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EXPATRIATES SEND $45B BACK TO LATIN AMERICA ANNUALLY

By María Bird Picó

Latin America is receiving more money these days from Latin Americans residing overseas than from foreign aid, and this is making the region’s retailers very happy.

Latin American expatriate workers living in the U.S., Europe and even as far away as Australia and Japan sent $45 billion worth of such funds, called remittances, back home to their families in 2004 — $10 billion more than in 2003 and double the amount from a decade ago, according to the Washington, D.C.-based Inter-American Development Bank. Not surprisingly, retailers are devising strategies to corner more of that money.

“There’s no doubt remittances have a tremendous impact on Latin America’s retail sales,” said Renato Figueroa, a partner at FigueroaRoig, a Chile-based retail consulting firm with offices in Central America, Uruguay and Peru.

Remittance income alone keeps 2.5 million Latin Americans out of abject poverty, sources say. The lion’s share, 40 percent, goes to Mexico, with 31 percent going to South America, 15 percent to Central America and the rest to the Caribbean.

Eighty percent of the money is spent on food and consumer goods. The remainder foots education, health care, utilities and the like. Only a small portion goes to savings, according to Manuel Orozco, director of the Remittances and Development Program at the Washington, D.C.-based Inter-American Dialogue. “Remittances augment the purchasing power of Latin Americans,” Orozco said. “Twenty percent of Central Americans receive money from relatives living overseas.”

Retail executives say it is hard to measure how much of their sales are stimulated by the imported cash, but they have little doubt that, coupled with an improved economy and political stability, it has contributed to the growth of the region’s retail sector and, consequently, the current boom of new shopping centers. Overall, remittances represent about 2 percent of the region’s gross domestic product, but for El Salvador, Haiti, Honduras, Jamaica and Nicaragua the figure is at least 10 percent.

Even Peru, not known as a major remittance recipient, received $2.5 billion last year, which went to one of every 10 adults, or 1.67 million people. “Our economy feels the influx of remittances,” said Juan José Calle, president of the Asociación de Centros Comerciales y de Entretenimiento del Perú. “It has become an important import.”

The bulk of this money originates in the U.S., but studies show funds are increasingly coming from Latinos living in Canada, Spain and Japan. Japan is home to 352,600 Brazilians and has become the second-biggest source of remittances to Latin America and the Caribbean.

A cottage industry has sprung up of Latin American retailers tapping the immigrant market in increasingly innovative ways, including purchases by telephone, over the Internet and from showrooms or agents in strategic cities, particularly in the U.S. Recipients in Latin America pick up the merchandise at the stores or take delivery at home. Among these retailers are Mexico City-based Elektra, a specialty store; El Salvador’s Almacenes Simán department stores; and La Curacao, a Salvadoran appliance and electronics chain with stores in El Salvador, Guatemala, Honduras and Nicaragua. A different La Curacao franchisee offers Peruvians abroad the same service through its Peru-based network of stores.

Intraregional shopping is also growing as retailers expand into other Latin American markets, says Figueroa. He cites the Chilean Falabella department store, which has outlets in Peru. Peruvians living in Chile can buy merchandise for their relatives to pick up back home.

The $45 billion figure represents only cash sent back to Latin America and excludes purchases made from overseas, says Orozco. There are no studies covering this additional retail activity, but Orozco says it is considerable. His research shows one-third of the people remitting cash also buy goods for their families back home, with the value of the merchandise usually amounting to 10 percent of what they give in cash. “This additional retail activity gives a tremendous bang to local economies,” said Orozco.

Latino immigrants in the U.S., one-fourth of whom live in poverty, remit an average of $2,500 a year or 15 percent of their income, he points out.

In small countries such as El Salvador, remittances are a major economic engine. El Salvador’s official 2.5 percent GDP growth would be significantly higher if the $3 billion the country receives annually in remittances were tallied in, says Alberto Poma, general manager of El Salvador-based Grupo Roble.

“Remittances have a positive influence in our shopping centers’ sales,” said Poma, whose company owns and operates more than a dozen malls in Central America. “This is reflected more intensely in our rural cities.”

Holding company Grupo Poma is so confident of the purchasing power of Salvadorans living abroad that it is exploring the sale of houses to this group in their housing developments in El Salvador.

Remittances are traditionally associated with the Caribbean and countries north of Panama, but Bolivia, Brazil, Colombia, Ecuador, Peru and others are reporting sizable transfer-of-funds volumes. Fedesarrollo, a Colombia-based think tank, reports that remittances are Colombia’s second-largest source of foreign currency after oil exports. The figure was $3.17 billion in 2004.

Half of Latin America-bound remittances in 1998 went to Mexico, but its share has gone down steadily as more South Americans have joined the ranks of immigrants seeking political and economic stability, says Orozco.

Fortunately, Latin American retailers are finding out that, indeed, there is no great loss without some small gain.