The UK’s only Latin America-focused investment magazine
Q2 2015
ALSO INSIDE: Santander AM’s top Latin American fund managers explain their favourite investments Mexico’s President, Enrique Peña Nieto, explains why UK investors should back Mexico Analysis from Control Risks/Market Moving Events in Q2
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LatAm INVESTOR
2 | Q2 2015
EDITOR’S LETTER A testing year ahead for Latin America Dear reader, Spring has finally arrived and Britain no longer feels like such a cold, dark place to live and work in. Things are also looking up in Latin America, where economic growth has started to improve after a bleak 2014. According to London-based consultancy, Capital Economics, average growth across the region picked up in the fourth quarter of last year, reaching 1.5% from 1% in both the third and second quarters.
Contents Editor’s Letter
3
Stories Behind the News
4
Market Analysis
8
Porfolio Manager Interview
10
Country Analysis
14
City View
16
Ecuador Report
19
Academic Analysis
46
Canning House
48
Investor Contacts Directory
50
Property 52 Latin America in the UK
54
Upcoming Deals
56
Printed in the UK by The Magazine Printing Company using only paper from FSC/PEFC suppliers www.magprint.co.uk
Of course the story changes from country to country. Latin America’s largest economy, Brazil, continues to struggle and most analysts expect GDP to contract by 1% in 2015. It’s a far cry from the heady days of 2010, when Brazilian GDP was expanding at 7.5% a year and British investors were piling into the country. The big question for investors is: when does Brazil become a buy again? We asked exactly that – and more – to Santander Asset Management’s top Latin American fund managers, Alfredo Mordezki and Jose Cuervo. You can read that interview on page 10. The Mexican economy, on the other hand, is picking up speed. It’s still not growing at the pace that investors hope for ‘Mexico’s Moment’ but its definitely going in the right direction. As Mexican president, Enrique Peña Nieto, makes clear on page 48, the country is ready and waiting for British investors. Growth is also picking up in Peru and Chile, after a difficult 2014 for both. All three of these countries have been covered by LatAm INVESTOR special reports in recent issues, so if you want more detail on the opportunities there log on to www.latam-investor.com and download the digital version, for free, from the archives. But perhaps the most interesting – and least understood – Latin American investment story at the moment is Ecuador. For the last eight years the country has been embarking on a major overhaul of its transport, energy and education infrastructure, which has helped to boost its systematic productivity. Now it is in the midst of an ambitious plan to change its productive matrix to create a more sophisticated and varied basket of exports. The dramatic fall in the oil price has added urgency to this plan and created
3 | Q2 2015
some exciting investment opportunities for British investors. We sent a team to Ecuador to investigate the situation on the ground and interview leading players from the public and private sector. The report they produced, after almost two months in the country, can be found in the middle of this issue and it is well worth a read. Ecuador may not be as fashionable an investment destination as the likes of Colombia and Peru, but that means that there’s more scope for interesting bargains. Elsewhere in the magazine you’ll find our usual features. Analysts from leading financial information firm, Markit, crunch the numbers for us on page 8 to identify the latest Latin American investment trends, while on page 56 we have the latest upcoming private equity deals and projects in the region. Finally, as always, I’d like to thank you, the readers. We received a lot of story ideas and interview suggestions in the last quarter – so thanks for that. We’ve incorporated as many of them as possible into this edition so please keep them coming. And if the quarterly wait for the next issue seems too long, remember you can keep up with breaking stories at www.latam-investor.com or via Twitter, LinkedIn or Facebook. Until next time, James McKeigue
LatAm INVESTOR Editorial Managing Director - James McKeigue Latin America Editorial Director - Carla Fierro Finance Editor - Daniel Mullarkey Advisor to the Editor - Edward Longhurst-Pierce Senior Writer - Sam Joll Senior Writer - Alisdair Jones Senior Markets Analyst - Cris Heaton Central America Correspondent - Louisa Reynolds Peru Correspondent - Darwin Cruz Production and Commercial Art Director - Tania Schoeman Advertising Sales - Terri Haddon Head of Digital - Ian Gibson Editorial queries: editorial@latam-investor.com Marketing queries: advertising@latam-investor.com Subscriptions: customerservices@latam-investor.com Tel: 0207 097 5121 www.latam-investor.com
LatAm INVESTOR
STORIES BEHIND THE NEWS Americas Summit Cheers Investors
W
hat’s
happened:
historic
Summit
At of
an the
Americas the US displayed
a new foreign policy that seems likely to
encourage
increased
trade
and
investment within the Americas. How will it affect investors? The handshake and the one-hour ‘affable’
One is defintely going in October but will the other join her?
meeting tells us that the US and Cuba are progressing firmly down the path
meddle with impunity, those days are
and Venezuelan president Maduro on the
of friendship. Straight after the Summit
past”.
sidelines of the conference.
countries sponsoring state terrorism,
This promise of a different policy in
America’s decision to re-engage with the
a move that makes it much easier for
the future bodes well for US-LatAm
region, and its realisation that it has to
American firms to do business with
relations. The rapprochement with Cuba,
do so by building consensus, has good
the country. Already a US telecoms
for example, isn’t just about those two
consequences for investments in Latin
firm has signed a deal to provide long-
countries. It also removed one of the
America and should help to boost asset
term telephony to Cuba while online
traditional obstacles to better relations
prices. There are also specific sectors that
accommodation platform Airbnb has
with the rest of Latin America. Likewise
will benefit. For example, prior to the
started listing Cuban apartments for its
when the US made the diplomatic
Summit, Obama visited the Caribbean
US customers.
blunder of declaring Venezuela a ‘threat
where he unveiled a new initiative to fund
to national security’, which went down
renewable energy projects. The idea is to
The US has committed a lot of foreign
like a lead balloon with other Latin
help Central American and Caribbean
policy errors in Latin America but at the
American countries, it made amends by
economies face up to an energy future
Summit, Obama recognised that “the days
sending Secretary of State officials to
without Venezuelan subsidised oil. Overall
in which our agenda in this hemisphere
Venezuela before the Summit. There was
it was a good Summit for investors in the
presumed that the United States could
even a short meeting between Obama
region.
Cuba was removed from the US’s list of
One is defintely going in October but will the other join her?
LatAm INVESTOR
4 | Q2 2015
Brazilian voters are getting angry
Brazil Protests as Economy Falters
emerges it gets closer to Rousseff, who
throw up nasty surprises, it may not be for
was previously chairman of the Petrobras
some time.
board. So far there is no direct link to Rousseff
but
most
corruption-weary
What’s happened? Brazil’s economic
Brazilians now assume that she must have
woes show no sign of improving, which
known something.
Jury Out on Mexico’s Reforms
is piling the pressure on scandal-hit The other factor in the protests is Brazil’s
What’s happened? Two years into
flat-lining economy. The country’s GDP
his presidency, Enrique Peña Nieto is
How will it affect investors? Despite
is expected to contract by around 1% in
struggling to convince voters that his
winning election less than six months
2015, which would be its worst recession
reforms will boost the economy.
ago, president Rousseff now finds her
in 25 years. This is compounded by strong
popularity at just 13% - an all time low.
inflation, which will see price rises of
How will it affect investors? When
Much higher is the 63% of the population
around 8% this year. Unfortunately for
Peña Nieto managed to pass a package
that want to impeach her, according to a
Rousseff there is not much she can do to
of historic reforms it heralded a new era
poll by local pollster Datafolha. Even more
counteract falling growth. With ratings
for Mexico’s economy. Economists always
worrying for Rousseff is that disgruntled
agencies increasingly negative on Brazil’s
recognised that these were long-term,
voters are now taking to the streets,
sovereign debt she has been forced to
structural measures yet for a government
with an estimated 1 million protestors
implement tax hikes and spending cuts,
that won a close election victory it was
attending a recent anti-Rousseff march.
which has fuelled public anger.
always vital that they showed short-
president Dilma Rousseff.
term benefits. In the last two years Peña plummeting
Most analysts still believe that Rousseff
Nieto’s approval rating has been hit by
popularity is the ongoing Petrobras
won’t be impeached. Yet her survival as
corruption scandals and security issues,
scandal. This incredibly complex bribery
a weakened president could well mean
which means that he needs the reforms
scheme
giving
that Brazil shies away from the difficult
to show some positive effects more than
kickbacks to politicians and Petrobras
decisions it needs to make to restore
ever. However, so far the results are mixed.
executives in return for inflated contracts
its economic competitiveness. At some
being awarded and approved. Voters
point Brazil will become a ‘buy’ again
Economic growth has disappointed. It
have known about the scandal for more
for international investors yet, with the
had been hoped that the reforms would
than a year but as each fresh detail
scandal and the economy continuing to
unleash a wave of investment-led growth
One
reason
for
involved
her
contractors
5 | Q2 2015
LatAm INVESTOR
STORIES BEHIND THE NEWS but that hasn’t really happened. Mexico’s
that unemployment continues to fall,
GDP grew 2.1% in 2015 and is expected
although low wage growth means that
to grow by 2.8% this year, which, for many
many Mexicans don’t feel better off –
Mexicans, isn’t enough to justify the
hence their continued scepticism about
controversial reforms. One reason that
the reforms. Especially given that last
growth has slowed is the falling oil price.
year’s tax reform has hit their disposable
It hit export revenues, which is forcing
income.
the government to retrench spending and means that state oil firm, Pemex, has
One area where the reforms seem to
less to invest. It also looks like cooling
have delivered is telecoms, where mobile
some of the interest in the landmark
phone bills, which are some of the most
energy reform that policymakers had
expensive in Latin America, have started
been hoping would attract large amounts
to come down. The electricity generation
of foreign direct investment.
reform, which doesn’t get as much international investor attention as the
Yet there are some considerable silver
changes in the hydrocarbon sector, also
linings. The falling oil price has caused the
seems to be having an early effect, with
Mexican peso to depreciate – especially
utility bills falling.
against the strongly performing US dollar. Given that 80% of Mexico’s exports go to
With his approval rating at a record low of
Many Mexicans remain unconvinced
the US, this should give a big boost to
25% Peña Nieto will be hoping that more
by Peña Nieto’s recipe for reform
manufacturers. Indeed robust growth of
sectors start to demonstrate the reform
the manufacturing sector is one reason
impact over the coming years.
Market Watch MARKET WATCH The Argentine equity market was the star performer, with a 27% for the Merval gain over the quarter. Colombia’s IGBC Index had the worst showing, down more than 10% since January.
Normalized as of 01/02/2015 Last Price MERVAL Index 127.75 IBOV Index 107.85 MEXBOL Index 104.96 89.10 IGBC Index
130
120
110
100
90
LatAm INVESTOR
6 | Q2 2015
31 M
ar
23 M
ar
16 M
ar
9 ar M
27 b Fe
20 b Fe
13 b Fe
6 Fe b
30 n Ja
22 Ja n
15 n Ja
Ja
n
7
80
Investors Look to PostKirchner Argentina
large international investors.
is linked to the fiscal imbalance, as Argentina is funding its deficit by money
Yet now, for the first time in more than a
printing, so any long-lasting solution to
decade, Argentina seems likely to have a
the former would have to involve getting
are
non-Kirchner government. The likely new
the country’s books in order. The holdout
already starting to evaluate the likely
candidates are Daniel Scioli, Governor
dispute is not really an issue for most
candidates
of
Mauricio
Argentines as many of them side with
presidential elections and prepare for the
Macri, Mayor of Buenos Aires City, and
the state against the funds that hold
opportunities a new government may
Sergio Massa, Mayor of Tigre. Despite
defaulted sovereign paper. Yet whichever
bring.
the fact that they hail from different
candidate wins will probably be keen to
parties – Macri opposes the current
resolve the issue as it will open up access
How will it affect investors? As regular
government while the others are part of
to international capital markets and give
LatAm INVESTOR readers will know,
it – they will face the same issues when
their administration more conventional
Argentina’s stock market has been one of
they come to power. Namely: fixing the
financing options.
the stronger performing Latin American
fiscal imbalances, resolving the holdout
investments over the last 12 months.
dispute and controlling inflation.
What’s
happened? for
Investors
Argentina’s
October
Buenos
Aires
Province,
It’s a striking example that orthodox
Judging from early signs it seems that all three will adopt a more market friendly
business environments aren’t always the
For ordinary Argentineans the high
approach than current president Cristina
ones that produce the best returns. But
inflation rate – estimated at about 40% - is
Kirchner. And with Argentine equities and
while the market may have performed
the biggest bugbear. It eats into the value
corporate bonds performing strongly it
well,
has
of their savings while obtaining hard
appears that the market is also pricing
remained low as investors shied away
currency, such as dollars, is extremely
in a new era. Time will tell if investors are
from a Kirchner administration that was
expensive because of an overvalued
being overly optimistic or if it really is
perceived as confrontational towards
official exchange rate. The inflation
‘different this time’.
foreign
direct
investment
Currency Watch Most currencies across the region depreciated against sterling over the last quarter. The worst performer was the Brazilian real, which dropped almost 10%. However, the Chilean peso bucked the trend, gaining around 3% against the pound.
Currency
Last quarter
Current rate to GBP*
Argentine peso (ARS)
13.05
13.15
-0.77
Brazilian real (BRL)
4.11
4.49
-9.25
Chilean peso (CLP)
937.32
909.56
2.96%
Colombian peso (COP)
3,629.56
3,717.82
-2.43
Peruvian nuevo sol (PEN)
4.52
4.63
-2.43
Mexican peso (MXN)
22.67
22.63
0.17
*As of 15/04/2015
7 | Q2 2015
% Change from last quarter
LatAm INVESTOR
MARKET ANALYSIS
It’s been another lively quarter for Latin American markets. Markit Senior Research Analyst, Colin Brunton, explains how it affects investors...
HSBC Brazil Manufacturing PMI and HSBC Mexico Manufacturing PMI It was a tough quarter for manufacturers in both Brazil and Mexico.
Mexico has also had a poor start to the year but with one crucial
In Brazil, hopes had been raised by a strong end to 2014, yet the first
difference – Mexican manufacturing is still growing, albeit at a lower
few months of 2015 quickly dashed that optimism. In March we saw
price. Anything above 50 represents expansion and Mexico has now
the deepest decline in Brazil’s manufacturing output for three-and-
been in this positive territory for a year-and-a-half. March saw the
a-half years. One reason was the stagnant local economy, where
slowest growth since October 2014 as manufacturers complained
demand and new orders fell. Another issue is strong inflation, which
that while the weaker peso was increasing the costs of imported
is pushing up costs. That also impacted the sector’s international
inputs it had yet to be reflected in greater exports. Nonetheless,
competitiveness and hit export order growth. Sadly there is still no
renewed hiring in the sector suggests that producers remain
sign that the weaker real is having a positive impact on Brazilian
optimistic.
manufacturing exports.
HSBC Brazil Manufacturing PMI and HSBC PMI BRAZIL MARKIT PMI
58
MEXICO MARKIT PMI
57 56 55 54 53 52 51 50 49
Ap
ril ‘ M 13 ay ‘1 Ju 3 n‘ 1 Ju 3 l ‘1 Au 3 g‘ 1 Se 3 p‘ 1 Oc 3 t‘ 1 No 3 v‘ 1 De 3 c‘ 1 Ja 3 n‘ 1 Fe 4 b‘ 1 M 4 ar ‘1 Ap 4 r ‘1 M 4 ay ‘1 Ju 4 n‘ 1 Ju 4 l ‘1 Au 4 g‘ 1 Se 4 p‘ 1 Oc 4 t ‘1 No 4 v‘ 1 De 4 c‘ 1 Ja 4 n‘ 1 Fe 5 b‘ 1 M 5 ar ‘15
48
© Markit Group Limited. These data are protected by copyright. No part of it may be reproduced, stored in a retrieval system or transmitted in any form or by any means.
LatAm INVESTOR
8 | Q2 2015
in association with
Markit LatAm Sovereign 5-Year CDS Markit LatAm Sovereign 5-Year CDS Brazil was the major story of the quarter. Spreads rose from January
Latin America’s largest economy to junk bond status just yet. That
to March as investors digested the constant flow of bad economic
was followed by a particularly dovish Federal Reserve meeting that
news coming out of the country and priced in another ratings
gave Brazil, and the rest of the region, a reprieve as it downplayed
agency downgrade. Yet when ratings agency S&P did downgrade
the likelihood of imminent US rate rises. The result is that all spreads
Brazil it was by less than expected and didn’t relegate the paper of
started to move down at the end of the quarter.
Markit LatAm Sovereign 5-Year CDS MEXICO
BRAZIL
PERU
CHILE
COLOMBIA
300
250
200
150
100
15 ri ‘ Ap 1
18
M
5M
ar
ar
‘15
‘15
‘15 Fe b 18
1J
19
an
Ja
4F eb
n‘
‘15
1
‘15
50
Markit iBoxx USD Emerging Markets Sovereigns Latin America Index Markit iBoxx USD Emerging Markets
For the first time in a long time it was a good quarter for holders of Latin
123
American sovereign debt, as US dollar
122
denominated debt gained almost
121
1% over the period on a total return
120
basis. Improved growth in countries
119
like Chile, Mexico and Peru, coupled
118
with the dovish Federal Reserve meeting, helped to stoke demand
117
among international investors for
9 | Q2 2015
‘15 ar M 31
18
M
ar
‘15
‘15 ar M 11
5M
ar
‘15
‘15 Fe b 20
4F eb ‘15
1 n‘ Ja 20
6J an
‘15
LatAm debt.
LatAm INVESTOR
PORTFOLIO MANAGER INTERVIEW
Latin America Calling Santander Asset Management has just moved its headquarters from Madrid to London. We sit down with two of its top LatAm fund managers to ask them where they’re putting their money at the moment…
Jose Cuervo – Global Head of LatAm Equity
Alfredo Mordezki – Global Head of LatAm Income
Jose runs the Santander Asset Management Latin American
Alfredo runs the Santander Asset Management Corporate Bond
Equity Fund. He joined SAM in July 2011 and is responsible of
Fund. Alfredo joined SAM in 2010, and is responsible of all of the
all of the firm’s regional Latin American equity investments. He
firm’s regional Latin American fixed income investments. Before
started his career in 1996 as a North American equities analyst
joining SAM he worked for BBVA in New York and Madrid, as
while at Philips, Hager & North Investment Management Ltd. in
head of Latin American Credit Trading. He has close to 20 years
Vancouver.
financial experience.
LAI: One of the biggest investment themes at the moment is falling oil; how will lower prices affect Latin America?
has a greater fiscal impact from low oil. In Colombia you see many projects just being shut down and capex will come back quite a bit, AM: If you look at the whole of Latin America you see Venezuela,
JC: To answer that you need to take one step back and make some
Colombia and Mexico are really the only ones hit. That said there is
sort of forecast. That’s never easy with oil but ask yourself: are we
a wider array of possible consequences. For example, in Argentina
likely to see oil at $40 for the next five years or will we have some
you’d expect that low oil prices would hurt the Vaca Muerta
sort of a rebound? If you look at the fundamentals they point to oil
shale development, which would reduce future FDI inflows and
at around $65 as that’s the price at which marginal supply equates
international reserves replenishment. So there is a wide array of
to marginal demand. So it should revert to that unless there are big
implications, but you must remember that there are also a lot of
changes in the industry.
countries that are actually oil importers in Latin America.
But that’s not going to happen in the short-term because there are
LAI: Brazil has had a terrible few years; has it got to the point where it’s a buying opportunity for our readers?
many incentives for high-cost producers to carry on for longer than you would think. For example some are hedged for most of 2015 so they’re not really feeling the pain yet. But after that it should gyrate back.
AM: I think from the point of view of local rates, there is an opportunity but looking at the currency itself we don’t think it’s
If we look at Mexico it is hedged for 2015, so it’s fine for this year. If
a great opportunity at present levels. In fact we forecast some
oil bounces back to $65 by 2016 then Mexico is OK. The big driver
depreciation by the end of the year so we don’t think it has a lot of
in Mexico is the energy reform and most of that will get done at
potential. On the rates, especially short rates, that are discounting
$65 – so in that scenario it won’t be a big hit for Mexican economy.
stronger path of hiking there is an opportunity.
Colombia on the other hand is affected more directly and it also
LatAm INVESTOR
10 | Q2 2015
JC: The main problem with Brazil is the lack of productivity and it’s
GDP in Mexico is probably going to have the biggest delta in Latin
an issue that goes back a few years. The strength of the real two
America. We’re positive on industrial names that play to exports,
or three years ago was part of problem, so the weaker currency is
manufacturing, and reforms. But we’re negative on the consumption
part of a solution. Of course a weaker currency will bring its own
side. That’s because the fiscal reform has added taxes and the oil
problems in the form inflation, which is why the government is
price is going to hit government spending so the consumer will be
trying to slow down consumption. But for investors looking at the
subdued for a year or two.
real you can’t realistically say that Brazil will come out of this with stronger currency as it needs a weaker currency.
So we’re positive on the general economy but because the equity market is consumer focused – supermarkets, telecoms etc make up
Another factor here is the currency swaps that the Central Bank has
80% of listed stocks – we’re not positive the Mexican market.
been engaging in. At one point they’d swapped about 2/3rds of their reserves away, which is extremely dangerous. They now seem
AM: We weren’t that bullish when everyone else was getting excited
to be on a path to reduction, which if they take to zero, can only be
about the big ‘Mexican Moment’. One reason was that we weren’t
a negative for currency.
sure if reforms would come out as the market hoped. Actually we were wrong with that and we have to admit that the government
LAI: So where are the opportunities for LatAm INVESTOR readers?
surprised us in a positive way, not only the passage of the reforms but also the implementation of the legal framework that was put in place. But even then, after the reforms, we still weren’t bullish. We
JC: Brazil has an external imbalance, it has a current account deficit,
understood that tax reform would hit consumers and it would take
and policymakers will be looking to fix that. This means lower
a while for the benefits of higher investment to compensate for that
consumption, higher investment and higher domestic industrial
because everyone was in ‘wait and see’ mode. We were right on that,
production. So I think it’s fair to assume that over the next few
which is why we saw GDP growth doing nothing in the first year of
years anything to do with consumption will be weaker, while stocks
reform.
related to production or investment will be stronger. Now, however, we’re a bit more bullish. We think around 70% of 2016 can be the year when we finally see the economy pick up.
what was expected to come in from oil reform will still come in.
I think equity market will focus on negatives over the next few
We are not seeing companies running scared because of the oil
months but then later, once we get past some issues and we get
price. We expect stronger companies, majors that have been in
some good signs, then multiples will go up. Earnings growth won’t
the sector for a long time and have the financial muscle to finance
be there but multiples will go up.
themselves even in this oil price environment, to be active in seeking
AM: On the credit side we like the food industry. Brazil has a very strong food industry and there are many interesting players there.
SANTANDER AM LATIN AMERICA EQUITY OPPORTUNITIES
We have to go case by case, not everyone is in the same cycle. Cattle,
Fund
poultry, each subsector has its own dynamic and we need to look at the leverage, credit quality and debt profile for each name but in
Benchmark
United States
general it’s one of the sectors that we prefer.
0.5% 0% is a good exporter. Here we have already seen the capex cycle going down because new facilities have been incorporated into
Others Mexico
The other interesting area is the pulp and paper sector, which
33.1%
0.6% 0%
32.5%
Panama
Colombia
production, so free cashflow will increase, which is what we like. We think it could be a safe haven in this environment.
1.8% 0%
LAI: And what about Mexico? It encouraged so much optimism but the jury is still out on whether it will deliver.
Peru
4.4%
1.6%
Brazil
49.9%
50.6%
2.4% 2.9% Chile
JC: From an equity point of view Mexico has always been an interesting market because you can actually have a positive view and have a negative position. For example, right now we have a
9.9%
9.7%
positive view on the Mexican economy and we think the potential 11 | Q2 2015
LatAm INVESTOR
“you can't see, but it exists”
TECHO, a youth-led NGO, present in 19 Latin American countries, engages corporations with local communities, to overcome poverty in the region. To find out more about TECHO’s construction of housing, about our social development programmes or about how we are continuing efforts to overcome Latin American poverty from our new European office, write to our European Director Sebastian Smart (sebastian.smart@techo.org).
LatAm INVESTOR
12 | Q2 2015
PORFOLIO MANAGER INTERVIEW opportunities. Maybe some particular niches, such as shale, may not be as appealing as it would have been a year ago but we still expect
SANTANDER LATIN AMERICAN CORPORATE BOND
sizeable investments to come in.
Fund
LAI: In recent years many Latin American firms took advantage of low bond yields to raise record amounts dollar-denominated debt; is this increased leverage, especially with the rising dollar, a worry for investors?
Benchmark
9.3% 12.9%
Mexico
Cayman Islands
23.3% 14.1%
No. The first flaw in this theory is that a lot of these bonds come
Colombia
from a substitution from loan debt to corporate debt. Secondly, you have deeper swap markets, so many of the companies that issued
3.1%
1.8%
4.8%
Panama
in dollars were actually arbitraging and taking advantage of the
6.5%
low rates and then swapping back into local currencies to match their local currency revenues. The third factor is that much of the
Peru
dollar debt is matched by dollar revenues as you may find that many
Brazil
10% 8.9%
11.7% 5.4% Chile
companies with 100% of revenues denominated in dollars. The final
5.7%
reason why these fears are misplaced is that in Latin America come
12.2%
Others
from the “Use of Proceeds” of this new debt. In the last four years, 40% of bonds issued have been dedicated to retire higher coupon
29.9% 30.4%
debt. So, new bonds don’t always mean extra leverage.
LAI: Of course Latin America is more than just Mexico and Brazil; can you tell our readers about some exciting opportunities in the rest of the region? JC: There are times when smaller countries offer a lot of value and times when they don’t. Right now they’re not so attractive. The one non-consensus area where we are bullish on the equity side is the salmon sector in Chile. For the most part they’re local firms and they’re benefiting from great conditions at the moment. There’s a very good demand supply imbalance. On the demand side economic, demographic and health factors are pushing salmon consumption upwards. On the supply side it is very limited and takes time to increase. Chile had problems with a disease that wiped out nearly a third of the salmon stock a few years back. A lot of new regulations were put in place as a result and Chile now has some of the healthiest salmon in the world. There is also a consolidation going on, so it’s a good sector to be in and quite independent from many other drivers that are moving things elsewhere.
in Panama. Outside Central America we have investments in Paraguayan banks that have been present in the corporate dollar bond market and we’ve seen four different issues coming from there. It’s a small country, a bit over exposed to the livestock sector but still solid.
LAI: So is now a good time to buy into Latin America? AM: I think that 2014 is the proof that you can be profitable without being optimistic. There was a lot of volatility in the markets and the return was quite positive. Now the most important point from a pure corporate bond perspective is that we start the year very cheap, not only compared to the US but also against other emerging markets. I’m not saying that there is no reason for that but if you look at how emerging markets sold off you see a huge disparity in corporate credit levels between Asia and Latin America and investors should profit from this. You need to do your homework but there is an opportunity,
AM: This year the Dominican Republic has been the Latin American country with best performance regarding GDP growth: above 7%. Even their local rates are very interesting, with double digit levels in this world of zero interest rates. Local currency has also been supported so real returns for dollar investors have been great. We like Central America, which we play through some of the Colombian banks that have been buying assets in Central America. We also have some energy investments in El Salvador and some projects
JC: I think there are sufficient reforms and policy changes on the table in Brazil, Mexico and Colombia that suggest this is starting to turn. The key question is: when will the market stop looking at 2015, which will not be a good year, and start pricing in possible improvements in 2016? I think that will be the inflection point.
13 | Q2 2015
LatAm INVESTOR
COUNTRY ANALYSIS
A Bleak Outlook for Venezuela Venezuela, Latin America’s biggest oil producer, is in the grip of an economic and political crisis. Control Risks Analyst, Oliver Wack, looks at how it could play out during 2015… Oliver Wack, Control Risks Analyst
A
mid
declining
economic
less decision-making power—including
For example, government attempts to
indicators and growing political
on
dramatically
polarisation, the pieces appear
predecessor did.
economic
matters—than
his
overhaul
the
Byzantine
exchange rate system are rendered
to be falling into place for new violent
more difficult by the fact that many
protests, political instability and an even
Amid continuing debates within the
key stakeholders in the government,
worse business environment. While these
government
combat
including from the Bolivarian National
developments hardly come as a shock
runaway inflation – at more than 64%
Guard (GNB) and the armed forces,
to those who have followed Venezuela
in 2014 it was among the highest in the
are benefiting very handsomely from
over the past few years, even seasoned
world – the government has launched
manipulating the exchange rate in their
observers are impressed at the speed
an ‘economic offensive’– including ever
favour. Likewise, the implementation of
with which things are unravelling, partly
stricter enforcement of price controls, the
announcements to reduce subsidies and
as a result of the collapse of world crude
imposition of draconian fines on alleged
raise gasoline prices will have to consider
oil prices. The question of whether the
wrongdoers, and even the detention of
the significant backlash that this policy
government will be willing – and able –
company executives – to combat alleged
may have especially with lower-income
to make the necessary adjustments to the
speculation in food prices and hoarding.
Venezuelans. Maduro is therefore caught
economy will be decisive in determining
However, these measures are unlikely
between a rock and a hard place and, as
the future of President Nicolás Maduro,
to have their desired effect given that
a result, government moves that could
his government, and the country as a
huge distortions in the economy, which
genuinely put the economy back on track
whole.
stem in part from the heavily regulated
will remain elusive for the foreseeable
foreign currency exchange and allocation
future.
Weak president
over
how
to
system, have gradually hollowed out the former
country’s production and importation
Growing anger
president Hugo Chávez (1999–2013) in a
capacity, leading to shortages of basic
However, the policy of muddling through
controversial and extremely close election
products. Government price controls
may no longer be a viable option,
following the latter’s death in March
further reduce incentives for producers.
and time may be running out for the
Ever
since
he
succeeded
government. Even before the recent
2013, Maduro has been fighting an uphill battle to combat deteriorating economic
This situation is aggravated by the fact
drop in crude oil prices, the country’s
indicators and put the economy on track
that Maduro does not only appear to
economic woes were having increasingly
towards recovery; he also struggles with
be in a weak position with regard to
political consequences. In early 2014,
declining popularity (around 24% in
popular support, but also within his
student protests in San Cristóbal (Táchira
December 2014 according to a Datanálisis
United
of Venezuela
state) quickly spiralled into broader unrest
poll) and growing public discontent.
(PSUV) and more broadly within the
led by government critics across major
Despite being Chávez’s chosen successor,
chavista movement itself. As a result, the
urban centres. The protests tapped into
Maduro’s governing style has suffered
president has to tread a fine line between
general dissatisfaction about product
from his lack of charisma and, as a result,
attempting to make adjustments to fix the
shortages, the country’s overall economic
waning influence across different sectors
economy on the one side and alienating
trends, growing international isolation
of the government and his party. This
his support base in the population and
and rising crime rates. They eventually
means that the president has significantly
in his own rank and file on the other.
became violent with rioting, and semi-
LatAm INVESTOR
Socialist
Party
14 | Q2 2015
in association with
permanent barricades mounted in major
for the government. Finally, much will
cities including the capital Caracas,
depend on the behaviour of the political
San Cristóbal and Valencia. Repressive
opposition in the face of the political and
policing and violent clashes between pro
economic situation. Deeply divided on
and anti-government protesters led to
the issue during the protests in 2014, it
the deaths of more than 40 people across
appears as though one year later there
the country. As the economy continues
is a growing consensus that protests
its downward trend, three factors will be
may not be the ideal tool with which
chief in determining whether new rounds
to pressure the government. Indeed,
of violent unrest will rock the country in
government provocations such as the 20
2015.
February arrest of Caracas metropolitan mayor Antonio Ledesma were not met by
Firstly, with prices for Venezuelan crude
outbreaks of rioting as opposition leaders
expected to stay below the $70 mark
urged their followers to maintain calm.
for the rest of the year according to
However, as was evident in San Cristóbal
analysis company Oxford Economics,
and to a lesser extent Caracas in February,
the government will continue to face a
the student movement continues to
considerable financing gap, with many
operate somewhat independently from
observers pointing to the fact that oil
opposition political parties and it is at
prices would need to be more than
least questionable to what extent it can
twice their current levels in order for it to
be controlled if the situation gets worse.
balance its budgets. Politically speaking,
In that sense, a key issue to watch will be
the extent to which the government will
the legislative elections scheduled for
be able to maintain levels of spending,
later this year and the implications that,
and especially social spending, in the face
for example, a government decision to
of reduced availability of hard currency
postpone or suspend the elections could
persuade the broader public that it is not
will be paramount in defining whether
have.
only fighting, but indeed winning the
Surprisingly - things have been even worse without Chavez ...
economic war.
at least lower-income Venezuelans, many of whom continue to see the current
Given this complex situation, companies
government as the lesser of two evils,
operating in Venezuela will continue to
Moreover, while street protests are
will continue to support Maduro, or will
face a range of legal, operational, security
highly unlikely to directly target major
eventually turn their backs on him and
and integrity challenges throughout
companies and foreign investors in the
take to the streets.
2015, and likely beyond.
country, incidental risks arising from the high likelihood of outbreaks of violence
Secondly, low oil prices and the reduced availability of foreign currency as a result will also pour fuel on the existing economic fire, given that they will make it even harder for companies to import raw-materials or consumer goods that are missing on supermarket shelves. So far, the government has had some success in shielding at least its core supporters from shortages. However, a dramatic deterioration of the situation leading to increased scarcity of basic consumer goods, food items and pharmaceuticals for lower-income Venezuelans would likely be the straw that breaks the camel’s back. If prices stay low the situation will get increasingly difficult
Tough business environment For one, as the government becomes increasingly desperate, the increase of hostile rhetoric and populist policymaking towards the private sector will increase. In recent weeks, stepping up the so-called ‘economic war’ has led the government to expand the verification of price controls, publicly accuse companies of misdeeds and – without waiting for companies’ justifications – to arrest senior executives, occupy retail stores and take over their operations. As the situation deteriorates, the government remains highly likely to use whatever tools are at its disposal to 15 | Q2 2015
persist for all personnel living and working in the proximity of frequent unrest hotspots, which include upscale Caracas neighbourhoods.
The
government’s
recent approval of the use of lethal force against protesters, thereby significantly raises the likelihood of armed violence. 2015 has already proven to be an extremely interesting time in Venezuela, and the rest of the year promises to be equally as absorbing. For foreign investors in particular, being prepared to deal with the constant shifts in the operating environment as well as likely contingencies will be vital to ensuring continued success in the market. LatAm INVESTOR
CITY VIEW
Building Bridges Lord Mayor of London, Alan Yarrow, reflects on the burgeoning trade and investment relationship between Latin America and the City…
The Rt. Hon The Lord Mayor of the City of London, Alan Yarrow
I
recently had the honour of hosting Enrique Peña Nieto, the Mexican President, at the City of London State Banquet. It was
Growing links Fortunately, the UK is in a good position to take advantage of
a fitting time for such an event: the Latin American economy is
this encouraging economic outlook. One factor is our strong
particularly vibrant at the moment, with many opportunities for
historical links. London was a centre of activity for the leaders and
extremely exciting partnerships. During our discussions we touched
supporters of independence movements across Latin America, in
on a number of ways for the City to support Mexico’s growth.
time becoming more closely associated with the movement than any other world power. For Mexico in particular we were the first
Only last year my predecessor as Lord Mayor, Dame Fiona Woolf,
European country to recognise the country’s independence in the
visited Latin America and I will follow in her footsteps in July this
mid-nineteenth century, a relationship that is still important to
year, taking in Mexico, Peru, Columbia and Brazil. Like all my overseas
Mexican administration. Indeed President Nieto has previously said
visits I will be accompanied by a delegation of senior British business
that the UK is one of ‘Mexico’s closest allies.’
leaders, and together we will try to drum up more business for the “Square Mile’s” world-leading companies.
But our position is strong for other, more current reasons as well. Backed by a supportive government, our ambitious companies
Mexico is an illustration of the region’s immense promise and its
are extremely keen to trade with Latin America. Through the
economy looks very positive at present. It is an open market for
government’s efforts with the ‘Canning Agenda’ to re-balance the
companies with an international outlook and there are exciting
economy, and move it away from its heavy reliance on the EU, we
opportunities for firms offering financial and professional services.
are now seeing more focus on Latin America. We’ve opened new
It also remained remarkably resilient during the financial crash, a
Embassies in countries like El Salvador, Paraguay and Haiti and a
resilience that owes a great deal to its sound regulatory framework,
Consulate-General in Recife, Brazil. And we’re creating new networks
solid management of public finances and taxation reforms. These
of trade experts to identify and promote trade opportunities for UK
rapid changes are mirrored to varying extents across the rest of Latin
companies. For British companies there has never been a better
America, which is enjoying stronger economic growth than Europe.
time to trade with Latin America.
LatAm INVESTOR
16 | Q2 2015
Despite its current woes, the EU remains the world’s biggest
the transport network in the Colombian capital, Bogotá. At present
economic bloc, accounting for around a quarter of global GDP. It
Bogotá lacks an underground system. This undermines local efforts
is the biggest investor in Latin America, accounting for 43% of all
to create a thriving economic hub as reliable and fast public
foreign direct investment in the region. In fact the EU invests more in
transport is a key driver of urban growth. When the time comes
Latin America than in China, India and Russia combined. This trend
to make a decision, the City’s firms will be there to help raise this
is likely to continue with the EU recently signing a number of trade
finance and get these projects off to a quick start.
agreements with Latin American countries.
Shared targets
A lot done – more to do
Some people talk about global trade as a competition where one
Yet things are not always as good on the surface as they seem. The
country’s success is another’s failure. I don’t agree. I think we’re all
UK still trades more than twice as much with Belgium than we do
in the same boat, facing similar challenges and opportunities.
with the whole of Latin America. As the former Foreign Secretary
Companies in the UK and Latin America, for example, all have to
William Hague put it, “for too long the British presence in Latin
find and tread a path to sustainable economic growth and support
American has been too small, too reticent and too modest.” Latin
a modern market economy, with a good standard of living and
America can offer UK companies huge growth opportunities, yet, UK
opportunity for all. Those are universal aims.
exports make up little more than 1% of Latin America’s total global imports.
But we are still a long way away from the ambitious global trade target of £1trillion in exports by 2020. So my message is simple: get
One of the key messages that I want to get across during my year as
out there to new markets, because we in the City are fully behind
Lord Mayor is that the City can be Latin America’s partner of choice.
you when you take that ambitious step and trade with the world. As I said at Mansion House recently to the cheers and nods of
Take an area like public private partnerships (PPP). The City has a
agreement from an assortment of powerful and influential business
wealth of expertise and knowledge in the innovative financing
leaders in the room – UK plc has always been faced with a choice: be
models that are needed to get visionary construction and
open and thrive, or wear blinkers and fail. And nowhere is that more
infrastructure programmes off the ground. One good example is
apparent today than in Latin America.
Latin America’s infrastructure programme offer great opportunities for the City’s finance firms.
17 | Q2 2015
LatAm INVESTOR
MARKET-MOVING EVENTS CALENDAR April
May
June
Wednesday 8th
Tuesday 5th
Monday 1st
12:00pm – Chile – Inflation Rate YoY
1:00 AM – Colombia – Inflation Rate YoY 6:00 PM – Paraguay – Inflation Rate YoY
12:00 AM – Peru – Inflation Rate YoY 2:00 PM – Brazil – HSBC Manufacturing PMI 2:00 PM – Chile – Retail Sales YoY 3:30 PM – Mexico – HSBC Manufacturing PMI 7:00 PM – Brazil – Balance of Trade
Thursday 9th 3:00 PM – Mexico – Inflation Rate YoY
Wednesday 6th 3:00 PM – Mexico – Business Confidence 10:30 PM – Colombia – Balance of Trade
Friday 10
th
2:00 PM – Mexico – Industrial Production YoY 2:00 PM – Mexico – Industrial Production MoM
Tuesday 14
th
1:00 PM – Brazil – Retail Sales MoM 1:00 PM – Brazil – Retail Sales YoY 11:00 PM – Colombia – Industrial Production YoY 11:00 PM – Colombia – Retail Sales YoY
Wednesday 15th 10:30 AM – Brazil – IBC BR Economic Activity 8:00 PM – Argentina – Inflation Rate MoM
Friday 17th 10:30 PM – Chile – Interest Rate Decision
Thursday 23rd
Tuesday 12th 2:00 PM – Mexico – Industrial Production YoY 6:15 PM – Uruguay – Industrial Production YoY
Thursday 4th 3:00 PM – Mexico – Business Confidence 3:00 PM – Mexico – Interest Rate Decision 6:00 PM – Uruguay – Inflation Rate YoY
Monday 8th Thursday 14
th
1:00 PM – Brazil – Retail Sales YoY 8:00 PM – Argentina – Inflation Rate MoM 11:00 PM – Colombia – Industrial Production YoY 11:00 PM – Colombia – Retail Sales YoY
Friday 15th 3:15 PM – Peru – GDP Growth Rate YoY 11:00 PM – Chile – Interest Rate Decision
1:30 PM – Chile – Balance of Trade 3:00 PM – Paraguay – Balance of Trade
Tuesday 9th 2:00 PM – Mexico – Inflation Rate YoY
Wednesday 10th 1:00 PM – Brazil – Inflation Rate YoY 6:00 PM – Uruguay – Unemployment Rate 9:00 PM – Nicaragua – Inflation Rate
Tuesday 19th 1:30 PM – Chile – GDP Growth Rate YoY 1:30 PM – Chile – Current Account
Friday 12th 12:00 AM – Peru – Interest Rate Decision 8:00 PM – Argentina – Inflation Rate MoM 11:00 PM – Chile – Interest Rate Decision
2:00 PM – Mexico – Economic Activity YoY 3:00 PM – Brazil – Business Confidence 8:00 PM – Argentina – Balance of Trade
Wednesday 20th
Friday 24
8:00 PM – Argentina – Unemployment Rate 8:00 PM – Argentina – Balance of Trade 9:00 PM – Paraguay – Interest Rate Decision
Monday 15th
Thursday 21st
Wednesday 17th
1:00 PM – Brazil – Unemployment Rate 2:00 PM – Mexico – Economic Activity YoY 2:00 PM – Mexico – GDP Growth Rate YoY
12:00 AM – Uruguay – GDP Growth Rate YoY 10:30 AM – Brazil – IBC BR Economic Activity
th
2:00 PM – Mexico – Retail Sales MoM 2:00 PM – Mexico – Retail Sales YoY 2:30 PM – Brazil – Current Account 2:30 PM – Brazil – Foreign Direct Investment 8:40 PM – Colombia – Interest Rate Decision
Monday 27th 2:00 PM – Brazil – Consumer Confidence 2:00 PM – Mexico – Balance of Trade 2:00 PM – Mexico – Unemployment Rate
Monday 22nd Friday 22
nd
2:30 PM – Brazil – Current Account 2:30 PM – Brazil – Foreign Direct Investment 6:00 PM – Peru – GDP Growth Rate YoY
Tuesday 28th 2:00 PM – Brazil – Unemployment Rate
Wednesday 29th 10:00 PM – Brazil – Interest Rate Decision
Thursday 30th 1:30 PM – Brazil – Nominal Budget Balance 2:00 PM – Chile – Industrial Production YoY 2:00 PM – Chile – Retail Sales YoY 2:00 PM – Chile – Unemployment Rate 3:00 PM – Mexico – Interest Rate Decision 5:00 PM – Colombia – Unemployment Rate 8:00 PM – Argentina – Industrial Production YoY
LatAm INVESTOR
3:15 PM – Peru – GDP Growth Rate YoY
2:00 PM – Mexico – Retail Sales YoY 2:30 PM – Brazil – Foreign Direct Investment 8:00 PM – Argentina – Current Account 10:00 PM – Colombia – GDP Growth Rate YoY
Wednesday 24th
Monday 25th 2:00 PM – Mexico – Balance of Trade 2:00 PM – Mexico – Current Account
Wednesday 27th 2:00 PM – Brazil – Consumer Confidence
2:00 PM – Brazil – Economic Activity YoY 2:30 PM – Brazil – Current Account
Friday 26th 2:00 PM – Mexico – Unemployment Rate 5:00 PM – Colombia – Unemployment Rate 8:00 PM – Argentina – GDP Growth Rate YoY
Thursday 28th 2:00 PM – Mexico – Employment Rate
Tuesday 30th 2:00 PM – Chile – Industrial Production YoY
Friday 29th
2:00 PM – Chile – Unemployment Rate
12:00 AM – Uruguay – Balance of Trade
10:00 PM – Uruguay – Balance of Trade
8:00 PM – Argentina – Industrial Production YoY
18 | Q2 2015
Face-to-Face: Minister of Tourism, Sandra Naranjo, on the future of Ecuadorian tourism Adding Value: Ecuador is starting to leverage its agricultural wealth Brave New World: High-tech industries are springing up in Ecuador 19 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR PANAMA
Ecuador’s Century So far the 21st century has belonged to
other commodity producers, has got
the emerging markets, with investors
considerably more challenging over the
enthralled by the rapid progress of
past year. Opec’s smallest member has
This last move is both the hardest
the likes of China and Mexico. Yet the
been hit by a falling oil price, which is
and the most historically significant.
‘Ecuadorian economic miracle’ has gone
down roughly 50% since summer 2014.
Since independence Ecuador has been
largely unnoticed by British investors.
Given that oil made up more than half
a producer and exporter of various
Since the nadir of 1999, which saw the
of Ecuador’s exports and one-third of
commodities, leveraging its substantial
collapse of the country’s financial system,
its fiscal revenues, the low oil price is a
bounty of natural resources. Yet Correa’s
a huge rise in unemployment and mass
big blow for both the economy and the
government is now trying to promote
emigration to Europe, Ecuador has been
government. Meanwhile the dollar has
value-added industries so that Ecuador
steadily rebuilding its economy.
become the world’s best-performing
can sell processed and finished goods
major
instead of raw materials.
currency,
making
Ecuadorian
One consequence of the crisis was the
products less competitive than their
switch to a dollarised economy, which
international rivals.
change the country’s productive matrix.
In short Ecuador finds itself undergoing an economic transition. And the current
has helped to defeat inflation and restore business confidence. It helped
The government has been quick to
crisis is accelerating the process as
too that the dollar weakened during the
respond. On the fiscal side Correa has
falling oil prices mean that attention
first decade of the century, helping to
found a way to fund the deficit in the
and resources are being diverted to
keep Ecuadorian exports competitive.
short-term. A visit to China at the start of
new industries. The combination of low
But the biggest boost came from oil,
the year resulted in a $7billion loan, while
asset prices and government support
which reached, and remained at, record
the well-timed return to international
mean that there has probably never
prices for most of the last fifteen years.
capital markets in 2014 means that
been a better time for British investors
There’s no doubt that these benign
future bond issues are another option.
to consider Ecuador. And this report,
external factors helped push economic
The government also announced budget
compiled by a team that spent almost
growth, with nominal GDP more than
cuts of $1.4billion to cut the shortfall
two months in-country, outlines the
quadrupling over the period.
between government spending and
challenges and opportunities that await
receipts.
those LatAm INVESTOR readers that do.
But Ecuador’s success isn’t all down to favourable world events. Even more
And, in an attempt to east pressure on
important has been the economic
the trade deficit cause by the falling
stewardship of the government of Rafael
value of oil exports, a set of short-term
Correa, who came to power in 2007. In
import taxes, known as salvaguardias
the West Correa is often portrayed as
(safeguards),
a firebrand socialist along the lines of
It’s hoped this will reduce imports by
Hugo Chavez. But for investors, who
$2.2billion per year.
were
also
introduced.
care more about returns than speeches, he has proved a remarkably successful
But what will most help Ecuador are the
overseer of the Ecuadorian economy.
measures taken during the good times.
Since he came to power, real GDP growth
This government has invested $8billion
has averaged 4% per year, employment
in the road network since 2008. This
is below 5% - a record low for Ecuador –
has boosted the competitiveness for
and inflation has been kept control.
local manufacturers, helping to offset the rising dollar. Education spending
But perhaps the best measure of
in real terms has also doubled, which is
Correa’s success is coming now. That’s
producing a more talented and flexible
because the external environment for
labour force. Finally, the government has
Ecuador, and many of Latin America’s
been involved in a sustained effort to
LatAm INVESTOR
20 | Q2 2015
Contents Introduction
20
A Brave New World
21
Building a New Ecuador
24
Plenty of Room at the Inn
26
Adding Value
28
An Ecuadorian welcome
34
Time For Change
38
S2M-CICEB Ecuador-UK Trade & Investment Mission
40
Harvesting Profits
42
Final Word
45
A Brave New World Ecuador’s plan to change its productive matrix is an attempt to rewrite its economic destiny. It’s a tough task but a strong alliance between the public and private sector might just see Ecuador succeed where most other emerging markets have tried and failed… When the founding father of Singapore,
background in agribusiness, but the
realise that the internet is not a luxury for
Lee Kuan Yew, died in late March
other three - software, pharmaceuticals
the rich but a necessity for the whole
his epitaph was as obvious as it was
and the auto industry – represent a new
society.”
impressive. In less than half a century
direction for Ecuador’s economy. But while the broadband programme is
Lee had propelled Singapore from the Third World to the First World and bequeathed a modern, rich country to his compatriots. What makes this feat so remarkable is that few other countries have managed it. South Korea is one example, Finland another, but, for the large part, developing markets have found that while it’s relatively easy to become a middle-income economy, it’s very hard to become a rich one. To make the jump, countries need to invest in good education system, have sophisticated technology and services sectors – since these are normally the most productive parts of a modern economy, and invest heavily in research and development. And that is what Ecuador is trying to do. The plan is to change the country’s productive matrix so that it no longer relies so heavily on commodity exports but earns more from high-tech, valueadded industries. “This year we have been very disciplined and narrowed down our priority areas to four sectors”, explains Carlos Lara, Pro Ecuador’s Director of Investment. “These areas are being opened up to international investors and benefit from specific incentives.” One of these areas, forestry, builds on Ecuador’s established
Partnering the private sector Lara admits that it won’t be easy for Ecuador to establish itself in these highly competitive global sectors but he believes the country’s strategy should help it succeed. The key element of the plan is the partnership between the public and private sector. “As a country we have the human resources, the infrastructure and the services but we accept that we also need the expertise and experience of private-sector firms to help develop these new areas.” To help kickstart these new industries the government is providing initiatives to encourage private sector firms to thrive. Software, for instance, is being led by
a well-established success the Yachay project is at a much earlier stage. The vision is eventually for a ‘city of knowledge’, with a large university campus and research clusters with private sector company involvement. “Yachay will be successful”, says Miño, confidently. “It is not just a university but the first model of smart city – a digital city. It will be a successful model because it will develop the technical engineers in the field. We have a lot of graduates that come out of university and are good on theory but don’t have the practical experience so Yachay will be good for giving them day-to-day experience of working on problems and collaborating with the private sector.”
Yachay – an ambitious digital city project.
International alliances
There is also a long-running national
In essence Yachay is a good example of
broadband campaign which has helped
the hybrid model of co-operation that
boost Ecuador’s internet penetration
Ecuador needs to jump-start these new
to 70% from just 7% less than ten years
industries. The other type of co-operation
ago. These government schemes were
that Ecuador needs is with international
an important first step but there has also
firms. Not just for capital, though that is
been an important reaction from the
welcome, but for know-how too. Take the
private sector.
pharmaceutical industry, for example. Set up in 1940 Life was Ecuador’s first
“The national broadband programme
pharmaceutical company and one of its
really pushed internet usage in Ecuador”,
most well-known. Over the years Life has
says Katherin Miño, General Manager
gone from being independent to being
of PuntoNet, a Quito-headquartered
part of Dow Chemicals Group, to now
internet service provider. “It made people
being independent again. Yet General
21 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR PANAMA Manager,
Héctor
Enríquez,
believes
Ecuadorian manufacturer of medium
that regardless of ownership, the firm
voltage cable that was originally set up
always needs to be open to international
to fill a gap in the local market and now
partnerships.
exports to the US. Given that Ecuador has no copper reserves and no large
Life
generic
local market to build scale there are no
versions of drugs developed elsewhere
currently
manufactures
natural advantages to making cable in
but there has been talk of Ecuadorian
the country. Yet the firm’s Vice President,
firms developing more sophisticated
Chemel Neme Macchiavello, believes
drugs,
products.
that is no excuse for failure. “Look if you
Silvia Carrera, General Manager of
Enríquez believes it is possible but that
need to have cheap copper or some
Manpower Ecuador
international alliances are the best way
other advantage to make a business then
to achieve it. “Today pharmaceutics is
you haven’t got a very good business.
such
as
oncology
a global business. Ecuador can create
just look at the company they will partner, sell to or buy from. The general investment climate is also a crucial
a niche in certain areas but we need to
factor in determining the success of an
work with international partners if we
investment. The government recognises
want technology transfer. Developing it
this and has been working hard on
ourselves would cost too much and take
improving the business environment. In
too long.”
recent years Ecuador has risen in various
Corporate Social Responsibility Update
regional business rankings, yet Lara
Life has a long history of working with
believes that the reality on the ground is
international names. For example it
probably even better than these rankings
previously manufactured drugs for Astra Zeneca and Enríquez is open to similar
We invest in technology and produce
partnerships with other British firms in the
the products that our clients want.
future. “We have world-class equipment
That’s what makes a good business.”
and operate to the best standards – we
Electrocable now has a joint venture with
could partner any international firm.”
a US cable manufacturer to produce new
when they can no longer fish? After a tsunami
ustry in Tamil Nadu, India, residents needed new careers.
products in Ecuador.
d vocational training centers dedicated to transforming
Strong partners like that exist across
any graduates are earning seven times more as graphic
as fishermen. Find the hidden talent in people and you’ll
many of these ‘new’ industries. Take
Discover more at manpowergroup.com
Electrocable
for
example.
It
is
an
Of course international investors don’t
MANPOWER ECUADOR We align the vision and values of Manpower Inc., which operates across half the world through its team of highly competent and committed workers and is at the forefront of the most demanding enterprise solutions across the globe, using quality, efficiency and effectiveness for success in business. Because of that we think it’s possible to establish ourselves in the highest growth and development of Ecuadorian, Latin American and global business. In this scenario, we are ready to provide: The best selection in human talent, using methodologies, systems and tools that allow us to perform a search process, evaluation and selection of staff whose challenge is to exceed customer expectations. Our success is guaranteed because we have experts in the field. Specialised Technical Services, which effectively resolve the management of its resources, for example: Payroll Administration, Payroll Outsourcing. Consulting and Training and all subsystems of Human Resource Management: Organisational Development, Competency Model Management, Safety and Occupational Health, Employee Satisfaction Measurement, Performance Assessment, Outplacement, among others. With this know-how, we also support with great creativity and innovation in marketing activities, to create a high impact between brands and consumers.
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LatAm INVESTOR
22 | Q2 2015
“Ecuador is a great place to produce. We have a capable labour force, low energy costs, which will get even cheaper when
TEACHING A MAN NOT TO FISH more hydroelectric energy comes online 2016, great transportPOSSIBLE connectivity with IS inHUMANLY
Made in Ecuador
® ® ons | Experis™ | Manpower | Right Management
suggests.
some of the best roads in Latin America, commercial agreements that tie us to the world’s major markets and, finally,
investment contracts and incentives
Ecuador is for UK firms and Armstrong
that make it favourable for companies
feels that most British investors would be
to choose Ecuador as their hub for
surprised by just how good the business
international business.”
environment in Ecuador is. “Since Rafael Correa became president perhaps the
One person that agrees with Lara
political rhetoric has seemed a bit anti-
about the strength of the labour force
foreign investment. However, in reality,
is Silvia Carrera, the General Manager
on the practical side of things, business
of Manpower. “In recent years this
for people here in Ecuador has been
government has made a massive effort
Nick Armstrong, Chairman of the
very good for the last seven years. The
with education, reforming the quality
British Ecuadorian Chamber of
business climate has been positive and
and the focus. As a result we now have
Commerce and Industry, Guayaquil
companies here have been able to crack
a pool of graduates that are very strong in technical areas such as physics, maths and IT. Almost everyone that comes to us as job candidates now has bachelor or masters degree and the quality has gone up across the board.” The improvement
to Ecuador Manpower also offers market studies and analysis services, which allow companies to test the water before committing too much capital.
on, do our business and grow.” Perhaps the most decisive factor working in Ecuador’s favour as it attempts to change its productive matrix is the quality of local firms already working in these
in quality has come at a good time, says
UK plc in Ecuador
Carrera, as the appreciating dollar makes
Another important first port of call for
mentioned above there are a number
Ecuadorian workers more expensive
UK companies coming to Ecuador is
of other success stories. This means that
than some of their counterparts in
the British and Ecuadorian Chamber of
there is no shortage of good-quality local
neighbouring countries. “I really think
Commerce and Industries, Guayaquil.
firms for UK investors to work with
that the Ecuadorian workers need to
Unlike most countries, where there is
compete on quality and productivity not
just one British chamber of commerce,
Whenever countries around the world
price.”
Ecuador has two. “It’s because Ecuador’s
have succeeded in establishing new
economy is organised around the two
industries and jumping up the global
commercial poles of Guayaquil and
development table it’s because they’ve
Ecuador will find a deep and qualified
Quito”,
Chairman,
managed to find a way to harness the
labour force. “Employment is low but
Nicolas Armstrong. “We’re independent
power of the private and public sector.
because of the demographic situation
from the Quito chamber but we’ll link
Ecuador is doing that but it will also need
there is a steady stream of graduates,
up with them for certain events and we
international capital and expertise. And
which means that the labour market is
share some members.”
that presents a great opportunity for
International
companies
coming
to
explains
Chamber
‘new’ sectors. In addition to the names
very dynamic.” But while this flow of new,
British investors and businesses that can
technically-focused graduates is good for
The
Chamber’s
membership
is
an
the economy it can also pose challenges
interesting snapshot of British business
for firms setting up operations in
in Ecuador. Large industrial names such
Ecuador. “One problem can be that these
as Unilever and SABMiller sit alongside
graduates feel over-qualified”, explains
shipping and logistic interests, like
Carrera. “This means that there can be
Seatrade, which has a direct route to the
high churn rates as they keep switching
UK, and smaller firms set up by British
employers looking for the job that they
expats in the country. There’s also a
feel they deserve.” And that’s where
smattering of large local corporates,
recruiters like Manpower come in. “It’s all
such as Consorcio Nobis, one of the
about understanding the candidate and
biggest real estate development firms
the needs of the employer. Spending
in the country. “It’s a good mix but
more time on getting the right employee
we’re looking to grow our membership”,
at the beginning can save a lot of money
says Armstrong, “we want to represent
further down the line.”
companies along the whole coast.”
For international firms looking at coming
The list of names shows how accessible
help develop Ecuadorian industry.
PuntoNet uses satellite to bring
23 | Q2 2015
internet to the Galapagos Islands
LatAm INVESTOR
COUNTRY REPORT | ECUADOR PANAMA
Building a New Ecuador The most tangible sign of Ecuador’s economic growth has been the construction industry. Roads, airports, ports and whole new neighbourhoods have sprung up over the last decade. Now, with falling oil prices set to reduce government investment budgets, there will be more opportunities for the private sector… Some of the most fervent advocates of this government’s
“And that’s what the government is trying to do. We are seeing
infrastructure programme can be found on either side of the
that pragmatic concerns trump any ideological opposition to the
country’s biggest bridge. Los Caras. Before the $100million
private sector”, says Acosta. “For example, previously the private
project residents of San Vicente and Bahia de Caraquez were
sector couldn’t develop power plants larger than 40 MW but now
forced to take boats to travel between the two. Now they can
that restriction is being dropped and companies are being invited
cross the two-kilometre bridge in a matter of minutes. “It has
to invest. Indeed there was a presidential decree that established
changed the lives of people on both sides of the Rio Chone”, says
the rules for private public partnerships (PPPs) to allow the private
Elias Loor, a prominent local businessman.
sector to invest in sectors that were reserved for government.”
The bridge, which had been promised by previous administrations
That transition may be a challenge for the government but many
but never delivered, is a perfect example of the building boom
within the industry regard it as an opportunity. Rafael Miranda
that has powered Ecuador’s economy over the last eight years.
Roca, founder of Ciport, Ecuador’s leading marine construction
Because in addition to linking up two relatively small towns
company, is optimistic about the future. Ciport has been involved
on Ecuador’s coastline it also facilitates the transport of goods
CIPORT
from northern and central parts of the country to Manta, a fastgrowing port that provides a direct link to Asia. In total, Ecuador has spent around $8billion on improving its road transport network since 2008. It’s also invested $320million in 21 new or refurbished airports, while there are new gas pipelines and power plants. Meanwhile there has been a rapid growth in public and private residential real estate development with the country undergoing a much needed expansion of its housing stock.
Changing finance model But now a change is afoot. Much of the infrastructure boom was financed from oil earnings so with the price of oil falling Ecuador will now have to find other finance sources, explains Alberto Acosta Burneo, Editor at Grupo Spurrier, an independent economic consultancy and publisher. “The government has a fiscal rule that says current expenses must be financed by fiscal revenue, such as taxes, so any funds for investment must come from oil or external debt. So now the government has the hard task of shifting the model for investment in infrastructure from public to private.
LatAm INVESTOR
Av. Francisco de Orellana y Miguel H.Alcívar Edificio Las Cámaras Piso 7 Oficina 702 - Telf: 2680485 Guayaquil - Ecuador
24 | Q2 2015
in some of the country’s biggest infrastructure projects, from the Los Caras bridge to the Marine Terminal for Gas Tankers in Monterverde Ecuador. But despite the fact that it thrived under the old model, Miranda Roca has no fear about the new conditions. “This government is very pragmatic and wants to team up with the private sector. After all, there are still lots of stuff to build
Rafael Miranda Roca, founder of Ciport
here.” Miranda Roca points to the plans for new deep-water ports in Posorja and in Manta. “It seems that the government will use
this is a common problem across Latin America. Speaking at a
the concession model and invite a leading international player,
Sustainable Urban Development conference arranged by the
such as APM or Hutchison Whampoa, to develop the project.
British and Ecuadorian Chamber of Commerce and Industry,
We’ve worked, indirectly, for these types of clients in other ports,
Guayaquil, Stronati explained that finding and financing the
such as Callao in Peru, so I have no doubt we will do so again
solutions to these problems will be a growing investment trend
here in Ecuador.”
in coming years. “For every new urban infrastructure project the focus will be on the environmental impact that it will have and
Miranda Roca isn’t just optimistic about Ciport’s prospects – he
the improvement in quality of life that it can offer citizens.” And
also believes that it’s a great time for British investors to look at
judging by the full house at the conference it’s a theme that
Ecuador’s infrastructure and construction sector. “The size of the
companies from both Ecuador and the UK are already exploring
new projects meant that Ciport will look to make alliances with
with interest.
other international and local contractors to improve our chances of obtaining work.” Ciport already has experience working with
In theory you’d expect the housing market in Ecuador to be
European names, such as Spain’s FCC in Peru, and Miranda Roca
facing a bleak future as falling oil revenue starts to impact
is open to new partnerships with British firms.
the country’s economic growth. Yet those within the industry remain quite bullish. “I think we will see a shift in focus”, says
21st Century Cities
Mario Burbano, Director of Stategy for Mutualista Pichincha, one
But the construction opportunities aren’t just focused around
of Ecuador’s biggest real estate developers. “Of course residential
‘productive infrastructure’ such as roads, ports and power stations
housing isn’t completely removed from the wider economy yet
– Ecuador’s fast-growing cities make urban development an
there is a big need in certain areas that will continue to be filled,
interesting investment theme too. “Ecuador’s rapid economic
even during slower growth.” He highlights lower priced housing
growth has put pressures on the existing city development
– units sold for below $60,000 – as an area that should continue
models”, explains Jaime Rumbea, Executive Director of the
to remain interesting for investors. Pichincha is planning to open
Association of Ecuadorian Residential Real Estate Developers
up several international finance vehicles that will allow British
(APIVE, by its Spanish acronym). “There has been a rapid growth
investors to gain exposure to the theme.
of gated communities across all price segments of the market and now there is talk of more mixed-use projects.”
Ecuador’s building boom became the symbol of the Ecuadorian economic miracle, with the construction industry growing at
For city dwellers in Guayaquil or Quito, the desire to get out of
10% per year. This year growth in the industry is likely to come
crowded city centres echoes the ‘flight to the suburbs’ witnessed
in at 6% - that’s lower but it’s still enough to create plenty of
in several US or European centres. Yet poor planning and rapid
opportunities. Moreover, the emergence of PPPs and concession
population growth mean that Ecuadorian cities have acute traffic,
models should lead to more deals being offered to the private
energy and waste disposal issues. Davide Stronati, a sustainable
sector. Needless to say, it’s an area that LatAm INVESTOR readers
urban infrastructure expert at Mott MacDonald, believes that
should keep an eye on.
25 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR PANAMA
Plenty of Room at the Inn LatAm INVESTOR sits down with Ecuador’s new Minister for Tourism, Sandra Naranjo, to discuss Ecuador’s burgeoning tourist industry… in persuading people to visit the country? MN: The thing with a campaign like this is that it’s cumulative and the effect builds up over time. So in fact we will be running the campaign throughout the year and the Super Bowl was just a part of that. Of course the ultimate aim is that more people visit the country, not see the advert. According to our analysis it will take than a 1%be increase of number ... less it would of annual visitors to cover the cost of the impossible for the advert. But we’re more ambitious than government to that and we’re hoping for 5%. We expect work to boost to seealone the first impact on visitors during theproductivity summer because generally that is the
Ecuadorian Minister of Tourism, Sandra Naranjo
LatAm INVESTOR: The ‘All you need is Ecuador’ campaign has generated a lot of headlines recently, especially with $3.5million Super Bowl advert; can you tell our readers the strategy behind the campaign? Minister Naranjo: The ‘All you need is Ecuador’ campaign was launched in April last year and I think it’s a watermark in the promotion of this country’s tourist industry. It has been a well-conducted campaign that has attracted a lot of attention and so far, in terms of impact, around 660 million people have seen it. The reason why we broadcast in Super Bowl is that the USA is one of our main source markets for tourists. US tourists also have high average expenditure and there is a great connectivity between the two countries with about 70 flights
LatAm INVESTOR
per week. We thought it was important
peak time for the US market..
to give a very powerful message of what Ecuador is doing and I think that advertising in the Super Bowl shows that the country is playing in the big league. It’s a strong signal of what tourism means for country and our commitment to that sector. We’re also very happy in terms of results as the latest data shows that around 66 million people saw it on TV, while another 67 million saw it via
LAI: Ecuador is situated in a very competitive tourist neighbourhood, with Peru offering Machu Picchu and Colombia having Cartagena; what are Ecuador’s competitive advantages with regards to attracting tourists?
social media, so it achieved a total of 133 million views in just one week.
MN: We have many! First we have the Galapagos Islands, which is something
The advert also generated a lot of free
unique to this country and probably the
press. Ecuador was the first country to
most well-known thing about Ecuador.
advertise in the Super Bowl so we made
Now our main challenge is to show that
a bit of history. There were articles in
Ecuador is much more than just the
the BBC, Wall St Journal and Bloomberg,
Galapagos. I think Ecuador’s advantage
among others, talking about our move.
is that it’s a very small territory that has four very distinct climatic zones. You
LAI: It’s all very well that people see the advert but do you think it will be effective
26 | Q2 2015
have jungle, mountain, coastal and the Galapagos. Each of those regions also has its own culture and gastronomy and because the territory is so small a visitor
can enjoy them all in a shorter space of time than elsewhere. For example, here in Ecuador it’s possible to breakfast in the Amazon, have lunch by a volcano in the Andes, then dine on the seafront before taking a plane to Galapagos – all in just one day.
LAI: So how can LatAm INVESTOR readers invest in Ecuador’s tourism industry – where are the opportunities? MN: I think it is a very good moment for the tourist industry currently. This government has recognised the importance that tourism has for economic growth and social development. Another factor is the attitude – we as a government are supporting the private sector, we’re not trying to do it alone. The Ministry of Tourism works hand-in-hand with investors; I see investors in our industry as long-term partners because that’s what they are for us. We help them with paper work and travel the country with them highlighting potential opportunities. There is lots of potential here for investors. Ecuador saw tourist visitors rise by 14% last year, three times faster than world rate. The best opportunities are those to do with increasing our supply to high-quality
The Galapagos gives something that no other country can offer and cultural resources. That’s an incredible
doing that means creating new products
potential that we have but also a challenge
and new reasons to stay. One way we
because they are resources that you have
can do this is by connecting the regions.
to preserve. We believe that tourism has to
This country has invested about $8billion
be a long-term business so we are not just
in roads and developed 14 airports in
thinking of this generation but looking to
what is a small country, so the internal
the future by trying to make it sustainable
connectivity is really good. The other way
in the long run. This acts as a constraint as
to encourage visitors to spend more is
we can not be a mass market for tourism
through the quality of the infrastructure
like the Dominican Republic. Instead
and the services. If you only have lower-
we have to focus more on increasing
priced services, then tourists can’t spend
expenditure per tourist than tourist visitor
even if they want to. We are conscious
growth.
that we need to increase the quality of our services so that we can increase the
Of course we can’t just expect tourists to
quantity of the visitor spend.
turn up here and spend more money we need to persuade them to stay longer and
hotels and services. Another interesting niche is housing for expats. Ecuador has become the number one destination for North American retirees, so we’re seeing lots of exciting projects in this part of the market. Along the coast of Ecuador, in the Andes and even in the jungle we have seen work begin on around $600million worth of planned projects.
LAI: What type of visitor are you hoping to attract and what type of tourist industry are you trying to create here? MN: Ecuador has been ranked in the top 25 globally in terms of potential of natural
Ecuador boasts a rich variety of incredible landscapes
27 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR
Adding Value For centuries Ecuador has been an important producer of raw agricultural commodities. Now the government wants to capitalise on that strength and become a force in value-added food production…
F
or any country to be a success in
isn’t easy”, admits Peralta. “We can’t
Ecuador’s most productive agricultural
today’s global economy it needs to
compete on the same products as they
zones.
play to its competitive advantages.
have much larger economies of scale. So
And, as we’ve discussed elsewhere in this
instead we have created a unique, and
León’s
report, one of Ecuador’s main assets is
in my opinion far better, product.” Pacari
and demonstrates the potential for
its incredible agricultural potential. But
makes organic chocolate from raw cacao.
international investors to succeed in
while Ecuador is a powerful producer
Whereas a typical European chocolate
Ecuador’s processed foods sector. León
of ‘soft commodities’, until now it has
bar – for example think Cadburys in the
arrived in Ecuador from Hong Kong
done a poor job of extracting the most
UK – might have 5% cacao, Pacari’s bars
1975 looking to make his fortune. He
value from its resources. Take chocolate
typically have 70%.“
made straight for Quevedo, which is a
for example. Ask anyone in the world
story
is
a
remarkable
one,
hub for Chinese immigrants in Ecuador.
where the best chocolate comes from
Pacari owes much of its success to
When he arrived his fellow countrymen
and they will likely say Switzerland - an
local ingredients. Ecuador has a distinct
helped him get on his feet, yet despite
absurdity given that Switzerland doesn’t
aromatic strain of cacao that gives a rich
Quevedo’s big presence in the country
have a single cacao tree. Since colonial
flavour and it also has any number of
León
times Ecuador has exported raw cacao
delicious fruits to create fusions. Yet this
others seemed to have missed. Despite
for Europeans to export, but is Ecuador
advantage doesn’t just help producers
Ecuador growing considerable amounts
really incapable of producing its own
of
Shrewd
of soy there was no locally-produced
finished chocolate?
Ecuadorian producers are also using
soy sauce or salsa China (Chinese sauce)
these advantages for the mass consumer
as it’s known in Ecuador. So, in an early
market.
example of import substitution, León
The answer, according to Santiago
luxury
niche
products.
Peralta, CEO of Pacari Chocolate, is a
spotted
an
opportunity
that
decided to start producing his own. His
resounding ‘no’. Pacari is one of three
One company that’s been pioneering
first clients were Chinese restaurants
local
re-writing
value-added processed foods from local
– Ecuador, like neighbouring Peru, has
the centuries-old chocolate trade. It
producers
ingredients long before this government
experienced
is
producing
that
finished
are
chocolate
considerable
Chinese
in
came to power is Grupo Oriental.
immigration over the years – before his
Ecuador and then exporting that to
Spearheaded by Wilson Kung Pik León
salsa China gradually became a favourite
Europe. “Breaking into a market against
Lee, known locally as Don Wilson León,
among Ecuadorian housewives. Indeed,
established, and very large, competitors
the firm is based in Quevedo – one of
Chinese food is very popular in Ecuador.
Grupo Oriental has invested heavily in food production technology
LatAm INVESTOR
28 | Q2 2015
29 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR From that humble beginning León has
exports salsa China to China, which
gone from strength-to-strength and
speaks volumes about the quality of the
Grupo Oriental now produces more than
product.
200 processed food items. The success is partly down to the firm’s ability to spot
But while Ecuador’s unique geographic
changing trends in the food industry. For
and climatic conditions have long been
example, Grupo Oriental introduced a
a big boon to food producers, two
range of ready meals to the Ecuadorian
newer factors also look set to give local
market when León realised that the same
agribusiness firms a boost. The first one,
social changes that made these products
which is already starting to have an effect,
popular in Europe and America were also
is the salvaguardias (safeguards), import
starting to drive demand in Ecuador.
taxes that were introduced in March as
Don Wilson León Lee, Executive
More recently the group has focused on
a temporary measure to reduce imports.
President of Grupo Oriental
health foods; using local ingredients to
The taxes don’t apply to any of the raw
produce tasty but healthy snacks.
materials that local producers use, but do
Gustavo Wray, General Manager of
apply to finished or processed consumer
Agripac. “We hired a very good manager
goods that are imported to the country.
with experience in that area, invested in
As a result locally-produced food has
a factory line and developed a product
suddenly got a lot more competitive
called Nutra Pro, which is competing with
in the Ecuadorian market against its
other premium dog food brands. Now
international competition.
with these salvaguardias our product will be more competitive against the
Take Corporación Superior, for example.
imported options.”
The firm began life as a miller of imported wheat in 1970. But around 12 years ago
The second factor that is causing
it decided to expand its business lines
optimism in agribusiness is the trade
and start producing finished, wheat-
agreement with the EU. The deal that
León recognises that Grupo Oriental has
derived products such as biscuits, pasta
was signed in 2014 is due to be ratified
benefited from the wide variety of crops
and snacks. “The salvaguardias make a lot
by European member countries in 2016
that Ecuador can produce. “The main
of sense for the processed food market”,
and will gradually see tariffs fall on
advantage of Ecuadorian agriculture is
says David Vergara, Executive Director
Ecuadorian goods entering the European
the variety and quality of the products
of Corporación Superior. “For example
market. That may seem contradictory
that we can find locally. Without a doubt
the Ecuadorian confectionary market
to the boost they’re getting from the
this has allowed us to offer, nationally and
but
most
Ecuadorian
is dominated by international names
salvaguardias
internationally a wide range of processed
despite the fact that local producers can
producers are firmly fixed on winning
food. The terrain of this beautiful country
make products of the same quality.” For
more exports.
has a nature, a life, a fertility that very
Vergara’s company the new taxes have
few others possess. And that’s why we
come at the perfect time. “We have spent
“Signing a deal like this is of great
can make international-quality products
the last 12 years developing a range of
importance for the future of Ecuador”,
with high nutritional standards and
excellent products, so we are optimistic
says León, whose company already
why Ecuadorian food products can be
that we can make the most of this
exports to European countries like
found around the world, providing the
temporary measure.” It’s not that local
Spain, “especially when you consider
ingredients for infinite national and
companies need protection, says Vergara,
the size of the European market and
international makes.
but this move will push consumers to try
the potential it has. But we believe that
more Ecuadorian-produced food and
this agreement shouldn’t just be used to
they will be pleased with the results.
push agricultural commodity exports but
According to León one of the group’s
agro-industrial ones as well. Indeed one
competitive advantages is that it controls the whole production cycle – from farm
Another interesting example is pet
of the markets with the best potential for
to finished product. As a result it can
food. Previously premium dog or cat
our products is precisely the EU.”
control quality and give added value
food was imported but now Agripac
to its brand. For example Oriental even
is manufacturing it locally, explains
LatAm INVESTOR
30 | Q2 2015
“As an industry we believe that these
types of agreements help us expand to
infrastructure. If you look at the roads,
those countries in the EU that we haven’t
it’s now much quicker and safer for us
reached yet”, says León. We are confident
to get our goods across the country.
that Grupo Oriental will be representing
We’ve also seen a massive difference
both Ecuador and Latin America in these
with the airports. The economic growth
European markets in the best possible
has also helped local demand grow,
way. After all, we’ve been preparing for the
which has given us the scale we need to
last 40 years to take advantage of every
start making products for international
one of the opportunities and challenges
markets.”
David Vergara, Executive Director of Corporación Superior
that have presented themselves.” León recognises the ‘important’ help Another industry player that is optimistic
of the national government to agro-
on Europe is Wilmington Ramirez, CEO
industrial producers across the country.
of Don Joaquin Gourmet. An offshoot
Nonetheless he believes that “you can
of ProveAgro, an Ecuadorian maker of
always do more”. He suggests “training
everything from ketchup to caña (a
schemes and a technology programme”
local firewater), Don Joaquin Gourmet
to improve the sector as “subsidies and
specialises in luxury sauces, condiments
tariff exemptions aren’t the only way.”
and spices made from local ingredients. “Our products target specific high-value
But the government isn’t just looking to
niches – for example some are gluten
help local producers; it is also keen to
free, kosher and vegan – that are very
attract international investors that can
sought-after in the European market. Our
help boost Ecuador’s agro-industries. The
local sales can help cover costs but really
first point of contact for any international
the long-term vision for these types of
investor looking to take advantage of the
products is the European and North
excellent conditions available at present
American markets.” The firm is innovating
is Pro Ecuador. And Carlos Lara, Director
with new flavours that don’t yet exist in
of Investment at the organisation, is keen
Europe. Creations such as the chilli with
to welcome international newcomers.
passion fruit dip to accompany snacks,
“It’s well known that Ecuador wants to change from being exporter of raw materials to producing value-added goods. So as a country we are creating incentives for firms that want to come here and help us develop technology and create added value here in Ecuador.” One firm that is testament to this is Salpa – a Swiss chocolatier that recently developed cacao plantations and a processing plant in Ecuador. Salpa has invested almost $10million in developing about 550 hectares of cacao plantations and building a plant to treat cacao locally, which is the first step to eventually carrying out much more processing in
Ecuador.
Founder,
Paul
Burros,
acknowledges that Pro Ecuador has been a big support. “We ask them questions
should help the brand to differentiate
once or twice a week, perhaps about the
itself from competition in European
tax situation or financing issues, and we
supermarkets.
get very good help.”
Vergara believes that, even before the
Ecuador’s agro-industries are enjoying
deal was signed, this government’s
a perfect mix of natural and man-made
measures have been making Ecuadorian
advantages. Those international investors
agro-industry more competitive. “One
that invest now can expect to reap plenty
big improvement has been transport
of rewards.
31 | Q2 2015
LatAm INVESTOR
PRO ECUADOR AS YOUR BUSINESS ALLY The Investment Department of PRO ECUADOR and its 30 Commercial Offices (OCES) around the world, organise business missions, where potential investors that are interested in accessing new markets receive a bespoke agenda of meetings with representatives from public and private institutions from the sector of their interest. These missions help provide a broad perspective of the local business environment. Contact us and get our services:
LatAm INVESTOR
32 | Q2 2015
• No income tax for 5 years • 0% currency departure tax • No tax on machinery imports • 8 years of political stability • GDP growth rate of 4.5% is higher than the Latin American and Caribbean average • One of the lowest unemployment rates at 3.8% • 85% of highway system has been renewed and enlarged with public investment of more than $8billion • 21 new or refurbished airports with public investment of more than $320million • 8 new hydroelectric plants for 2016 with a public and private investment of more than $4.5billion • $0.08 Kw/hr, one of the lowest energy costs for business in the region $0.29 per litre of diesel, the lowest cost of fuel for industry after Venezuela
• $0.72 per cubic metre of water, one of the lowest costs of water for companies in the region
33 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR
An Ecuadorian Welcome Ecuador is a small country crammed with some of the world’s most impressive tourist attractions yet it receives less visitors than most of its neighbours. Now the government and the private sector are working together to boost the tourist sector, which is throwing up lots of investment opportunities…
T
his year’s Super Bowl was a
$60million to $70million so that’s great
a small country with great roads which
classic. The outcome of the final
for us.” So far this greater budget has been
means that cash-rich, time-poor tourists
of the USA’s American Football
reflected in visitor numbers. The amount
from Europe can squeeze everything into
competition was decided by a last-
of tourists coming to Ecuador in 2014
two or three weeks.” Indeed, while it’s not
minute touchdown. It was the closest
rose by 14% and another rise is expected
part of the Ministry of Tourism’s remit,
Super Bowl in recent history. But the
for this year. “It feels like it’s going to be
Simon believes that the work to improve
final was also memorable for events off
a good year”, says Gino Luzi, General
Ecuador’s
the field. Ecuador’s decision to broadcast
Manager of Grand Hotel Guayaquil. “Of
$8billion has been invested since 2007
an advert in the commercial break made
course it’s too early to tell what impact
– has had a big impact on the sector. “I
it the first ever country to buy a space
the advert is having as tour operators put
see it with my clients. It has opened up
in the event, which is the world’s most
their packages together very early but so
new destinations and made more places
expensive advertising slot.
far guest numbers are looking up.”
accessible. It’s also great for me because
road
network
–
approx
the cars get damaged far less frequently.” Like
most
pioneering
moves
the
decision to spend $3.5million on the
Strong selling points Of course it’s easier to market something
But Ecuador isn’t just trying to get more
30-second advert courted both praise
if it has strong selling points – and
tourists. It’s also trying to leverage its
and
was
fortunately Ecuador does. “We’re very
amazing tourist assets to persuade
the brainchild of Ecuador’s Minister of
lucky in the sense that we have an
visitors to spend more. As Minister
Tourism, Sandra Naranjo, who makes
amazing range of natural resources
Naranjo explains, the vision for tourism
a good case for the advantages in
to offer tourists”, says Utreras. “Visitors
isn’t for a high-volume market but
her exclusive interview with LatAm
can enjoy the world’s most bio-diverse
instead high-spending customers. For
INVESTOR, which you can read elsewhere
jungle, active volcanoes, snow-capped
that to happen Ecuador also needs to
in the report. But regardless of whether
mountains, pristine beaches and, of
develop the infrastructure, services and
you agree or disagree with the move one
course, the Galapagos Islands. And that
experiences that will encourage these
thing is clear. It signals that Ecuador is
geographic diversity has helped create
visitors to spend money and recommend
now serious about promoting its tourist
fascinating and distinct cultures and
the country to friends back home. And
industry.
communities in each of these areas,
it’s here that Ecuador faces the biggest
which all come with their own local
challenges.
controversy. The
decision
That’s the view among the private sector,
cuisine.”
More regulation please
where hoteliers and tourist operators love the new promotion efforts. “I’ve
The fact is that very few countries in
One bone of contention in the industry is
been in this industry for a long time”,
the world can offer a similar breadth of
the system of standards and regulations.
says Diego Utreras, Executive Director of
experience. And size is another factor,
This may sound odd to readers in the
the Hotels Association of Ecuador, “and
says Yamil Simon Munaro, founder of
UK but hotel owners and operators in
this is a big change from the old days.
Quito-based Simon Car Rental. “Even if
the private sector actually want more of
Before the government used to spend
another country had all of the attractions
them. One man well-placed to explain
around $4million on promoting Ecuador
that Ecuador does, it would take tourists
is Marco Ruiz, the President of Pronobis,
as a tourist budget, now it spends around
much longer to get there. Ecuador is
which is the largest Ecuadorian real
LatAm INVESTOR
34 | Q2 2015
35 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR PANAMA estate developer and a significant player
alone. That gives hotels here a good
where visitors can see historic buildings,
in the tourist market. It has developed
pool of chefs to choose from. It also
walk along the new promenade and still
approximately
high-
helps that we have top brands like the
be right in the heart of downtown.”
quality hotels, such as the Wyndham in
Marriot, Wyndham, Hilton etc, here in the
Grand Hotel Guayaquil is one of the city’s
Guayaquil, it is currently building a new
country. They produce and train good
icons, sharing the block with Guayaquil’s
5-star hotel in Quito Airport and is also
workers, which raises standards across
neo-Gothic cathedral. Perhaps the most
planning
the industry.”
concrete sign of Luzi’s optimism is the
a
800
rooms
massive,
of
internationally-
focused beachside real estate project.
$5million
refurbishment
programme
Another challenge is the set of import
currently being carried out on Grand
“At the moment Ecuador has lots of
taxes,
Hotel Guayaquil. “It is almost finished and
informal players in the tourism market,
says Michel Thorin, General Manager
which isn’t ideal for attracting the high-
of the Sheraton Quito. “As a hotel we
end traveller. The problem with informal
have to offer international standards.
But
players is that the standard varies greatly
We can’t offer caña instead of whiskey,
business hotels in Ecuador would need
from one place to another. High-net-
so obviously these taxes could have a
to be sure to thoroughly research local
worth individuals are very loyal to certain
big impact. If they make staying here
rates of return, cautions Thorin. His firm
brands of hotels and resorts and these
more expensive than in neighbouring
is a third-party operator of almost 60
people have particular standards of
countries then visitors may think twice.”
hotels across Latin America, which gives
living. Ecuador doesn’t really cater for
known
as
the
salvaguardias,
has really rejuvenated the place.” investors
looking
to
establish
it a good platform to make comparisons.
that at the moment - or if it does it’s in a
Diverse opportunities
boutique, small way.”
Given the diverse nature of Ecuador’s
go for around $105 to $110 per night.
“Here in Ecuador a 5-star room will
tourist offering it is little surprise that
That’s far cheaper than in Colombia,
This view is shared across the industry. For
opportunities can be found in a range
where you’re looking at $160. You can
example, Utreras notes that he has been
of areas. In the major cities of Guayaquil
still have profitable operations here but
waiting for 12 years for a government
and Quito one of the most exciting parts
it’s a different market to neighbouring
to do something about the inconsistent
of the market is the business traveller.
countries.” Also a law banning casinos
and poorly enforced standards system.
Guayaquil benefits from a former airport-
means that hotel operators can’t rely on
But now, finally, it seems that the
turned convention centre and Quito,
them to supplement profits as they do in
problem is about to be fixed. The Minister
while hoping the same will happen to
other Latin American countries.
of Tourism, Sandra Naranjo, mentions in
its old airport, can make the most out of
her interview that this is one of her key
several mid-sized venues.
priorities and private sector players like
There are also plenty of opportunities in Guayaquil’s hinterland. Surprisingly,
Ruiz are optimistic that this “will help to
“Business travellers make up most of my
given that it is generally well-conserved
separate the good from the bad”.
customers”, says Luzi. “But even though
and unspoiled by urban developments,
these people are here for business, they
Ecuador’s jungle tourist market is already
Luzi also welcomes the move although he
still want to be able to enjoy life outside of
quite mature. The excellent roads have
believes that the private sector is doing a
work hours. We’ve benefited a lot in recent
made it much more accessible, while
good job of pushing up standards. “There
years from the regeneration of Guayaquil.
the ecologically sensitive nature of the
are seven culinary schools in Guayaquil
We’re situated in the restored centre,
terrain means that it’s better suited to the host of boutique, ‘eco lodges’ that have sprung up. For Mora, whose firm is also a member of the British Chamber of Commerce, the Andes also have interesting tourist potential. “Walking
holidays,
hiking,
community experiences – these are also very popular with European clients.” However, he warns that interaction with Andean communities needs to be well Ecuador’s coast more to offer than just beach
LatAm INVESTOR
managed so that it works for both sides.
36 | Q2 2015
Just an hour’s drive from Guayaquil, Karibao will be a highend residential development set in 50 hectares of land. It’s the Marco Ruiz, President of ProNobis
largest project of its type ever tried in Ecuador and will be a ‘mini city’ with up to 4,000 apartments and a hotel spread
“I think that there is this perception that you can turn up with a
across 38 buildings.
tour group and you’ll be greeted with open arms by an idylliclooking community. It’s not like that. You really need to research
The idea is to build a self-contained experience, explains
the community to make sure that it’s the type of experience
Ruiz. “Folks won’t need to leave the project as they will have
that your clients want and then speak with the community to
just about everything and transport within the development
make sure that they are interested too.” He suggests that the
will be via environmentally-friendly golf carts. But the really
government could help prepare the communities so that they’d
unique thing about Karibao is the crystal lagoon. The project is
be better able to capitalise on tourist interest in their way of life.
using cutting edge technology to create an artificial, but living, lagoon which will be in the centre of the development.”
Surprisingly, given that it’s normally the first target for tourism developers, Ecuador’s coastline remains remarkably untouched.
This type of development is exactly what Minister Naranjo
“We’ve really not developed our beach zone as much as
means, when she talks of building the tourist infrastructure
you would think”, explains Norman Bock Torres, Executive
and services needed to attract the high-spending visitor. But
President of Quito Metropolitan Hotels. “Ecuador has a series of
there is still much more that needs to be done. And that’s why
advantages for investors in the coastal area. If you look at land
investors looking at the sector should investigate Ecuador’s
prices we are still lower than most places on the Caribbean,
tourist opportunities further.
the Atlantic and Pacific Coast. Beachside land here in Ecuador is much cheaper than in Colombia for example. Some of those advantages are being eroded, for example cost of construction here was the cheapest and now it is getting more expensive. But overall it’s a very competitive package.”
Golden retirement But the most promising niche of all is the international retiree. Over the last ten years Ecuador has become one of the world’s premier retirement destinations for retired North American citizens. For example International Living Magazine ranks it as ‘The World’s Number 1 Retirement Haven’. A combination of safe streets, good private medical services, a benign sunny climate, friendly locals, great food and excellent connectivity with the US have all helped. So too has the fact that Ecuador is a dollarised economy. The removal of the exchange rate factor makes financial planning easier for US retirees who are often living off set returns from fixed income investments. This is a growing and wealthy market for investors to tap into. Indeed Pronobis is doing just that with an ambitious internationally-focused real estate project on Ecuador’s coast.
37 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR
Time for Change… We caught up with Victor Jurado, Executive Director of Pro Ecuador, to find out how international investors can be part of Ecuador’s economic transition… LAI: It’s an interesting time of transition for the Ecuadorian economy; where are the opportunities for British investors? VJ: It’s important that your readers realise that Ecuador is currently embarking on a change of the productive matrix. Needless to say much of the investment that is needed and the opportunities that
Victor Jurado, Executive Director of Pro Ecuador
exist are found around this public policy.
LatAm INVESTOR: Pro Ecuador is a relatively new institution; can you explain how you help investors?
We are trying to add value to the
Victor Jurado: We were set up at the
involve more science in our products
traditional export offer. So if you look at an area like agriculture we are trying to add value with more agro-industry and processed foods. We are trying to
at how that could relate to our existing economy. So, for instance, when we attended the recent BIOFACH – an international organic food fair – we didn’t just bring the usual selection of agricultural products. We also brought some Ecuadorian technology companies that make devices for smart farming. One example is a firm that makes drones with special infra-red sensors that can fly over a large plantation and let farmers know which parts need more irrigation.
LAI: The government’s recent import taxes, ‘las salvaguardias’ (the safeguards), surprised many in the business community; how will they impact the competitiveness of Ecuadorian production?
end of 2010 and we’re the official agency
and in the longer term we are aiming
for promoting of non-oil exports and
to build expertise in bio-technology.
attracting investment - so it’s a double
We already have some exciting projects,
mandate. On the export side we use
for example one of the world’s most
VJ: This is a temporary measure that is
trade shows, fairs, B2B events etc to
developed aquaculture laboratories is
addressing the balance of payments
help
export
in the province Santa Elena. It’s a good
problem caused by falling price of oil.
more. When it comes to attracting
example of how we’re adding science
Also – and this is especially relevant
investment we don’t get involved with
to our natural strengths. We also have
from Pro Ecuador’s point of view – it’s a
the
sectors,
a lab in the jungle that specialises in
response to the devaluation that we’ve
such as the hydroelectric plants, ports
biodiversity and draws on the fact that
seen take place in the currencies of
and refinery, but rather we focus
our part of the Amazon is the most bio-
competitor countries such as Colombia
on opportunities in the productive
diverse place on earth. But there are
and Peru. Their devaluation has reduced
sector. Here we offer investors advice,
many other areas where this could be
the costs of their exports, which makes
consultancy and help them understand
happening. Water management and
ours less competitive. As a dollarised
not only the investments that exist
waste-to-energy projects are just some
economy we can’t manage our currency
but how things work with regards to
ways that we could use technology to
so we’ve had to use the salvaguardias.
government incentives etc. We can find
add value to our natural resources in the
them the meetings they need with the
future.
Ecuadorian-based
government’s
firms
strategic
But I want to clarify something: this measure has important exemptions. Raw
private and public sector, even up to a Presidential level, depending on the
We’re also keen to push software
materials or capital goods that are used
need and level of the business.
development and, again, we’re looking
for local production are not subject to
LatAm INVESTOR
38 | Q2 2015
Ecuador has already established itself in areas of light manufacturing such as textiles.
four principles’ – namely, respect for
this tax. Of course it’s hard to calculate
improving
exactly which materials or machinery is
position
create
the worker, who is paid a fair wage; the
needed for production so there may be
excellent conditions for international
consumer, who receives good quality;
some cases where exemptions should
investors right now. In fact it’s not just
the society, as the firms pay their taxes;
be extended. The government is open to
international investors. Recently the
and the environment. Some countries
that and is prepared to listen and respond
major players in the Ecuadorian private
are guilty of ‘social dumping’ where they
to local producers if they have been
sector had an important meeting with
export products made by child labour
affected. So, ultimately, this won’t have
the private sector where they discussed
or with a terrible environmental price
an impact on exporters. This measure is
the emerging investment opportunities
- we don’t. We produce responsible,
intended to boost the competitiveness
in the country. This shows that now is a
sustainable exports that fit well with the
of Ecuadorian producers and balance
great time to invest here.
needs of the European market. It’s clear that this agreement will create
LAI: ‘Never waste a good crisis’ is a saying that many investors follow; does the falling oil price make this a great time to invest in Ecuador?
LAI: Ecuador’s trade deal with the EU is very exciting news for British investors; how do you think it will impact Ecuador’s foreign trade and how will Pro Ecuador take advantage of this historic agreement?
VJ: Yes I think it is. Without doubt
VJ: This is a great agreement for our
the
created
institution and the country as the EU is
opportunities. But more than that it’s
the main market for non-oil Ecuadorian
also good timing because a lot of what
exports. But for us it’s not just about
the government has done in previous
the quantity of trade but also the
years – ie investing infrastructure and
quality. European trade involves ‘the
Ecuador’s –
has
macroeconomic
helped
to
the effect of the devaluations of our competitors.
current
situation
has
39 | Q2 2015
opportunities for us and we have a few years until it is fully implemented, which gives us time to take advantage. So we are working with local producers – and international investors that want to set up export operations – to help them spot the opportunities in the European market. We’re also aware that the agreement works both ways so we will be helping local producers that feel threatened by incoming competition and helping them find ways to partner European firms.
LatAm INVESTOR
COUNTRY REPORT | ECUADOR
S2M-CICEB* Ecuador-UK Trade & Investment Mission Roberto F. Salazar-Córdova** Ecuador has been identified globally as a country of
On the other hand, the fiscal figures are related to negative
opportunities for developing large-scale mining and further oil
external factors created by the fall of the price of oil (Ecuador’s
exploration. However, the fall in commodities prices since 2014,
main export, and the second source of fiscal income after taxes):
and expected to remain for 2015-19, creates challenges for the economic growth of the country, which has been led by public
BRENT OIL’S DISMAL 2014
investment during last seven years. Here’s a look at how Brent prices have fared over the last seven years:
As a solution, and as the major change seen in public policies during the period that started in 2007, the national government expects to attract private and international investment, not
$150 $120
only to recover oil production and reduce energy subsidies, particularly from 2016 onwards, but also to develop infrastructure projects, and diverse economic activities in agriculture, industry, and services .
$90 $60
1
2017 onwards. Until then the country will rely on debt issuance,
14 20
13 20
12 20
11 20
20
20
09
The results of the new openness of Ecuador will be seen from
10
$30
the introduction of trade tariffs, and other short-term measures of economic policy required to cope with the unfavourable
With this scenario in mind - and the urgent need of recovery
external scenarios where weaker oil export prices will limit fiscal
of international trade and private investment - a group of 22
revenues required for investment.
members and delegates of the Ecuadorian Hexagon (private sector, public-local government sector, NGOs, indigenous
Figures published by the Central Bank of Ecuador show that the
communities, researchers, and experts) working on projects
country has recorded a twin fiscal-trade deficit. On the trade
financed by national and international organisations, visited
side, the deficit has reached a negative figure of approx $6billion
London, Nottingham and Cambridge during the last week of
in January of 2015. Historically, the Balance of Trade in Ecuador
March 2015.
has an average of minus $2.1billion (1985-2015), with a range of $7.2billion in December of 2014, and $6.2billion in May of 2008:
The Hexagon Dialogue was organised by S2M Foundation, a member of CSR360 Global Partner Network (convened by “Business in the Community”)2, and received support from the
EQUADOR BALANCE OF TRADE 8
British-Ecuadorean Chambers of Trade and Investment, as well
6
as partial funding from the EU “Global Finance Project”.
4 2
The objectives of the mission included the development of
0
common understanding among participants, training in issues
-2
of responsible business, fair trade++, agreements required for
-4
creating trust, the promotion of public-private-community
-6
partnerships, 20 14
** CEO, Hexagon Group LAC (Head of Mission on Behalf of S2M Foundation and CICEB).
international
alliances,
and
alike. Plus the creation of an activity programme for years 20152016 between S2M Foundation and the Universities of Hult, Nottingham, and Cambridge.
[2] See: www.csr360gpn.org/partners/profile/s2m-foundation/
LatAm INVESTOR
and
rural producers to Ecuadorian immigrants and British citizens
* Joint effort of S2M Foundation (Sustainability, Measurement and Mediation) /Hexagon Group and CICEB [1] See: www.eluniverso.com/noticias/2015/02/25/nota/4590211/gobierno-abrepuertas-inversion-sector-privado-decreto
national
channelling industrialised agri-products coming to the UK from
Ja n
20 12 Ja n
20 10 Ja n
20 08 Ja n
20 06 Ja n
In of bil do lio lla ns rs
-8
40 | Q2 2015
This way, the delegates have agreed to coordinate a Programme of Action to be convened via S2M Foundation (EcuadorUK) having them as local partners, and including the British stakeholders which hosted events during the mission. The goal is to create a non-for-profit scheme and model of organisation having as a major aim the common interest in serving the community through future activities of training, education and technical assistance that would add value throughout sectors, government, business and the third-sector organisations in Ecuador and the UK. Ideally, that programme should work at the largest scale possible The delegation had extensive dialogues with the different
in order to become a solution that would pragmatically upscale
members, received information about success stories of
and use concepts of CSR, sustainability, measurement of impact
corporations such as Anglo-American, Marks´ & Spencer,
and mediation with different stakeholders, and create a high
Techo UK, and got training on methodologies and tools for
level of cooperation among local and international business, the
responsible trade and investment, provided by organizations
third sector, government, communities and the media in order
such as BITC, Chrysalis Futures, Kaleidoscope Future, ICCSR
to improve social and environmental conditions in Ecuador
(International Centre for Corporate Social Responsibility -
during years 2015-2020.
Nottingham University) and CISL (Cambridge Institute for Sustainability Leadership - Cambridge University). The meetings
This way, the Hexagonal Group would become a leadership
with corporations were hosted by Hult University (London) and
team focused in driving social and environmental cooperation
organized by S2M Foundation (UK) developing a line of work
projects (as part of the Tzapapentza Program) giving priority to
with Ecuadorian and Latin-American immigrants in the UK and
actions between local and international business, but involving
Europe. With all this support, the delegates and counterparts
as partners institutions of the third sector, government,
reached agreements orientated towards the goals of the mission.
communities
and
the
media,
and
promoting
further
commitment of other institutions interested in becoming allied The next steps agreed and prioritised (by a majority vote among
ones in the implementation of Triple Bottom Line responsible
delegates) include the following fifteen actions:
business practices.
1.
Promote trade and public–private–community partnerships (81%)
2.
Attract foreign investment with technological innovation (81%)
The development objective agreed after the mission is to
3.
Develop creative ideas benefiting small enterprises (78%)
implement this programme as a means to increase business
4.
Protect the economic value of natural resources (78%)
involvement in the community, developing meaningful
5.
Create a common strategic planning for the short, medium and
collaboration between businesses and organisations advancing
long run (78%)
sustainable trade and investment.
6. 7. 8. 9.
Enhance
corporate
sustainability
and
socio-environmental
responsibility (75%)
Finally, a tool has been identified as the best means for creating
Identify strategic donors and sources of potential business
trustable trends of trade, investment, sustainable economic
cooperation (75%)
development, and impact on poverty: the S2M certification on
Act to re-establish trust between economic agents and socio-
Salazar & Visser´s CSR2.0 view on Sustainability, Measurement
environmental actors (72%)
and Mediation (S2M), that will be promoted among the members
Meet regularly for better exchange of experiences and culture
of the delegation in order to generate private and social results
(72%)
under the S2M Software, Tool, and International Certification
10. Institute Hexagon Dialogue at a larger scale, with more actors (72%)
Standard.
11. Work on leadership (67%) 12. Develop incentives and create mechanisms of stimulus for growth (67%)
The corporation that will lead this last part of the work during year 2015 will be SERTECPET, the Oil-Services Ecuadorian
13. Generate long-term agreements via mediation, creating viable and joint actions (67%)
Corporation, together with the Prefecture of Morona Santiago Province, the British-Ecuadorian Chambers of Trade and
14. Do teamwork with all sectors (67%)
Industries, S2M Foundation, and Hexagon Group.
15. Support and name this agenda as “Tzapapentza Program” (in the Ecuadorian Amazon) (61%) 41 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR
Harvesting Profits A rich sea, hot humid lowlands, hundreds of miles of cool Andean mountains and swathes of dense jungle - Ecuador offers just about every farming environment possible.
L
ast
exported
lesser understood niches of Ecuadorian
$2.4billion of shrimp, $2.5billion
year
Ecuador
agriculture that could offer the most
of banana and $1billion of tuna,
interesting opportunities for investors.
making it a major global player in all three. Ecuador’s highlands are also home to world-beating agriculture. On the cool, green slopes of the Andes, Ecuador has developed an extensive fine flowers industry and today the country is the world’s third-largest flower exporter. So it’s clear that the country knows how to convert its natural resources into international commercial success. But Ecuadorian agriculture is undergoing a transition. While the success stories above will remain the country’s key cash crops, Ecuador is seeing a fast growth in other areas. In some cases these are century-old crops that have long-been neglected, in others these are experimental new products being grown in for the first time. But it’s these
LatAm INVESTOR
Essential recovery Maize has been grown in Ecuador for thousands of years and was a staple of the Inca-era Reino de Quito. But during the 20th century the unthinkable happened and Ecuador became an importer of corn. The same happened with rice, which,
Juan Manuel Pérez, General Manager, Crystal Chemical
while a relative newcomer to Ecuadorian
hectare, while here the average is four
agriculture, has also become an integral
tonnes. With corn you had a similar
part of the local food basket.
situation.”
The main culprit is poor productivity,
So when the government of Rafael Correa
explains Juan Manuel Pérez, General
came to power it made reversing this
Manager
an
trend one of its key priorities. “We had the
Ecuadorian producer of crop protection
of
Crystal
Chemical,
chance of talking with the president in
chemicals and fertilizers. “If you look at
2006”, says Pérez. “Back then he asked us
any crop its yield is lower than the Latin
what was going wrong with Ecuadorian
American average. Take rice for example;
agriculture. We told him that one of the
Uruguay produces ten to 12 tonnes per
main issues is that farmers were not
42 | Q2 2015
using certified seeds. Fortunately the
Pérez is so confident about growing
government listened and responded.”
agricultural demand he has created Chemical
Logistics
-
storage
and
a
specialized
In 2012 the government launched Plan
chemical
Semilla de Alto Rendimiento (Plan High-
service
Efficiency Seed). It offered small farmers
of agrochemicals that want to sell in
- less than ten hectares - subsidised
Ecuador.
for
international
distribution producers
seeds and technology in a bid to boost production. The five-year programme
Gustavo Wray, the General Manager of
offered a staggered discount, from 50%
Agripac, one of Ecuador’s leading seed,
in the first year before gradually being
fertilizer and feed suppliers, believes the
scaled down to finish in the final year. The
government’s willingness to work with
idea is that with each year the farmer’s
the private sector is the reason for its
financial benefit from the increase in
success. “Agriculture in Ecuador is very
productivity is enough to offset the
complex because there is such a variety
reduction in subsidy.
of crops here, with different climates and geographies – so it would be impossible
The crucial element to the programme’s
for the government to work alone to
success, says Pérez, was that while the
boost productivity. It needs specialists in
funding came from the government,
different areas and that’s where Agripac
it was implemented by private-sector
comes in.”
and
give
them
complete
of Agripac years ago by Colin Armstrong, a British national that was representing ICI in Ecuador, it has grown from having one shop to 161 that are now dotted around the country. Armstrong has gone on to become UK honorary consul in Guayaquil while Agripac has become an institution for Ecuadorian farmers. Agripac’s decision to sell through it’s own
suppliers like Crystal Chemical. “We as a company had to support the farmer
Gustavo Wray, General Manager
Agripac is a special story. Formed 42
package.
stores, rather than just relying on thirdparty distributors, has given the firm a close relationship with its customers and
We used certified seed, fertiliser and
subsequently a detailed understanding
crop protection to help them raise
of what’s needed to boost production.
production. It was a great success and
Wray believes that finance is crucial.
in first three years we saw average maize
Indeed, long before the government
productivity go from three tonnes per
programme, Agripac was giving credit
hectare to six tonnes, so it doubled. This
to small farmers. “We actually began
year the government announced that
giving finance to small growers of maize
no corn imports were needed so it’s a
around 15 years ago. They received the
programme that has worked.”
complete package of seeds and fertilisers
43 | Q2 2015
LatAm INVESTOR
COUNTRY REPORT | ECUADOR and then they paid us after 150 days by
coffee and cacao were very important
giving us a share of the crop. It has been
exports for Ecuador but both were hit
very successful and helped Agripac to
by spates of plagues and low prices
grow but it has also involved taking on
at various points in the past century.
risk, and over the years we have learned
Cacao is recovering strongly but coffee
how to give credit properly. Sometimes
is still at a much more nascent stage. At
our suppliers give us less credit than we
present the government is encouraging
give our farmers so we have to manage
farmers to develop 100 hectares of coffee
our positions carefully. In a market like
projects but the long-term target is 1,000
Ecuador many farmers are informal
hectares. For grapes the target is also
businesses. This means they can’t go
1,000 hectares.
Carlos Lara, Investment Director, Pro Ecuador
to a bank to get a loan, so we need to carefully evaluate them before giving the
And this is where LatAm INVESTOR
incentive of $1,700 per planted hectare,
credit.”
readers can come in. Ecuador is actively
which covers approximately 20% of the
seeking international investors to help
cost. With coffee there is a scheme that
develop key parts of its agriculture
offers an even more generous $2,000 per
sector. Pro Ecuador is the body in charge
hectare, which again covers around 20%
of handling non-oil investments and
growing costs.
A fresh start As we’ve mentioned elsewhere in the report Ecuador is aggressively trying to change the nature of its trade with the world. Put simply it wants to export more and import less. Moreover Ecuador is keen to diversify its export basket, which at present relies heavily on oil, shrimp and banana. The changes are taking place across the economy but they are throwing up some very interesting investment opportunities in agriculture. Broadly speaking they fall in two categories: they are either meant to replace imports - this is the case with grape - or intended for export, for example avocados are being grown for the Italian market. “The great advantage we have here is that our diverse climate and geography means that we can grow
practically
anything”,
explains
Patricio Salazar, President of GPS Group, a consultancy firm that specialises in helping agricultural producers expand to new crops. “Moreover our weather is remarkably consistent all year around this means that we can time our crops so that our harvest of grapes or avocado comes in the gap between the harvests of the traditional producers. That helps guarantee prices, which is great for investors.” The country also has ambitious plans for coffee, palm oil and cacao. Historically LatAm INVESTOR
the organisation’s Investment Director, Carlos Lara, believes there are lots of
Given the success of the government’s
ways that they can help international
previous agricultural programmes you’d
entrants investing in Ecuador for the
expect these new plans to be a success.
first time. “Pro Ecuador can give all the
Moreover they add to the widespread
necessary information so that they
feeling in the sector that now is the time
understand the opportunities and can
to invest. “At present, agricultural land
calculate the investment potential and
prices here in Ecuador are cheaper than
the possible return. So if we take forestry
in our neighbours”, says Salazar, “but that
as an example, we can provide technical
won’t be the case when both coffee and
details of the concessions available, we
grape plantations have reached 1,000
can make them aware of the various
hectares each.”
incentives being offered by the SubSecretary of Forestry and then we put
The signing of the trade agreement with
this information together into a portfolio
the EU is also a positive signal. Wray
for the investors.”
is upbeat about the agreement and is investing accordingly. “With regards to
Pro
Ecuador
potential
the EU deal we are optimistic because
investors participate in relevant forums.
our company has a strong UK connection
For
so we are aware of the possible
instance,
also it
helps
recently
hosted
a
Forestry Forum in Guayaquil where
opportunities
it invited specific investors to get to
exposure to many of the export crops
know the projects and meet potential
that should benefit. For example three
local partners. “The event was a great
years ago we invested in planes that will
success and should lead to some
allow us to provide banana fumigation.
promising investments.” It’s also worth
In the shrimp sector we are expanding
noting that the government has put in
our feed factory because we are reaching
place generous incentives to encourage
maximum capacity and we believe that
investors to develop these new crops.
demand will continue to rise.”
there.
We
also
have
For example avocado projects, which come under the forestry programme of
Investing is all about timing. And right
the Ministry of Agriculture, Ranching,
now is the perfect moment to invest in
Aquaculture and Fishing, receive an
Ecuadorian agriculture.
44 | Q2 2015
Final Word Ecuador is a country in the midst of an historical transition that’s throwing up plenty of opportunities for British businesses and investors… there may be some technology transfer but that’s not enough on its own. We don’t want firms looking to commercialise imported goods or sell to the state either. We look for companies that can help us change our productive matrix.” Ecuador isn’t just looking for investors and businesses. It is also unveiling a new One thing every Ecuadorian will agree on
value and variety to the country’s exports.
is that the country has changed massively during the last eight years. Whether they
To help achieve this aim the country has
support the government or not they
launched various initiatives to attract
recognise that on a number of key criteria
investors. From subsidies for growing
Ecuador has improved. Education, roads,
new crops, to building a brand new
health, airports – these are all areas that
City of Knowledge in the middle of the
have seen investment and standards soar.
Andes, the government is doing all it can to kick-start these new industries.
These changes have been aimed at
The scale and breadth of the transition
bettering the quality of life for your
is impressive - and it’s throwing up a vast
average Ecuadorian, but they’ve also
number of opportunities. Given the sheer
improved conditions for international
number of government schemes and
investors. Thanks to these measures
amount of emerging industries, investors
British businesses coming to Ecuador will
would do well to contact their local Pro
be able to find more qualified workers and
Ecuador office. As Victor Jurado, Executive
use high-quality infrastructure. Another
Director of Pro Ecuador, makes clear in
surprise for UK firms coming to Ecuador
his interview, the organisation can help
is the positive business environment. As
investors find investment opportunities
Nick Armstrong, Chairman of the British
and avail of all the government incentives
Ecuadorian
available.
Chamber
of
Commerce,
vision for tourism that hopes to attract greater numbers of high-end visitors. As you will have seen in the pictures dotted throughout this report, Ecuador has some truly breathtaking landscapes, flora and fauna. Now, under Minister for Tourism Sandra Naranjo, it is working hard to make the most of its natural endowment. “There are plenty of investment opportunities in the tourist sector”, says Minister Naranjo, “and I’m sure LatAm INVESTOR readers will enjoy coming here to ‘research’ the sector.” When it comes to foreign investment Ecuador isn’t as fashionable as neighbours like Peru or Colombia, yet those who ignore the country are missing out. The fact that it hasn’t been as popular as its neighbours, coupled with the current fall-out from the low oil price, means that there are plenty of bargains to be had for British investors.
Guayaquil, makes clear in the pages of this report, the government is a lot more
Of course Ecuador isn’t giving this money
pro-business than some of the political
away for nothing. It’s a calculated risk that
Investors seeking more information
rhetoric would have you believe.
eventually these international investors
on the opportunities in Ecuador may
will create more wealth through successful
contact:
But as dramatic as the government’s
businesses. Yet for Pro Ecuador the quality
early changes were, it was only the first
of investment is just as important as the
Francisco Mena - Pro Ecuador UK
act. Now, against the dramatic backdrop
quantity, explains Carlos Lara, Director
of falling oil prices, a far more profound
of Investment. “It’s important for me to
transformation is underway. As we’ve
emphasise that we want the right firms.
discussed in the special report, Ecuador is
We don’t want companies that just come
an economy in transition. Its policymakers
here to assemble for the local market
are working to change the productive
because it will cause imports to increase
matrix, foster new industries and add
and the trade deficit to deteriorate. Okay, 45 | Q2 2015
Tel: +44 (0) 2030788040 jyepezf@proecuador.gob.ec or John Abell - British and Ecuadorian Chamber, Guayaquil Tel: +593 43703870 john.abell@camcomeb.com
LatAm INVESTOR
ACADEMIC ANALYSIS
Cuba – Coming in from the Cold David Jessop, Director of the Cuba Initiative, looks at the trade and investment opportunities emerging from the changing relationship Cuba and the US. David Jessop, Director of the Cuba Initiative
infrastructure linking the US and Cuba.
thorny social issues, which can ultimately
But it’s not just US companies that
impact investments, such as human
ast December, US President Barack
could benefit. The US has also removed
rights, marine protected areas and the
Obama and Cuban President Raul
Cuba’s designation as a state sponsor
prevention of migration fraud.
Castro dropped a bombshell and
of terrorism. This label has all but frozen
L
since then everyone has been trying
many European investment and trade
to work out where the pieces will land.
deals with Cuba as big international
When they announced the steps towards
banks with US exposure faced swingeing
A window of opportunity
‘normalising relations’ stock markets
fines if transactions contravened US rules.
In practical terms for business this means that the window of opportunity to be able
rose, politicians complained and Cubans celebrated on the streets. Now, almost
Of course reversing half-century of
to invest and sell without US competition
four months on, analysts have a better
diplomatic standoff has not been all
may be closing fast. At a recent event
idea of how this will impact businesses
plain-sailing. On the American side it’s
for British business organised by the
and investors.
important to note that the White House
Foreign and Commonwealth Office, the
move to improve relations still doesn’t
Minister of State, Hugh Swire, suggested
Since last December the pace of change
affect the trade embargo, which was
that companies should act quickly to
has been rapid. The US and Cuba have
made law by the Helms Burton Act
explore and enter the market. Although
held two bilateral meetings which have
of 1996. With the Republicans, who
it’s difficult to forecast a time horizon for
rapidly expanded the dialogue. So far the
traditionally take a tougher line against
significant change in the US relationship,
talks suggest that US companies could –
Cuba, enjoying full control of Congress,
it may well be rapid. Many commentators
eventually – gain access to wide-ranging
it’s unlikely that Obama will be able to
suggest a timeframe of between two
parts of the Cuban economy.
change that legislation in his presidency.
and five years, noting that most of the major US lobby groups are already active
The measures will make it easier for US
On the Cuban side, Castro has made clear
in Congress and are seeking to have
exporters to sell goods in Cuba and vice
that the process of full normalisation will
the embargo loosened if not eventually
versa; many more US citizens will be able
be slow as long as the US embargo exists.
removed.
to travel to Cuba; there would be tri-lateral
Another sticking point is Guantanamo
talks initiated involving the US, Mexico
Bay, which was leased to the US before
So far British firms have been slow to seize
and Cuba on the delimitation of maritime
the revolution, but has since been
the opportunity. Levels of UK-Cuba trade
boundaries in the Gulf of Mexico, an area
deemed an illegal occupation by Cuban
are very low with the UK exports to Cuba
where significant oil reserves are likely to
authorities.
hitting £22million in 2013, down from £25million in 2012. Imports are slightly
be found; US institutions will be permitted to open correspondent accounts at
These types of hurdles make it clear
higher, hitting £105million in 2013, up
Cuban financial institutions; and US credit
that we can’t expect a deal immediately.
from £33million in 2012. But that could
and debit cards will be permitted for use
Yet the medium-term prospects look
be about to change. The Cuba Initiative
by travellers to Cuba. There was also a
good. On February 7th, talks between
(www.cuba-initiative.org),
boon for US telecoms companies, which
the two sides established a series of
body chaired in the UK by Lord Hutton,
will eventually be allowed to improve
working groups to tackle some of these
a former Cabinet Minister will lead a high
the telecommunications and internet
issues. They will also look at some of the
level investment mission to Cuba from
LatAm INVESTOR
46 | Q2 2015
a
bilateral
April 27th to 30th 2015. It follows from a
As such it forms an important part of the
commercialisation of sugar pork, beef
visit by Minister Swire last November the
Government’s plans to create new joint
and soya.
first by a British Minister for more than a
ventures with foreign companies. The scale of the opening for foreign
decade. There are also many other opportunities
investors is huge, though newcomers
Those UK businesses and investors that
for direct investment. One promising area
must be prepared for a lengthy process. It
manage to establish a foothold in Cuba
is renewable energy, which includes wind,
is a market which requires time, the need
before the arrival of US interests should
biomass, photovoltaic solar, hydropower
to build-up trust and a recognition that
benefit from a general rise in asset prices
and biogas. Indeed British firm, Havana
decisions are usually collegiate rather
when a flood of American money arrives.
Energy, is already involved in biomass
than made by an individual.
projects in Cuba. Another area that should
A mix of sectors
interest UK plc is mining, where there are
Despite its Communist rhetoric Cuba’s government
is
welcoming
foreign
investors with open arms. The adoption of Law
Cuba’s
new
last
March,
Foreign
Investment
which
establishes
foreign investment as a priority for the future development of Cuba, allows foreign investment in all sectors except education, health and the armed forces and offers a variety of tax exemptions to overseas companies. Cuba is placing emphasis on economic development zones starting with the 400 sq km zone at Mariel, outside Havana. This $900million, Brazilian-financed project involves a major new port, transhipment and logistics centre and associated special economic development zone. It is only about 90 miles from the United States and is adjacent to many of the major east-west global shipping lanes.
considerable deposits of iron, nickel, gold, silver, zinc, lead, and cobalt. Oil companies
So what’s Cuba’s economy like?
will also be interested in Cuba’s ongoing
The Cuban economy is expected to
search for hydrocarbons, which involves
grow by 4% in 2015, rebounding from
onshore and offshore basins. Anyone who
weak 2014 when it grew just 1.4%. This
has visited Cuba will know that transport
growth will be driven by infrastructure
infrastructure is also an area where there
investment, a resurgent manufacturing
is lots to be done. Upcoming projects
sector and energy efficiency gains.
include a marina and port construction, railways and urban transport. One sector
In 2013 Cuba imported over $13billion of
that is already established is tourism, and
goods and is heavily reliant on imports
there are plans for new hotels, real estate
of food, oil, machinery and chemicals,
developments and golf courses. British
with much of its imports coming from
pharmaceutical firms may want to take a
Venezuela and China. That said, the
look at biotechnology both in relation to
country is keen to diversify its economic
commercialisation and building plant for
relations and to build closer trade and
the production of medicines.
investment links with Europe. As far as exports are concerned Cuba exported
Finally,
Cuban
modernisation. desperately
agribusiness
needs
over $6billion of goods in 2013 including
agribusiness,
which
sugar, tobacco, coffee and minerals such
needs
modernisation.
as nickel.
Opportunities in this sector include
Cuba’s location gives it big potential for transhipment
47 | Q2 2015
LatAm INVESTOR
LATAM BUSINESS OPPORTUNITIES
Mexico and Britain – A Shared Future Mexican President, Enrique Peña Nieto, headlined the 2015 Canning Conference. He explains why British investors should seek opportunities in Mexico…
I
t’s such a privilege and honour to address the Canning House members, because for more than 70 years this
prestigious institution has promoted understanding of Latin America politics, society and economics here in the United Kingdom. Thanks to Canning House, the British society has gained more informed understanding about Latin America. It is great to see that the enthusiasm that the 19th Century British Foreign Minister, George Canning, had for Latin America, still lives on today. Indeed, at the beginning of this decade the then Foreign Minister, William Hague, created
the ‘Canning
Agenda’,
and
implored the UK to adopt a new approach to Latin America and the opportunities that it offers for political co-operation, trade and investment for the benefit of all of our citizens.
From the beginning of this administration more than two years ago, we decided to project our leadership on the international stage and my country is taking the role that befits it against today’s global challenges. Mexico’s participation in the regional and multilateral forums shows that we are a country that’s conscious of our responsibilities in the world. An example of this is our determination to participate in the peacekeeping operations of the UN, completing humanitarian operations that benefit everyone. Aside from an active international agenda we are strengthening our relations with countries across the world. We are convinced that cooperation for the development of international trade is the driver for economic growth and, more than anything,
Hague noted that Latin America was experiencing a new phase of development and today the majority of the countries in the region share important advances. We see the reduction of poverty, the fight against inequality and the consolidation of democratic institutions.
Mexican President, Enrique Peña Nieto, adressing investors at Canning House
To varying
degrees the Latin American countries have started to modernise their economies to successfully compete in this global era and for decades now Mexico has led the way in this evolution.
Global role
improving the welfare of our societies. With a view to the future we are establishing technological, cultural and academic links with other countries. Indeed in this state visit to the UK we are signing important agreements to reinforce these bonds. Education is particularly important because we realise that it is the central pillar for promoting the present and future development of any country. In line with that we have also started many new ways to facilitate exchanges with countries across the world. One that’s particularly worth highlighting is the Pacific Alliance, where we have gone further than simply arranging a free trade agreement and created the free movement of people, goods, services and capital. This Pacific Alliance will integrate Mexico, Colombia, Peru and Chile, while the United Kingdom will participate as an observer country. strengthen ties with Europe. Today we are working to update the framework of our current free trade agreement with the EU.
Today our country is a stable democracy
The opportunities
that has had peaceful, orderly changes
Mexico has one of the largest and most diverse territories on the planet with one of
of government every six years for more
the biggest and youngest populations in the world. It’s the second-biggest economy in
than 80 years. It’s something that we
Latin America and the 15th-largest in the world. It has a stable macroeconomic situation,
share with the UK as we are some of the
healthy public finances, independent monetary policy, a free floating exchange rate and
few Western counties with that level of
a robust banking system. Last year we placed a sterling-denominated bond for £1billion
political stability.
for 100 years, which shows the level of confidence that investors have in our country.
LatAm INVESTOR
48 | Q2 2015
in association with The most exciting investment story taking place in Mexico right now are the structural reforms that are radically changing the country. The whole package is made up of 11 individual reforms that will work together to make our country more competitive and create exciting opportunities for international investors in the process. Of particular interest to British investors is the labour reform, which will create a more flexible labour force, a tax reform that will boost the state’s investment power, a finance reform that will enhance access to credit, a telecommunications reform that should improve quality in the sector, a competition reform that will make the Mexican business environment more competitive and an education reform that will boost the long-term potential of our human resources. There are also political and governance reforms, that should help to create a more just and fair society. But perhaps the most important reform is in energy, where an old model of resource development that was clearly tired and exhausted will be replaced by a system that, while maintaining the state’s sovereignty of resources, offers more incentives to the private sector. The reforms will lead to higher GDP growth in the years to come.
EPN with Canning House President Miriam González Durántez & CEO, Robert Capurro year of the United Kingdom in Mexico and Mexico in the United Kingdom. The idea is to promote a greater understanding between
Mexico and the UK
our societies and a deeper cooperation in all
We are working together with the UK in the multilateral environment on themes such
aspects of our bilateral relationship. Through
as the reform of the UN Security Council, climate change, open governments and the
artistic expositions, food tours, academic
international cooperation for development. On the economic side we also have a solid
discussions, business meetings and tourist
base. Since 2000 trade between us has more than doubled, growing by 109% and
ventures we are bringing the best of Mexico
today it’s in the order of £2.8billion per year. Yes that’s a big figure but it’s still way
to the UK and the best of the UK to Mexico.
below the enormous potential of trade between us. That’s why we put together a group of high-level companies from both counties so they could explore the investment
So please take the opportunity to get to
opportunities. In Mexico more than 1,500 companies have received British investment,
know the Mexico of the 21st Century. A
especially in the financial, mining, industrial manufacturing area. The UK is the seventh-
young country, that’s emerging through
biggest foreign investor in Mexico but, again, the potential could be so much more –
transformation. Mexico is showing the world
especially given the window of opportunities that has recently opened in our country.
that by democracy and institutional channels it is possible to achieve deep change as we
Indeed strong economic prospects are another thing we share with the UK, which has
are undergoing one of the biggest, deepest
managed to retain a dynamic economy despite the slowdown in the EU. This year the
and fastest evolutions that our country has
ties between the two countries will be stronger than ever. That’s because 2015 is the
ever had.
Become a Corporate Member of Canning House Since 1943 – the UK’s leading forum for informed comment, contacts and debate on Latin American politics, economy, and business.
Where the UK meets Latin America and Iberia
Find out more about how we can help you and your company through Corporate Membership:
www.canninghouse.org/corporate-membership For more information contact: corporate@canninghouse.org | +44 (0)20 7811 5603 14/15 Belgrave Square, London, SW1X 8PS www.canninghouse.org | @canning_house
49 | Q2 2015
LatAm INVESTOR
INVESTMENT CONTACTS DIRECTORY Argentina
Cuba
Mexico
Ignacio Pereyra
Carlos Alfaro
Mario Alberto Gonzalez Alvarez
Investment Development Officer Economic & Commercial Section Embassy of the Argentine Republic in the UK 65 Brook Street, London W1K 4AH Tel: +44 (0) 207 318 1300 / 1332 Fax: +44 (0) 207 318 1301 trade@argentine-embassy-uk.org investment@argentine-embassy-uk.org www.argentine-embassy-uk.org
Economic Counsellor Cuban Economic- Commercial Office in London 167 High Holborn, London WC1 6PA Tel: +44 (0) 207 836 3606 Fax: +44 (0) 207 379 4303 oficome@cubaldn.com www.cubaldn.com
First Secretary ProMexico, United Kingdom 8 Halkin Street, London SW1X 7DW Tel: +44 (0) 207 811 5040 uk@promexico.gob.mx mario.gonzalez@promexico.gob.mx www.promexico.gob.mx
Chile
Johanna Sánchez Mawkin
Cristián López Head of Trade and Investment Office Embassy of Chile 6th. Floor, 37-41 Old Queen Street, London SW1H 9JA Tel: +44 (0) 207 233 2500 clopez@prochile.gob.cl www.foreigninvestment.cl
Dominican Republic Counsellor for Trade and Investment Embassy of the Dominican Republic 139 Inverness Terrace, London W2 6JF Tel: +44 (0) 207 727 7091 j.sanchez@dominicanembassy.org.uk www.investinthedr.com
Ecuador Francisco Mena Guarderas
Brazil Daniel Costa Fernandes Head of Investment, Trade, Tourism and Olympics Embassy of Brazil 14-16 Cockspur Street, London SW1Y 5BL Tel: +44 (0)207 747 4500 daniel.fernandes@itamaraty.gov.br Ilana.sender@itamaraty.gov.br www.brazil.org.uk
Chile Cristián López Head of Trade and Investment Office Embassy of Chile 6th. Floor, 37-41 Old Queen Street, London SW1H 9JA Tel: +44 (0) 207 233 2500 clopez@prochile.gob.cl www.foreigninvestment.cl
Colombia Andres Sarmiento Investment Specialist ProColombia, London office 2 Conduit Street, London W1S 2XB Tel: +44 (0) 207 491 3535 dgonzalez@proexport.com.co asarmiento@procolombia.co www.proexport.co
LatAm INVESTOR
Head of Ecuador Trade Office PRO ECUADOR Second Floor, 67-68, Jermyn Street London, SW1Y 6NY Tel: +44 (0) 2030788040 london@proecuador.gob.ec www.proecuador.gob.ec
El Salvador Rosella Badía de Funes Minister Counsellor Embassy of El Salvador 8 Dorset Square, London NW1 6PU Tel: +44 (0) 207 224 9800 rbadia@rree.gob.sv www.elsalvador.embassyhomepage.com
Guatemala Lesther Ortega Minister Counsellor Embassy of Guatemala 13 Fawcett Street, London SW10 9HN Tel: +44 (0) 207 351 3042 Mob: +44 (0) 789 621 0203 henning.droege@guatemalanembassy.co.uk www.investinguatemala.org
Honduras Andrea Argueta-Scheib Minister Counsellor, Economic Affairs Embassy of Honduras 115 Gloucester Place, London W1U 6JT Tel: +44 (0) 207 486 4880 Mob: +44 (0) 777 253 5929 Email: hondurasuk@lineone.net Email: amargueta@gmail.com www.hondurasisopenforbusiness.com
50 | Q2 2015
Nicaragua Guisell Morales First Secretay / Chargé d’Affaires a.i. Embassy of Nicaragua to the United Kingdom Suite 31, Vicarage House, 58 - 60 Kensington Church Street, London W8 4DB Tel: +44 (0) 207 938 2373 embaniclondon@btconnect.com www.pronicaragua.org
Panama Ana Díaz Commercial Attaché to the United Kingdom Embassy of Panama 40 Hertford Street, London W1J 7SH Tel: +44 (0) 207 493 4646 Fax: +44 (0) 207 493 4333 lm.panamaembassy@btconnect.com www.proinvex.mici.gob.pa
Peru Alejandro Manrique Head of Trade & Investment Embassy of Peru in the UK 52 Sloane Street, London SW1X 9SP Tel: +44 (0) 207 235 8340 amanrique@peruembassy-uk.com www.peruembassy-uk.com
Venezuela Roberto Bayley Second Secretary Embassy of the Bolivarian Republic of Venezuela 1 Cromwell Road, SW7 2HW Tel: +44 (0) 207 584 4206 Fax: +44 (0) 207 589 8887 rbayley@venezlon.co.uk www.embavenez-uk.org
51 | Q2 2015
LatAm INVESTOR
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52 | Q2 2015
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The
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For more information about these properties contact Isel Arias Grupo Altizar, SRL C/Porfirio Herrera 23. Local D Sector Piantini Santo Domingo, Dominican Republic +1 809 683 2885
53 | Q2 2015
LatAm INVESTOR
LATIN AMERICA IN THE UK
A snapshot of the latest
Latin American events in the UK The Council of Ibero American Chambers of Commerce in the UK (CIAC) held a Business Risks Mitigation event to discuss the impact of falling oil prices in Latin America.
sh Colombian an of the Briti rm ai Ch h, as G n , Hayden Warre Adolfo Suarez speaking with ce er m m Co of Chamber ntier Spain President of O International
Luis Miguel Ramírez, Ontier, Dr Leyva Muño z, Ontier, Irene Mia, EIU, Haydon Warren Gash BCCC , Seamus Andre w, Ontier, Adolfo Illano, Ontier
Mexican Chamber of Commerce (MexCC) events in London.
Future Cit ies, Creati ve Industri du Tilly, Ch es Event,Y airman of ves Hayau th x e M e xCC and P Nader Ha artner of yaux & Go ebel, addre sses the a udience Rafael e Reception m co el W k e) Mexico Wee Lovis (centr Director of l a er en G Funes t packed even speaks to a
LatAm INVESTOR
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Head of Argentina’s Federal Administration of Public Revenue, Ricardo Echegaray, visited London to discuss the HSBC Switzerland tax scandal.
London Embassy in e n ti n e rg A the l. ce held at tax scanda A conferen f the HSBC o ct a p im le the possib
to discuss
Ricardo Echegaray, Argentine Fed eral Administration of Public Rev enue (AFIP), and the Ambassador of Argentina to the UK, Alicia Castro.
A high-level delegation made up of Ecuadorian politicians, businesspeople and community leaders visited Britain as part of the S2M-CICEB Ecuador-UK Trade & Investment Mission
The S2M Delegation visiting Canary Wharf on their tour of the UK.
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LatAm INVESTOR
UPCOMING DEALS Longitudinal of the Sierra Road Project, Section 5
Award Date: Q3
Q4
TBC
Country: Peru Project Location: Cusco and Puno. Cities: Urcos, Combapata, Sicuani, Puno, Ilave and Desaguadero
Liquid Petroleum Gas Supply System for Lima and Callao
Estimated Investment: TBC Estimated Award Date: Q3 2016 The project consists of initial periodic maintenance and the continuous operation and maintenance of the road, in order to maintain the established service levels. The estimated length is 422 km.
Country: Peru Project Location: Lima and Ica (Pisco) Estimated Investment: $250million
Modality: Co-financed, 25 years
Estimated Award Date: Q3 2015
Contact: Proinversion tel: +511-2001200 Ext 1292
Design, finance, build, operate and maintain a Liquid Petroleum Gas Supply System that guarantees the supply continuity of this fuel for Lima and Callao. At the end of the concession, the systems will be transferred to the Peruvian Government. The project involves the render - within the framework of the contract to be subscribed - of the service of LPG transport, storage and distribution for various users in Lima and Callao, thus the investor will have to implement the essential infrastructure to render said service; as long as the strategic objective to provide energy security to the Lima and Callao supply of LPG is preserved. The transport system involves the following assets: • LPG Transport system from Pisco to Lima. • Storage Plant of LPG in the southern area of Lima. • Dispatch system of LPG in the southern area of Lima. The LPG storage will be a strategic reserve to distribute to Lima and Callao in case of a contingency.
Country: Mexico Estimated Investment: $631million Estimated Award Date: Q3 2015 The project will consist of a fixed price contract and comprises engineering, design, supply of all equipment and materials, spare parts and special tools, testing and commissioning service and an electrical substation. The core may have any of the following configurations with: (i) a module composed of three gas turbines, three-heat recovery and steam turbine; or (ii) a module composed of two gas turbines, 2 heat recovery and steam turbine. The combined cycle will operate with natural gas as fuel. The estimated project implementation time is 30 months. Contact: Federal Electricity Commission Tel: +52 5552294400
Contact: Luis Sánchez Torino, lsanchez@proinversion.gob.pe, tel: +511-2001200 Ext 1213
Plant to Produce Injectable Medicines
Wendy J. Huambachano Neves, whuambachano@proinversion.gob. pe, tel: +511-2001200 Ext 1340
Samalayuca - Sásabe Pipeline Country: Mexico Project Location: Chihuahua and Sonora
Natural Gas Distribution System Across Peruvian Highlands
Estimated Investment: $961million Estimated Award Date: Q3 2015
Country: Peru Project Location: The various cities that will be supplied with natural gas through pipeline networks: Andahuaylas, Abancay (Apurimac), Huamanga, Huanta (Ayacucho), Huancavelica (Huancavelica), Huancayo, Jauja (Junin), Cusco, Quillabamba, (Cusco) Juliaca, Puno (Puno) and Pucallpa (Ucayali). Estimated Investment: $300million
The project includes the design, engineering, supply, construction, operation and maintenance of a pipeline with a capacity of 472 million cubic feet per day (MMcfd). The pipeline will have a approximate length of 558 km and 36 inches in diameter. The estimated project implementation period is 22 months. Contact: Federal Electricity Commission Tel: +52 5552294400
Tuxpan-Tula Pipeline
Estimated Award Date: Q3 2015 The project involves the design, financing, construction, operation and maintenance of the Distribution System of Natural Gas via Pipeline Networks. At the end of the concession, the systems will be transferred to the Peruvian Government. Concession period: 32 years, after the registration of the contract on the closing date. Contact: Luis Sánchez Torino, lsanchez@proinversion.gob.pe, tel: +511-2001200 Ext 1213 Wendy J. Huambachano Neves, whuambachano@proinversion.gob.pe, tel: +511-2001200 Ext 1340
Combined Cycle Plant Topolobampo II
Country: Mexico Project Location: Veracruz, Puebla and Hidalgo Estimated Investment: $400million Estimated Award Date: Q3 2015 The project includes the design, engineering, supply, construction, operation and maintenance of a pipeline with a capacity of 706 million cubic feet per day (MMcfd). The pipeline will have an approximate length of 263 km and 36 inches in diameter. The estimated project implementation time is 21 months. Contact: Federal Electricity Commission Tel: +52 5552294400
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Nahuelbuta Road
El Melon Tunnel (First re-tender)
Country: Chile
Country: Chile
Project Location: Bío-Bío and Araucanía Regions.
Project Location: Valparaíso Region.
Estimated Investment: $237million.
Estimated investment: $120million.
Estimated Award Date: Q4 2015
Estimated Award Date: 2015
Area/capacity: 55 km.
Area/capacity: 5.2 km. Proponent: Public. The El Melón Tunnel is located in the Petorca and Quillota Provinces of the Valparaíso Region between approximately Km 127.54 and Km 132.73 of Highway 5 North. It has a total length of 5.19 km of which approximately 2,590 metres correspond to the tunnel and the rest to its northern and southern access roads. The project consists of the construction, maintenance and operation of infrastructure to improve the road’s current technical and service standards, including an expansion of its capacity in line with the increase in traffic expected over the coming years. The re-tender envisages improvements in the safety standards of the road and tunnel as well as an increase in its capacity (preliminarily including a new tunnel) in order to increase its design speed and reduce journey times.
The Nahuelbuta Road (Road 180) currently provides a direct connection between the Negrete and Los Ángeles municipal districts of the Bío-Bío Region and the Angol and Renaico municipal districts of the Araucanía Region. It has a length of approximately 55 km and the project envisages widening it to two lanes in each direction, raising its standards through the construction of grade-separated junctions with crossing roads and improved safety, lighting and signage standards. The project is expected to have a positive impact by connecting an area of heavy traffic that no longer has sufficient capacity and where safety standards are weak. The new road will benefit forestry industry traffic as well as connectivity between important cities in the Bío-Bío and Araucanía Regions. Contact: Nicolás Muñoz, Investment Attraction Executive, Foreign Investment Committee, nmunoz@ciechile.gob.cl, tel: +(56 2) 2663 9200.
Contact: Nicolás Muñoz, Investment Attraction Executive, Foreign Investment Committee, nmunoz@ciechile.gob.cl, tel: +56 2 2663 9200.
Carriel Sur Airport (First re-tender)
Supply to Baja California Sur
Country: Chile Country: Mexico
Project Location: Bío-Bío Region
Project Location: Baja California Sur
Estimated Investment: $45million
Estimated Investment: TBC
Estimated Starting Date: 2015
Estimated Award Date: Q3 2015
Area/capacity: 8,209 m2
Capacity: 136 – 227 MMPCD
Proponent: Public
This project will supply natural gas through to the Federal Electricity Commission (CFE) in the state of Baja California Sur. The project aims to deliver natural gas to new power plants, as well as existing operating with fuel oil and diesel, which can be converted to use natural gas. The carrier will receive natural gas somewhere in the country, will transport it by sea and deliver to the generation plants of the CFE located on the peninsula of Baja California Sur. The carrier may choose the most appropriate technology required to convert, regassify and transport by land to point of delivery. The estimated project implementation time is 35 months.
The project consists of the expansion, relocation and improvement of different installations at the airport including passenger service areas, offices and ancillary buildings, the improvement and construction of access and internal roads and of parking facilities in line with increased demand, the expansion of the capacity and/ or relocation of water and energy installations, improvement of the runway, the incorporation of taxiways and the expansion of the aircraft parking area.
Contact: Federal Electricity Commission Tel: +52 5552294400
Contact: Nicolás Muñoz, Investment Attraction Executive, Foreign Investment Committee, nmunoz@ciechile.gob.cl, tel: +562 2663 9200
Project to generate electricity from geothermal resource utilization in the area of Copahue Volcano Country: Argentina Project Location: Caviahue Copahue, Ñorquin Department, Neuquen Estimated Investment: $121.5million Granting the concession for the exploitation of the endogenous vapours that are removed from the site located in the “The Triplets of Copahue” mine - from the construction and operation of a plant generating 30 MW of installed capacity and the commercialization of the electric energy produced in the MEM (Mercado Electrico Mayorista) or through EPEN (Ente Provincial de Energia de Neuquén), for a period of up to 25 years. Contact: bapip@mrecic.gov.ar
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LatAm INVESTOR
THE LatAm INVESTOR MAP
Latin America’s Financial Market Development
4.1
4.2
3.7 4.7
3.8
COSTA RICA
3.7 4.8
2.9
4.0
Where they rank in the world
Chile
16
Panama
22
Peru
40
Brazil
53
Honduras
59
Mexico
63
Colombia
70
El Salvador
86
Uruguay
87
Costa Rica
92
Paraguay
93
Dominican Republicgua
99
Nicaragua
106
Bolivia
121
Argentina
129
Venezuela
131
4.3
4.5
3.3
3.7 4.9
3.8 3.0
The indicators taken in account for this ranking were: Availability of financial services, Affordability of financial services, Financing through local equity
Score
market, Ease of access to loans, Venture capital
Most developed
availability, Soundness of banks, Regulation of securities exchanges and Legal rights index.
Developed
Source: Global Competitiveness Report 2014-2015,
Least Developed
World Economic Forum. LatAm INVESTOR
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LatAm INVESTOR
65
year heritage
$6bn
funds under management*
10
offices
40
energy assets**
providing
15m
people with electricity
9540 MW
of electricity**
LatAm INVESTOR
*as of October 2013
2015 **since 200260to| Q2 date