CNBC Davos 2011: Latin America Flexes Its Economic Muscle

AP Christ the Redeemer statue, Rio de Janeiro, Brazil

After decades of boom to bust behavior, economies from Mexico to Brazil are looking dynamic, diverse and durable, helped by a wealth of natural resources and a good measure of fiscal discipline.

"Latin America is among the regions leading the economic recovery," says Mona Pearl, founder and COO of BeyondAStrategy, a global business development firm. "Latin America's economic performance is certain to improve even more."

"Latin America has been notorious for centuries as having a poor track record for sustaining economic growth," says Larry Harding, founder and president of High Street Partners, an international business service firm. "But things are different now. The area is blessed with commodities and natural resources that are in demand and a lot of the political instability of the past is gone. It's really an economic engine."

It's a big engine at that—some 600 million people and 36 countries—from Mexico to the Caribbean islands to the bottom of the continent and Chile.

Once thought of as under-developed and ignored, Latin America boasts huge reserves of raw materials like oil and minerals, growing industries as well as population, while attracting billions in investment money from China, Europe and the U.S.

And despite 2010 being a recovery year because of the global economic downturn, Latin America still ranks second among emerging markets behind Asian countries in terms of gross domestic product growth, GDP, and represents nearly 18 percent of the total GDP from all emerging markets.

"The interesting thing is that before the Great Recession, during and now after, emerging markets have been growing fast than mature markets," says Bob Gitter, department of economics chair at Ohio Wesleyan University. "That is true of Latin America."

Analysts like Gitter, point to several factors for Latin America's economic boom. The area is experiencing a huge increase in purchase power due to growing income among lower wage workers. It also has a relatively young and educated labor pool, say experts. And the region is experiencing high demand for its natural resources from China that's turning into jobs and consumer spending.

"People in Latin America are doing well for the most part and that shows up in the world economy," says Jorge Pinto, a professor at Pace University's Lubin School of Business. "People are consuming goods and becoming wealthier. They are interested in the latest electronics and technology. As a whole, Latin America is doing well."

Taken as a whole, Latin America appears monolithic. But experts say that appearance is deceiving.

"It's impossible to discuss Latin America as an economic or cultural bloc," says Phillip Guarino, president of Elementi Consulting, a global business management consulting firm in Boston, Massachusetts.

"There are big ethnic differences in areas like language with various dialects of Spanish and even food," Guarino goes on to say. "The northern countries, like Mexico and Central America feel more aligned with the U.S., while Argentina and the other southern countries considers themselves more European in culture and business."

"Latin America is really four areas," says Hernando Diaz-Candia, the managing partner in the Caracas, Venezuela office of Squire Sanders & Dempsey, a business and corporate law firm.

"You have Venezuela, Ecuador, Bolivia, Nicaragua, Cuba and Argentina having left wing politics," Diaz-Candia says. "Then it's Colombia, Chile, Peru, Panama and most of Central America that embrace neo-liberal economic policies of capitalism. Mexico stands alone as one bloc with its special relationship with the U.S. And the final piece is Brazil which because of its size and different language (Portuguese) and pragmatic approach to politics and economics, is unique among them all."

Those differences can be hard on businesses, says Mark Barnes, principal in charge of the U.S. High Growth Markets practice at KPMG, a tax and advisory firm.

"Conditions really vary from country to country as there are different challenges including corporate tax structures, compliance rules and regulations," Barnes adds. "A recent study from our firm showed that 52 percent of respondents cite complex and high taxation as a potential barrier to investment in Brazil."