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    Latest statistics reveal that whilst early signs of recovery are emerging in Brazil and Mexico, bleak economic prospects continue to blight Argentina. Although retail sales have slightly increased in Brazil and Mexico, in Argentina they continue to head downwards.

    In Brazil, a year of political uncertainty and financial turmoil has
    undoubtedly taken its toll with retail sales increasing by a mere 2.42 percent. In Mexico, a timid US recovery helped to lift sales by 3 percent.

    In Argentina, a rise in inflation of 41 percent effectively wiped out the 11.7 percent rise in retail sales, resulting in an estimated 28 percent drop in the volume of retail sales. In December, supermarket sales by volume fell 25.9 percent year-on-year, in seasonally adjusted terms, but revenues rose 28.4 percent due to inflation, to 1.659 billion pesos (USD496.7 million).

    The current economic crisis is clearly having a negative impact on retail sales in the region, and is also deterring retailers from investing further. However, in some instances retailers have taken advantage of the growth opportunities derived from a weak market to acquire existing companies and grow organically. Examples of this are Casino in Brazil, which took over the Supermercados Sé chain last July and Ahold, which last August assumed full control of Disco Ahold International Holdings, its former Latin American joint venture with Velox Retail Holdings.

    The region still has a highly fragmented retail market, in which traditional retailers still play a large role, particularly in less developed countries, such as Peru. However, the retail market is consolidating rapidly, especially in Brazil and, until recently, Argentina, due to investment from international retailers, national groups, and improved communications and logistics.

    The region‚s GDP is expected to grow by 1.8 percent during 2003, from -1.1 percent during 2002, helped by an improvement in the world’s economy and further trade liberalisation, which is encouraging FDI into the region. However, high debt levels overhanging from the 1980s, excessive dependence of some countries on the export of a single commodity (coffee, oil), deficient infrastructure and inefficient institutions need to be improved to allow the creation of a stable socio-economic frame that encourages sustainable growth.

    In summary, although the economic and structural problems are not expected to improve substantially in the near future, retailers have generally shown their determination to hold on to their investments in the region, placing them in good strategic positions once the economy pick. However, if things do not improve in the medium term, international retailers are likely to reconsider the viability of holding onto non-core, under performing operations, and follow in the footsteps of Jeronimo Martins, which pulled out last year.
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