Page 1 of 3
Latin Americas top corporate executives are getting a
reality check. After several years of booming growth, thanks in
large part to their success in tapping burgeoning demand in
emerging markets, top Latin executives are now feeling the
knock-on effects of a recent slowdown in those markets as well
as the persistent woes dogging Europe and North America. The
slump in demand is forcing corporate leaders to pull in their
horns, or at least recalculate their trajectory.
The two largest Latin American economies are both feeling
the slowdown. The International Monetary Fund forecasts that
Brazil, a darling of the emerging markets for the past five
years, will grow by only 1.5 percent this year, against 2.7
percent last year and a galloping 7.5 percent in 2010. And the
IMF says Mexico, which some investors have seen as an
alternative to Brazil, will grow by 3.8 percent this year,
faster than Brazil but virtually unchanged from Mexicos
3.9 percent growth rate last year and down from
5.5 percent in 2010.
In general, Brazilian companies are reacting to the new
international and domestic environment by reining in costs.
Consider Brazils Vale. The mining conglomerate is one of
the worlds largest producers of iron ore and copper,
among other minerals, and it has benefited in recent years from
surging Chinese demand for metals. But slower global growth has
sent commodity prices tumbling, causing a 20.8 percent
decline in Vales second-quarter operating revenues, to
$12.15 billion, and a 58.7 percent plunge in
earnings, to $2.7 billion.
For a company that had planned to ramp up its capital
spending by nearly 17 percent this year, to $21 billion,
that revenue hit has prompted a hardheaded rethink. In August
the company canceled plans to invest $3 billion in a new
potash mine in Saskatchewan, Canada.
In October, Vale also put on hold the $1.3 billion
development of the Zogota mine in Simandou, Guineas
richest iron ore deposit. The mine was supposed to have started
output by the end of this year. The company paid
$2.5 billion for the concession in April 2010 but its
plans were thrown into doubt, following the end of military
rule in the country in November 2010, as the new civilian
government decided to review the mining licenses that had
already been granted.