The abyss straight ahead.

Author:Gutierrez, Santiago
Position:LETTER FROM THE EDITOR - Statistical data
 
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Big multilatinas have invested in plant and equipment, even in the hardest of times. It's a lesson for smaller companies that are falling dangerously behind. A promising future for those who can adopt technology intelligently.

Latin America's large non-financial companies haven't stopped investing during these years of economic downturn.

Although spending on investment in properties, plant and equipment as a proportion of total assets has fallen from 7.3 % in 2011 to 4.6 % in 2015, this reduction includes figures from the petroleum industry which has reduced its investments to subsistence levels.

Once the effect of the oil companies is removed, it is clear that the largest companies have bought property, expanded their plants and renewed their equipment in the boom years and even now continue to do so at unexpectedly high levels.

Several of the investment champions are in Mexico. Grupo Alfa increased its net peso value of properties, plant and equipment (PP&E) by a surprising 36.8 % between June 2015 and June 2016. Bimbo boosted PP&E by 18.8 % and Femsa by 17.8 %. These increases are looked upon favorably in a country with three percent inflation and a depreciation of its currency amounting to 16 %.

Similar stories are to be found in Brazil. The giant retailer CBD increased its PP&E by 11 % in dollar terms between June 2015 and June 2016. BRF increased its by 7 %, Vale by 5 %, Ultrapar by 3 % and JBS by 2 %. In Chile, Falabella increased PP&E by 1 % in dollar terms.

But the good news stops there. The financial statements of the Latin Trade 1,000, made up of listed Latin American non-financial companies, show a disinvestment in real terms among the smaller companies. The ratio of PP&E to total assets for the lowest quartile of this group--in other words, the 25 % that are the smallest companies by assets dropped from 2.5 % in 2011 to 1.5 % in 2015.

This last percentage is arguably one of the biggest illustrations of weakness in Latin American small and medium-sized businesses, a sector with a large number of companies that employ a substantial portion of the region's workforce. That percentage would appear to indicate that their administrators think that businesses grow without investing. The 1.5 % figure is barely one-third of the 4.5 % invested by the...

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