Brazil & Southern Cone - November 2010 (ISSN 1741-4431)

Although Brazil is widely recognized as being the driving force behind the South American regional economy, Chilean investments in the region have increased substantially over the last decade; promoting economic growth as Chilean-owned companies expand into other countries, not least Brazil.

Chilean investments in Latin America are at their highest point in 10 years. According to the Santiago Chamber of Commerce, in the second quarter of 2010 Chilean investments abroad reached US$1.44 bn. During the first six months of the year, this figure was US$3.18bn, treble the amount of the same period of 2009. Most of this investment is destined for other South American countries, as nimble Chilean companies seek to expand into new markets. According to Chile's office for foreign economic relations, Dirección General de Relaciones Económicas Internacionales (Direcon), historically the three top destinations for outward investments have been Argentina, Peru and Colombia. More recently however, Brazil has displaced Peru as the second most important destination for Chilean investment, receiving US$379m in the first six months of 2010, up 89.5% annually.

This rising level of investment by local firms has helped spur the recent unprecedented economic growth and development in South America. More importantly, unlike other forms of foreign investment, these investments help promote the development of local domestic markets, as Chilean firms zone in on expanding local retail and air travel markets in particular. This expansion has been spearheaded by Chile's sector leaders: Centros Comerciales Sudamericanos (Cencosud) and Lineas Aereas Nacionales (LAN).

On 28 October, LAN, Chile's most important airline, announced a bid to buy 98.94% of the low-cost Colombian carrier Aerovias de Integración Regional (Aires) for US$ 32.5m. Colombia is the second most important airline market in the region behind Brazil. Aires is Colombia's second largest domestic carrier, with a 22% market share. In May, LAN had already announced its intention to acquire another Colombian carrier, AerOasis. That acquisition is currently in the process of receiving certification from the Colombian aeronautic authority. AerOasis is a small company, and LAN has pledged to mentor it though the certification process as part of plans to take a majority stake in the company in the future. All this comes on the back of the much publicised merger between LAN and the biggest Brazilian airline, Transportes Aéreos Mercosur (TAM, with a 40% domestic market share), to create LATAM. LAN's acquisition of the two Colombian carriers will ensure that the newly created LATAM will be the leading domestic carrier in four separate countries; as LAN already controls the domestic markets in Chile and Peru.

Similarly, Cencosud, the Chilean retail giant recently announced (October 15) that it had acquired the Brazilian supermarket chain Bretas for US$813m. With the purchase, Cencosud doubles its presence in Brazil and, more importantly, for gains access to the states of Goias and Minas Gerais in Brazil's affluent south. It has now become Brazil's fourth largest supermarket player, having previously purchased the chain GBarbosa, which operates in country's North East region. After the Bretas purchase was announced, Cencosud's value rose 4.06% on the Santiago stock exchange (IPSA). This made it the second highest earner behind the Pací­fico mining company on 27 October, as the IPSA reached new record levels.

Cencosud
Owned by the German-born Horst Paulmann, Cencosud, an agglomeration of supermarkets, department stores and home improvement stores, has been expanding rapidly in the region in the last decade. Last year, the company recorded sales of US$10.5bn, becoming Chile's third largest company behind the state mining firm Codelco and the energy multinational Enersis.   Interestingly this rapid expansion was led by Laurence Golbourne, Chile's now popular mining minister, who joined the firm in 2001 as corporate director. In 2001, the company recorded sales of US$1.4bn, based on its operations in Chile and Argentina. It has since expanded into Peru, Colombia and lately Brazil, making it the most international Latin-American retailer.