Taking the Pulse of South America

Taking the Pulse of South America

2014 has already been an intense year in a number of places around the globe.

Here in South America, we’ve seen new presidents, large market and currency fluctuations, and earthquakes just in the last couple of months. Now with commodity prices softening and politicians throughout the region shifting more toward the left, it definitely makes sense to consider which direction the continent might be heading.

Many of South America’s countries are fairly reliant on the export of natural resources. If demand (and in turn prices) for these exports drops, the local governments don’t collect as much revenue and can’t provide the freebies they’ve promised to their citizens. This means we could see more civil unrest in the region.

That said, South America’s countries still rank quite high for investing, thanks to their smaller debt loads, emerging market fundamentals, and relatively high economic freedom.

The lifestyle options on the continent are also very attractive. From the metropolitan atmosphere of Rio de Janeiro, Buenos Aires, Santiago, or Medellín to slow-paced farm towns or coastal villages, there’s plenty to choose from, and it’s usually a lot easier to become accepted into the local culture here than it is in most other parts of the world.

Let’s take a brief look at the situation in each country.

Argentina

Argentina gets a lot of bad press these days thanks to its protectionist style of government, double-digit inflation, capital controls, and blatant corruption.

It’s obvious that Argentina has its share of problems, not the least of which is inflation. However, if you have your savings in another, more stable currency, the cost of living in Argentina these days is very appealing. Some of the more mountainous and touristy regions of the country had their busiest season ever this year, thanks to foreigners taking advantage of the low prices, high-quality cuisine, and spectacular scenery.

(Editor’s Note: For more on Argentina’s low cost of living see this interview with David Galland.)

Brazil

Generally speaking, Brazil has not been as popular of a place for expats from a lifestyle perspective as other countries in South America. But Brazil has definitely attracted its fair share of investment dollars over the last several years. The size of the economy and the growth of the middle class in Brazil mean big opportunities for those who are willing to deal with the corruption and red tape.

Chile

Chile has gained a lot of attention over the last couple of years as a business-friendly country. Recently it has received some criticism for its new left-leaning president, Michelle Bachelet. Higher taxes and lower copper prices have put a damper on the rapid growth the country saw over the last several years. That said, there still are a number of very attractive aspects of gaining some exposure to the country. Chile’s current economic freedom score is 78.7 (ranked #7 globally, ahead of the US), and its debt-to-GDP ratio is the lowest on the continent, quoted as 12% but actually lower than this, thanks to the country’s $21 billion USD stabilization fund.

The cost of living is relatively high in Chile; however, the type of lifestyle that’s available here is hard to find in many other parts of the world. Plus, there are lots of possibilities for talented entrepreneurs. Violent crime rates are very low (lower than in the US), property rights are very strong, and the rule of law is highly respected.

Colombia

Colombia definitely stands out as one of the more attractive countries in South America today. The country’s current government is free-market oriented, and it has a growing middle class and lots of untapped natural resources.

There’s plenty of opportunity in Colombia. Bilingual entrepreneurs shouldn’t have any trouble finding problems to solve and/or creating wealth in agriculture, real estate, commerce, and technology. That said, there are some drawbacks to consider. Corruption is a problem in the country, and violent crime rates, although falling, are still the second highest on the continent.

Ecuador

Ecuador is another country that has attracted a lot of foreigners, especially retirees. The cost of living is very low: food, fuel, rent, labor, and so forth cost less in Ecuador than in most other parts of the continent.

Rafael Correa, the country’s populist president, was elected for a third term in 2013. He will still be in charge for a number of years, and future economic growth will probably be limited.

Panama

Panama, though not in South America, is still worth mentioning.

Having been one of the most popular expat destinations in Latin America over the last several years, it seems like it could be taking a turn for the worse in the near future. The new president, Juan Carlos Varela, thinks he can solve the problem of rising food prices with price controls—a plan that will obviously affect the country in negative ways.

If you’re already set up in Panama, running for the exits probably isn’t necessary. However, if you’re currently thinking of setting up shop in the country, the recent shift from a more business-oriented government to a less business-oriented one is worth taking into consideration.

Paraguay

Paraguay could be attractive for more adventurous expats looking to internationalize themselves. It’s probably the most “wild West”-like country on the continent. Its relatively easy residency program and large tracts of very cheap land have already drawn a number foreigners to the country.

Editor’s Note: It takes around four years to legally become naturalized and obtain a passport in Paraguay. Be very cautious of those who tell you otherwise. See this article for more details.

Peru

Peru hasn’t been a popular international diversification destination. However, it does have some appealing aspects, especially for mining or engineering professionals. The current political leadership is classified as being left leaning, but the country’s president, Ollanta Humala, has made some more business-friendly decisions over the last year. The cost of living in Peru is generally quite low, especially outside of Lima. Peru’s debt-to-GDP ratio is about 15%, making it the second lowest in South America.

Uruguay

Uruguay used to be a popular country for foreigners looking to establish residency. However, as residency requirements have become more stringent, interest has waned to an extent. Compared to other South American countries, the cost of living in Uruguay is relatively high. The county’s left-leaning political leadership makes future growth prospects limited.

Venezuela

Venezuela, even though an incredibly beautiful country with large oil reserves, doesn’t make much sense from an international diversification perspective. It has one of the highest violent crime rates and a low standard of living, with frequent shortages of essentials. Venezuela’s current economic freedom score is 36.3 (meaning it’s ranked #175, placing it two spots behind Iran).

Venezuela could be of interest from a contrarian point of view if you’re looking to buy when there’s blood in the streets; but for most, the level of risk involved with investing or even spending time in the country is too high.


Darren Kaiser is an American expatriate and current resident of Chile. He is a small-business owner, journalist, and investor. You can find more at his website, http://www.darrenkaiser.com.

Tags: south america, politics,