The PrintingIndustry in

Latin Americain 2016

The New Rules

n Overall, the GDP growth in Latin America is projected

at 0.8% for 2016. This represents a modest recovery from the impact caused by the end of the commodity boom and the declining revenues of oil-exporting countries in the past year. Brazil is likely to suffer a contraction of -1% of GDP, while Mexico is projecting growth of 2.8% of GDP, slightly exceeding the growth of the previous year.

n In the printing industry, the increase in ad spending,

personalization, outdoor advertising and specialization in converting packaging offer growth opportunities. These opportunities require that companies improve their competitiveness and productivity, and demonstrate their ability to innovate in terms of customer sector value chains.

n In 2016, the GDP for many countries will see

moderate growth ranges from about 1% to 2% a year. Mexico, Columbia, Chile, Central America and Peru will reach higher figures, in the range of 3% to 4%. Brazil,

Argentina and Venezuela will be in recessions. Brazil has reduced its slowdown but several factors may prevent any potential growth.

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Latin American printers need to improve all aspects of competitiveness, including cost, product and service. The macroeconomic

environment printers will face in 2016 includes slowing growth and the need for significant adjustments in fiscal and monetary policies of each country to ensure sound public finances. The competitive environment requires printers to demonstrate the power and effectiveness of the print media under the pressure exerted by the rapid expansion and evolution of digital media.

The printing industry and the new regional outlookThe International Monetary Fund (IMF) outlook for Latin America in the coming years will be determined by two factors. The first of these factors is the strong economic recovery in the United States. The second is the weakening of global commodities markets, largely caused by the slowing growth in China. This started with the fall of oil prices in 2014. The fall in oil prices is beneficial for the global economy as a whole. However, it has caused a serious decline in economic activity among major oil producers.

The effect of these factors are varied throughout the region. It will accelerate the growth of the economies of Mexico, Central America and the Caribbean. These areas are linked to the US economy through trade, remittances and tourism. Economic growth will decline in Brazil because it relies on commodity exports.

The GDP of the region in 2016 will achieve a moderate recovery of 0.8%. However, the expected growth for 2015 will be below last year due to an expected contraction in three large economies in the region, Argentina, Brazil and Venezuela.

Brazil’s GDP is forecast to decline between -2% and-1percent in 2016. The Brazil GDP in 2015 is expected to decline -3%. The symptoms of recession that appeared in 2014 were not controlled and the country is now going through a recession it has not seen in two decades. There is stagnation of private investment and high uncertainty fueled by high inflation, tight credit supply and a weakening labor market. As a result, consumer confidence has declined significantly. In order to stabilize the economy, the government needs to implement cost cutting and austerity measures.

Abigraf, the Association of Brazil Graphics Industry, has not yet defined its graphic projections for 2016. For 2015 Abigraf expects a decline of -1.0% for the sector of packaging and printing. Gains in packaging have offset most of the decline of -7.5% for commercial printing. This is the fourth consecutive year that there has been a decline in commercial printing. The printing of packaging and labels is 44.4% of the total industry, followed by publications printing representing 29.2% and promotional printing representing 9.8%. This follows the worldwide trend, and is expected to expand throughout Latin America.

Mexico’s economy to GDP growth of 2.8% is projected in 2016 and is expected to close 2015 with a positive growth figure of 2.3%. Investment reforms by the current government in the telecommunications and energy have had a positive effect on the economy. The increase in external demand from the United States is a prime driver of its positive economic activity. Fiscal adjustments will still be needed to offset the reduction in government revenue due to the fall in oil prices.

The Mexican printing growth figure for 2016 could be between 1% and 2%. CANAGRAF-National, (Chamber of Graphic Industries) president Jose Manuel Romero Becerra, stated that “the depreciation of the peso against the dollar has increased the cost of imported material, but on the other hand offers the potential for reducing the trade balance deficit of the printing industry by improving the competitiveness of exports”.

Colombia, Chile, Peru, Bolivia and Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama) and the Dominican Republic will grow above the average for the region.

Latin American countries strengthen macroeconomic policy framework by using exchange rate flexibility, with the primary objective of maintaining their social and economic progress. The economic policies have generated lower rates of poverty and the expansion of the middle class.

The printing industry must recognize that it has entered a new stage of development characterized by changes in the industrial structure. The printing industry needs to redefine its value proposition in several markets and niches.

La industria Gráfica latinoamericana en 2016

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Estimate Gross Domestic Product (GDP)Consumer Price Index (CPI) and

Printing Growth in 2016 (1)

SectionGDP (%)

CPI (%)

PrintingGrowth

(%)

Mexico

Brasil

Argentina

Colombia

Venezuela

Chile

Peru

Central America

Latin America andCaribbean

2.8

-1.0

-0.7

2.8

-6.0

2.5

3.3

4.2

0.8

3.0

6.3

25.6

3.5

204.1

3.7

2.8

3.0

10.7

2.0

-2.0

- -

1.0

- -

2.0

3.0

3.0

- -

(2)

(3)

(1) The �gures for GDP and consumer prices come from the report World EconomicOutlook, October 2015, International Monetary Fund. Printing growth are estimatesof the author.

(2) Central America comprises Belize, Costa Rica, El Salvador, Guatemala, Honduras,Nicaragua and Panama.

(3) Latin American and Caribbean economies include Mexico and the Caribbean,Central America and South America.

Using the power of print to competeThere is a more realistic place that electronic media and printed products occupy in the digital era. Fabio Arruda Mortara, president of the Latin American Confederation of Graphic Industry, Conlatingraf, and country manager for the Brazil Two Sides campaign, a global movement for paper and print media, stated, “Countless surveys in many parts of the world indicate that print media has a space in the contemporary media environment. We live in an initial moment of seduction by electronic media. There were forecasts that claimed that print media had (already seen its) days. In some cases it became, in fact, a self-fulfilling prophecy that accelerated the migration to electronic platforms. We are now witnessing a cooling of this initial fascination. Newsweek reactivated its printed version. The JC Penney catalog has returned to a printed version. The advertising market is finding that the return on investment in printed newspapers and magazines has found no parallel in any other electronic means. It is also known that reading of e-books has plateaued and is not growing. It is now clear that the printed form will always have its place and coexist with internet, in the same way we have coexisted with radio and television”.

The media agency Zenith Optimedia predicts that online ad spending in Latin America will grow at a rate of 8.3% in 2016, driven in part by the Olympic Games to be held in Brazil. This represents a huge potential, especially for the three largest contributors to the growth of this investment: Brazil, Argentina and Mexico. In the region, magazines and newspapers are in a position, in 2016, to increase their share in ad spending. This will reverse the average 3% annual decline in investment in print advertising over the past several years.

A survey by Datafolha Two Sides Brazil indicates that the perception of Brazilians of all ages and social conditions showed a preference for reading books, magazines and mail. There is a slight tendency for newspaper to be supplanted by the electronic version due to its agility to spread the news immediately. Two Sides Brazil has mounted an aggressive media campaign recognizing the efficiency and sustainability of the printed product.

Studies on emerging trends in the media from Zenith Optimedia and PwC point out that consumers, especially Millennials, prefer personalized communication. Millennials want relevant and consistent information that is consistent with their lifestyle. This trend favors the use of digital print because information can be personalized for the individual.

Printers have adjusted to meet the communication needs of their clients in the most effective and flexible ways. Customization and personalization using digital printing is a great market opportunity and a major competitive advantage. Multichannel campaigns are the order of the day in a world where advertising via internet will reach a third of the total value of global ad expenditure in 2017; and the growth of advertising through emerging media, such as mobile devices, are growing at very high rates.

Printed, visual communication outdoors on billboards and buildings will positively contribute to the growth of advertising spending. Commercial printers have recently invested in large format inkjet printing.

Central America and packaging printingThe Central American countries have experienced a GDP growth approximating 4.0% in the last two years. The growth has fueled investment in new technologies. The GDP growth is associated with the recovery in the US, according to the IMF. The growth in 2015 (3.9%) and 2016 (4.2%) is also fueled by the lower cost of oil. The packaging and converting industry is very dynamic in the region.

SigmaQ Litozadik, a multinational composed of 10 factories located throughout Central America, and a leading provider of integrated packaging with a strong share of the world market, indicates that several segments will experience growth between 5 and 10% in 2016. “In Guatemala, we will grow to service the Mexican market in medicine and the oral care segment. In the spirits segment, companies like Diageo has helped fuel worldwide growth. In the rest of Central America there will be growth in the pharmaceutical segment. One of our Salvadoran companies announced that it will double its installed capacity. In addition there will be growth in the spirits segment for export,” says Marco Antonio Jurado, production manager at SigmaQ Litozadik.

Asked about the different applications of packaging and labels, Jurado says: “The growth potential of (the) folding packaging industry is estimated at 15%, mainly in the spirits, oral care and medicine segments. In the case of flexible packaging and labels, the potential is lower, estimated at 10%. Foreign demand is high and it is creating projects for expansion and renovation of equipment. The industry is becoming more competitive and we expect increased penetration in the Mexico and U.S. markets”.

This view is confirmed by the responses of label converters from Latin America who participated in the annual survey of the publication The Packaging + Conversion (www.elempaque.com). These respondents maintain high interest in investing in technology and equipment and have experienced up to 64% annual growth in sales (10% higher in local currency).

Smithers Pira has forecast annual global growth of the packaging market at 4% until 2018. Growth is projected at 3.4% per year for the flexible packaging segment. Growth is projected at 5% per year for folding cartons, 4.9% per year for labels, and 13.6% per year for digitally printed packaging and labels.

ConclusiónIn the macroeconomic environment created by the end of the commodity boom, the printing industry in Latin America must decisively address the opportunities created by market innovation, new technologies and consumer behavior. Print media, cleverly articulated with other means, is still a vibrant industry with growth potential.

The author: Carlos Silgado is a technical and business consultant for the printing industry. He was editor of publications for Information-B2Bportales Carvajal. He can be reached at carlos.silgadobernal@gmail.com.

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