latam investor magazine
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Ecuador opens up its economy to international investorsTRANSCRIPT
Q2 2015The UK’s only Latin America-focused investment magazine
ALSO INSIDE:
Santander AM’s top Latin American fund managers explain their favourite investmentsMexico’s President, Enrique Peña Nieto, explains why UK investors should back Mexico
Analysis from Control Risks/Market Moving Events in Q2
LatAm INVESTOR Q2 2015|2
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LatAm INVESTOR3 Q2 2015|
LatAm INVESTOR
Editorial Managing Director - James McKeigueLatin America Editorial Director - Carla FierroFinance Editor - Daniel MullarkeyAdvisor to the Editor - Edward Longhurst-PierceSenior Writer - Sam JollSenior Writer - Alisdair JonesSenior Markets Analyst - Cris HeatonCentral America Correspondent - Louisa ReynoldsPeru Correspondent - Darwin Cruz
Production and Commercial Art Director - Tania SchoemanAdvertising Sales - Terri HaddonHead of Digital - Ian Gibson
Editorial queries: [email protected] queries: [email protected]: [email protected]
Tel: 0207 097 5121www.latam-investor.com
EDITOR’S LETTER
Contents
Printed in the UK byThe Magazine Printing Company
using only paper from FSC/PEFC supplierswww.magprint.co.uk
A testing year ahead for Latin AmericaDear 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.
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
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
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
LatAm INVESTOR Q2 2015|4
STORIES BEHIND THE NEWS
Americas Summit Cheers Investors
What’s happened: At an
historic Summit of 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’
meeting tells us that the US and Cuba
are progressing firmly down the path
of friendship. Straight after the Summit
Cuba was removed from the US’s list of
countries sponsoring state terrorism,
a move that makes it much easier for
American firms to do business with
the country. Already a US telecoms
firm has signed a deal to provide long-
term telephony to Cuba while online
accommodation platform Airbnb has
started listing Cuban apartments for its
US customers.
The US has committed a lot of foreign
policy errors in Latin America but at the
Summit, Obama recognised that “the days
in which our agenda in this hemisphere
presumed that the United States could
meddle with impunity, those days are
past”.
This promise of a different policy in
the future bodes well for US-LatAm
relations. The rapprochement with Cuba,
for example, isn’t just about those two
countries. It also removed one of the
traditional obstacles to better relations
with the rest of Latin America. Likewise
when the US made the diplomatic
blunder of declaring Venezuela a ‘threat
to national security’, which went down
like a lead balloon with other Latin
American countries, it made amends by
sending Secretary of State officials to
Venezuela before the Summit. There was
even a short meeting between Obama
and Venezuelan president Maduro on the
sidelines of the conference.
America’s decision to re-engage with the
region, and its realisation that it has to
do so by building consensus, has good
consequences for investments in Latin
America and should help to boost asset
prices. There are also specific sectors that
will benefit. For example, prior to the
Summit, Obama visited the Caribbean
where he unveiled a new initiative to fund
renewable energy projects. The idea is to
help Central American and Caribbean
economies face up to an energy future
without Venezuelan subsidised oil. Overall
it was a good Summit for investors in the
region.
One is defintely going in October but will the other join her?
One is defintely going in October but will the other join her?
LatAm INVESTOR5 Q2 2015|
emerges it gets closer to Rousseff, who
was previously chairman of the Petrobras
board. So far there is no direct link to
Rousseff but most corruption-weary
Brazilians now assume that she must have
known something.
The other factor in the protests is Brazil’s
flat-lining economy. The country’s GDP
is expected to contract by around 1% in
2015, which would be its worst recession
in 25 years. This is compounded by strong
inflation, which will see price rises of
around 8% this year. Unfortunately for
Rousseff there is not much she can do to
counteract falling growth. With ratings
agencies increasingly negative on Brazil’s
sovereign debt she has been forced to
implement tax hikes and spending cuts,
which has fuelled public anger.
Most analysts still believe that Rousseff
won’t be impeached. Yet her survival as
a weakened president could well mean
that Brazil shies away from the difficult
decisions it needs to make to restore
its economic competitiveness. At some
point Brazil will become a ‘buy’ again
for international investors yet, with the
scandal and the economy continuing to
throw up nasty surprises, it may not be for
some time.
What’s happened? Two years into
his presidency, Enrique Peña Nieto is
struggling to convince voters that his
reforms will boost the economy.
How will it affect investors? When
Peña Nieto managed to pass a package
of historic reforms it heralded a new era
for Mexico’s economy. Economists always
recognised that these were long-term,
structural measures yet for a government
that won a close election victory it was
always vital that they showed short-
term benefits. In the last two years Peña
Nieto’s approval rating has been hit by
corruption scandals and security issues,
which means that he needs the reforms
to show some positive effects more than
ever. However, so far the results are mixed.
Economic growth has disappointed. It
had been hoped that the reforms would
unleash a wave of investment-led growth
Brazilian voters are getting angry
Brazil Protests as Economy Falters
What’s happened? Brazil’s economic
woes show no sign of improving, which
is piling the pressure on scandal-hit
president Dilma Rousseff.
How will it affect investors? Despite
winning election less than six months
ago, president Rousseff now finds her
popularity at just 13% - an all time low.
Much higher is the 63% of the population
that want to impeach her, according to a
poll by local pollster Datafolha. Even more
worrying for Rousseff is that disgruntled
voters are now taking to the streets,
with an estimated 1 million protestors
attending a recent anti-Rousseff march.
One reason for her plummeting
popularity is the ongoing Petrobras
scandal. This incredibly complex bribery
scheme involved contractors giving
kickbacks to politicians and Petrobras
executives in return for inflated contracts
being awarded and approved. Voters
have known about the scandal for more
than a year but as each fresh detail
Jury Out on Mexico’s Reforms
LatAm INVESTOR Q2 2015|6
STORIES BEHIND THE NEWS
but that hasn’t really happened. Mexico’s
GDP grew 2.1% in 2015 and is expected
to grow by 2.8% this year, which, for many
Mexicans, isn’t enough to justify the
controversial reforms. One reason that
growth has slowed is the falling oil price.
It hit export revenues, which is forcing
the government to retrench spending
and means that state oil firm, Pemex, has
less to invest. It also looks like cooling
some of the interest in the landmark
energy reform that policymakers had
been hoping would attract large amounts
of foreign direct investment.
Yet there are some considerable silver
linings. The falling oil price has caused the
Mexican peso to depreciate – especially
against the strongly performing US dollar.
Given that 80% of Mexico’s exports go to
the US, this should give a big boost to
manufacturers. Indeed robust growth of
the manufacturing sector is one reason
Market Watch
that unemployment continues to fall,
although low wage growth means that
many Mexicans don’t feel better off –
hence their continued scepticism about
the reforms. Especially given that last
year’s tax reform has hit their disposable
income.
One area where the reforms seem to
have delivered is telecoms, where mobile
phone bills, which are some of the most
expensive in Latin America, have started
to come down. The electricity generation
reform, which doesn’t get as much
international investor attention as the
changes in the hydrocarbon sector, also
seems to be having an early effect, with
utility bills falling.
With his approval rating at a record low of
25% Peña Nieto will be hoping that more
sectors start to demonstrate the reform
impact over the coming years.
MARKET WATCH
Jan 7
Jan 15
Jan 22
Jan 30
Feb 6
Feb 13
Feb 20
Feb 27Mar 9
Mar 16
Mar 23
Mar 31
130
120
110
100
90
80
MERVAL Index
IBOV IndexMEXBOL IndexIGBC Index
127.75107.85104.96 89.10
Normalized as of 01/02/2015Last Price
Many Mexicans remain unconvinced
by Peña Nieto’s recipe for reform
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.
LatAm INVESTOR7 Q2 2015|
What’s happened? Investors are
already starting to evaluate the likely
candidates for Argentina’s October
presidential elections and prepare for the
opportunities a new government may
bring.
How will it affect investors? As regular
LatAm INVESTOR readers will know,
Argentina’s stock market has been one of
the stronger performing Latin American
investments over the last 12 months.
It’s a striking example that orthodox
business environments aren’t always the
ones that produce the best returns. But
while the market may have performed
well, foreign direct investment has
remained low as investors shied away
from a Kirchner administration that was
perceived as confrontational towards
large international investors.
Yet now, for the first time in more than a
decade, Argentina seems likely to have a
non-Kirchner government. The likely new
candidates are Daniel Scioli, Governor
of Buenos Aires Province, Mauricio
Macri, Mayor of Buenos Aires City, and
Sergio Massa, Mayor of Tigre. Despite
the fact that they hail from different
parties – Macri opposes the current
government while the others are part of
it – they will face the same issues when
they come to power. Namely: fixing the
fiscal imbalances, resolving the holdout
dispute and controlling inflation.
For ordinary Argentineans the high
inflation rate – estimated at about 40% - is
the biggest bugbear. It eats into the value
of their savings while obtaining hard
currency, such as dollars, is extremely
expensive because of an overvalued
official exchange rate. The inflation
is linked to the fiscal imbalance, as
Argentina is funding its deficit by money
printing, so any long-lasting solution to
the former would have to involve getting
the country’s books in order. The holdout
dispute is not really an issue for most
Argentines as many of them side with
the state against the funds that hold
defaulted sovereign paper. Yet whichever
candidate wins will probably be keen to
resolve the issue as it will open up access
to international capital markets and give
their administration more conventional
financing options.
Judging from early signs it seems that all
three will adopt a more market friendly
approach than current president Cristina
Kirchner. And with Argentine equities and
corporate bonds performing strongly it
appears that the market is also pricing
in a new era. Time will tell if investors are
being overly optimistic or if it really is
‘different this time’.
Currency Watch
Currency Last quarter Current rate to GBP* % Change from last quarter
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
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.
Investors Look to Post-Kirchner Argentina
LatAm INVESTOR Q2 2015|8
MARKET ANALYSIS
It’s been another lively quarter for Latin American markets.Markit Senior Research Analyst, Colin Brunton, explains how it affects investors...
It was a tough quarter for manufacturers in both Brazil and Mexico.
In Brazil, hopes had been raised by a strong end to 2014, yet the first
few months of 2015 quickly dashed that optimism. In March we saw
the deepest decline in Brazil’s manufacturing output for three-and-
a-half years. One reason was the stagnant local economy, where
demand and new orders fell. Another issue is strong inflation, which
is pushing up costs. That also impacted the sector’s international
competitiveness and hit export order growth. Sadly there is still no
sign that the weaker real is having a positive impact on Brazilian
manufacturing exports.
Mexico has also had a poor start to the year but with one crucial
difference – Mexican manufacturing is still growing, albeit at a lower
price. Anything above 50 represents expansion and Mexico has now
been in this positive territory for a year-and-a-half. March saw the
slowest growth since October 2014 as manufacturers complained
that while the weaker peso was increasing the costs of imported
inputs it had yet to be reflected in greater exports. Nonetheless,
renewed hiring in the sector suggests that producers remain
optimistic.
HSBC Brazil Manufacturing PMI and HSBC Mexico Manufacturing PMI
48
49
51
52
53
54
56
57
50
58
PMI
55
BRAZIL MARKIT PMI
MEXICO MARKIT PMI
HSBC Brazil Manufacturing PMI and HSBC
April ‘13
May ‘13
Jun ‘13
Jul ‘1
3
Aug ‘13
Sep ‘13
Oct ‘13
Nov ‘13
Dec ‘13
Jan ‘14
Feb ‘14
Mar ‘14
Apr ‘14
May ‘14
Jun ‘14
Jul ‘1
4
Aug ‘14
Sep ‘14
Oct ‘14
Nov ‘14
Dec ‘14
Jan ‘15
Feb ‘15
Mar ‘15
© 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 INVESTOR9 Q2 2015|
in association with
19 Jan ‘1
4 Feb ‘15
18 Feb ‘15
5 Mar
‘15
18 Mar
‘15
1 Apri ‘
15
1 Jan ‘15
50
100
150
200
250
300
BRAZIL MEXICO COLOMBIACHILE PERU
Markit LatAm Sovereign 5-Year CDS
120
119
118
117
121
122
123
20 Jan ‘1
4 Feb ‘15
20 Feb ‘15
5 Mar
‘15
11 Mar
‘15
18 Mar
‘15
31 Mar
‘15
6 Jan ‘15
Markit iBoxx USD Emerging Markets
Brazil was the major story of the quarter. Spreads rose from January
to March as investors digested the constant flow of bad economic
news coming out of the country and priced in another ratings
agency downgrade. Yet when ratings agency S&P did downgrade
Brazil it was by less than expected and didn’t relegate the paper of
Latin America’s largest economy to junk bond status just yet. That
was followed by a particularly dovish Federal Reserve meeting that
gave Brazil, and the rest of the region, a reprieve as it downplayed
the likelihood of imminent US rate rises. The result is that all spreads
started to move down at the end of the quarter.
For the first time in a long time it was
a good quarter for holders of Latin
American sovereign debt, as US dollar
denominated debt gained almost
1% over the period on a total return
basis. Improved growth in countries
like Chile, Mexico and Peru, coupled
with the dovish Federal Reserve
meeting, helped to stoke demand
among international investors for
LatAm debt.
Markit LatAm Sovereign 5-Year CDS
Markit LatAm Sovereign 5-Year CDS
Markit iBoxx USD Emerging Markets Sovereigns Latin America Index
LatAm INVESTOR Q2 2015|10
PORTFOLIO MANAGER INTERVIEW
LAI: One of the biggest investment themes at the moment is falling oil; how will lower prices affect Latin America?
JC: To answer that you need to take one step back and make some
sort of forecast. That’s never easy with oil but ask yourself: are we
likely to see oil at $40 for the next five years or will we have some
sort of a rebound? If you look at the fundamentals they point to oil
at around $65 as that’s the price at which marginal supply equates
to marginal demand. So it should revert to that unless there are big
changes in the industry.
But that’s not going to happen in the short-term because there are
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.
If we look at Mexico it is hedged for 2015, so it’s fine for this year. If
oil bounces back to $65 by 2016 then Mexico is OK. The big driver
in Mexico is the energy reform and most of that will get done at
$65 – so in that scenario it won’t be a big hit for Mexican economy.
Colombia on the other hand is affected more directly and it also
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,
Colombia and Mexico are really the only ones hit. That said there is
a wider array of possible consequences. For example, in Argentina
you’d expect that low oil prices would hurt the Vaca Muerta
shale development, which would reduce future FDI inflows and
international reserves replenishment. So there is a wide array of
implications, but you must remember that there are also a lot of
countries that are actually oil importers in Latin America.
LAI: Brazil has had a terrible few years; has it got to the point where it’s a buying opportunity for our readers?
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
a great opportunity at present levels. In fact we forecast some
depreciation by the end of the year so we don’t think it has a lot of
potential. On the rates, especially short rates, that are discounting
stronger path of hiking there is an opportunity.
Latin America CallingSantander 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 runs the Santander Asset Management Latin American
Equity Fund. He joined SAM in July 2011 and is responsible of
all of the firm’s regional Latin American equity investments. He
started his career in 1996 as a North American equities analyst
while at Philips, Hager & North Investment Management Ltd. in
Vancouver.
Alfredo runs the Santander Asset Management Corporate Bond
Fund. Alfredo joined SAM in 2010, and is responsible of all of the
firm’s regional Latin American fixed income investments. Before
joining SAM he worked for BBVA in New York and Madrid, as
head of Latin American Credit Trading. He has close to 20 years
financial experience.
Jose Cuervo – Global Head of LatAm Equity
Alfredo Mordezki – Global Head of LatAm Income
LatAm INVESTOR11 Q2 2015|
JC: The main problem with Brazil is the lack of productivity and it’s
an issue that goes back a few years. The strength of the real two
or three years ago was part of problem, so the weaker currency is
part of a solution. Of course a weaker currency will bring its own
problems in the form inflation, which is why the government is
trying to slow down consumption. But for investors looking at the
real you can’t realistically say that Brazil will come out of this with
stronger currency as it needs a weaker currency.
Another factor here is the currency swaps that the Central Bank has
been engaging in. At one point they’d swapped about 2/3rds of
their reserves away, which is extremely dangerous. They now seem
to be on a path to reduction, which if they take to zero, can only be
a negative for currency.
LAI: So where are the opportunities for LatAm INVESTOR readers?
JC: Brazil has an external imbalance, it has a current account deficit,
and policymakers will be looking to fix that. This means lower
consumption, higher investment and higher domestic industrial
production. So I think it’s fair to assume that over the next few
years anything to do with consumption will be weaker, while stocks
related to production or investment will be stronger.
2016 can be the year when we finally see the economy pick up.
I think equity market will focus on negatives over the next few
months but then later, once we get past some issues and we get
some good signs, then multiples will go up. Earnings growth won’t
be there but multiples will go up.
AM: On the credit side we like the food industry. Brazil has a very
strong food industry and there are many interesting players there.
We have to go case by case, not everyone is in the same cycle. Cattle,
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
general it’s one of the sectors that we prefer.
The other interesting area is the pulp and paper sector, which
is a good exporter. Here we have already seen the capex cycle
going down because new facilities have been incorporated into
production, so free cashflow will increase, which is what we like. We
think it could be a safe haven in this environment.
LAI: And what about Mexico? It encouraged so much optimism but the jury is still out on whether it will deliver.
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
positive view on the Mexican economy and we think the potential
GDP in Mexico is probably going to have the biggest delta in Latin
America. We’re positive on industrial names that play to exports,
manufacturing, and reforms. But we’re negative on the consumption
side. That’s because the fiscal reform has added taxes and the oil
price is going to hit government spending so the consumer will be
subdued for a year or two.
So we’re positive on the general economy but because the equity
market is consumer focused – supermarkets, telecoms etc make up
80% of listed stocks – we’re not positive the Mexican market.
AM: We weren’t that bullish when everyone else was getting excited
about the big ‘Mexican Moment’. One reason was that we weren’t
sure if reforms would come out as the market hoped. Actually we
were wrong with that and we have to admit that the government
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
understood that tax reform would hit consumers and it would take
a while for the benefits of higher investment to compensate for that
because everyone was in ‘wait and see’ mode. We were right on that,
which is why we saw GDP growth doing nothing in the first year of
reform.
Now, however, we’re a bit more bullish. We think around 70% of
what was expected to come in from oil reform will still come in.
We are not seeing companies running scared because of the oil
price. We expect stronger companies, majors that have been in
the sector for a long time and have the financial muscle to finance
themselves even in this oil price environment, to be active in seeking
SANTANDER AM LATIN AMERICA EQUITY OPPORTUNITIES
Fund Benchmark
0%
2.4%
1.8%
0.6%32.5%33.1%
0%
50.6%49.9%
Brazil
Mexico
United States
Chile
Peru
9.9% 9.7%
2.9%
0%0.5% Others
Colombia
1.6%4.4%
Panama
LatAm INVESTOR Q2 2015|12
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 over-come Latin American poverty from our new European office, write to our European Director Sebastian Smart ([email protected]).
“you can't see,but it exists”
LatAm INVESTOR13 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
sizeable investments to come in.
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?
No. The first flaw in this theory is that a lot of these bonds come
from a substitution from loan debt to corporate debt. Secondly, you
have deeper swap markets, so many of the companies that issued
in dollars were actually arbitraging and taking advantage of the
low rates and then swapping back into local currencies to match
their local currency revenues. The third factor is that much of the
dollar debt is matched by dollar revenues as you may find that many
companies with 100% of revenues denominated in dollars. The final
reason why these fears are misplaced is that in Latin America come
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
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.
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
SANTANDER LATIN AMERICAN CORPORATE BOND
Fund Benchmark
30.4%29.9%
Others
6.5%
5.7% 12.2%
Mexico
23.3% 14.1%
Brazil
11.7% 5.4%Chile
Colombia
Cayman Islands
4.8% 10%
9.3%
3.1%
12.9%
1.8%
8.9%
Peru
Panama
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,
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.
LatAm INVESTOR Q2 2015|14
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…
A Bleak Outlook for Venezuela
Amid declining economic
indicators and growing political
polarisation, the pieces appear
to be falling into place for new violent
protests, political instability and an even
worse business environment. While these
developments hardly come as a shock
to those who have followed Venezuela
over the past few years, even seasoned
observers are impressed at the speed
with which things are unravelling, partly
as a result of the collapse of world crude
oil prices. The question of whether the
government will be willing – and able –
to make the necessary adjustments to the
economy will be decisive in determining
the future of President Nicolás Maduro,
his government, and the country as a
whole.
Weak presidentEver since he succeeded former
president Hugo Chávez (1999–2013) in a
controversial and extremely close election
following the latter’s death in March
2013, Maduro has been fighting an uphill
battle to combat deteriorating economic
indicators and put the economy on track
towards recovery; he also struggles with
declining popularity (around 24% in
December 2014 according to a Datanálisis
poll) and growing public discontent.
Despite being Chávez’s chosen successor,
Maduro’s governing style has suffered
from his lack of charisma and, as a result,
waning influence across different sectors
of the government and his party. This
means that the president has significantly
less decision-making power—including
on economic matters—than his
predecessor did.
Amid continuing debates within the
government over how to combat
runaway inflation – at more than 64%
in 2014 it was among the highest in the
world – the government has launched
an ‘economic offensive’– including ever
stricter enforcement of price controls, the
imposition of draconian fines on alleged
wrongdoers, and even the detention of
company executives – to combat alleged
speculation in food prices and hoarding.
However, these measures are unlikely
to have their desired effect given that
huge distortions in the economy, which
stem in part from the heavily regulated
foreign currency exchange and allocation
system, have gradually hollowed out the
country’s production and importation
capacity, leading to shortages of basic
products. Government price controls
further reduce incentives for producers.
This situation is aggravated by the fact
that Maduro does not only appear to
be in a weak position with regard to
popular support, but also within his
United Socialist Party of Venezuela
(PSUV) and more broadly within the
chavista movement itself. As a result, the
president has to tread a fine line between
attempting to make adjustments to fix the
economy on the one side and alienating
his support base in the population and
in his own rank and file on the other.
For example, government attempts to
dramatically overhaul the Byzantine
exchange rate system are rendered
more difficult by the fact that many
key stakeholders in the government,
including from the Bolivarian National
Guard (GNB) and the armed forces,
are benefiting very handsomely from
manipulating the exchange rate in their
favour. Likewise, the implementation of
announcements to reduce subsidies and
raise gasoline prices will have to consider
the significant backlash that this policy
may have especially with lower-income
Venezuelans. Maduro is therefore caught
between a rock and a hard place and, as
a result, government moves that could
genuinely put the economy back on track
will remain elusive for the foreseeable
future.
Growing angerHowever, the policy of muddling through
may no longer be a viable option,
and time may be running out for the
government. Even before the recent
drop in crude oil prices, the country’s
economic woes were having increasingly
political consequences. In early 2014,
student protests in San Cristóbal (Táchira
state) quickly spiralled into broader unrest
led by government critics across major
urban centres. The protests tapped into
general dissatisfaction about product
shortages, the country’s overall economic
trends, growing international isolation
and rising crime rates. They eventually
became violent with rioting, and semi-
Oliver Wack, Control Risks Analyst
COUNTRY ANALYSIS
LatAm INVESTOR15 Q2 2015|
permanent barricades mounted in major
cities including the capital Caracas,
San Cristóbal and Valencia. Repressive
policing and violent clashes between pro
and anti-government protesters led to
the deaths of more than 40 people across
the country. As the economy continues
its downward trend, three factors will be
chief in determining whether new rounds
of violent unrest will rock the country in
2015.
Firstly, with prices for Venezuelan crude
expected to stay below the $70 mark
for the rest of the year according to
analysis company Oxford Economics,
the government will continue to face a
considerable financing gap, with many
observers pointing to the fact that oil
prices would need to be more than
twice their current levels in order for it to
balance its budgets. Politically speaking,
the extent to which the government will
be able to maintain levels of spending,
and especially social spending, in the face
of reduced availability of hard currency
will be paramount in defining whether
at least lower-income Venezuelans, many
of whom continue to see the current
government as the lesser of two evils,
will continue to support Maduro, or will
eventually turn their backs on him and
take to the streets.
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
for the government. Finally, much will
depend on the behaviour of the political
opposition in the face of the political and
economic situation. Deeply divided on
the issue during the protests in 2014, it
appears as though one year later there
is a growing consensus that protests
may not be the ideal tool with which
to pressure the government. Indeed,
government provocations such as the 20
February arrest of Caracas metropolitan
mayor Antonio Ledesma were not met by
outbreaks of rioting as opposition leaders
urged their followers to maintain calm.
However, as was evident in San Cristóbal
and to a lesser extent Caracas in February,
the student movement continues to
operate somewhat independently from
opposition political parties and it is at
least questionable to what extent it can
be controlled if the situation gets worse.
In that sense, a key issue to watch will be
the legislative elections scheduled for
later this year and the implications that,
for example, a government decision to
postpone or suspend the elections could
have.
Given this complex situation, companies
operating in Venezuela will continue to
face a range of legal, operational, security
and integrity challenges throughout
2015, and likely beyond.
Tough business environmentFor 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
persuade the broader public that it is not
only fighting, but indeed winning the
economic war.
Moreover, while street protests are
highly unlikely to directly target major
companies and foreign investors in the
country, incidental risks arising from the
high likelihood of outbreaks of violence
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.
Surprisingly - things have been even
worse without Chavez ...
in association with
LatAm INVESTOR Q2 2015|16
Lord Mayor of London, Alan Yarrow, reflects on the burgeoning trade and investment relationship between Latin America and the City…
Building Bridges
I recently had the honour of hosting Enrique Peña Nieto, the
Mexican President, at the City of London State Banquet. It was
a fitting time for such an event: the Latin American economy is
particularly vibrant at the moment, with many opportunities for
extremely exciting partnerships. During our discussions we touched
on a number of ways for the City to support Mexico’s growth.
Only last year my predecessor as Lord Mayor, Dame Fiona Woolf,
visited Latin America and I will follow in her footsteps in July this
year, taking in Mexico, Peru, Columbia and Brazil. Like all my overseas
visits I will be accompanied by a delegation of senior British business
leaders, and together we will try to drum up more business for the
“Square Mile’s” world-leading companies.
Mexico is an illustration of the region’s immense promise and its
economy looks very positive at present. It is an open market for
companies with an international outlook and there are exciting
opportunities for firms offering financial and professional services.
It also remained remarkably resilient during the financial crash, a
resilience that owes a great deal to its sound regulatory framework,
solid management of public finances and taxation reforms. These
rapid changes are mirrored to varying extents across the rest of Latin
America, which is enjoying stronger economic growth than Europe.
Growing linksFortunately, the UK is in a good position to take advantage of
this encouraging economic outlook. One factor is our strong
historical links. London was a centre of activity for the leaders and
supporters of independence movements across Latin America, in
time becoming more closely associated with the movement than
any other world power. For Mexico in particular we were the first
European country to recognise the country’s independence in the
mid-nineteenth century, a relationship that is still important to
Mexican administration. Indeed President Nieto has previously said
that the UK is one of ‘Mexico’s closest allies.’
But our position is strong for other, more current reasons as well.
Backed by a supportive government, our ambitious companies
are extremely keen to trade with Latin America. Through the
government’s efforts with the ‘Canning Agenda’ to re-balance the
economy, and move it away from its heavy reliance on the EU, we
are now seeing more focus on Latin America. We’ve opened new
Embassies in countries like El Salvador, Paraguay and Haiti and a
Consulate-General in Recife, Brazil. And we’re creating new networks
of trade experts to identify and promote trade opportunities for UK
companies. For British companies there has never been a better
time to trade with Latin America.
The Rt. Hon The Lord Mayor of the City of London, Alan Yarrow
CITY VIEW
LatAm INVESTOR17 Q2 2015|
Despite its current woes, the EU remains the world’s biggest
economic bloc, accounting for around a quarter of global GDP. It
is the biggest investor in Latin America, accounting for 43% of all
foreign direct investment in the region. In fact the EU invests more in
Latin America than in China, India and Russia combined. This trend
is likely to continue with the EU recently signing a number of trade
agreements with Latin American countries.
A lot done – more to doYet things are not always as good on the surface as they seem. The
UK still trades more than twice as much with Belgium than we do
with the whole of Latin America. As the former Foreign Secretary
William Hague put it, “for too long the British presence in Latin
American has been too small, too reticent and too modest.” Latin
America can offer UK companies huge growth opportunities, yet, UK
exports make up little more than 1% of Latin America’s total global
imports.
One of the key messages that I want to get across during my year as
Lord Mayor is that the City can be Latin America’s partner of choice.
Take an area like public private partnerships (PPP). The City has a
wealth of expertise and knowledge in the innovative financing
models that are needed to get visionary construction and
infrastructure programmes off the ground. One good example is
Latin America’s infrastructure programme offer great opportunities for the City’s finance firms.
the transport network in the Colombian capital, Bogotá. At present
Bogotá lacks an underground system. This undermines local efforts
to create a thriving economic hub as reliable and fast public
transport is a key driver of urban growth. When the time comes
to make a decision, the City’s firms will be there to help raise this
finance and get these projects off to a quick start.
Shared targetsSome people talk about global trade as a competition where one
country’s success is another’s failure. I don’t agree. I think we’re all
in the same boat, facing similar challenges and opportunities.
Companies in the UK and Latin America, for example, all have to
find and tread a path to sustainable economic growth and support
a modern market economy, with a good standard of living and
opportunity for all. Those are universal aims.
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
out there to new markets, because we in the City are fully behind
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
agreement from an assortment of powerful and influential business
leaders in the room – UK plc has always been faced with a choice: be
open and thrive, or wear blinkers and fail. And nowhere is that more
apparent today than in Latin America.
LatAm INVESTOR Q2 2015|18
MARKET-MOVING EVENTS CALENDAR
April
Friday 24th
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
Thursday 9th
3:00 PM – Mexico – Inflation Rate YoY
Wednesday 8th
12:00pm – Chile – Inflation Rate YoY
Thursday 14th
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
Wednesday 20th 8:00 PM – Argentina – Unemployment Rate
8:00 PM – Argentina – Balance of Trade
9:00 PM – Paraguay – Interest Rate Decision
Friday 22nd
2:30 PM – Brazil – Current Account
2:30 PM – Brazil – Foreign Direct Investment
6:00 PM – Peru – GDP Growth Rate YoY
Tuesday 5th
1:00 AM – Colombia – Inflation Rate YoY
6:00 PM – Paraguay – Inflation Rate YoY
Tuesday 12th
2:00 PM – Mexico – Industrial Production YoY
6:15 PM – Uruguay – Industrial Production YoY
Wednesday 6th
3:00 PM – Mexico – Business Confidence
10:30 PM – Colombia – Balance of Trade
Friday 17th
10:30 PM – Chile – Interest Rate Decision
Wednesday 29th 10:00 PM – Brazil – Interest Rate Decision
Thursday 23rd
2:00 PM – Mexico – Economic Activity YoY
3:00 PM – Brazil – Business Confidence
8:00 PM – Argentina – Balance of Trade
Tuesday 14th 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
Monday 27th 2:00 PM – Brazil – Consumer Confidence
2:00 PM – Mexico – Balance of Trade
2:00 PM – Mexico – Unemployment Rate
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
Tuesday 28th
2:00 PM – Brazil – Unemployment Rate
May June
Friday 15th
3:15 PM – Peru – GDP Growth Rate YoY
11:00 PM – Chile – Interest Rate Decision
Tuesday 19th
1:30 PM – Chile – GDP Growth Rate YoY
1:30 PM – Chile – Current Account
Thursday 21st 1:00 PM – Brazil – Unemployment Rate
2:00 PM – Mexico – Economic Activity YoY
2:00 PM – Mexico – GDP Growth Rate YoY
Monday 25th 2:00 PM – Mexico – Balance of Trade
2:00 PM – Mexico – Current Account
Thursday 28th
2:00 PM – Mexico – Employment Rate
Wednesday 27th 2:00 PM – Brazil – Consumer Confidence
Friday 29th 12:00 AM – Uruguay – Balance of Trade
Monday 1st
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 4th
3:00 PM – Mexico – Business Confidence
3:00 PM – Mexico – Interest Rate Decision
6:00 PM – Uruguay – Inflation Rate YoY
Monday 8th
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 30th 2:00 PM – Chile – Industrial Production YoY
2:00 PM – Chile – Unemployment Rate
8:00 PM – Argentina – Industrial Production YoY
10:00 PM – Uruguay – Balance of Trade
Monday 15th
3:15 PM – Peru – GDP Growth Rate YoY
Wednesday 17th
12:00 AM – Uruguay – GDP Growth Rate YoY
10:30 AM – Brazil – IBC BR Economic Activity
Wednesday 24th 2:00 PM – Brazil – Economic Activity YoY
2:30 PM – Brazil – Current Account
Friday 26th 2:00 PM – Mexico – Unemployment Rate5:00 PM – Colombia – Unemployment Rate8:00 PM – Argentina – GDP Growth Rate YoY
Monday 22nd
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
Friday 12th
12:00 AM – Peru – Interest Rate Decision
8:00 PM – Argentina – Inflation Rate MoM
11:00 PM – Chile – Interest Rate Decision
Friday 10th
2:00 PM – Mexico – Industrial Production YoY
2:00 PM – Mexico – Industrial Production MoM
Wednesday 15th
10:30 AM – Brazil – IBC BR Economic Activity
8:00 PM – Argentina – Inflation Rate MoM
LatAm INVESTOR19 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
LatAm INVESTOR Q2 2015|20
COUNTRY REPORT | PANAMACOUNTRY REPORT | ECUADOR
Contents
Building a New Ecuador 24
An Ecuadorian welcome 34
21A Brave New World
28 Adding Value
26Plenty of Room at the Inn
20Introduction
38Time For Change
42Harvesting Profits
45Final Word
40S2M-CICEB Ecuador-UK Trade & Investment Mission
Ecuador’s CenturySo far the 21st century has belonged to
the emerging markets, with investors
enthralled by the rapid progress of
the likes of China and Mexico. Yet the
‘Ecuadorian economic miracle’ has gone
largely unnoticed by British investors.
Since the nadir of 1999, which saw the
collapse of the country’s financial system,
a huge rise in unemployment and mass
emigration to Europe, Ecuador has been
steadily rebuilding its economy.
One consequence of the crisis was the
switch to a dollarised economy, which
has helped to defeat inflation and
restore business confidence. It helped
too that the dollar weakened during the
first decade of the century, helping to
keep Ecuadorian exports competitive.
But the biggest boost came from oil,
which reached, and remained at, record
prices for most of the last fifteen years.
There’s no doubt that these benign
external factors helped push economic
growth, with nominal GDP more than
quadrupling over the period.
But Ecuador’s success isn’t all down to
favourable world events. Even more
important has been the economic
stewardship of the government of Rafael
Correa, who came to power in 2007. In
the West Correa is often portrayed as
a firebrand socialist along the lines of
Hugo Chavez. But for investors, who
care more about returns than speeches,
he has proved a remarkably successful
overseer of the Ecuadorian economy.
Since he came to power, real GDP growth
has averaged 4% per year, employment
is below 5% - a record low for Ecuador –
and inflation has been kept control.
But perhaps the best measure of
Correa’s success is coming now. That’s
because the external environment for
Ecuador, and many of Latin America’s
other commodity producers, has got
considerably more challenging over the
past year. Opec’s smallest member has
been hit by a falling oil price, which is
down roughly 50% since summer 2014.
Given that oil made up more than half
of Ecuador’s exports and one-third of
its fiscal revenues, the low oil price is a
big blow for both the economy and the
government. Meanwhile the dollar has
become the world’s best-performing
major currency, making Ecuadorian
products less competitive than their
international rivals.
The government has been quick to
respond. On the fiscal side Correa has
found a way to fund the deficit in the
short-term. A visit to China at the start of
the year resulted in a $7billion loan, while
the well-timed return to international
capital markets in 2014 means that
future bond issues are another option.
The government also announced budget
cuts of $1.4billion to cut the shortfall
between government spending and
receipts.
And, in an attempt to east pressure on
the trade deficit cause by the falling
value of oil exports, a set of short-term
import taxes, known as salvaguardias
(safeguards), were also introduced.
It’s hoped this will reduce imports by
$2.2billion per year.
But what will most help Ecuador are the
measures taken during the good times.
This government has invested $8billion
in the road network since 2008. This
has boosted the competitiveness for
local manufacturers, helping to offset
the rising dollar. Education spending
in real terms has also doubled, which is
producing a more talented and flexible
labour force. Finally, the government has
been involved in a sustained effort to
change the country’s productive matrix.
This last move is both the hardest
and the most historically significant.
Since independence Ecuador has been
a producer and exporter of various
commodities, leveraging its substantial
bounty of natural resources. Yet Correa’s
government is now trying to promote
value-added industries so that Ecuador
can sell processed and finished goods
instead of raw materials.
In short Ecuador finds itself undergoing
an economic transition. And the current
crisis is accelerating the process as
falling oil prices mean that attention
and resources are being diverted to
new industries. The combination of low
asset prices and government support
mean that there has probably never
been a better time for British investors
to consider Ecuador. And this report,
compiled by a team that spent almost
two months in-country, outlines the
challenges and opportunities that await
those LatAm INVESTOR readers that do.
LatAm INVESTOR21 Q2 2015|
A Brave New World
When the founding father of Singapore,
Lee Kuan Yew, died in late March
his epitaph was as obvious as it was
impressive. In less than half a century
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, value-
added 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
background in agribusiness, but the
other three - software, pharmaceuticals
and the auto industry – represent a new
direction for Ecuador’s economy.
Partnering the private sectorLara 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
Yachay – an ambitious digital city project.
There is also a long-running national
broadband campaign which has helped
boost Ecuador’s internet penetration
to 70% from just 7% less than ten years
ago. These government schemes were
an important first step but there has also
been an important reaction from the
private sector.
“The national broadband programme
really pushed internet usage in Ecuador”,
says Katherin Miño, General Manager
of PuntoNet, a Quito-headquartered
internet service provider. “It made people
realise that the internet is not a luxury for
the rich but a necessity for the whole
society.”
But while the broadband programme is
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.”
International alliancesIn essence Yachay is a good example of
the hybrid model of co-operation that
Ecuador needs to jump-start these new
industries. The other type of co-operation
that Ecuador needs is with international
firms. Not just for capital, though that is
welcome, but for know-how too. Take the
pharmaceutical industry, for example.
Set up in 1940 Life was Ecuador’s first
pharmaceutical company and one of its
most well-known. Over the years Life has
gone from being independent to being
part of Dow Chemicals Group, to now
being independent again. Yet General
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…
LatAm INVESTOR Q2 2015|22
COUNTRY REPORT | PANAMACOUNTRY REPORT | ECUADOR
Manager, Héctor Enríquez, believes
that regardless of ownership, the firm
always needs to be open to international
partnerships.
Life currently manufactures generic
versions of drugs developed elsewhere
but there has been talk of Ecuadorian
firms developing more sophisticated
drugs, such as oncology products.
Enríquez believes it is possible but that
international alliances are the best way
to achieve it. “Today pharmaceutics is
a global business. Ecuador can create
a niche in certain areas but we need to
work with international partners if we
want technology transfer. Developing it
ourselves would cost too much and take
too long.”
Life has a long history of working with
international names. For example it
previously manufactured drugs for Astra
Zeneca and Enríquez is open to similar
partnerships with other British firms in the
future. “We have world-class equipment
and operate to the best standards – we
could partner any international firm.”
Strong partners like that exist across
many of these ‘new’ industries. Take
Electrocable for example. It is an
Ecuadorian manufacturer of medium
voltage cable that was originally set up
to fill a gap in the local market and now
exports to the US. Given that Ecuador
has no copper reserves and no large
local market to build scale there are no
natural advantages to making cable in
the country. Yet the firm’s Vice President,
Chemel Neme Macchiavello, believes
that is no excuse for failure. “Look if you
need to have cheap copper or some
other advantage to make a business then
you haven’t got a very good business.
We invest in technology and produce
the products that our clients want.
That’s what makes a good business.”
Electrocable now has a joint venture with
a US cable manufacturer to produce new
products in Ecuador.
Made in EcuadorOf course international investors don’t
just look at the company they will
partner, sell to or buy from. The general
investment climate is also a crucial
factor in determining the success of an
investment. The government recognises
this and has been working hard on
improving the business environment. In
recent years Ecuador has risen in various
regional business rankings, yet Lara
believes that the reality on the ground is
probably even better than these rankings
suggests.
“Ecuador is a great place to produce. We
have a capable labour force, low energy
costs, which will get even cheaper when
more hydroelectric energy comes online
in 2016, great transport connectivity with
some of the best roads in Latin America,
commercial agreements that tie us to
the world’s major markets and, finally,
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LatAm INVESTOR23 Q2 2015|
investment contracts and incentives
that make it favourable for companies
to choose Ecuador as their hub for
international business.”
One person that agrees with Lara
about the strength of the labour force
is Silvia Carrera, the General Manager
of Manpower. “In recent years this
government has made a massive effort
with education, reforming the quality
and the focus. As a result we now have
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
in quality has come at a good time, says
Carrera, as the appreciating dollar makes
Ecuadorian workers more expensive
than some of their counterparts in
neighbouring countries. “I really think
that the Ecuadorian workers need to
compete on quality and productivity not
price.”
International companies coming to
Ecuador will find a deep and qualified
labour force. “Employment is low but
because of the demographic situation
there is a steady stream of graduates,
which means that the labour market is
very dynamic.” But while this flow of new,
technically-focused graduates is good for
the economy it can also pose challenges
for firms setting up operations in
Ecuador. “One problem can be that these
graduates feel over-qualified”, explains
Carrera. “This means that there can be
high churn rates as they keep switching
employers looking for the job that they
feel they deserve.” And that’s where
recruiters like Manpower come in. “It’s all
about understanding the candidate and
the needs of the employer. Spending
more time on getting the right employee
at the beginning can save a lot of money
further down the line.”
For international firms looking at coming
to Ecuador Manpower also offers market
studies and analysis services, which
allow companies to test the water before
committing too much capital.
UK plc in EcuadorAnother important first port of call for
UK companies coming to Ecuador is
the British and Ecuadorian Chamber of
Commerce and Industries, Guayaquil.
Unlike most countries, where there is
just one British chamber of commerce,
Ecuador has two. “It’s because Ecuador’s
economy is organised around the two
commercial poles of Guayaquil and
Quito”, explains Chamber Chairman,
Nicolas Armstrong. “We’re independent
from the Quito chamber but we’ll link
up with them for certain events and we
share some members.”
The Chamber’s membership is an
interesting snapshot of British business
in Ecuador. Large industrial names such
as Unilever and SABMiller sit alongside
shipping and logistic interests, like
Seatrade, which has a direct route to the
UK, and smaller firms set up by British
expats in the country. There’s also a
smattering of large local corporates,
such as Consorcio Nobis, one of the
biggest real estate development firms
in the country. “It’s a good mix but
we’re looking to grow our membership”,
says Armstrong, “we want to represent
companies along the whole coast.”
The list of names shows how accessible
Ecuador is for UK firms and Armstrong
feels that most British investors would be
surprised by just how good the business
environment in Ecuador is. “Since Rafael
Correa became president perhaps the
political rhetoric has seemed a bit anti-
foreign investment. However, in reality,
on the practical side of things, business
for people here in Ecuador has been
very good for the last seven years. The
business climate has been positive and
companies here have been able to crack
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
‘new’ sectors. In addition to the names
mentioned above there are a number
of other success stories. This means that
there is no shortage of good-quality local
firms for UK investors to work with
Whenever countries around the world
have succeeded in establishing new
industries and jumping up the global
development table it’s because they’ve
managed to find a way to harness the
power of the private and public sector.
Ecuador is doing that but it will also need
international capital and expertise. And
that presents a great opportunity for
British investors and businesses that can
help develop Ecuadorian industry.
Nick Armstrong, Chairman of the
British Ecuadorian Chamber of
Commerce and Industry, Guayaquil
PuntoNet uses satellite to bring
internet to the Galapagos Islands
LatAm INVESTOR Q2 2015|24
COUNTRY REPORT | PANAMACOUNTRY REPORT | ECUADOR
C I P O R T
Av. Francisco de Orellana y Miguel H.AlcívarEdificio Las Cámaras Piso 7 Oficina 702 - Telf: 2680485
Guayaquil - Ecuador
Some of the most fervent advocates of this government’s
infrastructure programme can be found on either side of the
country’s biggest bridge. Los Caras. Before the $100million
project residents of San Vicente and Bahia de Caraquez were
forced to take boats to travel between the two. Now they can
cross the two-kilometre bridge in a matter of minutes. “It has
changed the lives of people on both sides of the Rio Chone”, says
Elias Loor, a prominent local businessman.
The bridge, which had been promised by previous administrations
but never delivered, is a perfect example of the building boom
that has powered Ecuador’s economy over the last eight years.
Because in addition to linking up two relatively small towns
on Ecuador’s coastline it also facilitates the transport of goods
from northern and central parts of the country to Manta, a fast-
growing 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 modelBut 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.
“And that’s what the government is trying to do. We are seeing
that pragmatic concerns trump any ideological opposition to the
private sector”, says Acosta. “For example, previously the private
sector couldn’t develop power plants larger than 40 MW but now
that restriction is being dropped and companies are being invited
to invest. Indeed there was a presidential decree that established
the rules for private public partnerships (PPPs) to allow the private
sector to invest in sectors that were reserved for government.”
That transition may be a challenge for the government but many
within the industry regard it as an opportunity. Rafael Miranda
Roca, founder of Ciport, Ecuador’s leading marine construction
company, is optimistic about the future. Ciport has been involved
Building a New EcuadorThe 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…
LatAm INVESTOR25 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
here.” Miranda Roca points to the plans for new deep-water ports
in Posorja and in Manta. “It seems that the government will use
the concession model and invite a leading international player,
such as APM or Hutchison Whampoa, to develop the project.
We’ve worked, indirectly, for these types of clients in other ports,
such as Callao in Peru, so I have no doubt we will do so again
here in Ecuador.”
Miranda Roca isn’t just optimistic about Ciport’s prospects – he
also believes that it’s a great time for British investors to look at
Ecuador’s infrastructure and construction sector. “The size of the
new projects meant that Ciport will look to make alliances with
other international and local contractors to improve our chances
of obtaining work.” Ciport already has experience working with
European names, such as Spain’s FCC in Peru, and Miranda Roca
is open to new partnerships with British firms.
21st Century CitiesBut the construction opportunities aren’t just focused around
‘productive infrastructure’ such as roads, ports and power stations
– Ecuador’s fast-growing cities make urban development an
interesting investment theme too. “Ecuador’s rapid economic
growth has put pressures on the existing city development
models”, explains Jaime Rumbea, Executive Director of the
Association of Ecuadorian Residential Real Estate Developers
(APIVE, by its Spanish acronym). “There has been a rapid growth
of gated communities across all price segments of the market
and now there is talk of more mixed-use projects.”
For city dwellers in Guayaquil or Quito, the desire to get out of
crowded city centres echoes the ‘flight to the suburbs’ witnessed
in several US or European centres. Yet poor planning and rapid
population growth mean that Ecuadorian cities have acute traffic,
energy and waste disposal issues. Davide Stronati, a sustainable
urban infrastructure expert at Mott MacDonald, believes that
this is a common problem across Latin America. Speaking at a
Sustainable Urban Development conference arranged by the
British and Ecuadorian Chamber of Commerce and Industry,
Guayaquil, Stronati explained that finding and financing the
solutions to these problems will be a growing investment trend
in coming years. “For every new urban infrastructure project the
focus will be on the environmental impact that it will have and
the improvement in quality of life that it can offer citizens.” And
judging by the full house at the conference it’s a theme that
companies from both Ecuador and the UK are already exploring
with interest.
In theory you’d expect the housing market in Ecuador to be
facing a bleak future as falling oil revenue starts to impact
the country’s economic growth. Yet those within the industry
remain quite bullish. “I think we will see a shift in focus”, says
Mario Burbano, Director of Stategy for Mutualista Pichincha, one
of Ecuador’s biggest real estate developers. “Of course residential
housing isn’t completely removed from the wider economy yet
there is a big need in certain areas that will continue to be filled,
even during slower growth.” He highlights lower priced housing
– units sold for below $60,000 – as an area that should continue
to remain interesting for investors. Pichincha is planning to open
up several international finance vehicles that will allow British
investors to gain exposure to the theme.
Ecuador’s building boom became the symbol of the Ecuadorian
economic miracle, with the construction industry growing at
10% per year. This year growth in the industry is likely to come
in at 6% - that’s lower but it’s still enough to create plenty of
opportunities. Moreover, the emergence of PPPs and concession
models should lead to more deals being offered to the private
sector. Needless to say, it’s an area that LatAm INVESTOR readers
should keep an eye on.
Rafael Miranda Roca, founder of Ciport
LatAm INVESTOR Q2 2015|26
COUNTRY REPORT | PANAMACOUNTRY REPORT | ECUADOR
... it would be impossible for the
government to work alone to boost
productivity
LatAm INVESTOR sits down with Ecuador’s new Minister for Tourism, Sandra Naranjo, to discuss Ecuador’s burgeoning tourist industry…
Plenty of Room at the Inn
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
per week. We thought it was important
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
social media, so it achieved a total of 133
million views in just one week.
The advert also generated a lot of free
press. Ecuador was the first country to
advertise in the Super Bowl so we made
a bit of history. There were articles in
the BBC, Wall St Journal and Bloomberg,
among others, talking about our move.
LAI: It’s all very well that people see the advert but do you think it will be effective
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 less than a 1% increase of number
of annual visitors to cover the cost of the
advert. But we’re more ambitious than
that and we’re hoping for 5%. We expect
to see the first impact on visitors during
the summer because generally that is the
peak time for the US market..
LAI: Ecuador is situated in a very competitive tourist neighbourhood, with Peru offering Machu Picchu and Colombia having Cartagena; what are Ecuador’s competi-tive advantages with regards to attracting tourists?
MN: We have many! First we have the
Galapagos Islands, which is something
unique to this country and probably the
most well-known thing about Ecuador.
Now our main challenge is to show that
Ecuador is much more than just the
Galapagos. I think Ecuador’s advantage
is that it’s a very small territory that has
four very distinct climatic zones. You
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
Ecuadorian Minister of Tourism, Sandra Naranjo
LatAm INVESTOR27 Q2 2015|
The Galapagos gives something that no other country can offer
Ecuador boasts a rich variety of incredible landscapes
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
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
and cultural resources. That’s an incredible
potential that we have but also a challenge
because they are resources that you have
to preserve. We believe that tourism has to
be a long-term business so we are not just
thinking of this generation but looking to
the future by trying to make it sustainable
in the long run. This acts as a constraint as
we can not be a mass market for tourism
like the Dominican Republic. Instead
we have to focus more on increasing
expenditure per tourist than tourist visitor
growth.
Of course we can’t just expect tourists to
turn up here and spend more money we
need to persuade them to stay longer and
doing that means creating new products
and new reasons to stay. One way we
can do this is by connecting the regions.
This country has invested about $8billion
in roads and developed 14 airports in
what is a small country, so the internal
connectivity is really good. The other way
to encourage visitors to spend more is
through the quality of the infrastructure
and the services. If you only have lower-
priced services, then tourists can’t spend
even if they want to. We are conscious
that we need to increase the quality of
our services so that we can increase the
quantity of the visitor spend.
LatAm INVESTOR Q2 2015|28
COUNTRY REPORT | ECUADOR
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…
Adding Value
For any country to be a success in
today’s global economy it needs to
play to its competitive advantages.
And, as we’ve discussed elsewhere in this
report, one of Ecuador’s main assets is
its incredible agricultural potential. But
while Ecuador is a powerful producer
of ‘soft commodities’, until now it has
done a poor job of extracting the most
value from its resources. Take chocolate
for example. Ask anyone in the world
where the best chocolate comes from
and they will likely say Switzerland - an
absurdity given that Switzerland doesn’t
have a single cacao tree. Since colonial
times Ecuador has exported raw cacao
for Europeans to export, but is Ecuador
really incapable of producing its own
finished chocolate?
The answer, according to Santiago
Peralta, CEO of Pacari Chocolate, is a
resounding ‘no’. Pacari is one of three
local producers that are re-writing
the centuries-old chocolate trade. It
is producing finished chocolate in
Ecuador and then exporting that to
Europe. “Breaking into a market against
established, and very large, competitors
isn’t easy”, admits Peralta. “We can’t
compete on the same products as they
have much larger economies of scale. So
instead we have created a unique, and
in my opinion far better, product.” Pacari
makes organic chocolate from raw cacao.
Whereas a typical European chocolate
bar – for example think Cadburys in the
UK – might have 5% cacao, Pacari’s bars
typically have 70%.“
Pacari owes much of its success to
local ingredients. Ecuador has a distinct
aromatic strain of cacao that gives a rich
flavour and it also has any number of
delicious fruits to create fusions. Yet this
advantage doesn’t just help producers
of luxury niche products. Shrewd
Ecuadorian producers are also using
these advantages for the mass consumer
market.
One company that’s been pioneering
value-added processed foods from local
ingredients long before this government
came to power is Grupo Oriental.
Spearheaded by Wilson Kung Pik León
Lee, known locally as Don Wilson León,
the firm is based in Quevedo – one of
Ecuador’s most productive agricultural
zones.
León’s story is a remarkable one,
and demonstrates the potential for
international investors to succeed in
Ecuador’s processed foods sector. León
arrived in Ecuador from Hong Kong
1975 looking to make his fortune. He
made straight for Quevedo, which is a
hub for Chinese immigrants in Ecuador.
When he arrived his fellow countrymen
helped him get on his feet, yet despite
Quevedo’s big presence in the country
León spotted an opportunity that
others seemed to have missed. Despite
Ecuador growing considerable amounts
of soy there was no locally-produced
soy sauce or salsa China (Chinese sauce)
as it’s known in Ecuador. So, in an early
example of import substitution, León
decided to start producing his own. His
first clients were Chinese restaurants
– Ecuador, like neighbouring Peru, has
experienced considerable Chinese
immigration over the years – before his
salsa China gradually became a favourite
among Ecuadorian housewives. Indeed,
Chinese food is very popular in Ecuador.
Grupo Oriental has invested heavily in food production technology
LatAm INVESTOR29 Q2 2015|
LatAm INVESTOR Q2 2015|30
COUNTRY REPORT | ECUADOR
Don Wilson León Lee, Executive
President of Grupo Oriental
From that humble beginning León has
gone from strength-to-strength and
Grupo Oriental now produces more than
200 processed food items. The success is
partly down to the firm’s ability to spot
changing trends in the food industry. For
example, Grupo Oriental introduced a
range of ready meals to the Ecuadorian
market when León realised that the same
social changes that made these products
popular in Europe and America were also
starting to drive demand in Ecuador.
More recently the group has focused on
health foods; using local ingredients to
produce tasty but healthy snacks.
León recognises that Grupo Oriental has
benefited from the wide variety of crops
that Ecuador can produce. “The main
advantage of Ecuadorian agriculture is
the variety and quality of the products
that we can find locally. Without a doubt
this has allowed us to offer, nationally and
internationally a wide range of processed
food. The terrain of this beautiful country
has a nature, a life, a fertility that very
few others possess. And that’s why we
can make international-quality products
with high nutritional standards and
why Ecuadorian food products can be
found around the world, providing the
ingredients for infinite national and
international makes.
According to León one of the group’s
competitive advantages is that it controls
the whole production cycle – from farm
to finished product. As a result it can
control quality and give added value
to its brand. For example Oriental even
exports salsa China to China, which
speaks volumes about the quality of the
product.
But while Ecuador’s unique geographic
and climatic conditions have long been
a big boon to food producers, two
newer factors also look set to give local
agribusiness firms a boost. The first one,
which is already starting to have an effect,
is the salvaguardias (safeguards), import
taxes that were introduced in March as
a temporary measure to reduce imports.
The taxes don’t apply to any of the raw
materials that local producers use, but do
apply to finished or processed consumer
goods that are imported to the country.
As a result locally-produced food has
suddenly got a lot more competitive
in the Ecuadorian market against its
international competition.
Take Corporación Superior, for example.
The firm began life as a miller of imported
wheat in 1970. But around 12 years ago
it decided to expand its business lines
and start producing finished, wheat-
derived products such as biscuits, pasta
and snacks. “The salvaguardias make a lot
of sense for the processed food market”,
says David Vergara, Executive Director
of Corporación Superior. “For example
the Ecuadorian confectionary market
is dominated by international names
despite the fact that local producers can
make products of the same quality.” For
Vergara’s company the new taxes have
come at the perfect time. “We have spent
the last 12 years developing a range of
excellent products, so we are optimistic
that we can make the most of this
temporary measure.” It’s not that local
companies need protection, says Vergara,
but this move will push consumers to try
more Ecuadorian-produced food and
they will be pleased with the results.
Another interesting example is pet
food. Previously premium dog or cat
food was imported but now Agripac
is manufacturing it locally, explains
Gustavo Wray, General Manager of
Agripac. “We hired a very good manager
with experience in that area, invested in
a factory line and developed a product
called Nutra Pro, which is competing with
other premium dog food brands. Now
with these salvaguardias our product
will be more competitive against the
imported options.”
The second factor that is causing
optimism in agribusiness is the trade
agreement with the EU. The deal that
was signed in 2014 is due to be ratified
by European member countries in 2016
and will gradually see tariffs fall on
Ecuadorian goods entering the European
market. That may seem contradictory
to the boost they’re getting from the
salvaguardias but most Ecuadorian
producers are firmly fixed on winning
more exports.
“Signing a deal like this is of great
importance for the future of Ecuador”,
says León, whose company already
exports to European countries like
Spain, “especially when you consider
the size of the European market and
the potential it has. But we believe that
this agreement shouldn’t just be used to
push agricultural commodity exports but
agro-industrial ones as well. Indeed one
of the markets with the best potential for
our products is precisely the EU.”
“As an industry we believe that these
LatAm INVESTOR31 Q2 2015|
types of agreements help us expand to
those countries in the EU that we haven’t
reached yet”, says León. We are confident
that Grupo Oriental will be representing
both Ecuador and Latin America in these
European markets in the best possible
way. After all, we’ve been preparing for the
last 40 years to take advantage of every
one of the opportunities and challenges
that have presented themselves.”
Another industry player that is optimistic
on Europe is Wilmington Ramirez, CEO
of Don Joaquin Gourmet. An offshoot
of ProveAgro, an Ecuadorian maker of
everything from ketchup to caña (a
local firewater), Don Joaquin Gourmet
specialises in luxury sauces, condiments
and spices made from local ingredients.
“Our products target specific high-value
niches – for example some are gluten
free, kosher and vegan – that are very
sought-after in the European market. Our
local sales can help cover costs but really
the long-term vision for these types of
products is the European and North
American markets.” The firm is innovating
with new flavours that don’t yet exist in
Europe. Creations such as the chilli with
passion fruit dip to accompany snacks,
should help the brand to differentiate
itself from competition in European
supermarkets.
Vergara believes that, even before the
deal was signed, this government’s
measures have been making Ecuadorian
agro-industry more competitive. “One
big improvement has been transport
infrastructure. If you look at the roads,
it’s now much quicker and safer for us
to get our goods across the country.
We’ve also seen a massive difference
with the airports. The economic growth
has also helped local demand grow,
which has given us the scale we need to
start making products for international
markets.”
León recognises the ‘important’ help
of the national government to agro-
industrial producers across the country.
Nonetheless he believes that “you can
always do more”. He suggests “training
schemes and a technology programme”
to improve the sector as “subsidies and
tariff exemptions aren’t the only way.”
But the government isn’t just looking to
help local producers; it is also keen to
attract international investors that can
help boost Ecuador’s agro-industries. The
first point of contact for any international
investor looking to take advantage of the
excellent conditions available at present
is Pro Ecuador. And Carlos Lara, Director
of Investment at the organisation, is keen
to welcome international newcomers.
“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
once or twice a week, perhaps about the
tax situation or financing issues, and we
get very good help.”
Ecuador’s agro-industries are enjoying
a perfect mix of natural and man-made
advantages. Those international investors
that invest now can expect to reap plenty
of rewards.
David Vergara, Executive Director of Corporación Superior
LatAm INVESTOR Q2 2015|32
PRO ECUADOR AS YOURBUSINESS ALLY
The Investment Department of PRO ECUADOR and its 30 Commercial Of�ces (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:
• 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
LatAm INVESTOR33 Q2 2015|
PRO ECUADOR AS YOURBUSINESS ALLY
The Investment Department of PRO ECUADOR and its 30 Commercial Of�ces (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:
• 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
LatAm INVESTOR Q2 2015|34
COUNTRY REPORT | ECUADOR
An Ecuadorian WelcomeEcuador 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…
This year’s Super Bowl was a
classic. The outcome of the final
of the USA’s American Football
competition was decided by a last-
minute touchdown. It was the closest
Super Bowl in recent history. But the
final was also memorable for events off
the field. Ecuador’s decision to broadcast
an advert in the commercial break made
it the first ever country to buy a space
in the event, which is the world’s most
expensive advertising slot.
Like most pioneering moves the
decision to spend $3.5million on the
30-second advert courted both praise
and controversy. The decision was
the brainchild of Ecuador’s Minister of
Tourism, Sandra Naranjo, who makes
a good case for the advantages in
her exclusive interview with LatAm
INVESTOR, which you can read elsewhere
in the report. But regardless of whether
you agree or disagree with the move one
thing is clear. It signals that Ecuador is
now serious about promoting its tourist
industry.
That’s the view among the private sector,
where hoteliers and tourist operators
love the new promotion efforts. “I’ve
been in this industry for a long time”,
says Diego Utreras, Executive Director of
the Hotels Association of Ecuador, “and
this is a big change from the old days.
Before the government used to spend
around $4million on promoting Ecuador
as a tourist budget, now it spends around
$60million to $70million so that’s great
for us.” So far this greater budget has been
reflected in visitor numbers. The amount
of tourists coming to Ecuador in 2014
rose by 14% and another rise is expected
for this year. “It feels like it’s going to be
a good year”, says Gino Luzi, General
Manager of Grand Hotel Guayaquil. “Of
course it’s too early to tell what impact
the advert is having as tour operators put
their packages together very early but so
far guest numbers are looking up.”
Strong selling pointsOf course it’s easier to market something
if it has strong selling points – and
fortunately Ecuador does. “We’re very
lucky in the sense that we have an
amazing range of natural resources
to offer tourists”, says Utreras. “Visitors
can enjoy the world’s most bio-diverse
jungle, active volcanoes, snow-capped
mountains, pristine beaches and, of
course, the Galapagos Islands. And that
geographic diversity has helped create
fascinating and distinct cultures and
communities in each of these areas,
which all come with their own local
cuisine.”
The fact is that very few countries in
the world can offer a similar breadth of
experience. And size is another factor,
says Yamil Simon Munaro, founder of
Quito-based Simon Car Rental. “Even if
another country had all of the attractions
that Ecuador does, it would take tourists
much longer to get there. Ecuador is
a small country with great roads which
means that cash-rich, time-poor tourists
from Europe can squeeze everything into
two or three weeks.” Indeed, while it’s not
part of the Ministry of Tourism’s remit,
Simon believes that the work to improve
Ecuador’s road network – approx
$8billion has been invested since 2007
– has had a big impact on the sector. “I
see it with my clients. It has opened up
new destinations and made more places
accessible. It’s also great for me because
the cars get damaged far less frequently.”
But Ecuador isn’t just trying to get more
tourists. It’s also trying to leverage its
amazing tourist assets to persuade
visitors to spend more. As Minister
Naranjo explains, the vision for tourism
isn’t for a high-volume market but
instead high-spending customers. For
that to happen Ecuador also needs to
develop the infrastructure, services and
experiences that will encourage these
visitors to spend money and recommend
the country to friends back home. And
it’s here that Ecuador faces the biggest
challenges.
More regulation pleaseOne bone of contention in the industry is
the system of standards and regulations.
This may sound odd to readers in the
UK but hotel owners and operators in
the private sector actually want more of
them. One man well-placed to explain
is Marco Ruiz, the President of Pronobis,
which is the largest Ecuadorian real
LatAm INVESTOR35 Q2 2015|
LatAm INVESTOR Q2 2015|36
COUNTRY REPORT | PANAMACOUNTRY REPORT | ECUADOR
estate developer and a significant player
in the tourist market. It has developed
approximately 800 rooms of high-
quality hotels, such as the Wyndham in
Guayaquil, it is currently building a new
5-star hotel in Quito Airport and is also
planning a massive, internationally-
focused beachside real estate project.
“At the moment Ecuador has lots of
informal players in the tourism market,
which isn’t ideal for attracting the high-
end traveller. The problem with informal
players is that the standard varies greatly
from one place to another. High-net-
worth individuals are very loyal to certain
brands of hotels and resorts and these
people have particular standards of
living. Ecuador doesn’t really cater for
that at the moment - or if it does it’s in a
boutique, small way.”
This view is shared across the industry. For
example, Utreras notes that he has been
waiting for 12 years for a government
to do something about the inconsistent
and poorly enforced standards system.
But now, finally, it seems that the
problem is about to be fixed. The Minister
of Tourism, Sandra Naranjo, mentions in
her interview that this is one of her key
priorities and private sector players like
Ruiz are optimistic that this “will help to
separate the good from the bad”.
Luzi also welcomes the move although he
believes that the private sector is doing a
good job of pushing up standards. “There
are seven culinary schools in Guayaquil
alone. That gives hotels here a good
pool of chefs to choose from. It also
helps that we have top brands like the
Marriot, Wyndham, Hilton etc, here in the
country. They produce and train good
workers, which raises standards across
the industry.”
Another challenge is the set of import
taxes, known as the salvaguardias,
says Michel Thorin, General Manager
of the Sheraton Quito. “As a hotel we
have to offer international standards.
We can’t offer caña instead of whiskey,
so obviously these taxes could have a
big impact. If they make staying here
more expensive than in neighbouring
countries then visitors may think twice.”
Diverse opportunitiesGiven the diverse nature of Ecuador’s
tourist offering it is little surprise that
opportunities can be found in a range
of areas. In the major cities of Guayaquil
and Quito one of the most exciting parts
of the market is the business traveller.
Guayaquil benefits from a former airport-
turned convention centre and Quito,
while hoping the same will happen to
its old airport, can make the most out of
several mid-sized venues.
“Business travellers make up most of my
customers”, says Luzi. “But even though
these people are here for business, they
still want to be able to enjoy life outside of
work hours. We’ve benefited a lot in recent
years from the regeneration of Guayaquil.
We’re situated in the restored centre,
where visitors can see historic buildings,
walk along the new promenade and still
be right in the heart of downtown.”
Grand Hotel Guayaquil is one of the city’s
icons, sharing the block with Guayaquil’s
neo-Gothic cathedral. Perhaps the most
concrete sign of Luzi’s optimism is the
$5million refurbishment programme
currently being carried out on Grand
Hotel Guayaquil. “It is almost finished and
has really rejuvenated the place.”
But investors looking to establish
business hotels in Ecuador would need
to be sure to thoroughly research local
rates of return, cautions Thorin. His firm
is a third-party operator of almost 60
hotels across Latin America, which gives
it a good platform to make comparisons.
“Here in Ecuador a 5-star room will
go for around $105 to $110 per night.
That’s far cheaper than in Colombia,
where you’re looking at $160. You can
still have profitable operations here but
it’s a different market to neighbouring
countries.” Also a law banning casinos
means that hotel operators can’t rely on
them to supplement profits as they do in
other Latin American countries.
There are also plenty of opportunities
in Guayaquil’s hinterland. Surprisingly,
given that it is generally well-conserved
and unspoiled by urban developments,
Ecuador’s jungle tourist market is already
quite mature. The excellent roads have
made it much more accessible, while
the ecologically sensitive nature of the
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
managed so that it works for both sides. Ecuador’s coast more to offer than just beach
LatAm INVESTOR37 Q2 2015|
“I think that there is this perception that you can turn up with a
tour group and you’ll be greeted with open arms by an idyllic-
looking community. It’s not like that. You really need to research
the community to make sure that it’s the type of experience
that your clients want and then speak with the community to
make sure that they are interested too.” He suggests that the
government could help prepare the communities so that they’d
be better able to capitalise on tourist interest in their way of life.
Surprisingly, given that it’s normally the first target for tourism
developers, Ecuador’s coastline remains remarkably untouched.
“We’ve really not developed our beach zone as much as
you would think”, explains Norman Bock Torres, Executive
President of Quito Metropolitan Hotels. “Ecuador has a series of
advantages for investors in the coastal area. If you look at land
prices we are still lower than most places on the Caribbean,
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 retirementBut 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.
Just an hour’s drive from Guayaquil, Karibao will be a high-
end residential development set in 50 hectares of land. It’s the
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
across 38 buildings.
The idea is to build a self-contained experience, explains
Ruiz. “Folks won’t need to leave the project as they will have
just about everything and transport within the development
will be via environmentally-friendly golf carts. But the really
unique thing about Karibao is the crystal lagoon. The project is
using cutting edge technology to create an artificial, but living,
lagoon which will be in the centre of the development.”
This type of development is exactly what Minister Naranjo
means, when she talks of building the tourist infrastructure
and services needed to attract the high-spending visitor. But
there is still much more that needs to be done. And that’s why
investors looking at the sector should investigate Ecuador’s
tourist opportunities further.
Marco Ruiz, President of ProNobis
LatAm INVESTOR Q2 2015|38
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…
LatAm INVESTOR: Pro Ecuador is a relatively new institution; can you explain how you help investors?
Victor Jurado: We were set up at the
end of 2010 and we’re the official agency
for promoting of non-oil exports and
attracting investment - so it’s a double
mandate. On the export side we use
trade shows, fairs, B2B events etc to
help Ecuadorian-based firms export
more. When it comes to attracting
investment we don’t get involved with
the government’s strategic sectors,
such as the hydroelectric plants, ports
and refinery, but rather we focus
on opportunities in the productive
sector. Here we offer investors advice,
consultancy and help them understand
not only the investments that exist
but how things work with regards to
government incentives etc. We can find
them the meetings they need with the
private and public sector, even up to
a Presidential level, depending on the
need and level of the business.
Victor Jurado, Executive Director of Pro Ecuador
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
exist are found around this public policy.
We are trying to add value to the
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
involve more science in our products
and in the longer term we are aiming
to build expertise in bio-technology.
We already have some exciting projects,
for example one of the world’s most
developed aquaculture laboratories is
in the province Santa Elena. It’s a good
example of how we’re adding science
to our natural strengths. We also have
a lab in the jungle that specialises in
biodiversity and draws on the fact that
our part of the Amazon is the most bio-
diverse place on earth. But there are
many other areas where this could be
happening. Water management and
waste-to-energy projects are just some
ways that we could use technology to
add value to our natural resources in the
future.
We’re also keen to push software
development and, again, we’re looking
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?
VJ: This is a temporary measure that is
addressing the balance of payments
problem caused by falling price of oil.
Also – and this is especially relevant
from Pro Ecuador’s point of view – it’s a
response to the devaluation that we’ve
seen take place in the currencies of
competitor countries such as Colombia
and Peru. Their devaluation has reduced
the costs of their exports, which makes
ours less competitive. As a dollarised
economy we can’t manage our currency
so we’ve had to use the salvaguardias.
But I want to clarify something: this
measure has important exemptions. Raw
materials or capital goods that are used
for local production are not subject to
LatAm INVESTOR39 Q2 2015|
this tax. Of course it’s hard to calculate
exactly which materials or machinery is
needed for production so there may be
some cases where exemptions should
be extended. The government is open to
that and is prepared to listen and respond
to local producers if they have been
affected. So, ultimately, this won’t have
an impact on exporters. This measure is
intended to boost the competitiveness
of Ecuadorian producers and balance
the effect of the devaluations of our
competitors.
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?
VJ: Yes I think it is. Without doubt
the current situation has created
opportunities. But more than that it’s
also good timing because a lot of what
the government has done in previous
years – ie investing infrastructure and
improving Ecuador’s macroeconomic
position – has helped to create
excellent conditions for international
investors right now. In fact it’s not just
international investors. Recently the
major players in the Ecuadorian private
sector had an important meeting with
the private sector where they discussed
the emerging investment opportunities
in the country. This shows that now is a
great time to invest here.
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: This is a great agreement for our
institution and the country as the EU is
the main market for non-oil Ecuadorian
exports. But for us it’s not just about
the quantity of trade but also the
quality. European trade involves ‘the
four principles’ – namely, respect for
the worker, who is paid a fair wage; the
consumer, who receives good quality;
the society, as the firms pay their taxes;
and the environment. Some countries
are guilty of ‘social dumping’ where they
export products made by child labour
or with a terrible environmental price
- we don’t. We produce responsible,
sustainable exports that fit well with the
needs of the European market.
It’s clear that this agreement will create
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.
Ecuador has already established itself in areas of light manufacturing such as textiles.
LatAm INVESTOR Q2 2015|40
COUNTRY REPORT | ECUADOR
Roberto F. Salazar-Córdova**
S2M-CICEB* Ecuador-UK Trade & Investment Mission
Ecuador has been identified globally as a country of
opportunities for developing large-scale mining and further oil
exploration. However, the fall in commodities prices since 2014,
and expected to remain for 2015-19, creates challenges for the
economic growth of the country, which has been led by public
investment during 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
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 services1.
The results of the new openness of Ecuador will be seen from
2017 onwards. Until then the country will rely on debt issuance,
the introduction of trade tariffs, and other short-term measures
of economic policy required to cope with the unfavourable
external scenarios where weaker oil export prices will limit fiscal
revenues required for investment.
Figures published by the Central Bank of Ecuador show that the
country has recorded a twin fiscal-trade deficit. On the trade
side, the deficit has reached a negative figure of approx $6billion
in January of 2015. Historically, the Balance of Trade in Ecuador
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:
On the other hand, the fiscal figures are related to negative
external factors created by the fall of the price of oil (Ecuador’s
main export, and the second source of fiscal income after taxes):
BRENT OIL’S DISMAL 2014
Here’s a look at how Brent prices have fared over the last seven years:
2009 2010
20112012
20132014
$150
$120
$90
$60
$30
With this scenario in mind - and the urgent need of recovery
of international trade and private investment - a group of 22
members and delegates of the Ecuadorian Hexagon (private
sector, public-local government sector, NGOs, indigenous
communities, researchers, and experts) working on projects
financed by national and international organisations, visited
London, Nottingham and Cambridge during the last week of
March 2015.
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
British-Ecuadorean Chambers of Trade and Investment, as well
as partial funding from the EU “Global Finance Project”.
The objectives of the mission included the development of
common understanding among participants, training in issues
of responsible business, fair trade++, agreements required for
creating trust, the promotion of public-private-community
partnerships, national and international alliances, and
channelling industrialised agri-products coming to the UK from
rural producers to Ecuadorian immigrants and British citizens
alike. Plus the creation of an activity programme for years 2015-
2016 between S2M Foundation and the Universities of Hult,
Nottingham, and Cambridge.
0
Jan 2006
In billions
of dolla
rsJan
2008
Jan 2010
Jan 2012
Jan 2014
EQUADOR BALANCE OF TRADE8
6
4
2
-2
-4
-6
-8
* Joint effort of S2M Foundation (Sustainability, Measurement and Mediation) /Hexagon Group and CICEB
** CEO, Hexagon Group LAC (Head of Mission on Behalf of S2M Foundation and CICEB).
[1] See: www.eluniverso.com/noticias/2015/02/25/nota/4590211/gobierno-abre-puertas-inversion-sector-privado-decreto
[2] See: www.csr360gpn.org/partners/profile/s2m-foundation/
LatAm INVESTOR41 Q2 2015|
This way, the delegates have agreed to coordinate a Programme
of Action to be convened via S2M Foundation (Ecuador-
UK) 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
in order to become a solution that would pragmatically upscale
and use concepts of CSR, sustainability, measurement of impact
and mediation with different stakeholders, and create a high
level of cooperation among local and international business, the
third sector, government, communities and the media in order
to improve social and environmental conditions in Ecuador
during years 2015-2020.
This way, the Hexagonal Group would become a leadership
team focused in driving social and environmental cooperation
projects (as part of the Tzapapentza Program) giving priority to
actions between local and international business, but involving
as partners institutions of the third sector, government,
communities and the media, and promoting further
commitment of other institutions interested in becoming allied
ones in the implementation of Triple Bottom Line responsible
business practices.
The development objective agreed after the mission is to
implement this programme as a means to increase business
involvement in the community, developing meaningful
collaboration between businesses and organisations advancing
sustainable trade and investment.
Finally, a tool has been identified as the best means for creating
trustable trends of trade, investment, sustainable economic
development, and impact on poverty: the S2M certification on
Salazar & Visser´s CSR2.0 view on Sustainability, Measurement
and Mediation (S2M), that will be promoted among the members
of the delegation in order to generate private and social results
under the S2M Software, Tool, and International Certification
Standard.
The corporation that will lead this last part of the work during
year 2015 will be SERTECPET, the Oil-Services Ecuadorian
Corporation, together with the Prefecture of Morona Santiago
Province, the British-Ecuadorian Chambers of Trade and
Industries, S2M Foundation, and Hexagon Group.
The delegation had extensive dialogues with the different
members, received information about success stories of
corporations such as Anglo-American, Marks´ & Spencer,
Techo UK, and got training on methodologies and tools for
responsible trade and investment, provided by organizations
such as BITC, Chrysalis Futures, Kaleidoscope Future, ICCSR
(International Centre for Corporate Social Responsibility -
Nottingham University) and CISL (Cambridge Institute for
Sustainability Leadership - Cambridge University). The meetings
with corporations were hosted by Hult University (London) and
organized by S2M Foundation (UK) developing a line of work
with Ecuadorian and Latin-American immigrants in the UK and
Europe. With all this support, the delegates and counterparts
reached agreements orientated towards the goals of the mission.
The next steps agreed and prioritised (by a majority vote among
delegates) include the following fifteen actions:
1. Promote trade and public–private–community partnerships (81%)
2. Attract foreign investment with technological innovation (81%)
3. Develop creative ideas benefiting small enterprises (78%)
4. Protect the economic value of natural resources (78%)
5. Create a common strategic planning for the short, medium and
long run (78%)
6. Enhance corporate sustainability and socio-environmental
responsibility (75%)
7. Identify strategic donors and sources of potential business
cooperation (75%)
8. Act to re-establish trust between economic agents and socio-
environmental actors (72%)
9. Meet regularly for better exchange of experiences and culture
(72%)
10. Institute Hexagon Dialogue at a larger scale, with more actors (72%)
11. Work on leadership (67%)
12. Develop incentives and create mechanisms of stimulus for growth
(67%)
13. Generate long-term agreements via mediation, creating viable and
joint actions (67%)
14. Do teamwork with all sectors (67%)
15. Support and name this agenda as “Tzapapentza Program” (in the
Ecuadorian Amazon) (61%)
LatAm INVESTOR Q2 2015|42
COUNTRY REPORT | ECUADOR
Harvesting Profits
Last year Ecuador exported
$2.4billion of shrimp, $2.5billion
of banana and $1billion of tuna,
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
lesser understood niches of Ecuadorian
agriculture that could offer the most
interesting opportunities for investors.
Essential recoveryMaize 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,
while a relative newcomer to Ecuadorian
agriculture, has also become an integral
part of the local food basket.
The main culprit is poor productivity,
explains Juan Manuel Pérez, General
Manager of Crystal Chemical, an
Ecuadorian producer of crop protection
chemicals and fertilizers. “If you look at
any crop its yield is lower than the Latin
American average. Take rice for example;
Uruguay produces ten to 12 tonnes per
hectare, while here the average is four
tonnes. With corn you had a similar
situation.”
So when the government of Rafael Correa
came to power it made reversing this
trend one of its key priorities. “We had the
chance of talking with the president in
2006”, says Pérez. “Back then he asked us
what was going wrong with Ecuadorian
agriculture. We told him that one of the
main issues is that farmers were not
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.
Juan Manuel Pérez, General
Manager, Crystal Chemical
LatAm INVESTOR43 Q2 2015|
using certified seeds. Fortunately the
government listened and responded.”
In 2012 the government launched Plan
Semilla de Alto Rendimiento (Plan High-
Efficiency Seed). It offered small farmers
- less than ten hectares - subsidised
seeds and technology in a bid to boost
production. The five-year programme
offered a staggered discount, from 50%
in the first year before gradually being
scaled down to finish in the final year. The
idea is that with each year the farmer’s
financial benefit from the increase in
productivity is enough to offset the
reduction in subsidy.
The crucial element to the programme’s
success, says Pérez, was that while the
funding came from the government,
it was implemented by private-sector
suppliers like Crystal Chemical. “We as
a company had to support the farmer
and give them complete package.
We used certified seed, fertiliser and
crop protection to help them raise
production. It was a great success and
in first three years we saw average maize
productivity go from three tonnes per
hectare to six tonnes, so it doubled. This
year the government announced that
no corn imports were needed so it’s a
programme that has worked.”
Pérez is so confident about growing
agricultural demand he has created
Chemical Logistics - a specialized
chemical storage and distribution
service for international producers
of agrochemicals that want to sell in
Ecuador.
Gustavo Wray, the General Manager of
Agripac, one of Ecuador’s leading seed,
fertilizer and feed suppliers, believes the
government’s willingness to work with
the private sector is the reason for its
success. “Agriculture in Ecuador is very
complex because there is such a variety
of crops here, with different climates and
geographies – so it would be impossible
for the government to work alone to
boost productivity. It needs specialists in
different areas and that’s where Agripac
comes in.”
Agripac is a special story. Formed 42
Gustavo Wray, General Manager
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
stores, rather than just relying on third-
party distributors, has given the firm a
close relationship with its customers and
subsequently a detailed understanding
of what’s needed to boost production.
Wray believes that finance is crucial.
Indeed, long before the government
programme, Agripac was giving credit
to small farmers. “We actually began
giving finance to small growers of maize
around 15 years ago. They received the
complete package of seeds and fertilisers
LatAm INVESTOR Q2 2015|44
COUNTRY REPORT | ECUADOR
and then they paid us after 150 days by
giving us a share of the crop. It has been
very successful and helped Agripac to
grow but it has also involved taking on
risk, and over the years we have learned
how to give credit properly. Sometimes
our suppliers give us less credit than we
give our farmers so we have to manage
our positions carefully. In a market like
Ecuador many farmers are informal
businesses. This means they can’t go
to a bank to get a loan, so we need to
carefully evaluate them before giving the
credit.”
A fresh startAs 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
coffee and cacao were very important
exports for Ecuador but both were hit
by spates of plagues and low prices
at various points in the past century.
Cacao is recovering strongly but coffee
is still at a much more nascent stage. At
present the government is encouraging
farmers to develop 100 hectares of coffee
projects but the long-term target is 1,000
hectares. For grapes the target is also
1,000 hectares.
And this is where LatAm INVESTOR
readers can come in. Ecuador is actively
seeking international investors to help
develop key parts of its agriculture
sector. Pro Ecuador is the body in charge
of handling non-oil investments and
the organisation’s Investment Director,
Carlos Lara, believes there are lots of
ways that they can help international
entrants investing in Ecuador for the
first time. “Pro Ecuador can give all the
necessary information so that they
understand the opportunities and can
calculate the investment potential and
the possible return. So if we take forestry
as an example, we can provide technical
details of the concessions available, we
can make them aware of the various
incentives being offered by the Sub-
Secretary of Forestry and then we put
this information together into a portfolio
for the investors.”
Pro Ecuador also helps potential
investors participate in relevant forums.
For instance, it recently hosted a
Forestry Forum in Guayaquil where
it invited specific investors to get to
know the projects and meet potential
local partners. “The event was a great
success and should lead to some
promising investments.” It’s also worth
noting that the government has put in
place generous incentives to encourage
investors to develop these new crops.
For example avocado projects, which
come under the forestry programme of
the Ministry of Agriculture, Ranching,
Aquaculture and Fishing, receive an
incentive of $1,700 per planted hectare,
which covers approximately 20% of the
cost. With coffee there is a scheme that
offers an even more generous $2,000 per
hectare, which again covers around 20%
growing costs.
Given the success of the government’s
previous agricultural programmes you’d
expect these new plans to be a success.
Moreover they add to the widespread
feeling in the sector that now is the time
to invest. “At present, agricultural land
prices here in Ecuador are cheaper than
in our neighbours”, says Salazar, “but that
won’t be the case when both coffee and
grape plantations have reached 1,000
hectares each.”
The signing of the trade agreement with
the EU is also a positive signal. Wray
is upbeat about the agreement and is
investing accordingly. “With regards to
the EU deal we are optimistic because
our company has a strong UK connection
so we are aware of the possible
opportunities there. We also have
exposure to many of the export crops
that should benefit. For example three
years ago we invested in planes that will
allow us to provide banana fumigation.
In the shrimp sector we are expanding
our feed factory because we are reaching
maximum capacity and we believe that
demand will continue to rise.”
Investing is all about timing. And right
now is the perfect moment to invest in
Ecuadorian agriculture.
Carlos Lara,
Investment Director, Pro Ecuador
LatAm INVESTOR45 Q2 2015|
Final Word
One thing every Ecuadorian will agree on
is that the country has changed massively
during the last eight years. Whether they
support the government or not they
recognise that on a number of key criteria
Ecuador has improved. Education, roads,
health, airports – these are all areas that
have seen investment and standards soar.
These changes have been aimed at
bettering the quality of life for your
average Ecuadorian, but they’ve also
improved conditions for international
investors. Thanks to these measures
British businesses coming to Ecuador will
be able to find more qualified workers and
use high-quality infrastructure. Another
surprise for UK firms coming to Ecuador
is the positive business environment. As
Nick Armstrong, Chairman of the British
Ecuadorian Chamber of Commerce,
Guayaquil, makes clear in the pages of
this report, the government is a lot more
pro-business than some of the political
rhetoric would have you believe.
But as dramatic as the government’s
early changes were, it was only the first
act. Now, against the dramatic backdrop
of falling oil prices, a far more profound
transformation is underway. As we’ve
discussed in the special report, Ecuador is
an economy in transition. Its policymakers
are working to change the productive
matrix, foster new industries and add
value and variety to the country’s exports.
To help achieve this aim the country has
launched various initiatives to attract
investors. From subsidies for growing
new crops, to building a brand new
City of Knowledge in the middle of the
Andes, the government is doing all it
can to kick-start these new industries.
The scale and breadth of the transition
is impressive - and it’s throwing up a vast
number of opportunities. Given the sheer
number of government schemes and
amount of emerging industries, investors
would do well to contact their local Pro
Ecuador office. As Victor Jurado, Executive
Director of Pro Ecuador, makes clear in
his interview, the organisation can help
investors find investment opportunities
and avail of all the government incentives
available.
Of course Ecuador isn’t giving this money
away for nothing. It’s a calculated risk that
eventually these international investors
will create more wealth through successful
businesses. Yet for Pro Ecuador the quality
of investment is just as important as the
quantity, explains Carlos Lara, Director
of Investment. “It’s important for me to
emphasise that we want the right firms.
We don’t want companies that just come
here to assemble for the local market
because it will cause imports to increase
and the trade deficit to deteriorate. Okay,
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
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.
Ecuador is a country in the midst of an historical transition that’s throwing up plenty of opportunities for British businesses and investors…
Investors seeking more information
on the opportunities in Ecuador may
contact:
Francisco Mena - Pro Ecuador UK
Tel: +44 (0) 2030788040
or John Abell - British and Ecuadorian
Chamber, Guayaquil
Tel: +593 43703870
LatAm INVESTOR Q2 2015|46
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.
Last December, US President Barack
Obama and Cuban President Raul
Castro dropped a bombshell and
since then everyone has been trying
to work out where the pieces will land.
When they announced the steps towards
‘normalising relations’ stock markets
rose, politicians complained and Cubans
celebrated on the streets. Now, almost
four months on, analysts have a better
idea of how this will impact businesses
and investors.
Since last December the pace of change
has been rapid. The US and Cuba have
held two bilateral meetings which have
rapidly expanded the dialogue. So far the
talks suggest that US companies could –
eventually – gain access to wide-ranging
parts of the Cuban economy.
The measures will make it easier for US
exporters to sell goods in Cuba and vice
versa; many more US citizens will be able
to travel to Cuba; there would be tri-lateral
talks initiated involving the US, Mexico
and Cuba on the delimitation of maritime
boundaries in the Gulf of Mexico, an area
where significant oil reserves are likely to
be found; US institutions will be permitted
to open correspondent accounts at
Cuban financial institutions; and US credit
and debit cards will be permitted for use
by travellers to Cuba. There was also a
boon for US telecoms companies, which
will eventually be allowed to improve
the telecommunications and internet
infrastructure linking the US and Cuba.
But it’s not just US companies that
could benefit. The US has also removed
Cuba’s designation as a state sponsor
of terrorism. This label has all but frozen
many European investment and trade
deals with Cuba as big international
banks with US exposure faced swingeing
fines if transactions contravened US rules.
Of course reversing half-century of
diplomatic standoff has not been all
plain-sailing. On the American side it’s
important to note that the White House
move to improve relations still doesn’t
affect the trade embargo, which was
made law by the Helms Burton Act
of 1996. With the Republicans, who
traditionally take a tougher line against
Cuba, enjoying full control of Congress,
it’s unlikely that Obama will be able to
change that legislation in his presidency.
On the Cuban side, Castro has made clear
that the process of full normalisation will
be slow as long as the US embargo exists.
Another sticking point is Guantanamo
Bay, which was leased to the US before
the revolution, but has since been
deemed an illegal occupation by Cuban
authorities.
These types of hurdles make it clear
that we can’t expect a deal immediately.
Yet the medium-term prospects look
good. On February 7th, talks between
the two sides established a series of
working groups to tackle some of these
issues. They will also look at some of the
thorny social issues, which can ultimately
impact investments, such as human
rights, marine protected areas and the
prevention of migration fraud.
A window of opportunityIn practical terms for business this means
that the window of opportunity to be able
to invest and sell without US competition
may be closing fast. At a recent event
for British business organised by the
Foreign and Commonwealth Office, the
Minister of State, Hugh Swire, suggested
that companies should act quickly to
explore and enter the market. Although
it’s difficult to forecast a time horizon for
significant change in the US relationship,
it may well be rapid. Many commentators
suggest a timeframe of between two
and five years, noting that most of the
major US lobby groups are already active
in Congress and are seeking to have
the embargo loosened if not eventually
removed.
So far British firms have been slow to seize
the opportunity. Levels of UK-Cuba trade
are very low with the UK exports to Cuba
hitting £22million in 2013, down from
£25million in 2012. Imports are slightly
higher, hitting £105million in 2013, up
from £33million in 2012. But that could
be about to change. The Cuba Initiative
(www.cuba-initiative.org), a bilateral
body chaired in the UK by Lord Hutton,
a former Cabinet Minister will lead a high
level investment mission to Cuba from
David Jessop, Director of the Cuba Initiative
LatAm INVESTOR47 Q2 2015|
April 27th to 30th 2015. It follows from a
visit by Minister Swire last November the
first by a British Minister for more than a
decade.
Those UK businesses and investors that
manage to establish a foothold in Cuba
before the arrival of US interests should
benefit from a general rise in asset prices
when a flood of American money arrives.
A mix of sectorsDespite its Communist rhetoric Cuba’s
government is welcoming foreign
investors with open arms. The adoption
of Cuba’s new Foreign Investment
Law last March, 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.
As such it forms an important part of the
Government’s plans to create new joint
ventures with foreign companies.
There are also many other opportunities
for direct investment. One promising area
is renewable energy, which includes wind,
biomass, photovoltaic solar, hydropower
and biogas. Indeed British firm, Havana
Energy, is already involved in biomass
projects in Cuba. Another area that should
interest UK plc is mining, where there are
considerable deposits of iron, nickel, gold,
silver, zinc, lead, and cobalt. Oil companies
will also be interested in Cuba’s ongoing
search for hydrocarbons, which involves
onshore and offshore basins. Anyone who
has visited Cuba will know that transport
infrastructure is also an area where there
is lots to be done. Upcoming projects
include a marina and port construction,
railways and urban transport. One sector
that is already established is tourism, and
there are plans for new hotels, real estate
developments and golf courses. British
pharmaceutical firms may want to take a
look at biotechnology both in relation to
commercialisation and building plant for
the production of medicines.
Finally, Cuban agribusiness needs
modernisation. agribusiness, which
desperately needs modernisation.
Opportunities in this sector include
Cuba’s location gives it big potential for transhipment
commercialisation of sugar pork, beef
and soya.
The scale of the opening for foreign
investors is huge, though newcomers
must be prepared for a lengthy process. It
is a market which requires time, the need
to build-up trust and a recognition that
decisions are usually collegiate rather
than made by an individual.
So what’s Cuba’s economy like?
The Cuban economy is expected to
grow by 4% in 2015, rebounding from
weak 2014 when it grew just 1.4%. This
growth will be driven by infrastructure
investment, a resurgent manufacturing
sector and energy efficiency gains.
In 2013 Cuba imported over $13billion of
goods and is heavily reliant on imports
of food, oil, machinery and chemicals,
with much of its imports coming from
Venezuela and China. That said, the
country is keen to diversify its economic
relations and to build closer trade and
investment links with Europe. As far as
exports are concerned Cuba exported
over $6billion of goods in 2013 including
sugar, tobacco, coffee and minerals such
as nickel.
LatAm INVESTOR Q2 2015|48
LATAM BUSINESS OPPORTUNITIES
Mexican President, Enrique Peña Nieto, headlined the 2015 Canning Conference. He explains why British investors should seek opportunities in Mexico…
It’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.
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. 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 roleToday our country is a stable democracy
that has had peaceful, orderly changes
of government every six years for more
than 80 years. It’s something that we
share with the UK as we are some of the
few Western counties with that level of
political stability.
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,
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.
The opportunities Mexico has one of the largest and most diverse territories on the planet with one of
the biggest and youngest populations in the world. It’s the second-biggest economy in
Latin America and the 15th-largest in the world. It has a stable macroeconomic situation,
healthy public finances, independent monetary policy, a free floating exchange rate and
a robust banking system. Last year we placed a sterling-denominated bond for £1billion
for 100 years, which shows the level of confidence that investors have in our country.
Mexico and Britain – A Shared Future
Mexican President, Enrique Peña Nieto, adressing investors at Canning House
LatAm INVESTOR49 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.
Mexico and the UKWe are working together with the UK in the multilateral environment on themes such
as the reform of the UN Security Council, climate change, open governments and the
international cooperation for development. On the economic side we also have a solid
base. Since 2000 trade between us has more than doubled, growing by 109% and
today it’s in the order of £2.8billion per year. Yes that’s a big figure but it’s still way
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
opportunities. In Mexico more than 1,500 companies have received British investment,
especially in the financial, mining, industrial manufacturing area. The UK is the seventh-
biggest foreign investor in Mexico but, again, the potential could be so much more –
especially given the window of opportunities that has recently opened in our country.
Indeed strong economic prospects are another thing we share with the UK, which has
managed to retain a dynamic economy despite the slowdown in the EU. This year the
ties between the two countries will be stronger than ever. That’s because 2015 is the
year of the United Kingdom in Mexico and
Mexico in the United Kingdom. The idea is to
promote a greater understanding between
our societies and a deeper cooperation in all
aspects of our bilateral relationship. Through
artistic expositions, food tours, academic
discussions, business meetings and tourist
ventures we are bringing the best of Mexico
to the UK and the best of the UK to Mexico.
So please take the opportunity to get to
know the Mexico of the 21st Century. A
young country, that’s emerging through
transformation. Mexico is showing the world
that by democracy and institutional channels
it is possible to achieve deep change as we
are undergoing one of the biggest, deepest
and fastest evolutions that our country has
ever had.
EPN with Canning House President Miriam
González Durántez & CEO, Robert Capurro
Where the UK meets Latin America and Iberia
For more information contact:[email protected] | +44 (0)20 7811 5603
14/15 Belgrave Square, London, SW1X 8PS www.canninghouse.org | @canning_house
Find out more about how we can help you and your company through Corporate Membership:
www.canninghouse.org/corporate-membership
Become a Corporate Member of Canning HouseSince 1943 – the UK’s leading forum for informed comment, contacts and
debate on Latin American politics, economy, and business.
LatAm INVESTOR Q2 2015|50
INVESTMENT CONTACTS DIRECTORY
ArgentinaIgnacio PereyraInvestment Development OfficerEconomic & Commercial SectionEmbassy of the Argentine Republic in the UK65 Brook Street, London W1K 4AHTel: +44 (0) 207 318 1300 / 1332Fax: +44 (0) 207 318 [email protected]@argentine-embassy-uk.orgwww.argentine-embassy-uk.org
GuatemalaLesther OrtegaMinister CounsellorEmbassy of Guatemala13 Fawcett Street, London SW10 9HNTel: +44 (0) 207 351 3042Mob: +44 (0) 789 621 0203henning.droege@guatemalanembassy.co.ukwww.investinguatemala.org
HondurasAndrea Argueta-ScheibMinister Counsellor, Economic AffairsEmbassy of Honduras115 Gloucester Place, London W1U 6JTTel: +44 (0) 207 486 4880Mob: +44 (0) 777 253 5929Email: [email protected]: [email protected]
MexicoMario Alberto Gonzalez AlvarezFirst SecretaryProMexico, United Kingdom8 Halkin Street, London SW1X 7DWTel: +44 (0) 207 811 [email protected]@promexico.gob.mxwww.promexico.gob.mx
NicaraguaGuisell MoralesFirst Secretay / Chargé d’Affaires a.i.Embassy of Nicaragua to the United KingdomSuite 31, Vicarage House, 58 - 60 Kensington Church Street, London W8 4DBTel: +44 (0) 207 938 [email protected]
PanamaAna DíazCommercial Attaché to the United KingdomEmbassy of Panama40 Hertford Street, London W1J 7SHTel: +44 (0) 207 493 4646Fax: +44 (0) 207 493 [email protected]
PeruAlejandro ManriqueHead of Trade & InvestmentEmbassy of Peru in the UK52 Sloane Street, London SW1X 9SPTel: +44 (0) 207 235 [email protected]
VenezuelaRoberto BayleySecond SecretaryEmbassy of the Bolivarian Republic of Venezuela1 Cromwell Road, SW7 2HWTel: +44 (0) 207 584 4206Fax: +44 (0) 207 589 [email protected]
CubaCarlos AlfaroEconomic CounsellorCuban Economic- Commercial Office in London167 High Holborn, London WC1 6PATel: +44 (0) 207 836 3606Fax: +44 (0) 207 379 [email protected]
Dominican RepublicJohanna Sánchez MawkinCounsellor for Trade and InvestmentEmbassy of the Dominican Republic139 Inverness Terrace, London W2 6JFTel: +44 (0) 207 727 [email protected]
EcuadorFrancisco Mena Guarderas Head of Ecuador Trade OfficePRO ECUADORSecond Floor, 67-68, Jermyn StreetLondon, SW1Y 6NYTel: +44 (0) [email protected]
ChileCristián LópezHead of Trade and Investment OfficeEmbassy of Chile6th. Floor, 37-41 Old Queen Street, London SW1H 9JATel: +44 (0) 207 233 [email protected]
ColombiaAndres SarmientoInvestment SpecialistProColombia, London office2 Conduit Street, London W1S 2XBTel: +44 (0) 207 491 [email protected]@procolombia.cowww.proexport.co
El SalvadorRosella Badía de Funes Minister CounsellorEmbassy of El Salvador8 Dorset Square, London NW1 6PUTel: +44 (0) 207 224 [email protected]
BrazilDaniel Costa FernandesHead of Investment, Trade, Tourism and OlympicsEmbassy of Brazil14-16 Cockspur Street, London SW1Y 5BLTel: +44 (0)207 747 [email protected]@itamaraty.gov.br www.brazil.org.uk
ChileCristián LópezHead of Trade and Investment OfficeEmbassy of Chile6th. Floor, 37-41 Old Queen Street, LondonSW1H 9JATel: +44 (0) 207 233 [email protected]
LatAm INVESTOR51 Q2 2015|
LatAm INVESTOR Q2 2015|52
Oceanfront luxury in Cap Cana -
a truly unique natural wonderland in the Dominican Republic …
Golfing in the Caribbean…Located on oceanfront of the twice-ranked number 1 golf course in the Caribbean
this serene and private, 6 bedroom oceanfront luxury villa has breathtaking ocean
views from nearly every vantage point. The unparalleled home offers more than
10,000 square feet. The site of the property is Cap Cana, located in the most eastern
part of the beautiful Dominican Republic, and hailed as the world’s latest new ‘it
destination’. Clear blue seas, more than three miles of pristine beaches, elegant
boutiques and restaurants, a full service marina, casino, as well as nearby water
sports await you. This exclusive property is currently being offered for sale through
Engel & Volkers Santo Domingo for $6.8million.
PROPERTY
LatAm INVESTOR53 Q2 2015|
Dock your yacht and enjoy…This stunning villa, set against the impressive backdrop of Cap Cana, combines
comfort with refined architectural design, making this spacious home your
private oasis. Featuring a master bedroom with walk-in closet, a secondary
bedroom with en-suite bathroom, dining room, jacuzzi and balcony. The
wonderful property also features an infinity pool, sun deck, interior patio with
glass pool and private entrance to the Marina. This exclusive property is currently
being offered for sale through Engel & Volkers Santo Domingo for $1.7million.
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
LatAm INVESTOR Q2 2015|54
LATIN AMERICA IN THE UK
A snapshot of the latest
Latin American eventsin 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.
Mexican Chamber of Commerce (MexCC) events in London.
Hayden Warren Gash, Chairman of the British Colombian
Chamber of Commerce speaking with Adolfo Suarez,
International President of Ontier Spain
Luis Miguel Ramírez, Ontier, Dr Leyva Muñoz, Ontier, Irene Mia, EIU, Haydon Warren Gash BCCC, Seamus Andrew, Ontier, Adolfo Illano, Ontier
Mexico Week Welcome Reception Rafael
Funes General Director of Lovis (centre)
speaks to a packed event
Future Cities, Creative Industries Event, Yves Hayaux du Tilly, Chairman of the MexCC and Partner of Nader Hayaux & Goebel, addresses the audience
LatAm INVESTOR55 Q2 2015|
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
Head of Argentina’s Federal Administration of Public Revenue, Ricardo Echegaray, visited London to discuss the HSBC Switzerland tax scandal.
The S2M Delegation visiting Canary Wharf on their tour of the UK.
A conference held at the Argentine Embassy in London to discuss
the possible impact of the HSBC tax scandal.
Ricardo Echegaray, Argentine Federal Administration of Public Revenue (AFIP), and the Ambassador of Argentina to the UK, Alicia Castro.
LatAm INVESTOR Q2 2015|56
UPCOMING DEALS
Liquid Petroleum Gas Supply System for Lima and Callao
Longitudinal of the Sierra Road Project, Section 5
Natural Gas Distribution System Across Peruvian Highlands
Award Date:
TBCQ3 Q4
Combined Cycle Plant Topolobampo II
Plant to Produce Injectable Medicines
Tuxpan-Tula Pipeline
Country: Peru
Project Location: Lima and Ica (Pisco)
Estimated Investment: $250million
Estimated Award Date: Q3 2015
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.
Contact: Luis Sánchez Torino, [email protected], tel: +511-2001200 Ext 1213
Wendy J. Huambachano Neves, [email protected], tel: +511-2001200 Ext 1340
Country: Peru
Project Location: Cusco and Puno. Cities: Urcos, Combapata, Sicuani, Puno, Ilave and Desaguadero
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.
Modality: Co-financed, 25 years
Contact: Proinversion tel: +511-2001200 Ext 1292
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
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, [email protected], tel: +511-2001200 Ext 1213
Wendy J. Huambachano Neves, [email protected], tel: +511-2001200 Ext 1340
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
Samalayuca - Sásabe Pipeline
Country: Mexico
Project Location: Chihuahua and Sonora
Estimated Investment: $961million
Estimated Award Date: Q3 2015
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
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
LatAm INVESTOR57 Q2 2015|
Project to generate electricity from geothermal resource utilization in the area of Copahue Volcano
El Melon Tunnel (First re-tender)
Carriel Sur Airport (First re-tender)
Nahuelbuta Road
Supply to Baja California Sur
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: [email protected]
Country: Chile
Project Location: Valparaíso Region.
Estimated investment: $120million.
Estimated Award Date: 2015
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.
Contact: Nicolás Muñoz, Investment Attraction Executive, Foreign Investment Committee, [email protected], tel: +56 2 2663 9200.
Country: Chile
Project Location: Bío-Bío Region
Estimated Investment: $45million
Estimated Starting Date: 2015
Area/capacity: 8,209 m2
Proponent: Public
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: Nicolás Muñoz, Investment Attraction Executive, Foreign Investment Committee, [email protected], tel: +562 2663 9200
Country: Chile
Project Location: Bío-Bío and Araucanía Regions.
Estimated Investment: $237million.
Estimated Award Date: Q4 2015
Area/capacity: 55 km.
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, [email protected], tel: +(56 2) 2663 9200.
Country: Mexico
Project Location: Baja California Sur
Estimated Investment: TBC
Estimated Award Date: Q3 2015
Capacity: 136 – 227 MMPCD
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.
Contact: Federal Electricity Commission Tel: +52 5552294400
LatAm INVESTOR Q2 2015|58
COSTA RICA
THE LatAm INVESTOR MAP
Latin America’s Financial Market
Development
4.0
4.2
4.7
2.9
3.0
4.8
4.5 4.3
4.9
3.3
3.7
3.8
3.8
3.7
3.7
4.1
The indicators taken in account for this ranking
were: Availability of financial services, Affordability
of financial services, Financing through local equity
market, Ease of access to loans, Venture capital
availability, Soundness of banks, Regulation of
securities exchanges and Legal rights index.
Source: Global Competitiveness Report 2014-2015,
World Economic Forum.
Chile
Panama
Peru
Brazil
Honduras
Mexico
Colombia
El Salvador
Uruguay
Costa Rica
Paraguay
Dominican Republicgua
Nicaragua
Bolivia
Argentina
Venezuela
16
22
40
53
59
63
70
86
87
92
93
99
106
121
129
131
Where they rank in the world
Score
Most developed
Developed
Least Developed
LatAm INVESTOR59 Q2 2015|
LatAm INVESTOR Q2 2015|60
65 year heritage
10 offices
$6bn funds under
management*
40 energy assets**
providing
15m people
with electricity
9540 MW of electricity**
*as of October 2013 **since 2002 to date