WorldCity Business Magazine

At mid-year: on gol

by Mary Dempsey

Three-quarters of CEO Roundtable executives say the first semester of 2006 was better than the first six months of 2005.

As they have for the past three World Cups, ABN AMRO economists predicted which result they thought would most benefit the world economy.

A victory by Italy.

That probably wasn’t the forecast most South Florida executives would have made. However, it didn’t stop members of WorldCity’s CEO Roundtable group, most of whom monitor the corporate climate in Latin America and the Caribbean, from remaining upbeat about their business prospects this year. Nearly 60 percent of the respondents said they had an “optimistic” outlook for 2006. Only one of the roundtable members, Victor Lopez, the senior vice president of development for Hyatt Corp., described himself as “skeptical.”

The ABN AMRO study noted that countries winning the World Cup have added around 0.7 percent to their economic growth. At the last three tournaments the winning country’s stock market considerably outperformed the losing finalist’s market. On average there was a10 percent positive effect in the winning nation and a 25% negative effect in the loser.

“The Italian economy is hampered by an inflexible labor market and deteriorating competitiveness. An Italian victory in the World Cup final would boost consumer and producer confidence and, thus, lead to more spending and investment,” concluded Charles Kalshoven of the ABNAMRO Economics Department. “Made in Italy’ would also reap more benefits abroad. This may well push economic growth upwards, which would then give the government scope to introduce economic reforms.”

ABNAMRO’s economists took as their starting point the imbalances in the world economy, especially the U.S. current account deficit. Since additional growth in Europe would cushion the inevitable correction to that situation, the analysts concluded that a major European country needed to win the World Cup to spark an economic upswing.

CEO Roundtable respondents were not directly polled on World Cup results. But their semester report card grades for Brazil and Argentina both still in World Cup contention when WorldCity went to press remained in the upper “B” range. That’s the same as six months earlier when roundtable members last evaluated the business climate. Chile’s grade dropped just slightly, from “A-” to “B+,” but Mexico’s rose from “B+” to “A-.”

Eighteen of the 24 respondents said the first semester of 2006 already had been better for their businesses than the first half of 2005. Seventeen of them expected that 2006 overall would be more successful. All but two respondents had already added to their staffing levels or expected to before the year was out.

Travel audit

The most recent CEO survey included new questions on travel and alternatives to business travel. Half of the 24 respondents said they were relying more on e-mail than they had in 2005. All the rest said they had maintained their e-mail use at the same level as last year. Nine respondents, meanwhile, had increased their use of video conferencing; only three said they never use video conferencing.

At the same time, nine said they were using voice-over-Internet-protocol communication more than they had last year, while eight said they never used it. Two were using it less, and the rest were using it with the same frequency as last year.

Despite the technology, seven respondents said they are on the road more than ever. In the first six months of the year, only two executives traveled less than in 2005.

WorldCity launched its CEO Roundtable group in September 2004. Each month, four or five top executives from multinationals in unrelated industries meet over breakfast to discuss their businesses, trends and the developments that keep them awake at night. There are now 42 roundtable members. The semester surveys started in July 2005.

For the most recent questionnaire, participants were asked to identify the country that had emerged as the “biggest positive surprise.” Colombia was most often mentioned. That country’s economy grew more than 5.1 percent in 2005 and the recent re-election of President Alvaro Uribe has been welcomed by the business community.

When it came to the question on the country that was the biggest letdown last year, nine of the respondents named Venezuela. That’s three times the number of votes given to the closest runner-up: Argentina. Venezuelan President Hugo Chavez’s divisive populist policies have earned the country criticism from the U.S. government, from the Peruvian government which accused Chavez of interfering in its recent presidential election and from some Andean Pact officials upset by Venezuela’s defection from their accord.

Venezuela*’s boom*

That said, Venezuela’s economy is on a strong growth path, largely as a result of rising petroleum prices. Oil exports are the biggest driver of the OPEC country’s economy and the oil boom has given the Venezuelan government and the country’s consumers new income for spending. And spend they are, according to WorldCity analysis of U.S. Census Bureau trade statistics. In the first quarter of 2006, bilateral trade between Venezuela and the Miami Customs District rose more than 23 percent. South Florida exports to Venezuela were up nearly 24 percent while imports principally refined petroleum products entering through Fort Lauderdale’s Port Everglades rose more than 22 percent.

At this month’s CEO Roundtable breakfast, four of the five executives in attendance said their businesses were thriving in Venezuela.

When it came to whether the leftward political swing in Latin America was affecting business, 10 of the respondents said it was “too early to tell,” while nine others said there had been no noticeable impact so far. One Scott Sime of real estate giant CB Richard Ellis said the political shift had been positive for his company. When investors worry about economic policies, particularly in countries where there is a history of nationalization of companies or banks, they move their investments. In recent years, that has included transferring funds into real estate in South Florida.

The latest semester survey also included a question about the impact of oil prices on business. Half the respondents said there had been no impact so far.