Ranking Export Markets in Latin America

For exporters to Latin America, the past few years were some of the most disappointing in recent memory.  Just a few years earlier, many were proclaiming Latin America to be the next great growth market for exporters, with the region following in the footsteps of Asia’s fast-growing export markets.  However, these hopes were proven to be premature at best, with export demand plunging in nearly all countries in Latin America.  There are a number of reasons for this disappointing turn of events.  First, economic growth has slowed across the region due to a combination of factors, with many of the region’s largest export markets recording the lowest levels of economic growth in the region.  Second, the expected emergence of a large-scale middle class has failed to materialize in most Latin American countries.  Third, many of the barriers that have been in place for exporters to the region have not been lifted, particularly many of the informal barriers that have stymied trade with many Latin American countries.  As a result, exporters to Latin America face an uncertain future, making the choice of which markets in the region to target a crucial decision for the future success of exporters in this region.

In determining ISA’s rankings of export markets, we use four criteria to determine the attractiveness of a region’s markets.  First and foremost, the size of the market is the most important criteria in determining the attractiveness of a particular market and therefore, this accounts for 50% of our score for market attractiveness.  Second, purchasing power accounts for 20% of our score, as most exporters are focusing on the upper and middle classes in export markets.  Third, the growth outlook for each market plays a vital role in the attractiveness of an export market and this counts for 15% of our overall score.  Finally, the openness of the market for exporters, both formally and informally, is a major factor in determining how exporters view a potential market and this also accounts for the final 15% of the overall market attractiveness score.  Altogether, these four criteria give us a solid base from which we can determine the relative attractiveness of individual export markets within a particular region, in this case, Latin America.

When one looks at the rankings of the top ten export markets in Latin America according to ISA’s scoring system, there are few surprises to be found.  At the top of the rankings is Brazil, which, thanks to its huge population, remains the leading export market in Latin America, despite its recent economic struggles.  Likewise, Mexico is the second-most attractive market in Latin America, thanks to the fact that it is easily the second largest market in the region and exporters enjoy relatively easy access to its market.  In third place in Chile, which, while much smaller than the two countries ahead of it, enjoys some of the region’s highest levels of purchasing power and one of the region’s most open markets.  In fourth place is Colombia, which has steadily risen up these rankings as the political situation in that country is improving, opening up opportunities for growth in its relatively-large market.  One notable absence from these rankings is Venezuela, which was once considered one of Latin America’s most attractive export markets, but is now a market in which exporters are almost entirely excluded.  Another key market that has fallen down these rankings in recent decades is Argentina, which was once the wealthiest market in the entire region.

Overall, the near-term outlook for Latin American export markets remains relatively poor, and major growth opportunities will be limited by the region’s ongoing economic and political struggles.  As always, Brazil and Mexico are the leading markets for providing large-scale export growth to the region, but both countries are forecast to grow at rates below their potential over the next few years.  Higher rates of growth will be found in countries such as Chile, Peru and Colombia, although this growth will come from a much lower base, and the overall potential of these markets is much lower than those of the region’s larger markets.  As a result, while there are opportunities for long-term export growth to Latin America, this growth will be limited, and the risks facing exporters in many markets in this region will be substantial.  Therefore, exporters targeting Latin America will have to pick and choose their markets carefully, lest they find themselves devoting too many resources to markets that provides them with only limited near-term and long-term growth opportunities.