Choosing Sides in Latin America
As lines are being drawn, do you know what side you’re on?
While Europe’s economic and political future hangs in the balance, another tug of war is roiling Latin America with the same mixture of populism, distrust of government and East/West competition for influence.
From Mexico south, there about 625 million people—larger than the European Union and the sum total of the US and Canada, but kaleidoscopic in its regional differences and circumstances.
In Venezuela, the socialist years of Hugo Chavez and dissipating oil wealth have given way to a government and judiciary in disarray. Riots have been the response to hyperinflation and consumer shortages of all kinds. Criticism from the international community and sanctions from the US have done little to convince officials to undertake meaningful reforms.
The April announcement that Venezuela will withdraw from the Organization of American States was another step toward regional polarization. Since the OAS was founded in 1948, this is the first and only nation ever among 35 countries to take such a dramatic step.
Popular governments in Ecuador and Bolivia sought to restore agricultural supports and damaged those economies. Corruption scandals in Brazil have been deterrents to some companies seeking new opportunities. However, long term this is a positive step in making the country stronger and more attractive for investment. Weak institutions of government and endemic corruption have long kept the region down—for the first time in history, politicians and businessmen are facing serious jail time for corruption.
Because the continent has Atlantic and Pacific trade ties, Latin America’s nations are facing difficult decisions and allying with geographic or economic partners. China has surpassed the US as the top trading partner and number-one source of foreign direct investment—no surprise, since the commodities it buys are needed to support Chinese economic growth.
There are still bright spots for business in smaller, more stable nations such as Chile, Uruguay and Panama while the region’s major players endure a range of crises. Pacific Alliance nations—Mexico, Colombia, Chile, Peru—have been more attractive for investment because of their market-friendly policies and relative stability.
So are there opportunities? There are definitely options that should be cultivated for the long term or measured taking into account real risk. Bureaucracy and public insecurity are big challenges in addition to the aforementioned corruption issues. Look for a fit with your organizational culture and how the local economy is focused. Where barriers to entry are high, ensure the size of the market and the demographic justifies the investment.
Cuba’s minor but pivotal role in the region is another test of political and financial linkages. Pacific Alliance countries have been committed to free trade agreements but consider other, softer questions of doing business in the region.
Another important consideration is the potential liabilities of a data breach, or theft of intellectual property without adequate protective regulation or redress. Weigh the entirety of assets—including personal safety—not just savings or sales prospects when making critical assessments.
Frank Holder is a managing director of Berkeley Research Group. He leads the Latin America practice based in Miami. He oversees an annual security study of the region that evaluates risks and corporate hazards.