São Paulo’s business community would like to turn the city – which is already ranked the number one international financial centre in Latin America – into the hub for a more integrated financial market throughout the region.
According to the 2015 ranking of the world’s top international financial centres by The Banker, fDi Magazine’s sister publication, Panama City is placed in second spot after São Paulo, followed by Mexico City, Rio de Janeiro and Buenos Aires. The top five was the same in the 2014 survey.
São Paulo's ups and downs
São Paulo is one of the world’s biggest cities, with a population in its greater metropolitan area of 21 million. It is home to the BM&F Bovespa, the largest stock exchange in South America, which had 359 stocks listed at the end of 2015 with a total market capitalisation of 1910bn reais ($535bn). Almost all of Latin America’s biggest multinational companies have their regional headquarters in the city.
However, the Brazilian economy is currently experiencing a dramatic recession, its worst in many decades (the country's GDP is expected to contract by 3.8% in 2016 following a decline of 3.5% in 2015, according to the IMF). This is reflected in BM&F Bovespa's market capitalisation, which has dropped by 300bn reais since the end of 2014.
"During the boom years in Brazil – the decade or so until 2013 – Brazilian businesses and financial services companies did not have time to think about the rest of Latin America,” says Carlos Ratto, commercial director at Cetip, a São Paulo-based company that offers central securities depository, trading and securities settlement services.
"[São Paulo was] attracting so much foreign investment and expanding so quickly [that it meant] there was no real effort to try to promote the city as the financial services hub for Latin America, but that is what we must now do.”
In 2010, Brazil’s main financial services trade associations and banks set up a new organisation, called Brain Brasil, to promote São Paulo as the main financial services centre – and Brazil more generally – throughout Latin America and the world.
Its initiative, called the Financial Integration of Latin America Project, gathered together the securities commissions of Brazil, Chile and Colombia and it undertook investigations about regulatory, tax and exchange rate issues around fixed-income and equity products in the region. Latin American corporations have already crossed borders within the region but financial services integration – with a view to meeting investment needs – has been much slower.
A programme to integrate the stock exchange markets of Chile, Colombia, Mexico, and Peru, called the Latin American Integrated Market (or MILA, by its Spanish initials) exists but has been slow to take off.
“The biggest problem has been to devise a common way for taxing investors throughout the region,” says Luiz Calado, a director at Brain Brasil. “São Paulo would like to be part of this initiative as well, but common taxation is something that all the countries must work on if they are to integrate their financial services.”
Rio and Buenos Aires' strengths
Latin America’s other main international financial centres all have their own unique strengths. Rio de Janeiro is headquarters to the BNDES, Brazil’s national development bank. The city is also the centre for the country's vibrant hedge funds industry, whose executives like to combine a business lifestyle with the city's beach culture.
Rio de Janeiro is also the main hub for Brazil’s giant oil and gas and energy sectors (Petrobras, the state-owned oil behemoth, is based there). In 2011, BVRio Environmental Exchange, the world’s first options market for the purchase and sale of carbon credits, was established in the city.
Further south, Buenos Aires, the capital of Argentina, has emerged as one of the main hubs for start-up companies in Latin America during the past decade. Some of the region’s most important start-ups – including travel website Despegar and the regional equivalent of eBay, Mercado Libre – were founded in the city.
Entrepreneurs believe that the new government in Argentina led by president Mauricio Macri – who took office in December 2015 and represents the centre-right political coalition called Cambiemos – will be more business friendly than its predecessors.
“Right now, the business climate is vibrant in Buenos Aires,” says Ariel Arrieta, a founding partner of NXTP Labs, a Buenos Aires-based incubator behind more than 160 technology start-ups in 15 countries across Latin America. “It is an exciting time to be here. I think the cycle of political populism has ended and the investment climate will be much better from now on.”
Mexico City's transformation
Mexico City is the one of the world’s largest metropolises – with 20 million inhabitants – and is Mexico’s main financial centre. The city has been transformed during the past decade, and new iconic buildings belonging to banks such as Santander and BBVA have been constructed.
In January 2014, the country’s government overhauled financial regulations to improve the rules for financial intermediaries, to create greater certainty for creditors, and to clarify bankruptcy legislation.
“These steps have helped to create a more dynamic business environment in the city,” says Roberto Langenauer, managing director at Nexxus Capital, one of Mexico’s biggest private equity firms, which is based in Mexico City. “The government’s energy reforms are also helping the country to attract more investment.”