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La Contribución de los Empresarios al Futuro de la Argentina. Juan Manuel Forn

La Contribución de los Empresarios al Futuro de la Argentina. Juan Manuel Forn 25° Convención del IAEF “La Argentina de la Producción y el Empleo” 7 al 10 de Octubre de 2004 Ushuaia. “Consumer Demand, Poverty and Business Practices in Latin America”. Juan Manuel Forn

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La Contribución de los Empresarios al Futuro de la Argentina. Juan Manuel Forn

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  1. La Contribución de los Empresarios al Futuro de la Argentina. Juan Manuel Forn 25° Convención del IAEF “La Argentina de la Producción y el Empleo” 7 al 10 de Octubre de 2004 Ushuaia “Consumer Demand, Poverty and Business Practices in Latin America” Juan Manuel Forn Vice Chairman Molinos Río de la Plata S.A., Argentina Conference “Developing –Meaningful- Relationships” DEG-FMO-KBC-DBA Punta del Este, March 29-31, 2006

  2. Trends in Consumer Demand Poverty and Extreme Poverty in Latin America Latin America Average (in % over population) Selected Countries Note: Estimations on 18 countries of the region and Haiti. • Poverty: < 41% • Extreme Poverty: <17% Rates 2005 (estimated) Even when 2005 estimated rates are the lowest in 25 years, POVERTY remains high in Latin America. Fuente: CEPAL (2005) Panorama Social de América Latina 2005.

  3. Trends in Consumer Demand Poverty Measurements • “Basic Food Basket” used to establish extreme poverty line. • “Basic all-items Family Basket” used to define poverty line. Food Basket and Family Basket are different in each country. Poverty measurement is relative and not comparable across countries.

  4. Trends in Consumer Demand Will the Situation Improve? PRO CONS • Worldwide economic growth. • High commodity prices. • Better (overall) government policies. • Higher political stability. • Low interest rates. • Investment (FDI and domestic). • Integration (trade agreements) and better market access. • Labor markets becoming global. • Worldwide labor supply exceeds demand. • Demographics (suburban slums). • Poor educational levels. The jury is out.

  5. Trends in Consumer Demand The Producers’ Challenge A key challenge for business corporations in Latin America consumer markets … … how to sell goods and services profitably below the poverty line.

  6. Trends in Consumer Demand The Producers’ Challenge HOW TO GO ABOUT IT ? THE “RIGHT” WAY • Economies of scale. • Higher productivity. • Lower cost per unit. • “Passthrough” to consumer prices. • Lower taxation on basic consumer goods (VAT, other indirect taxes). The “right” way made impressive inroads in the 90s and trend will probably continue.

  7. The Producers’ Challenge HOW TO GO ABOUT IT ? THE “OTHER” WAY • Evade taxes (primarily VAT and income tax). • Hire informal workers. • Keep investment to a minimum. • Do not meet sanitary and safety standards. • Bribe inspectors. • Try to integrate vertically in the informal value chain. Nasty, but effective to reduce unit costs and prices.

  8. Trends in Consumer Demand The Producers’ Challenge WHICH “WAY” WILL PREVAIL ? THE “RIGHT” WAY THE “OTHER” WAY OR I T D E P E N D S . . .

  9. Trends in Consumer Demand The Producers’ Challenge WHICH “WAY” WILL PREVAIL ? UNDER SOUND ECONOMIC POLICIES, THE “RIGHT” WAY WILL PREVAIL • High economic growth will result in better corporate margins which will cross-subsidize lower margins in volume-driven segments. • Higher (and smart) investment will result in lower unit costs and lower prices to compete against the “other” way. My bet slightly more than 50% for … to materialize • Taxes on consumer goods should come down and make the “right” way more competitive.

  10. Trends in Consumer Demand The Producers’ Challenge WHICH “WAY WILL PREVAIL ? UNDER MISGUIDED ECONOMIC POLICIES, THE “OTHER” WAY WILL PREVAIL • Lower investments by lawful, tax-paying business. • Ever-rising tax rates create higher incentives for evasion. • Weakened rule of law and overall compliance. This is a stagnation scenario, as informal business by definition cannot grow beyond a certain point .

  11. Trends in Consumer Demand The Bottom Line If favorable economic trends worldwide continue, there is a better chance for continuingly sound government policies in Latin American, and business will probably go the “right” way. If not, not. Thank you.

  12. Trends in Consumer Demands América Latina: Distribución del Ingreso Fuente: CEPAL (2005) Panorama Social de América Latina 2005. * Ingreso Promedio mensual de los hogares, en múltiplos de la línea de pobreza per capita.

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