PDI) as the highest ranking Hofstede Dimension at 95. This score of 95 is tied with Guatemala as the highest Power Distance of all Latin American countries, where the average is 70. (see the Latin Graph below). This high Power Distance (PDI) ranking for Panama is indicative of a high level of inequality of power and wealth within the society. This condition is not necessarily forced upon the population, but rather accepted by the society as part of their cultural heritage.

Panama has a relatively low Individualism (IDV) ranking at 11, compared to other Latin countries average of 21. Of note is that Panama has the second largest divergence of Power Distance (PDI) to Individualism (IDV) of any country surveyed in the world, with a difference of 84 (PDI-95 minus IDV-11 = 84). Guatemala is first with 89 and Malaysia third with 78.

In many of the Latin American countries, including Panama, the population is predominantly Catholic. The combination of Catholicism and the cultural dimensions shown in the Hofstede Graphs above, reinforce a philosophy predicated in the belief that there is an absolute ‘Truth”. As Geert Hofstede explains about peoples with a high Uncertainty Avoidance Index, their attitude is, “There can only be one Truth and we have it.”

Peru: Peru is noticeably very close to the average of all other Latin American countries on each of the country’s Hofstede Dimensions (see Latin America Hofstede Graph below) whereas others have some noticeable variations.

Explanation of the Indexes:

Power Distance Index (PDI) that is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more versus less), but defined from below, not from above. It suggests that a society’s level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that all societies are unequal, but some are more unequal than others’.

Individualism (IDV) on the one side versus its opposite, collectivism, that is the degree to which individuals are integrated into groups. On the individualist side we find societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. The word ‘collectivism’ in this sense has no political meaning: it refers to the group, not to the state. Again, the issue addressed by this dimension is an extremely fundamental one, regarding all societies in the world.

Masculinity (MAS) versus its opposite, femininity, refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found. The IBM studies revealed that (a) women’s values differ less among societies than men’s values; (b) men’s values from one country to another contain a dimension from very assertive and competitive and maximally different from women’s values on the one side, to modest and caring and similar to women’s values on the other. The assertive pole has been called ‘masculine’ and the modest, caring pole ‘feminine’. The women in feminine countries have the same modest, caring values as the men; in the masculine countries they are somewhat assertive and competitive, but not as much as the men, so that these countries show a gap between men’s values and women’s values.

Uncertainty Avoidance Index (UAI) deals with a society’s tolerance for uncertainty and ambiguity; it ultimately refers to man’s search for Truth. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth; ‘there can only be one Truth and we have it’. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy. The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used to; they try to have as few rules as possible, and on the philosophical and religious level they are relativist and allow many currents to flow side by side. People within these cultures are more phlegmatic and contemplative, and not expected by their environment to express emotions.

Long-Term Orientation (LTO) versus short-term orientation: this fifth dimension was found in a study among students in 23 countries around the world, using a questionnaire designed by Chinese scholars It can be said to deal with Virtue regardless of Truth. Values associated with Long Term Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling social obligations, and protecting one’s ‘face’. Both the positively and the negatively rated values of this dimension are found in the teachings of Confucius, the most influential Chinese philosopher who lived around 500 B.C.; however, the dimension also applies to countries without a Confucian heritage.

Mexico: NAFTA & Its Disappointing Economic Performance

The North American Free Trade Agreement, better known by its acronym, NAFTA, came into force over almost 17 years ago to create a free trading bloc composed of Canada, Mexico and the US. It’s therefore an apt time to look at Mexico’s economic performance and its outlook.

Last Wednesday, December 8, the University of Miami’s Center for Hemispheric Policy held  a conference on Mexico with a number of distinguished speakers and key points included the following:

• Mexico has seen the lowest growth rate in Latin America since 2000, with recessions in 2001-2003 and 2008-2009.
• Mexico has in fact seen an average of one economic recession in each of the past 6 presidential terms, or one every 6 years.
• Although Mexico has recovered in 2010 it has still not regained its economic level to that before the crisis, and the outlook for 2011-2018 is quite muted for an emerging economy with GDP growth of around 3% per annum, a very mediocre performance. Pamela Starr of the University of Southern California said that Mexico would “muddle through,” neither joining the BRICs nor becoming a failed state.
• The growth engine at present is non-oil exports, but the question is why low productivity and the domestic economy are not growing faster – Lack of credit penetration is a key issue at only 14% of GDP (compared to around 45-50% in Brazil and 94% in Panama) and a significant amount of this credit is channeled to the export sector and therefore the domestic economy is deprived of credit. Credit has not recovered since the Tequila Crisis in 1994-95.
• On the positive side, external debt is very low (around 12% of GDP) and there is a solid financial situation, but the size of the US deficit and lack of consensus on how to resolve it moving forward will impact on Mexico.
• Important and significant reform in Mexico appears to have ended with NAFTA, but much work is still needed particularly with public sector, labor, education, energy, etc.
• Monopolistic concentration in several sectors decreases competition and productivity and domestic investment.
• NAFTA has without doubt integrated Mexico significantly into the US economy. Chip Brown, Chief Economist for Latin America with Banco Santander, said that Mexico was a polygraph of the US, using the analogy of Jefferson’s antique copying device, but that it lags behind; US country risk is therefore impacting on Mexico.
• A significant amount of trade between the US and Mexico involved the automobile industry, which has been particularly hard hit in the crisis, and an important element is the export of manufactured automobile parts from the US to Mexico, and their subsequent reexport to the US as parts of completed vehicles from assembly plants along the border.
• Mexico together with Chile has more free trade agreements (FTAs) than any other global markets, but in Mexico’s case over 80% of exports are to one single market, the US (although this is down from >90% in 2000). Over 80% of Mexico’s exports are manufactured, so it has not seen any of the benefits of the commodity boom that many other Latin American markets have experienced (in comparison only 40% of Brazil’s exports are manufactured), and also competes against China.
• Luis Rubio, Chairman of the Center of Research for Development (CIDAC) asked if NAFTA would pass today, which is a pertinent question given the impact that China has had on trade with the US since NAFTA came into effect, and commented that there is some talk in Mexico about reexamining NAFTA.
• The effect of organized labor in the US is still important: the Teamsters have effectively prevented Mexican truck drivers from delivering to final destinations in the US, thereby raising freight rates and preventing free movement of trade as seen in say the European Union.
• Labor is an interesting topic in Mexico: in the US with total unemployment of 9.8% the figure for those with a high school diploma education and above is only 5.1%, but in Mexico the inverse is true and there is a higher unemployment rate for those with higher education qualifications. The issue in Mexico is the quality of employment rather than unemployment (and underemployment is an issue that afflicts all of Latin America).
• Job creation in Mexico is around 400k jobs per annum, and previously another 400k jobs have been created in the US, but the latter have been badly affected by the crisis (and the construction industry in particular) and of course on the whole have been for undocumented (or illegal) workers.
• Oil in Mexico is running out, and it represents 5% of GDP and around a third of government revenue. There are more reserves, but the state oil company Pemex, which controls the oil production, does not have the ability to tap them. Pemex is state owned by regulation, and is generally considered overstaffed and inefficient.
• No discussion on Mexico could take place without mentioning security and the drugs war. No one believed that Mexico would become a failed state, or that Hillary Clinton’s comments about the ‘Colombianization’ of Mexico was a fair comparison,  but nevertheless the current situation is one of concern. There have been over 30,000 deaths to date, and of these >90% of these were cartel/gang members; this is not inconsistent with an insurgency (as seen in Colombia previously) but rather a high crime turf war. The cartels want a compliant government and are not targeting the capital, the state airline, running for office, etc.
• We have not discussed Wikileaks yet on this site, but it is possible that the recent revelations may damage bilateral relations between Mexico and the US. One contentious issue raised at the forum is that both countries lack leverage against the other because of their addictions: the US because of its addictions to drugs, the NRA (and the associated arms exports to Mexico) and cheap immigrant labor, and Mexico because of its addictions to NAFTA and the Merida Initiative against the drug cartels.

Without doubt there are opportunities for trade with Mexico, especially as it looks to diversify from its dependence on the US, and it is important not to label Mexico as part of a homogenous unit with say Latin America (and Brazil in particular). One interesting point raised has been to encourage the already significant sector of US retirees to live in Mexico, producing a “win-win” situation for both nations by creating opportunities for development of services in Mexico and lowering care costs for the US.