THE IMPORTANCE OF EMERGING MARKETS OVERALL
In a recent article, we have pointed out how the rapidly growing pace of emerging market economies has resulted for the first time in a world economy being led by emerging market countries. The International Monetary Fund is expecting by the end of the year that the GDP of emerging markets will likely be approximately US$ 44.4 trillion whereas developed countries will amount to US$ 42.8 trillion (PPP adjusted). The following chart depicts this trend since the 1990s:
From the perspective of the United States, the following table shows the total amount the country has traded with its main international partners in 2012:
As it can be seen, three countries belong to emerging economies (two of them Latin-American) accounting for approximately US$ 370 billion worth of inter-national trade in goods, whereas developed countries accounted for US$ 587 billion.
Analyzing only exports, Latin-American countries and Canada account for approximately one-third of the overall goods and services imported from U.S., Asia roughly another third, Europe a quarter and the rest is accounted between Australia and Africa. The following chart depicts on a relative size these regions:
It is interesting to note that of all these regions, Latin-America is the one where the U.S. has experienced its most rapid growth in recent years, in spite of the popular press creating the impression that Asia is our most important trading partner.
The following chart shows the performance of American exports to three different data sets: the main Asian emerging economies, the three largest European countries and Latin-America (LatAm), from 1999 to the first quarter of 2013.
LatAm imported from the U.S. almost US$ 171 billion by the first quarter of 2013, 50% more than India, China and Korea combined and almost two times (2.x) larger than Germany, UK and France together.
The Organization for Economic Co-operation and Development (OECD) reported that Chile was its member with the highest GDP expansion for 2012 (5.2%) compared with a 1.4% average for the rest of the members. Mexico had the third highest expansion (4.6%) behind Turkey.
These indicators demonstrate why U.S. companies should not overlook their neighbors to the south. Not doubt in recognition of LatAm’s importance, both the European Union and United States have established free-trade-agreements in Mexico, Chile, Colombia, Peru and Central-America.
The economic importance of Latin-America is also being felt in global macroeconomic policy: the recent elected president of the World Trade Organization is Roberto Azevêdo, a Brazilian by birth, and whose immediate opponent candidate was Herminio Blanco, the Mexican economist who was the Chief Negotiator behind the NAFTA trade agreement in the 90s.
The influence of Latin-America expands to other areas such as the newly elected Argentinean Pope and the upcoming Olympics being hosted for the first time in a South-American country.
HOW LARGE IS LATIN-AMERICA?
Is LatAm a relevant region to even start looking as a potential source of revenues?
Probably unbeknownst to most American executives, the size of the economy in Latin-America is as large as the France and United Kingdom combined, and almost three times larger than the economies of India or Canada.
The following chart depicts the size of different economies, including Brazil and Mexico:
SEIZING THE OPPORTUNITY
How can your business benefit from LatAm, given its growing relevance to the World. economy?
Like most emerging markets, doing business in Latin America has its challenges: press reports of failing economic policies in Argentina, corruption in Brazil and menacing dictators in Venezuela. These events added to the complexity of language barriers, regulatory framework, international tariffs, currency and credit risk, economic and political intricacies have prevented many US companies, especially those that are small and medium in size, from entering this growing market. But these challenges and risks can be managed and mitigated through proper financing tools and the right team of experienced professionals.
Large multi-national companies and their banks have long since learned how to use a number of financial products to successfully participate in LatAm. Small businesses, however, have not benefited nearly as much. This no longer needs to be the case with the recent formation of ExWorks Capital, LLC.
ExWorks Capital, a new joint venture, was created by Interlink Capital Strategies, a Washington-based consultancy with almost 20 years of experience in emerging markets and specifically Latin-America, and Chicago-based RedRidge Finance Group. The company is headed by John McAdams, who recently left the Export-Import Bank of United States (ExIm Bank) as its COO and Vice-Chairman.
The company offers the following services specifically targeted at smaller businesses:
Export Trading Company: For those companies uncomfortable taking the initial steps in exporting to LatAm, or who have limitations due to existing bank covenants or risk appetite, this new joint venture can take delivery ex works from the U.S. operations and handle logistics, and structure appropriate trade terms with the LatAm buyer, thereby making this like any domestic customer. By outsourcing this activity to ExWorks Capital, a company essentially takes no risk in selling to the overseas buyer.
Working Capital Financing: For those companies which are already comfortable selling in LatAm but can’t get the working capital they need from their local bank to more aggressively service their export business, Ex Works Capital can extend revolving lines of credit or transaction specific loans to assist. This type of funding can also provide the ability for a small business to provide more generous terms without undue risk to its overseas buyers, thereby allowing their customers to increase their purchases and compete more effectively with competition from China or Europe.
Term Financing to Overseas Importer: When the size of the transaction is sufficiently large or the type of equipment being sold necessitates it, the ability to provide a loan of two or more years to the overseas customer may make all the difference in whether or not the overseas customer can afford to make the purchase, or increase the size of the purchase. Since most U.S. lenders cannot take the risk of extending credit internationally, ExIm Bank in conjunction with ExWorks Capital can support this activity and make it possible.
ExWorks Capital is envisioned to fill the long-standing gaps in lending to companies, who find their banks either do not have the experience required to do trade financing or have banks that are unable to service small business needs.
ExWorks Capital’s team contains professionals from LatAm with backgrounds in such key sectors as oil & gas and banking, as well as in important institutions such as the Inter-American Development Bank and The World Bank. Moreover, the company has a record of financing transactions in the region, particularly Brazil, Mexico and Argentina. With the increasing impor-tance of Latin-America to U.S. business, ExWorks Capital has a unique ability to assist small and medium-sized companies.
Article by Pedro Martinez, Brady Edholm and Alan Beard.
ABOUT EXWORKS AND ITS AFFILIATES
ExWorks Capital LLC http://www.exworkscapital.com/
Interlink Capital Strategies http://www.interlinkdc.com/
RedRidge Finance Group http://www.redridgefg.com/
 Beard, Alan & Edholm, Brady. “Poor Countries Overtake Rich Ones in GDP: Can US Small Business Benefit?” Interlink Publications.
 IMF, World Economic Outlook Database, April 2013.