Searching for regional trends - May 2022

Brief comments on the new green left, food price inflation, and the crashing tech sector.

Three articles from the past week do a good job capturing the current moment in the region.

Reuters - How the new Latin America left is seeking a greener future

The fabled “pink tide” wave of the 2000s was partially defined by how those leftist leaders benefited from rising commodity prices. Many of the leaders including Chavez, Correa and Lula built their popularity on a foundation of high oil prices. Today, with the exception of AMLO in Mexico, many of the self-defined left leaders in the region now lean against oil exploration and extraction. 

As the article notes, how Lula adapts to this change on his side of the political spectrum is a key question for Brazil and the region. In addition, this new green left faces some harsh realities. First, they face a fiscal reality that their economies can’t transition away from oil and mining quickly without damaging their other spending priorities. Second, they face an environmental reality that a global transition away from fossil fuels can’t happen overnight and requires a lot of copper and lithium mining to be successful. It’s easy to be green while in the opposition, but as these leaders transition into positions of power, the pragmatic ones among them will need to temper their idealism to succeed.

AP - Pricey tortillas: LatAm’s poor struggle to afford staples

This article highlights the inflation challenge hitting consumer staples such as corn tortillas in Mexico, beef in Argentina, and coffee in Brazil. I have written and spoken often about this issue, but that’s only because it’s the most important issue in the daily lives of a majority of the region’s population. Millions of additional people are going hungry this year due to these higher prices.

The FAO food price index published last week has reached 158, just two points below its all time high in March. I expect continued high food prices the rest of this year. While energy and mineral prices may or may not drop with a fall in global demand, the demand for food is relatively stable. Supplies for food will continue to be hit by the fallout of Russia’s invasion of Ukraine. While a few companies in Latin America may find ways to benefit from increased food exports, the citizens of the region will be hurt by the price increase.

Bloomberg - Inflation Upends Venture Capital in Latin America 

The combination of global inflation and the crashing valuations of tech companies in the US is causing serious damage in the region’s startup markets. This was a major bright spot for Latin American economies in 2021. While some companies may turn towards Latin America for additional workers this year, far more appear to be avoiding the region as they flee from risk and seek stability.

If the region’s left wants to transition away from commodity-based economics as the first article in this newsletter suggests, then finding ways to support the ecosystem of technology startups through this downturn should become a priority.