The Latin American Wave of Elections and Its Impact on Foreign Business
2018 could be the year in which the Latin American political landscape changes: presidential elections to be held in Colombia, Mexico and Brazil are very important for the future of the entire region and, as we write, their outcomes are highly uncertain. The May elections in Colombia are crucial for the future of the peace agreement signed by the Santos government with the FARC guerrillas, ending more than fifty years of armed struggle. The peace agreement, which was met with enthusiasm internationally and for which President Santos received the 2016 Nobel Peace Prize, has however, split the country domestically. Many Colombians, in fact, believe that the agreement was too lenient on the former communist guerrillas, if not an outright mistake.
Mexicans in July and Brazilians in October will go to the polls to elect their new presidents. These elections are significant for the whole of Latin America as the economic and foreign policy decisions of the two giants have a strong regional impact. Brazil and Mexico together produce more than half of the GDP in Latin America. Political scenarios are made even more uncertain by the possible gains at the polls that populist candidates stand to make, since they leverage the widespread disgust for corruption. The corruption of the political and business class is seen as a devastating plague in both countries, and could push discontented voters into action. In Brazil, former president Lula da Silva is appealing against a conviction for corruption that would prevent him from running in the elections. According to many opinion polls, Lula da Silva, who left after his second term in 2011 while still very popular, would certainly make it to the second round and could win the election.
2018 is also a historic year for Cuba, which will not have a Castro as president for the first time since 1959. In April, Raúl Castro will give way to Miguel Díaz-Canel, vice president since 2013. This change at the top does not represent a break with the past, but is part of the gradual process of transformation and opening experienced by the country in recent years. Recognizing this process of change, the European Union recently decided to strengthen bilateral relations with Cuba by signing the Political Dialogue and Cooperation Agreement, which came into force on the 1st of November of 2017.
➜ Will the positive trend continue?
Venezuela will also hold a presidential election in 2018, which could however turn out to be a farce if the opposition is prevented from participating or decides to boycott the vote. Venezuela desperately needs a change in economic policy. The International Monetary Fund estimates that Venezuela's GDP has halved since 2013, and that hyperinflation will run as high as 13,000% in 2018. Unfortunately, if President Maduro manages to maintain his hold on power, continuation of the same policies is likely.
Uncertainty about electoral outcomes and therefore on future economic policy, in particular in Brazil and Mexico, risks slowing down the economic recovery taking place in the region, especially in investment. After a two-year recession, since 2017 the Latin American region has returned to growth, which should further consolidate this year, thanks to global recovery and increases in the prices of raw materials. If we exclude Venezuela, the latest IMF estimates for Latin America and the Caribbean (WEO update, January 2018) forecast a growth rate of 1.3% in 2017, and 1.9% in 2018.
The political and economic evolution in Latin America is also very important for Italian companies, because bilateral economic relations are sizable. Italy exports to Latin America almost as much as the sum of its exports going to China and India, with the significant difference that the trade balance with Latin America runs a €4 billion surplus, while the balance with China and India records a €17-billion deficit (2016 data from ICE).
Foreign direct investment by Italian companies in Latin America is also considerable: the turnover of companies based in Latin America that have Italian shareholders is equal to almost 20% of the sales made outside the EU by Italian companies, and about double their turnover in China and India (ICE data, end of year 2015). The direction taken in Latin America in the coming months will therefore also affect Italy and its economy