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INVESTING IN LATIN AMERICA

Actualizado: 27 ago 2020


Big Crises, Big Opportunities. The Key: "Social Management of Risk"(*)



Policy Research Initiative (2010)



Latin America is in love with its state and is structurally commited to its communities.



That could be seen as a problem or as an advantage.



Community innovation in LatAm grew during the last 20 years due to the necessity to create productivity and compete in the World.


In "Latin America’s missing middle: Rebooting inclusive growth", McKinsey Global Institute (2019) mentions the following three facts:


1.

"Latin America’s average annual GDP growth of 2.8 percent between 2000 and 2016 has been slower than the 4.8 percent average of 56 other emerging economies, not including China.

2.

Almost three-quarters of Latin America’s growth came from expanding the number of workers rather than through productivity gains, which averaged just 0.8 percent annually, or one-fourth the productivity gains in emerging-market peers.

3.

The expansion of the working population as a share of total population will soon reverse, meaning that growth will increasingly depend on finding sustained productivity gains."



Still, and having said that, a month ago, Reuters, in its Business News, mentioned how President Trump´s team had offered investing again in Latin America: "Exclusive: White House to lure U.S. firms to Latam from Asia in nearshoring drive, senior adviser says...".



Is That Possible?


The key points remarked by Reuters are the following:


  • The Trump administration is readying a new initiative that would use financial incentives to encourage U.S. firms to move production facilities out of Asia and into the United States, Latin America and the Caribbean.


  • The project could bring $30 billion to $50 billion in U.S. investment back to the Americas: infrastructure, energy and transportation could be the first potential areas of focus.


  • They are essentially creating a ‘Back to the Americas’ initiative” that would include both returning some facilities outsourced to China back to the United States and basing others in Latin America and the Caribbean in a drive for more so-called nearshoring.


  • There is no scope of possible incentives, but it is expected to resemble the use of a $765 million loan that encouraged Eastman Kodak Co (KODK.N) to produce pharmaceutical ingredients in the United States to help fight the coronavirus pandemic.


  • Trump administration had already been working with countries in Latin America and the Caribbean to help them attract U.S. investors, but the pandemic helped convince U.S. companies it was time to get on board.


  • For that, the outbreak of COVID19 has clearly demonstrated the advantages of having suppliers based closer to the United States than in Asia.


  • The initiative would not focus on cheap labor costs, but would build on provisions aimed at protecting workers that were included in the U.S.-Mexico-Canada trade agreement that entered into force in July.


  • Claver-Carone -interviewed by Reuters- has said that there is need for "an improvement in transparency over Chinese lending in Latin America".



How can Latin American Projects get financed?


The key point in investment is how a country or a company finances its development. So far, there are four main ways nowadays: credit, investment, own resources, and profits from market sells.


The last is not expected during the recession. Own resources are strategic. Credit normally requires going towards national or international banks, while investment is the probable key source.


In the case of US investment in America, competition from credit coming from China is not a minor issue. China gave credits for millions to Latin America during last decade. In "Trends and Challenges in Infrastructure Investment in Developing Countries", Gurara et al (2018) show the following investment-saving gap that creates general government debt (as a percentage of GDP) in least developed countries:




Public Investment, Public Saving and General Government Debt in LIDCs

(Median, percentage of GDP)

Source: Gurala (2018), based on IMF, World Economic Outlook data; and IMF staff estimates.



The authors examine trends in infrastructure investment and financing in low-income developing countries (LIDCs).


They show an acceleration of public investment over the last 15 years, and a stock of infrastructure assets increased in LIDCs, even though large gaps remain compared to emerging markets.


The paper shows how:


  • Financing of infrastructure in LIDCs is largely provided by the public sector

  • Private participation is mostly channelled through Public-Private Partnerships.

  • Grants and concessional loans are an essential source of infrastructure funding in LIDCs, while the complementary role of bank lending is still limited to a few countries.

  • Bridging infrastructure gaps would require a broad set of actions to improve the efficiency of public spending and mobilise domestic resources.

  • Last but not least, there is need for support from development partners, and crowding in private investment.


Crowding in private investment


Big crises bring big opportunities they say. The key is the "Social Management of Risk". Social innovation can bring together leaders with common DNA, working in communities for promoting projects.


That way, productivity and capital will flow hand in hand with the trend to avoid debt, statal arrangements, subsidies and public or social benefits without source of payment or repayment.


Economic and private benefits are the key to work in a sustainable social way. Latin America and its "Santa Cruz Network" of Impact Investment is a good example of that:





It is a time of opportunities for Latin America, a region that is expected to recover during the next decade, in special in countries now suffering the most.


For example, in the case of Ecuador, expectations such as the following failed, and the country showed its resilience: "Ecuador became the second Latin American to default on an upcoming bond payment, postponing $800 million until August. Unless Ecuador comes into money in the next three months, it will likely defer again." (Forbes)


Again, there is always space for hope. The government of Ecuador announced that investors in 10 different bonds totaling $19.2 billion had agreed to defer approximately $800 million in upcoming interest payments.


Ecuador is the second country in Latin America to do this.


Argentina was the first, calling for a time out. Both countries are facing deteriorating economics even before the health crisis hit; nevertheless, Ecuador is facing new elections soon and the good news is that convergence among right leaders and left parties are expected under the consensus of 95% of the population supporting keeping alive already (for 20 years in a row now) the "dollarization" of its economy!



The same, the right is getting united and is calling progressive forces to agree for abandoning the so-called socialism of the 21st century:



And last but not least again, international investors have seen structural opportunities coming more and more alive:



The key to creating magic in Latin-America is Convergence.


In conclusion, there is room for Social Bonds, Climate Financing, and Impact Investment with Community Innovation, not only in the Andes, the Amazonian countries, or the Caribbean but over the South Cone and all Latin America.


Countries still have lots of resources available for getting ways to finance their development over the basis of their natural, social, human, and of course, financial and technological capital (e.g. Chile).



As a final conclusion, and we will write it in Spanish, following what Roberto Salazar (2019) has mentioned for Chile (after October unrest) in CNN (and applies to All Latin America):



"Es interesante observar que una vía abierta para Chile hacia el futuro y el desarrollo, en la que hay consenso en los foros regionales y en los espacios diversos de lo público, lo privado, las comunidades, la academia, los medios y los organismos internacionales, es que se debe descomprimir el libre acceso a inversionistas tecnológicos extranjeros para su asociación con inversionistas locales, de comunidades en desarrollo, en función de programas de capacitación y entrenamiento financiados por los mismos inversionistas."



"It is interesting to note that an open path towards the future and development, in which there is consensus in regional forums and in various spaces of the public, private, communities, academia, the media, and international organizations, is that free access to foreign technology investors must be decompressed for their association with local investors, from developing communities, based on training programs financed by the investors themselves..."



Would you marry Latin America?



Yes! ... Right?



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