China launches a new investment approach in South America

Brazil is becoming the blueprint for expansion, with China’s companies increasingly buying into the value chains of industry as well as into research and development in the region. In doing so, they are competing with Western corporations in particular.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

Several foreign companies have withdrawn from Salvador, a metropolis of three million inhabitants in north-eastern Brazil, in recent years: Ford closed its largest factory in South America there three years ago. Siemens Energy and General Electric also stopped their wind turbine production last year.

In contrast, companies from China are just taking off there: BYD, the world’s leading manufacturer of electric vehicles, has taken over the former Ford factory. The group will build electric cars and trucks there this year. Lithium processing and battery production are also planned. BYD has also launched research collaborations at several technical universities in Brazil.

At the same time, Chinese turbine manufacturer Goldwind wants to build wind turbines at the former GE plant. Future orders have been secured: CGN Brazil Energy, also from China, wants to produce green hydrogen in a 14 gigawatt wind farm in the interior of the country.

A consortium of three Chinese construction companies has won the tender for a 12-kilometer-long bridge over the bay off Salvador. Test drilling is currently taking place. Construction should begin by the end of the year. Financing is being provided by CAF (“Andean Bank”), one of the most important Western development banks in Latin America, among others.

“China is officially talking about a ‘new’ infrastructure policy for Latin America,” observes Margaret Myers, head of the Asia and Latin America program at the Inter-American Dialogue, an influential Washington think tank. Brazil looks like a blueprint that should apply to the whole of South America in future.

China’s energy and raw material security is no longer the focus of investment in Latin America, as it has been for the last 20 years. “The focus is on innovation-related sectors,” says Myers. However, this means that Western companies in Latin America are facing competition: “China’s investments in Latin America and the Caribbean are increasing in sectors that many G7 countries have prioritized themselves,” says Myers.

Just like Germany: for the past year, the German government and industry have been on the offensive in South America to secure access to markets and important raw materials. Up to now, German government and business representatives have always tempted by the pledge of joint research and development and technology transfer. This sets them apart – at least in their own perception – from other interested parties in Latin America.

But now China’s corporations are also investing in green hydrogen, sustainable power generation, e-mobility and joint research and development.

The speed with which China is occupying traditionally strong positions in German industry in Brazil can be seen in the automotive sector: not only BYD, but also GWM are building factories in Brazil. “Great Wall Motors” took over the factory that Mercedes inaugurated in São Paulo’s interior in 2016 and closed shortly afterwards. Demand for electric vehicles has exploded in Brazil. Showrooms for Chinese e-vehicles are opening all over the country.

Chinese expansion into the industrial value chains in South America is likely to continue. For Marcos Caramuru, Brazil’s former ambassador in Beijing, China’s companies would want to secure access to large consumer markets such as Brazil in view of the increasing geopolitical tensions. This is because it is foreseeable that the US and European markets will continue to close.

Dragon
© Fotolia/Jürgen Effner

How the elections in El Salvador could influence politics in Latin America

Nayib Bukele was re-elected President of El Salvador with a record result. His hard-line policy against crime and the rule of law is likely to be emulated in the region.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

As expected, the incumbent Nayib Bukele won a clear landslide victory in the elections in El Salvador: 58 of the 60 seats in Congress will belong to his “New Ideas” party. Over 80 percent of voters are likely to have voted for him.

The official result is still pending. This did not stop Bukele, the “coolest dictator in the world” in his own words, from celebrating his victory.

With a popularity rating of between 80 and 90 percent, the 42-year-old Bukele is by far the most popular president in Latin America. Almost all incumbents in the region can only dream of this. This makes it all the more likely that Bukele’s political strategy will find imitators in Latin America.

With his ultra-repressive anti-crime policy, Bukele was able to turn what was once the most dangerous country into the safest in the region in just two years.

Bukele had almost 100,000 suspected gang members arrested. With around 1100 prisoners per 100,000 inhabitants, El Salvador is now the country with the most prisoners in the world. Around seven percent of all 14 to 29-year-old men are in prison – most of them without a court sentence. Human rights organizations such as Human Rights Watch and Western governments are protesting against the state’s arbitrariness.

However, the population supports his policies – including people whose family members are affected by the state’s arbitrary actions. The flow of refugees from El Salvador to the USA has decreased.

This could make Bukule’s policy a blueprint for other governments in Latin America: Because in all countries, the population is suffering from violence and increasing public insecurity.

At the moment, the recently inaugurated President Daniel Noboa in Ecuador seems to want to apply the Bukele repression policy against organized crime and the exploding violence. Argentinian President Javier Milei has also promised a tough stance against crime.

In the upcoming elections in Latin America, candidates with such “mano-duro” programs will certainly become an alternative for voters. Governments in almost all countries are reacting helplessly and without a plan to the growing crime rate.

As a result, politics in Latin America is likely to become more authoritarian. This is because Bukele has largely undermined the rule of law since he appointed henchmen to the judiciary. The electoral judges raised no objection to his re-election, which was not provided for in the constitution. He first intimidated the legislature and with the elections, El Salvador has now become a one-party system. Bukele can now legally do as he pleases.

Experience in Latin America shows that an executive that is unrestricted by the separation of powers almost always leads to authoritarian regimes. Venezuela and Nicaragua are the most obvious examples of this.

El_Salvador_Palacio_Nacional
© Unsplash/Mauricio Cuellar

Outlook 2024: Can Latin America leave its long stagnation behind?

The chances of this happening are good and the prospects are positive, as global interest in Latin America is growing. The region benefits from being stable in a world of increasing crises. At the same time, its importance as a supplier of energy, food and raw materials is growing. However, political risks remain.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

The growth prospects for Latin America remain stable. Almost all economies will grow this year, albeit at a low level. In Chile, Peru and Uruguay, the economy will pick up compared to the previous year, according to the forecast by investment bank JP Morgan. In Brazil, Ecuador and Mexico, the pace of growth will slow compared to 2023.

Nevertheless, such forecasts should be treated with caution at present: This is because the forecasts for Latin America vary widely. For example, the Institute for International Finance is forecasting growth of 2.6 percent for Latin America this year. Oxford Economics expects the six largest economies in Latin America to grow by just 0.7 percent.

Last year, for example, most investment banks had estimated growth in Brazil to be significantly lower than it actually was: instead of stagnating, the country grew by three percent.

Latin America experiences a charm offensive from Europe

A positive factor for Latin America’s economy is that inflation is falling in almost all countries – with the notorious exceptions of Argentina and Venezuela. This means that interest rates will fall in most countries and investments will tend to increase.

Increasing interest in the region could provide a structural growth boost for Latin America in the medium term.

Last year, Europe made intensive efforts to engage with Latin America. European heads of state and delegations were constantly visiting. For the first time in eight years, an EU-Latin America summit took place, as did German-Brazilian government consultations a few weeks ago. The EU signed a modernized agreement with Chile and is about to sign one with Mexico. It has been a long time since governments in Europe have been so clearly committed to concluding the agreement with Mercosur – so far without result.

Europe is thus responding to the growing strategic importance of Latin America – albeit later than China and the USA, which have long been intensifying their relations with the region. The wealthy Middle Eastern states are also becoming important investors and trading partners for Latin America. India and other Asian countries also want to expand their relations.

Latin America is as big as the USA and China combined with only a third of the people

One reason for the increased interest is that Latin America not only produces large quantities of agricultural products, energy and metals, but also generates surpluses because it consumes little itself. For comparison: Latin America has an area roughly the size of China and the USA combined. However, at 650 million people, only around a third of the population of the two superpowers live there.

Latin America will continue to expand its leading position in individual raw materials and energy markets worldwide: It already has a leading position in individual products. Almost half of the global lithium reserves are located in South America. In addition to Chile and Argentina, Brazil, Mexico and Ecuador are also expanding production. Peru and Chile supply 40 percent of global copper demand.

15 percent of the world’s oil and gas reserves are located on the continent. Brazil and Guyana, and possibly soon Argentina, are massively increasing their exports.

Latin America’s farmers supply almost half of the agricultural products traded on the world market for food production. The importance of the region’s agriculture for global food security will continue to grow.

In addition to decoupling and reshoring, the region could benefit from powershoring

But there is also another, new reason for Latin America’s increased appeal: the region benefits from being stable in an unstable, crisis-ridden world. There is a threat of new tensions between individual countries in Latin America. However, the region has not experienced war for 100 years. It is also far removed from the current and potential trouble spots in Europe, the Middle East and the Far East.

This makes Latin America more attractive for companies that want to relocate their production chains to safer regions. The keywords are decoupling and reshoring. Mexico and Central America are already benefiting from this trend. US companies are no longer investing in China, but are building their new factories closer to their home markets.

The trend towards global corporations relocating plants to Latin America is only just beginning. It is likely to increase. This is also due to the continent’s sustainable energy matrix: Nowhere else in the world is an average of 60 percent of electricity generated from renewable energy sources – and sustainability continues to increase. Electricity in countries such as Uruguay, Paraguay and Costa Rica is generated almost exclusively from sustainable sources. For industrial companies that want to improve their emissions balance, this is also an attractive factor when deciding on a location. The keyword here is powershoring. Especially as Latin America also has the prerequisites to be a global leader in the production of green hydrogen.

Governments must seize the opportunity

The Financial Times just described the historic opportunity for the continent like this: Latin America has its best chance for a generation. Region’s unique advantages offer an extraordinary opportunity — if its governments can step up.

Currently, the biggest risks in Latin America are China, overburdened politics and organized crime.

China has become the most important sales market for Latin America’s exporters and the largest investor in many countries. The sluggish growth in the Far East is not yet reflected in the countries’ trade balances. However, shortfalls could be imminent. It also remains to be seen how China’s investments will develop. Should a conflict arise between Beijing and Taiwan, Latin American companies could have problems selling their products to the Far East.

The democracies in the region proved to be resilient in the last election cycle. However, the elected governments are finding it difficult to implement their programs and thus the voters’ mandate: Social protests as well as divided and thus paralyzed parliaments are hampering the executives in Chile, Peru, Colombia – and possibly soon in other South American countries such as Argentina.

This year, the only elections scheduled in the major economies of the twin continent are in Mexico in June. Companies there are hoping that the successor to President Andres Manuel Lopez Obrador will implement a more investor-friendly policy. After all, the prospects for Mexico are good from a business perspective.

The authoritarian regimes in Venezuela, Cuba and Nicaragua fare worse when it comes to crisis management: Latin America is experiencing a historic emigration from these countries in particular.

Organized crime is an additional burden. Drug gangs are increasingly challenging the states. It is becoming more difficult to curb their power. The costs to society are rising as insecurity increases. Although only around eight percent of the world’s population lives in Latin America, a third of the world’s murders take place there.

The experts at Latam Investor summarize the advantages of Latin America in a nutshell: Latin America is more peaceful than Eastern Europe, less corrupt than Africa and more democratic than Asia.

Parrot
© Pixabay/Manfred Richter

2023 – the year geopolitics came to South America

The region is increasingly being drawn into the disputes of the world powers and local conflicts are threatening to become geopolitically charged.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

At the beginning of this year, the dominant view in South American politics was that the major geopolitical disputes had little influence here. Ukraine-Russia, China-USA – all of this was taking place so far away that these conflicts could hardly have any impact in the region. On the contrary, there was a faint hope that South America could be the winner of the crisis.

The world suddenly needed more raw materials and energy from there. This applied to food and oil as well as ores such as lithium or copper. South America seemed to be the region that could fill in for shortfalls and changes on the global market: For the threatened harvests in Ukraine, the Russian oil subject to sanctions and for the technologies needed for the energy transition, which required raw materials.

What’s more, there were even hopes in South America that the economies of these countries could benefit from new investments by foreign companies. Keyword: friend- or nearshoring. This means that multinationals around the world could withdraw their factories from China and relocate them to other regions.

But things turned out differently: there is still no sign of nearshoring in South America – it may be different in Mexico or Central America. But the multinationals are actually holding back on investments here.

The region did indeed benefit at times from rising prices for agricultural products, energy and industrial raw materials, but the effect has since fizzled out.

However, the idea that global tensions would only reach South America in a filtered form proved to be wrong.

One example of this was the inauguration of President Javier Milei in Buenos Aires. An unusual scene occurred there: Hungarian President Victor Orbán and Volodymyr Zelenskyy from Ukraine suddenly found themselves face to face and engaged in an intense dispute. It had little to do with Argentina or South America.

Conflicts are also simmering in their own neighborhood, as is now the case between Venezuela and Guyana. These regional disputes threaten to become geopolitically charged.

Because in the Caribbean, the USA is on Guyana’s side and Russia is supporting Venezuela. Putin has armed the Caribbean country militarily. China is also pulling strings in the background, as it has close political and economic ties with both countries. Venezuelan ruler Maduro seems to have taken Putin’s approach to Ukraine as a blueprint.

Now everyone is looking to Brazil as a regional power: can President Luiz Inácio Lula da Silva resolve the conflict on his doorstep? Brazil is facing its biggest foreign policy problem for years. President Lula rightly says: “What we really don’t need in our region is a war.”

In fact, it has long been an advantage of South America that there are hardly any regional conflicts. Although public safety is low due to the high crime rate, there have been no wars between nations for a long time, apart from the brief conflict between Peru and Ecuador almost 30 years ago.

This is currently changing: it seems as if geopolitics has suddenly come to South America. The region is increasingly being drawn into the conflicts of the major powers and is no longer the distant continent in global politics as it used to be.

bolivia_flags
© Pixabay/Maik

Are the EU and Mercosur in the final sprint towards an agreement?

It is likely to be the last attempt to save the treaty between the EU and South America. Brazilian President Luiz Inácio Lula da Silva in particular is working hard to achieve a result. Will the EU go along?

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

Brazilian President Lula had not traveled abroad for two months following his hip operation. But now he has started a furious tour which – with a little luck and skill – could end with a crowning finale. Hopes are high in Brazil that, following his state visits to Dubai and Berlin, Lula will be able to announce the agreement on the world’s largest free trade zone with the other South American presidents at the Mercosur meeting in Rio de Janeiro on December 7.

The timing of Lula’s agenda is perfect: in Dubai, Lula will appear at the climate conference as a global climate protector. The presidents of the USA and China are not attending. This should give the Brazilian president more attention. With 2,400 participants, the Brazilian delegation is the largest at the conference.

Lula will announce there that since he took office in January of this year, deforestation in the Amazon region has fallen by almost 50 percent by October. This is a great success – and will take the wind out of the sails of opponents of the Mercosur agreement in the EU. In Dubai, Lula also wants to meet with EU Commission President Ursula von der Leyen in order to remove the last obstacles to the agreement.

Lula will then appear in Berlin from December 4 for the German-Brazilian government consultations with his most important ministers. Two dozen bilateral agreements are to be signed.

Brazil is the only country in North and South America with which Germany holds intergovernmental consultations. The first – and last – time they took place was in 2015. Berlin wants to intensify cooperation again with the Lula government. Lula will also discuss future cooperation between the EU and Mercosur with the Federal Chancellor.

The agreement could then be announced at the Mercosur summit in Rio de Janeiro on December 7. It is important to note that Argentina’s designated foreign minister has just declared in Brasília that the government under President Javier Milei, which will take office on December 10, supports the EU-Mercosur agreement.

Now or never – the chances of the agreement being negotiated and concluded next year are slim.

Paraguay’s head of state Santiago Peña Palacios has already announced that Mercosur will not continue to negotiate with the EU under his presidency, which will begin in Rio. Uruguay’s President Luis Alberto Lacalle Pou declared last week during his state visit to Beijing that he wanted to negotiate a bilateral agreement with China and Mercosur. The argument: the EU is not making progress.

Mercosur diplomats have already made provisions in case the agreement with the EU fails at the last minute: Bolivia is to be accepted as a full member of Mercosur in Rio. At the same time, the South American economic community will conclude a free trade agreement with Singapore.

The summit could therefore be celebrated as a success – even without an agreement with the EU.

Competition
©Pixabay/Pexels

Latin America is becoming more important as an oil supplier for the global market

Within Latin America, the ratios between oil producers are shifting: Guyana, Brazil and Argentina will increase their production by 2030. Ecuador, Mexico and Colombia, on the other hand, will lose importance – as will Venezuela.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

Latin America has the second largest oil and gas reserves in the world after the Middle East. However, the majority of the around eight million barrels per day (bpd) produced by these countries are consumed in the region.

But that could change – if you look at the forecasts of the International Energy Agency (IEA). According to these forecasts, Latin America’s oil production will grow to between ten and eleven million bpd by 2030 – depending on whether or not the countries comply with the climate emissions pledged under the Paris Agreement. This means that a quarter of the world’s growing oil production will come from Latin America.

The balance within the region is shifting – as it has in recent years. Brazil currently produces around 35% of the oil in Latin America. Mexico follows with 25 percent. Colombia, Venezuela and Argentina each contribute less than ten percent to regional production.

However, traditional oil-producing countries such as Mexico, Colombia and Ecuador will continue to reduce their oil production. In Colombia and Ecuador, the governments do not want to issue any new production licenses for climate policy reasons. In Ecuador, the population has just rejected oil production in the rainforest in a referendum. In Colombia, President Gustavo Petro wants to reduce oil and gas production.

In Mexico, on the other hand, President Andrés Manuel López Obrador is firmly committed to oil production rather than renewable energies. However, the state-owned company Pemex is the most indebted oil company in the world and is not in a position to develop the deep-sea deposits in the Caribbean.

Brazil, on the other hand, has concentrated fully on developing the so-called Pré-Sal deposits following the discovery of deep-sea deposits off Rio de Janeiro in 2007. The state-owned company Petrobras and private oil companies have increased production from 40,000 barrels to 2.2 million bpd. Brazil is now the number 8 oil-producing country in the world.

Further large deposits are suspected in the north of Brazil, near the mouth of the Amazon. A political tug-of-war is currently taking place in Brazil between environmentalists and the oil industry as to whether these deposits should be developed or not.

The oil industry is confident that large oil reserves exist north of the equator. Not far from there, the oil company Exxon discovered the world’s largest new oil reserves in Guyana in 2015. Production in the Caribbean is expanding rapidly. By 2030, production off the coast of Guyana can be increased from the current 300,000 bpd to 1.2 million bpd.

Argentina could be the third country in Latin America to increase its production by 2030. Traditional oil reserves are drying up there. However, the country has huge shale oil reserves that private companies want to develop.

While Brazil and Guyana could each produce an additional one million bpd by 2030, the IEA estimates the increase for Argentina at half a million bpd. Oil production in Brazil and Guyana also releases significantly less carbon dioxide than the global average.

By contrast, the once most important oil country in the region, OPEC founding member Venezuela, will not be able to significantly increase its production in the foreseeable future, the energy agency expects.

There, the corrupt management of the state oil company and the lack of investment are preventing the country from regaining its former leading role as a South American oil power: The state-owned company produced three million barrels 25 years ago, when President Hugo Chávez came to power and used the company to further his political goals. Production has still not recovered from this. Venezuela currently still produces around 700,000 bpd.

Oil pump
© Pixabay/J. R. Perry

The outlook for Argentina’s economy is better than it has been for a long time

The country could benefit more than almost any other from the changes in geopolitics and the energy transition. But this requires a clear reform course.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

The outcome of the election in Argentina is completely open: If Sergio Massa, the incumbent economy minister of the left-wing Peronist government, and the right-wing libertarian candidate Javier Milei run in the run-off elections on November 19, it is hard to say today who will govern the country for the next four years.

For the Economist magazine, the candidates who qualified in the first round of voting are the worst alternatives for Argentina, the worst of all possible outcomes. Because – according to the Economist – neither candidate seems capable of solving Argentina’s problems.

In view of the justified pessimism, it is easy to overlook the fact that the prospects for Argentina’s economy have rarely been as good as they are at present: the changes in geopolitics, the growing demand for agricultural products and metals for the energy transition, rising prices for oil and gas, which Argentina has in large quantities – these are all reasons why the prospects for Argentina’s economy could brighten at present.

In detail:

The first 500 km section of the gas pipeline from the Vaca Muerta oil and shale gas reservoir has just been inaugurated. Argentina is thus on its way to becoming self-sufficient in fossil fuels. Given the high prices for liquid gas, this is important for the balance of trade.

Farmers are facing a good harvest of soy, maize and wheat – after this year’s disastrous drought. The Buenos Aires Grain Exchange is expecting a 138% increase in the soybean harvest. For maize, it could be 62 percent more. This normalization of agricultural exports will also be important for the inflow of dollars to Argentina.

Investments in the mining industry are continuing. Lithium and copper concessions are particularly sought after by foreign companies. Companies from China, Australia, Canada and South Korea are leading the way.

Foreign direct investment in Argentina has tripled from USD 4.7 billion (2020) to USD 15.1 billion – despite the country’s severe crisis. A fifth of the investment comes from mining and oil companies.

Argentina’s start-ups are also among the most successful in Latin America: online trading platforms such as MercadoLibre and OLX have been around for some time. Buenos Aires offers a creative environment for digital companies. The founders are forced to think beyond the national market.

Conclusion: The next government will get some tailwind from the economy. Hopefully it will take the opportunity to implement the necessary reforms.

Caminito, Buenos Aires, Argentinien
© Pixabay/Brigitte Werner

Venezuela’s oil industry returns to the world market

The country’s government has promised the opposition clean elections for 2024. In return, the U.S. wants to gradually ease its sanctions. It is uncertain whether President Maduro will keep his side of the bargain.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

Finally, some good news from Venezuela: The U.S. Treasury Department announced on Thursday that the previously banned trade in oil from the Venezuelan state oil company PDVSA is now permitted again.

Foreign companies are allowed to act as suppliers to the state-owned company in Venezuela’s oil sector without having to fear sanctions from the U.S. authorities. Financial transactions, such as trading in Venezuelan government bonds, are also permitted, as is the insurance of tankers carrying Venezuelan oil. Trading in Venezuelan gold is also permitted with immediate effect.

In a first step, these permits will initially be valid until mid-April 2024. This is the first time the U.S. administration has softened the sanctions against Venezuela, which have been in place for four years. In 2019, U.S. President Donald Trump had imposed tough sanctions on Venezuela because the regime of Nicolás Maduro had previously apparently rigged elections.

But now, after several rounds of secret negotiations with the U.S., the government in Caracas has pledged to hold clean elections in the second half of 2024. It pledged to do so in a joint declaration signed by the opposition and government representatives in Barbados on Tuesday of this week.

The government wants to allow foreign election observers. Whether it will actually allow opposition candidates to participate in the elections remains to be seen. The judiciary has stripped the main opposition leaders of their right to stand for election. The U.S. government has made clear that it expects progress on allowing opposition candidates to run by November. The sanctions relief can be lifted at any time.

The background to the rapprochement between the USA and Venezuela is the high oil prices. For strategic reasons, the USA wants the country with the world’s largest oil and gas reserves to supply the world market again. This will only be possible slowly because Venezuela has not invested in the oil industry for many years. Venezuela could soon export an additional 200,000 barrels a day.

The agreement is beneficial for all sides: Venezuela’s economy will get a boost in growth and investment from the lifted sanctions. For the first time, private companies will be able to invest legally in the Caribbean country again.

This is also interesting for German companies, which have traditionally been strong in Venezuela, but had withdrawn in recent years due to the country’s severe crisis.

The government, in turn, will be able to sell oil without the usual discount. Until now, customers such as China and India have demanded a discount on Venezuelan oil of up to 40 percent on the world market price. Traders and importers are thus compensating themselves for the risk of being caught in the crosshairs of the US judiciary.

Finally, the opposition would have the chance for fair elections, which it has largely been denied in the ten years Maduro has now been in power. It is to be hoped that the easing of sanctions can trigger a political momentum in addition to an economic one.

Because so far Maduro has never really shown any willingness to reach out to the opposition. It is hard to imagine that the autocrat would allow free elections with fair starting chances for all if there were a risk that he would be voted out of office.

Whether the regime is actually willing to give the opposition more room to maneuver will be seen next Sunday. The latter has called for nationwide primaries. The government had previously eliminated the electoral court by tactically withdrawing its judges because of the lack of a quorum.

The opposition faces the logistical challenge of organizing primaries in a country the size of France and Germany combined, without being able to use public buildings or otherwise count on government support. Given the constant intimidation and threats from the security forces, it takes a great deal of personal courage to participate in the electoral act.

Maracaibo
© Pixabay/12019

Mercosur is at odds

One against all: In Mercosur, the states are at odds with Argentina over water rights on the Río Paraná. With the upcoming elections in the country, it could become even more difficult to find a common position in South America.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

A dispute over tolls on the Río Paraná shows how fragile the political and economic harmony in Mercosur is – at a time when the South American economic community actually wants to show unity in negotiations with the EU.

For example, since January 1, Argentina has imposed a freight charge of $1.47 per ton on all cargo ships passing through the Río Paraná at the level of the river town of Rosário.

Initially, it was mainly the governments of the landlocked countries of Bolivia and Paraguay that protested against the unilaterally imposed toll on the most important waterway in the center of South America. In the meantime, Brazil and Uruguay are also against the river toll.

But despite massive opposition from neighboring states and several crisis meetings in Asunción and Buenos Aires, no agreement is in sight.

As a countermeasure, Paraguay has now stopped supplying electricity to Argentina via the Yacyretá hydropower plant, which is jointly operated on the Río Paraná. Since then, Argentina has been forced to import electricity from Brazil at a higher price.

Argentina justifies the unilaterally levied toll with dredging works, which it would carry out to keep the river navigable. But the government refuses to make the investment figures transparent.

It is unlikely that there will be any movement soon in the muddled situation: Argentina is experiencing a severe economic crisis, its foreign currency coffers are empty – and at the same time a new government will be elected on October 22. Dollar revenues are vital for the government to be able to pay for imports of medicines and electricity, for example.

Argentina does not have a good reputation in the smaller Mercosur countries Uruguay and Paraguay. Its governments are traditionally considered difficult partners there.

From 2007 to 2010, for example, Argentina had the most important bridge connection to Uruguay blocked – by environmental protection movements in protest against a cellulose factory in Uruguay.

Santiago Peña has been in office as president of Paraguay for six weeks. He has already made it clear that he will not resign himself to the role of junior partner in Mercosur alongside the much larger economies of Brazil and Argentina.

If no agreement with the EU is reached by December 6, when Paraguay takes over the Mercosur presidency, he would break off negotiations and start trying with new economic partners in Asia and the Middle East.

But until then, Mercosur could face new potential for conflict. Argentina’s favored presidential candidate Javier Milei thinks little of Mercosur. He would rather look for new trading partners worldwide, he said during the election campaign.

Rosario-Victoria-Bridge
© Pixabay/Elías Alarcón

“Latin America’s GDP is twice that of India….

…but with only a third of the population”. Megainvestor Marcelo Claure believes Latin America could be in for its best years in a long time. Above all, the largest economies will drag the region along with them.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

The 52-year-old Marcelo Claure from Bolivia has a legendary reputation as an investor in Latin America. At the beginning of his career, he sold used cell phones from the U.S. to his home country. Later, he headed the legendary startup investment fund Softbank: alongside its founder Masayoshi Son, he was one of the world’s most powerful startup investors for years.

After parting ways last year, he has refocused on Latin America. On Harry Stebbing’s podcast recently, he explained why he thinks the continent’s future is so bright. They are illuminating insights.

Claure believes Latin America is being underestimated right now. “Latin America’s GDP is twice the size of India’s – but with one-third the population.”

For him, Latin America is so interesting as an investment location because there are more opportunities than capital, he said. “Everywhere else it’s the other way around: there’s more capital than investment opportunities – which drives up valuations.”

For example, a quarter of the world’s fintechs are located in Latin America. Brazil in particular has a highly developed financial market capable of handling complex financial transactions. The success of the online bank Nubank shows this.

Claure is confident about the future of the two most important markets in Latin America – Mexico and Brazil.

There are two reasons for this: “Nearshoring, or supply chain diversification, and the region’s rich raw material deposits form the basis for Latin America’s future economic stability and dynamism.”

Brazil, like Argentina, Chile and Peru, is benefiting from the global energy revolution. The region is the most important exporter of the ores and metals needed for e-mobility.

Mexico and Central America, in turn, would benefit above all from nearshoring and trigger a long-lasting growth spurt there. More and more corporations are relocating their production to Mexico. This gives them access to the large North American free trade zone USMCA.

What happens in Brazil and Mexico will determine the economic performance of the entire region: Together, the two economies account for around two-thirds of Latin America’s economic power and more than half of its population.

In a nutshell, it can be said that when these economies grow, they pull all the states in the entire region along with them. The reverse is not true.

But Claure also sees positive signs in chronic crisis states like Argentina, such as the skilled workforce there and the country’s potential in the technology sector. Some of the most successful former startups are now global corporations, such as the online retailer Mercado Libre or the software developer Globant.

For the Bolivian, Latin America is therefore facing its best decade in a long time. It is to be hoped that his previously proven instinct for investment will apply this time as well.

São Paulo
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