Latin American crime boosts defense spending according to Forecast International

26 June 2018 Consultancy.lat

It’s been over two decades since the end of the brief Cenepa War between Peru and Ecuador over a swath of land situated on the border between the two countries. The conflict marks the last international war fought on Latin American soil, signifying a stability unseen on the region since European colonization.

Internal armed conflict has however been prevalent throughout Latin American history and experienced as a civil war, communist uprisings, dictatorships and more recently in international criminal organizations.

With the region’s longest armed conflict coming to an end with the Colombian Peace Deal in 2016, Latin America will now enter into a new era of relative peace and democracy, outside of Venezuela that is.

Latin America comprises only 4% of the total of the global spend on military and defense spending. According to a recent Forecast International report titled ‘International Military Markets 2016/17’, a factor of why defense spending in Latin America is low is due to a lack of diplomatic or military threats in the region. 

The market analyst and consulting firm identifies that; “Latin American countries are largely at peace with each other. There are a few border disputes that surface from time to time, but not since a 1995 border war between Ecuador and Peru have these disputes created armed conflict.”

Latin American crime boosts defense spending according to Forecast International

The major threat across the region however is international organized crime. Governments across Latin America are increasing their defense spending to reel in the threats from crime which include insurgencies, traffickers and gang violence.

Bill Ostrove, an analyst at Forecast International indicated that these threats are driving the military spending, particularly in countries like Colombia, Peru and Mexico. “Their defense picture is a little bit different than some areas of the world that are more concerned about power projection.”

The shift from internal-armed conflict defense to organized crime fighting has had an impact on the types of weapons needed in the region. As a result, the spend on intelligence and surveillance equipment has become more apparent in recent years. 

“Without major military conflicts, heavy, expensive weapon systems such as fighter jets, tanks and destroyers are not needed by Latin American militaries,” said the Forecast International report.

“Equipment that excels in counterinsurgency and rapid reaction environments will be purchased,” the report states. “Such equipment includes small arms, helicopters, patrol boats, armored vehicles, trucks and communications equipment.” These are all articles necessary for combatting violent crime and drug trafficking, according to the firm.

Is enough being done?

The rise of violent crime in Latin America has been a notion which has gone relatively unaddressed by governments in the region, often preoccupied with vying for political power or fighting insurgencies.

Latin America as a region however has an average of almost three times the global homicide rate, and of the 20 countries globally with the highest murder rates 17 are situated in Latin America. “Organized crime and related illegal economies are a prime driver of violence in Latin America and the Caribbean,” said organized crime research and analysis firm, InSight Crime. 

Just under half of the Latin American military and defense spend comes from Brazil, which has a particular focus on fighting organised crime. The country has been engulfed by a wave of violent crime related to gangs and cartels in the past two years due to the economic downturn and cross-boarder narco-trafficking through the northern Brazilian Amazonian region.

After the recent events involving armed gangs who have been involved in inciting violence across Brazil and allegedly recruiting ex-FARC rebels, the Brazilian government is looking to expand its military spend. 

Aside from Brazil – Colombia, Mexico and Venezuela are the Latin countries where the majority of the violence occurs. These four countries combined account for roughly a quarter of all the murders which occur on the planet. 

These are therefore the places where defense priority is likely to be highest in the coming years. With the new Colombian President Duque being sworn in later this year, and pressure from the US on Mexico, Brazil and Colombia to have an iron fist when it comes to crime, there is little doubt that states will ramp up their spending.

“We’re expecting that sort of steady upswing to continue over the next two years,” Ostrove said. The organization expects spending to reach $64 billion in 2018 and $76 billion by 2022, he added.

Mexican CEO’s have not-so-positive outlook after year of uncertainty

27 November 2018 Consultancy.lat

At the beginning of year, Mexico was touted to undergo a rocky few years. There was a certain ‘limited faith’ in the air, with an increasingly hostile rhetoric from the northern neighbors and NAFTA hanging in the midst, a looming trade war and national elections. However after a tough year, it looks like Mexican business leaders are beginning to shake of the veil of pessimism. A new PwC report identifies otherwise.

In line with tradition for the Asia-Pacific Economic Cooperation event held in Port Moresby this month, global professional services firm PwC has released the APEC CEO Survey 2018. The survey provides insights into the mentality of CEOs from each of the 21 nations who comprise APEC.

Mexican CEOs are considerably more pessimistic than a year ago. They have survived through a disruptive year in the global environment but have outlined their changing attitudes. Whilst the overwhelming majority (82%) of Mexican CEOs have either some confidence or a lot of confidence in their ability to grow their businesses in 2019, the results show that last year, this was considerably higher.

In 2017, this number was 86%. CEOs were roughly more positive than currently, but the level of confidence is the significant indicator. Last year, those numbers were split between 46% who had a lot of confidence in growth and 40% who had some confidence in growth. Today, it’s weighted with a quarter of CEOs (21%) having a lot of confidence and 61% with some confidence. This reflects poorly against the APEC average of 36-52% split.

The PwC report identifies a significant challenge posed by a tricky international environment for Mexican businesses. However Mexican CEOs are not entirely pessimistic about the past year or the future. Although they can see that trade barriers and especially tariffs can hinder their businesses growth, many are looking beyond the initial issues and using creative business strategies to harness growth. 

Level of confidence in terms of income growth prospects

“One of the reasons for optimism among CEOs is that, definitely, the US economy, the main market for Mexico, is registering stronger growth this year than in the past (in fact, the largest growth in its recent history) and continues its course, regardless of political issues,” said PwC Mexico Partner, Iván Jaso.

Of all of the Mexican participants to the survey, 31% saw no significant changes in international activities in the last 12 months. That being said, 26% said they saw an increase in profit opportunities due to the new bilateral trade agreement. A further 17% saw an increase in profit opportunities due to a new multilateral trade agreement.

“We support that any circumstance, such as a trade war or a new agreement, rather than a brake, is an opportunity. Depending on the sector, some Mexican companies will not be affected by the rates in the United States. We can also see all the countries that have problems with the United States and provide them with goods. China is going through trade tensions after Washington imposed a series of tariffs on its exports of steel, aluminium and other products.”

“To take advantage of these opportunities, the country has challenges ahead. The first is the diversification of Mexico to the world, the country has remained with the US as the main market for about 80 years for different reasons. But when situations arise, such as renegotiating a treaty, we realize that we have very few exports to other sides, especially in Asia Pacific and Latin America. That is a great opportunity.