The Lawyer Briefings Live: Latin America – The new, new world
7 July 2014 | By Becky Waller-Davies
17 June 2014
16 September 2013
20 December 2013
2 December 2013
12 May 2014
Brazil may be hogging the limelight right now, but its neighbours should not be ignored. The rest of Latin America deserves investors’ attention too
In association with
In Latin America, Mexico takes the crown as one of the so-called MINT (Mexico, Indonesia, Nigeria, and Turkey) emerging nations. It is predicted to become the sixth biggest global economy by 2050 ranked after China, the US, India, the euro area and Brazil. But many Latin American nations are set to see similar surges in their fortunes.
“There’s a beautiful piece of propaganda around Colombia now: the only risk is that you’ll want to stay,” says Esguerra Barrera Arriaga partner Juan Carlos Esguerra.
The past decade has transformed the continent. At the turn of the century 42 per cent of Latin America’s population lived below the poverty line, according to the World Bank. In 2012 that had shrunk to 25 per cent.
For the first time in the region’s history, the middle class outnumbers those living in poverty. In 2000 22 per cent of the population could be said to be middle class. By 2012 it was 34 per cent.
But the region’s politicians and policymakers should not congratulate themselves just yet. There are signs that things are stagnating: 38 per cent of Latin Americans are at risk of falling back into poverty, while 7 per cent lack clean water and 20 per cent do not have access to sanitation.
Don’t look down
For all that, the economic picture is relatively healthy. The World Bank says average growth across the continent will be 2.9 per cent in 2014, 3.2 per cent in 2015 and 3.7 per cent in 2016.
And at The Lawyer’s Briefing Live on the topic, held in association with Spanish firm Broseta in London in June, Esguerra’s optimism was echoed by his co-panellists.
Benites Forno & Ugaz Abaogados partner Alberto Zarak recalls Peru’s dark days of pre-1990 communism.
“In 1990 inflation stood at 7,000 per cent [following the collapse of communism],” he told attendees. “In 2013 inflation was 2.8 per cent. It’s a dramatic change and we’re now inviting investors.”
“Most Latin American countries have had stability for the past 10 or 15 years,” commented Broseta partner Julio Veloso. “We have economic certainty, which is of course attractive to investors, and there’s so much that needs doing. Your clients should be looking at this region.”
Changing economic fortunes have transformed the way people live. With 80 per cent of the population now living in cities, infrastructure will account for much of the region’s upcoming development.
“It’s unbelievable what is taking place in terms of infrastructure in our country,” said Colombia’s Esguerra. “In the next five to 10 years our road system will be multiplied by five. Ports, railways and airports are also being built at a rapid pace.”
Opportunities all around
You only need to glance at one prime example, Paraguay, to see the opportunities Latin America holds for investors.
The landlocked state ranks among the 10 countries with the worst infrastructure, according to the World Economic Forum’s Global Competitiveness Report of 2013/14. But its fast rate of growth – 14.4 per cent in 2013 – both reassures investors and indicates the urgency with which the country needs to press ahead with investing in its infrastructure. Its burgeoning economy requires improved communications and transport systems for people and goods.
“Growth of 14.4 per cent is amazing,” says Berkemeyer senior lawyer Daniel Antúnez proudly. “It is not the rate we expect for the coming years but there is a consensus that Paraguay will grow at rates of 5 per cent in the next five years.”
The nation will begin by focusing its investment programme on road networks before moving on to airports and water treatment plants. It will then look at social infrastructure such as hospitals.
Growth rates such as those in Paraguay, coupled with political stability and numerous opportunities to invest, look like a perfect storm – a picture mirrored across the continent, claim advocates of the region.
“There’s a rapidly growing middle class in Latin America,” says Veloso. “We might not consider them middle class from a European perspective, but they are still consumers, they still want mobile phones, cars, schools and hospitals.”
The middle class is not the only section of the population that is booming, however. In just 15 years’ time, according to the UN, the number of people aged 60 and over will be around three times higher as it was in 2000.
So long as Latin American families continue to have fewer children and at a later point than their parents and grandparents, the ageing population will continue to grow, at a similarly rapid pace, for the next three to five decades.
Esguerra points to the investment opportunities such a population model presents.
“The average age of the population in Colombia is under 30,” he told attendees. “Imagine the infrastructure needed as that population ages.”
Age and wisdom
Latin America’s politicians are thinking of the potential timebomb of an ageing population, and so are putting attracting investment at the top of the agenda, as made clear by the recently elected presidents of Mexico and Paraguay.
“President Cartes [elected August 2013] has stated that the vision of his administration is to put Paraguay at the top of investment attractiveness rankings,” Antúnez told attendees.
Meanwhile, the 2012 election of Enrique Peña Nieto in Mexico focused on reforms to create the legal framework to attract business.
“Mexico did not have a 2008 crisis, we stayed stable,” says Cervantes Sainz co-managing partner Alejandro Sainz . “But we did need to make major changes to our constitution, in communications, labour matters, oil and gas and banking and finance.”
“We have investment coming in and are investing outside the country,” chimes Esguerra. “We’ve signed free trade agreements with the US, the EU, Mexico, Peru and Chile and we are now looking to the East too. Mining has grown significantly, as has telecoms and our financial system.”
Latin America’s rocky political past still concerns investors, even if it is decades in the past. For example, the 2011 election of leftist president Ollanta Humala in Peru sent the stock exchange plunging 12 per cent, prompting temporary suspension of trading and fears of capital flight. Importantly, their fears have not been realised, with Humala trying to push through economic reforms aimed at attracting investors.
“The region is going through a positive process,” Veloso surmises. “If you look at Peru or Uruguay or Ecuador, they have presidents who, when they won elections, concerned some investors who wondered whether their investments would be safe. We now see that, despite the potential political problems, what those presidents are doing from an economic point of view is good for investors. Whatever happens, no matter who wins the next election, it would be difficult for the economic situation to take a turn for the worse. I’d hope the growing middle class would prevent that.”
Risks and reforms
It is clear that investment is flooding into the continent, but where exactly is its source?
A quick survey of the jurisdictions represented at The Lawyer’s Briefing Live event saw the US sit atop of the investment tree, unsurprising given its historic links with the region. Brazil and other Latin American countries also featured in Colombia and Paraguay’s lists, while China is ploughing money into Peru’s mining industry and fisheries. In fact, all nations aside from Colombia are seeing increased investment from Asia.
Spain features in the top three investors for most Latin American countries, but while the rest of Western Europe is beginning to make an impact as an investing power, the message from the partners present at the event was that Europe has some way to go in its exploration of the continent’s investment opportunities.
As Veloso says: “We are the third-biggest investor in most of these countries and the room to grow is incredible. We have a lot to do in the future, but I can tell you – the UK has even more to do.”
Despite the region’s insistence that it is flourishing, there are warning signs ahead. The World Bank emphasises that there is a risk of slower growth unless productivity reforms are more effective.
Its June 2014 Global Economic Prospects Report for the region addresses a key concern: that while nations stabilise and the commodity boom comes to an end, the region’s growth may slow to around 3 per cent per year. While hardly a disastrous prospect compared with the recent times endured by the UK economy, the right policies need to be in place if the fast-paced growth is to continue.
Investor confidence has been boosted by reform but Latin America’s workforce needs up-skilling, while research and development still have a long way to go in many sectors. Put simply, reforms need to continue apace for Latin America to avoid slow growth and a possible slip backward in its population’s
For now, the opportunities in Latin America remain buoyant, after a decade of astonishing growth accompanied by rapid reforms and a desire to leave its precarious past behind. Indeed, as Veloso concluded: “I honestly think, as a lawyer, that the legal framework for investment is there. We needed all those reforms to provide more certainty for investors. The money is there, the economy is solid and we should see a lot of development over the next couple of years.”
On the panel:
Daniel Antúnez, senior lawyer, Berkemeyer
Juan Carlos Esguerra, partner, Esguerra Barrera Arriaga
Alejandro Sainz, co-managing partner, Cervantes Sainz
Julio Veloso, partner, Broseta
Alberto Zarak, partner, Benites Forno & Ugaz Abaogados