Newsletter of the Australia-Latin America Business Council March, 2018

Latam NEWS

TPP-11 provides another bridge between Australia and Chile, Mexico and Peru

Trade ministers from Australia and 10 other Pacific Rim countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) in Santiago, Chile, on 8 March. TPP-11, as it is known, is a new treaty that incorporates most of the provisions of the original Trans-Pacific Partnership Agreement, which was signed in 2016 but did not come into force. It reaffirms the participating countries’ commitment to maintaining open markets, increasing world trade, and creating new economic opportunities for people of all incomes and economic backgrounds. The 11 countries signing the treaty in Santiago were Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Announcing the signing, the Australian Government noted that TPP-11 is one of the most comprehensive trade deals ever concluded, and will eliminate more than 98% of tariffs in the affected trade zone. It is also Australia’s first free trade agreement with Canada and Mexico, both of which are in the world’s top 20 economies. Key provisions of the TPP-11 affecting Australian producers include:

new reductions in Japan’s tariffs on fresh, chilled and frozen beef

new access for dairy products into Japan, Canada and Mexico, including the elimination of cheese tariffs into Japan

new sugar access into the Japanese, Canadian and Mexican markets

tariff reductions and new access for cereals and grains into Japan, including rice

In this issue (Click on individual heading to open article)

TPP-11 delivers added link to 3 Latin American members 1

The Innovation Link – Agtech and METStech 2

Door to Mexican market opened by TPP-11 3

Azure Minerals secures funding to grow in Mexico 4

Newcrest buying spree in South America continues 5

Chairman’s message 6

Chile prepares new law to attract foreign investment 7

Australian education players prominent at EduExpo 8

Analysis: How LatAm governments support start-ups 8

2018 Latin American Consumption Growth Review 10

Avanco builds a solid platform for growth in Brazil 12

Investment in LatAm oil and renewables to expand 13

Mexican election scenario – Undoing Peña-Nieto moves 15

Who has edge in Colombian presidential election 15

Mexican auto sector hurting, but still kicking 16

Analysis: Top 2018 trends in LatAm healthcare 17

After Raul – what awaits Cuba’s political economy? 19

Piñera’s second term 20

LatAm claims top exploration region spot in 2017 20

Upheaval in Peru 21

Opinion: Bachelet’s underappreciated legacy 22

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 2

elimination of all tariffs on sheep meat, cotton and wool

elimination of tariffs on seafood, horticulture and wine

elimination of all tariffs on industrial products (manufactured goods). Queensland agricultural exporters are likely to be among those who benefit from the new agreement. Each signatory to TPP-11 will now need to go through the necessary processes to put the treaty into force under their own domestic laws. In Australia, the treaty is scheduled to be tabled in federal parliament later this month, and will then be reviewed by the Joint Standing Committee on Treaties, which will accept public submissions during the review. More information on the TPP-11 can be found on the Department of Foreign Affairs and Trade website. ↑Return to Index

The innovation link with LatAm: the Agtech and METStech passports (The following has been provided by Austrade and was published on 7 March, 2018)

Two startup exchange programs are fuelling the commercialisation of technology and ideas between Australia and Latin America (LATAM) in agriculture and mining. The Agtech Passport and METStech Passport exchange programs were launched in 2017 by Austrade in partnership with the Argentinean and Chilean Governments, and private-sector and non-profit organisations. Both programs are accepting applications from Australian startups looking to break into the large LATAM market. Agtech and METStech Passport are part of Austrade’s ambitious LATAM Passport program, which seeks to capture the momentum and ride the growing “innovation wave” in Latin America. Shannon Powell (at far left on picture below), Austrade’s Senior Trade and Investment Commissioner for Andean LATAM, says Latin America and Australia’s mining and agtech industries face similar challenges that can be addressed by innovation. ‘Through the cross-border passport programs, Australian startups will gain access to the enormous markets of Argentina and Chile,’ says Powell. ‘They will create pathways for increased exports of both technological know-how and goods and services. ‘The main aim is to solve industry challenges and develop strong global METS and agtech networks that will benefit Australia’s economy as a whole.’ The agricultural and mining industries play a vital role in the Australian economy as well as the economies of many LATAM nations. Mining accounts for 10.3 per cent of Chile’s GDP and 6.3 per cent of Australia’s.

Agriculture accounts for 7.56 per cent of Argentina’s GDP.

Likewise in Australia agriculture is booming,

with farm production increasing by 8.3 per cent to more than A$63 billion in 2016–17.

Agtech Passport Launched in March 2017, Agtech Passport is a partnership between the SproutX agtech accelerator and NXTP Labs, a LATAM early-stage venture fund. This initiative between Australia and Argentina was facilitated by Austrade, with the support of the Argentinian Government and Qantas. The exchange program will help agtech companies gain international exposure and market entry. In December 2017, WaterSave, an Australian farm irrigation tech startup, won the first round of the Agtech Passport program and is going to Argentina. WaterSave produces affordable, automated farm irrigation sensor technology, which has enabled power and water consumption to be reduced considerably on farms close to the Great Barrier Reef, resulting in economic and environmental improvements. The program, which includes a return flight sponsored by Qantas and on-the-ground expenses, will enable WaterSave to pitch to potential customers and investors in Argentina, a market where water management is also an enormous issue for farmers.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 3

From the LATAM side, there were two winners who will immerse themselves in Australia’s agtech startup ecosystem in early 2018:

Spacedat (Peru) captures crop data from drones, satellites and high-tech sensors, permitting farmers to make comprehensive harvesting decisions.

Rizoma (Uruguay) provides integrated and traceable systems for crops to provide real-time information on parameters that affect production.

The Agtech Passport program is open again in 2018 and SproutX is currently accepting applications.

METStech Passport Following the success of Agtech Passport, the METStech Passport program was launched in November 2017. This new exchange program will send Australian startups and scaleups to Chile and vice-versa for an immersion in the host country’s METS startup ecosystem.

Austrade facilitated the alliance between METS Ignited and Fundacion Chile, a private Chilean non-profit organisation that fosters innovation. Applications for the first round of the program will open on 26 April 2018. The winners (two per country) will receive flights and on the ground costs for an immersion program, which includes meeting with customers and potential investors in October 2018. Applications for METStech Passport close on 27 May. To find out more about the 2018 Agtech Passport and METStech Passport programs, contact Shannon Powell at shannon.powell@austrade.gov.au. ↑Return to Index

TPP-11 opens the door to Mexico for Australian exporters (The following article was written by Tim Michael and was published in Dynamic Export magazine on 21 March, 2018)

Mexico is a country that’s not been on the radar for the majority of Australian exporters – until now. Under the recently signed Trans Pacific Partnership trade agreement (TPP-11) Mexico will eliminate tariffs across a broad range of imported products. This will provide unprecedented opportunities for TPP-11 signatories – including Australia. Over the next 10 years Mexico has agreed to progressively eliminate tariffs on beef, sheep meat, dairy products (including yoghurt), resources/energy, rice and manufactured goods. Last year, Mexico imported US$420.4 billion worth of goods from around the globe – an increase of 10.3% since 2013 and up by 8.6% from 2016 to 2017. Almost half (48.7%) of Mexico’s total imports by value last year were purchased from the United States and Canada – fellow signatories to the North American Free Trade Agreement (NAFTA). Mexico’s key trading partners Mexico's $2.4 trillion economy – 11th largest in the world – has become increasingly oriented toward manufacturing since NAFTA entered into force in 1994. Per capita income is roughly one-third that of the US and income distribution remains highly unequal. Mexico has become the US' second-largest export market and third-largest source of imports. In 2016, two-way trade in goods and services exceeded $579 billion. Trade partners in Asia accounted for 35.1% of Mexican import purchases while 12.5% worth originated from Europe. Smaller percentages came from Africa (0.3%) and Latin America plus the Caribbean (3.1%).

Austrade CEO Dr Stephanie Fahey, METS Ignited Chair Ms Elizabeth Lewis-Gray, Fundacion Chile Vice President of Sustainability and New Business Andres Pesce, Austrade Senior

Trade and Investment Commissioner, Andean LATAM Shannon Powell, and Clare Sykes, General Manager-International of METS Ignited (left to right).

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 4

Given Mexico’s population of 124.6 million people, its total $420.4 billion in 2017 imports translates to roughly $3,400 in yearly product demand from every person in the country. Uncertainty surrounding the future of NAFTA But in 2018 we may see a different ball game. Mexico’s economy will be vulnerable to uncertainty surrounding the future of NAFTA. This follows the big shift in domestic trade policies under the new Trump administration. A number of roadblocks still remain after the seventh round of NAFTA negotiations which began on February 26. Canada and Mexico have rejected contentious US proposals with rising probability of the attempt to renegotiate totally collapsing. And Mexico’s trade relations with China are tense. Mexico is running an overwhelming trade deficit with China and is at the forefront of international efforts to introduce trade protectionist measures against China. Opening the door to Australian imports While Mexico has a comparatively liberal goods trade policy, its services import regime is far more restrictive. This may open the door even wider for Australian exporters.

In a recent report compiled by Dun & Bradstreet and released by EMIS, a leading provider of industry intelligence, exporters are advised to closely monitor current events involving Mexico’s major trading partners. “Formal and informal barriers to entry exist in some sectors (particularly services), but we expect a further relaxation of restrictions in the short term as the government continues to improve access for foreign investment in key sectors,” the report notes. “The tourism sector, Mexico’s third largest source of revenue after remittances and oil, has seen substantial investment in recent years and should grow at robust rates.” Also, opening the telecoms and energy sector to private-sector participation should create new investment opportunities for local and foreign firms in the

short to medium term, it predicts. The EMIS report recommends the following:

Follow NAFTA renegotiations for potential impacts on business operations

Watch for policy statements from the US vis-a-vis shifts in US trade, immigration and foreign policy

Assess new opportunities presented by Mexico's membership of multilateral trade agreements, which could become more important if the US adopts a protectionist stance

Monitor changes in Mexico’s service import regime, given its participation in WTO negotiations for a free services trade agreement

EMIS recently launched its 2018 Foresight Report with key information on 125 emerging economies. The report includes current risks and opportunities for exporters to Mexico. To obtain a FREE copy of the EMIS 2018 Foresight Report click here ↑Return to Index

Azure Minerals secures funding for push into Mexico (The following article written by Ewen Hosie and was published in Australian Mining on 27 February, 2018)

Western Australia-based Azure Minerals has completed an $8.2 million share placement for development funding at its flagship Oposura zinc-lead project and Sara Alicia gold-cobalt project, both in Mexico. Azure will issue 27.3 million ordinary shares at a price of 30 cents per share, with an additional option of 45 cents — to expire after two years — for every two shares subscribed. The placement will be conducted in two tranches: 20.5 million shares worth around $6.15 million and 6.8 million shares worth around $2.05 million. The latter tranche is subject to shareholder approval at an April 2018 meeting. Azure managing director Tony Rovira said he was pleased with the strong investor support shown for the projects.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 5

“This heavily oversubscribed placement places Azure in a very strong position moving forward, as we work towards completing develpment studies at Oposura and fast-track exploration at the Sara Alicia gold and cobalt project,” he said. Rovira also cited the increasing interest in zinc and cobalt, both of which have seen great gains over the last year as part of the tech metal boom. “With both zinc and cobalt prices at decade highs,” continued Rovira, “we believe that the company is ideally places to accelerate both Oposura and Sara Alicia towards development.” ↑Return to Index

Newcrest’s buying spree in South America continues (The following article was written by Kristie Batten and was published in Mining Journal on 27 February, 2018)

Newcrest Mining is on a South America buying spree, signing a second Chilean farm-in with Mirasol Resources as well as investing in a Mexico-focused junior. Newcrest can earn up to 80% of Mirasol's 18,480 hectare Zeus high-sulphidation epithermal gold project. During the initial option phase, Newcrest will pay US$100,000, spend US$1.5 million in 18 months and pay Mirasol a 10% project management fee.

If Newcrest chooses to exercise the option, it will pay US$400,000 and spend US$8 million over four years to earn 51% and can move to 65% on delivery of a positive preliminary economic assessment, based on a resource of at least 1 million ounces of gold. Newcrest can move to 75% by spending US$100 million or delivering a positive bankable feasibility study, after which Mirasol can choose to contribute or exercise a financing option requiring Newcrest to fund its share

of development costs in exchange for another 5% of the project. Mirasol CEO Stephen Nano said a surface geological exploration and geophysical programme would be conducted over the next three months ahead of drilling in October/November. The company only announced the acquisition of Zeus last month. Zeus is only 40km from Gold Fields' 3.8 million ounce Salares Nortes discovery and sits in the same geological setting as it and the 6.8Moz Alturas project owned by Barrick Gold. Zeus contains two known recognised breccia-hosted gold targets, Artesia and Apollo.

Mirasol describes itself as a project generator. It also has South American JVs with Yamana Gold (CN:YRI) and OceanaGold Corporation. In November, Newcrest and Mirasol signed an option and farm-in agreement over the Altazor high-sulphidation epithermal gold project in northern Chile. Newcrest will be able to earn up to 80% of the projects in stages, in near-identical terms to the Zeus deal.

It was also revealed overnight that Newcrest will invest C$19 million (US$15 million) in Almadex Minerals, owner of the early stage El Cobre gold-copper porphyry project in Mexico. Newcrest has signed early stage farm-in deals with companies all over the world, aimed at finding the next tier-one deposits to meet its goal of being exposed to five by 2020. It took a step towards that goal yesterday when it agreed to invest $250 million in Lundin Gold, owner of the 9Moz Fruta del Norte project in Ecuador. Earlier this month, Newcrest withdrew from a joint venture with AIM-listed Kodal Minerals (LN:KOD) over the Dabakala licence in Cote d'Ivoire. ↑Return to Index

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 6

With my term as chairman of the Council drawing to a close, this will be my second-last editorial comment for Latam News. I therefore hope that you will allow me a few reflections on a number of issues that I see as impacting on the development of Australia’s engagement with the markets of Latin America. Australia’s progress in deepening the engagement has improved significantly in the past few years. Important examples of the progress can be found in the recently signed Peru-Australia FTA and the broader TPP-11, the opening of trade and investment offices in Santiago by the governments of Queensland and Victoria, the opening of an Australian embassy in Bogotá, the significantly expanded air services, the increase in the number of Australian companies with an on the ground presence in Chile (now close to 250), in Peru (close to 100) and other countries such as Argentina and Mexico. There are many other positive developments that could be sighted and which are testimony to the hard work of many different institutions and individuals who continue to contribute to the engagement process. However, we would be making a mistake if we were to be satisfied with said progress. I say this because I am concerned that the pace at which we are engaging with the region and the extent of our commitment are short of what is required. Australia does not have the Latin American markets to itself, and whilst the governments of those markets are very well disposed to forging close political and economic ties to Australia, they are not holding back in also reaching out to other nations and striving to put in place the arrangements that best advance their national interest. From an Australian perspective, time is of the essence and opportunities are not permanent. For all the progress that Australia has made on the Latin American front, the majority of our businesses remain woefully unaware of the realities of the region and harbour outdated or erroneous preconceptions of the region. The vacuum of accurate knowledge means that Latin America continues to be disadvantaged when many companies decide on their international trade and investment strategies. For many Australian businesses, the markets of Latin America will never rival those of Asia in terms of size or potential. However, I firmly believe that it is not in Australia’s national interest to put so many of our eggs in the Asian basket or to fail to seize the clear opportunities offered by Latin America across a broad spectrum of sectors. Businesses need to be familiar with the realities of the Latin American markets so that they can make informed decisions as to where they should focus their international expansion. It is not a question of Asia or Latin America, but Asia and Latin America. Latin America offers Australia many complementarities that can advantage our businesses. There are undoubted challenges in doing business in the region, but the same applies to the markets in Asia. Yet, based on media coverage of the two regions, we seem to have certain double standards when assessing their respective merits, e.g. the weighting given to corruption, violence and poverty in Asia and Latin America differs markedly despite being equally prevalent in many instances. That this is so should not surprise. There are few Australian media commentators with a detailed knowledge of the Latin American region. The same can be said for policy-shaping institutions, with a classical example being the Lowy Institute, whose research does not extend to the region. Likewise, very few of our business or political leaders have the knowledge base or inclination to do more to draw attention to what Latin America has to offer. Championing engagement with Asia is easy and the accepted course of action. The engagement has many ‘champions’ and funding for it is readily available. On the other hand, championing engagement with Latin America requires courage and is very difficult to fund. Not following the ‘herd’ into Asia invites much greater scrutiny and any adverse outcome in executing a business plan in Latin America is likely to result in greater condemnation than if the same result had occurred in attempting to do business in Asia. Education of Australians about Latin America needs to be made a much higher priority. Without an informed audience we cannot expect the right decisions to be taken, be they political, economic or social. At the same time, those Australian businesses, institutions and individuals that are already connected with Latin America need to make a much greater effort to be heard and to lead the campaign for greater engagement with the region. The playing field is not level, but needs to be if we are not to miss out on clear and accessible opportunities that are on offer in Latin America. Whether we like it or not and whether we realise it or not, Latin America is relevant to Australia and needs to figure much more prominently in the strategic thinking and planning of our governments, companies and institutions. I have no doubt that there will be price to pay if we fail to promptly make the required effort to engage with the region and to seize the opportunities that it currently offers us. What we ignore will be seized upon by other nations. In an increasingly connected, changing and competitive global marketplace, there is no room for complacency, slowness of action or, worse still, inaction. Jose Blanco - Chairman, ALABC

↑Return to Index

Chairman’s Message

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 7

Chile preparing new law to lure foreign investment (This article was written by Fabian Cambero and was published in Reuters on 18 March, 2018)

The recently inaugurated government of Chile's conservative President Sebastian Pinera is preparing a new law aimed at attracting foreign investments, the mining minister was quoted telling a local newspaper on March 18.

Baldo Prokurica, who took office with Pinera last week, said the government was preparing a decree that would be similar to one repealed by socialist President Michelle Bachelet in 2016, according to an interview with La Tercera. Bachelet had argued that the law, which provided tax and regulatory incentives for foreign investments, was no longer needed given years of stability in Chile, the world's top copper producer. "We think that for economic activities such as mining, which represent important volumes of investments, it's crucial to have certainty and clear and stable rules," Prokurica was quoted as saying in La Tercera. "That's our goal."

Prokurica's office did not immediately respond to requests for comments outside regular business hours.

Pinera's government has vowed to reactivate $50 billion in mining investments that it says have been held back by red tape. Some of the world's biggest mining companies, such as BHP Billiton Ltd , Glencore Plc and Freeport-McMoRan Inc , operate in Chile. ↑Return to Index

ALABC Patron Members

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 8

Australian education institutions prominent at Eduexpo EDUEXPO is a major fair focused on studying abroad and gives students the opportunity to talk directly with representatives from more than 40 universities and agencies, which between them offer more than 1,000 different course options around the world. 16 Australian institutions participated in the Santiago event that took place on March 10. Many of the same institutions had previously been at the fairs in Bogotá (March 3 and 4) and Lima (March 8), and then went on to the fair in Buenos Aires on March 12.

↑Return to Index

(This article was written by Lisa Besserman and was published in thenextweb.com in February, 2018)

Launching a successful startup is hard work. Launching a successful startup in an environment which lacks a supportive local business ecosystem and startup friendly government, can become nigh on impossible. Even in the startup mecca of Silicon Valley, guns remain less regulated than startups, and early stage companies continue to have their feet tied together with red tape, bureaucratic practices, and strict government regulations that limit their potential for growth. But while the governments of the world’s most advanced economies are still holding startups back on the starting line, administrations in emerging markets are recognizing the economic benefits of accessible entrepreneurship, and adopting startup friendly policies that better help businesses flourish. Over the last five years, Latin America — home to massive markets such as Brazil and Mexico — has produced a number of homegrown unicorns, and started to grab the attention of foreign investors, and startup organizations looking to get their piece of the pie. However, despite a move in the right direction by a handful of LatAm’s strongest economies, a recent UN report raises concerns that the region is falling behind in terms of innovation. But LatAm governments aren’t willing to accept back seat just yet. To battle their way onto the playing field, and attempt to compete with more established hubs and markets abroad, a handful of forward thinking administrations have successfully taken steps to give a foot up to entrepreneurs who want to set up shop in their countries: Mexico From an early stage, the powers that be in Mexico were set on developing their country as a startup hub. Early government involvement started with the formation of TechBA, a program created in 2004 by Mexico’s Secretary of Economy and the US-Mexico Foundation for Science (FUMEC), launched with the aim of “strengthening the entrepreneurial, technological and innovative capacities of small and medium sized technology-based companies” and to help startups scale their products and great ideas into foreign markets.

Analysis: How Latin American governments are assisting their local startup ecosystems

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 9

As early as 2006, TechBA began to select batches of Mexican startups to take part in an exchange program in Silicon Valley, to experience the entrepreneurial buzz of ‘the Bay,’ and bring this energy back to their own early stage ecosystems.

Fernando Franco, Executive Director of Puente Labs, a Silicon Valley based organization which helps LatAm startups launch in the US, says: “From our experience, bringing startups from LatAm to Silicon Valley enriches ecosystems on both sides. However, governments on both sides of the table must first recognize the benefits of strong startup ecosystems, such as job creation, knowledge transfer etc. They need to facilitate as much

cooperation, and collaboration with other local and foreign players as possible.” However, it was the launch of the independent government policy centre, the National Institute of Entrepreneurship (INADEM), in 2013, that has proven to be most influential for early stage startups. Just one year after its launch, INADEM pumped as much as $658M into the local ecosystem, spread between as many as 620,000 entrepreneurs, micro, small, and medium businesses, leading to the launch of as many as 6,000 new companies and 73,000 new jobs. But the government input is not solely monetary. The government has also rolled out legislation which facilitates the process of launching a business. In September 2016, the government made changes to ‘La Ley General de Sociedades Mercantiles’ which made it possible to register any enterprise with an annual revenue of up to 5 million pesos — US $300,000– at no cost in 24 hours. The government also organizes an annual Entrepreneur Week, which features conferences and startup events designed to bring to local ecosystem together, to cooperate, build and learn together, and Reto Zapopan, a government-funded advertising agency and accelerator hosts yearly batches, and holds regular workshops and events. Argentina During previous administrations, Argentina’s government might have been considered a barrier to business growth. Fortunately, times have changed, especially since President Mauricio Macri took office back in 2015. Since then, the government has taken upon itself to create policies that recognize the importance of entrepreneurs for the country’s economy, and facilitate the growth of small to medium sized businesses. ‘The Entrepreneur’s Law,’ which was passed in March 2017 is an example of this. It enables growth within many areas of the startup community — including the implementation of specific tax breaks and incentives for individuals, corporations, and institutional investors. It also provides contributions to 13 accelerator programs, enabling of public crowdfunding, and the creation of a government-run fund. The beating heart of the startup ecosystem in Argentina is the city of Buenos Aires, where the local government has created various initiatives for the entrepreneur community. The latest addition is their global incubator fund IncuBAte, which is currently carrying out the selection process. The program which was open to startups from around the world, will provide up to $30,000 USD equity free seed funding for early stage startups, as well as assistance registering, and launching businesses locally. Additionally, Buenos Aires has introduced Academia Buenos Aires Emprende, an initiative to educate citizens about enterprise and business building, demonstrating a desire to promote and enrich the startup ecosystem, not only for local residents but also as a symbol for Latin America and the global startup scene. Chile Just like Argentina, Chile’s economy seriously suffered during the 1980s. However thanks to the government’s engagement in the startup community over the last decade, the country has turned into an entrepreneurial beacon for the continent. The government’s introduction of Start-up Chile has done wonders for the local ecosystem. Government backed Start-up Chile seeks to attract early-stage, high-potential entrepreneurs to bootstrap their startups using Chile as a launchpad to go global. This has catapulted Chile into the global limelight of the startup scene, not only defining it as an entrepreneurial leader within South America, but also around the world. Chile contributed upwards of $40 Million to 1,300 promising business from close to 80 countries, between 2010 and 2016. To add to this, these companies have generated roughly 1,600 jobs in the country and $100 Million in outside funding. Additionally, Chile has a law that allows entrepreneurs to incorporate a business in just one day, in one step, and for free. According to the Brookings Institute, some 200,000 Chileans have received benefits in one form or another from government-backed entrepreneurship programs. Key startups include Smartraining, Drivin, and Edoome.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 10

Mexico, Argentina, and Chile have set a positive example for startup friendly administrations which has spread across Latin America and further afield. From Ruta N in Medellin, Colombia, to Parallel 18 in Puerto Rico, we are witnessing an infectious positivity flowing from local governments in support of developing strong local startup ecosystems, which is creating benefits for entire countries, economies and societies. As more established tech hubs become saturated, making it harder to find talent and raise funding, and protectionist governments continue to build walls, sign Brexits, and reduce startup VISAs, startups are inevitably going to start looking further afield in search of their potential launch pads. To woo them overseas, we are likely to see more ‘emerging’ economies in LatAm follow suit with startup friendly policies, and inclusive backed accelerators and funds. Rather than trailing behind, we could well see LatAm pushing ahead in creating startup fuelled model for economic repair and regrowth, to be adopted by European countries still struggling to recover from the great recession. At this year’s World Economic Forum in Davos, Argentine president Macri’s vision for a more inclusive future in the global economy was shown clearly, when he warned of the risks of protectionist policies, stating “don’t cry for us, learn from us.” So watch this space, as Peru, Colombia, and other neighbouring countries are slowly but surely making their way onto the startup map too. ↑Return to Index

2018 Latin American Consumption Growth (This article was written by Mauricio Cárdenas and was published in Amiperspectiva on 22 March, 2018)

The end of the first quarter of 2018 gives us a first glimpse of 2017 sales results in Latin America’s leading markets. Across the region, consumption grew thanks to strengthening currencies, falling interest rates and rebuilding consumer confidence. With the region’s big three (Brazil, Mexico and Argentina) enjoying modest to very strong consumption growth, 2018 promises to be an even better year than 2017. To that end, below we break down some of the best-selling products and fastest-growing markets in Latin America. LATIN AMERICA REGIONAL TRENDS #1 Beauty and Personal Care Products According to Inkwood Research, the Latin American beauty and personal care products market totaled US$59.6 billion in 2017 and is projected to reach a value of US$83.6 billion by 2026, or 4% CAGR. Latin American women spend more than twice the global per capita average on these products.

#2 Energy Drinks The market for energy drinks in Latin America will grow with a CAGR of nearly 12% between 2017 and 2021, according to a projection from Technavio. As increasingly health-conscious Latin American consumers wean themselves off of high volumes of soft drinks, many migrate to energy drinks. #3 Pharmaceuticals In a recent report with projections for the next 10 years (2018-2028),

Reportlinker forecast a CAGR of 9.3% for the Latin American pharmaceutical market for the first half of that span. Latin America is the fastest-aging and most obese region in the world. As a result, chronic disease levels are rising quickly and with them, the demand for pharma products. Pharma retail is quickly consolidating, providing distribution efficiencies that make pharmaceuticals more affordable.

#4 Malls Although projections are that 20% of malls in the United States will close over the next five years, mall construction keeps booming in Latin America. According to Lizan Retail Advisors, malls in Latin America are growing by 5% a year. Mexico is leading the region in mall construction: Lizan projects that the country, which currently has 650 malls, will have 760 by 2025. Consumer demographic trends in LatAm (fewer children, more working adults) continue to support retail overall. While e-commerce is growing swiftly

(15% per annum), it still represents only 3% of total retail, versus 12% in the U.S.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 11

#5 Personal Computers In Q3 2017 some 4.9 million PCs were sold in Latin America, representing a bump of 15.2% compared to Q3 2016. Overall, IDC forecasted 2.5% growth for the PC market in Latin America in 2017, with overall sales of 17 million units. Recovering resource prices and investment inflows are buoying most LatAm currencies; domestic interest rates are falling again after 2-3 years of austerity; online sales of computers offer price savings — all of which underpin growth.

#6 Smartphones According to research firm Counterpoint, smartphone sales in Latin America grew by 5% in 2017 to reach more than 146 million. The increase happened despite a significant drop in sales of premium smartphones in LatAm during 2017: a 9.4% decrease in phones costing $500 or more and a 26.6% decrease in phones costing between US$400 and US$499. Samsung’s sales grew by 14% in 2017 and it still leads the market with a 38%

share, followed by Motorola (11.6% market share), LG (9.1%), Huawei (7.6%) and Apple (4.2%). The arrival of economical white-label smartphones from Asia make the ultimate aspirational product accessible to over 80% of Latin American adults. INDIVIDUAL MARKETS IN LATIN AMERICA While Latin America is growing soundly after a challenging three-year period, the rate of consumer growth varies by individual market. Here’s a look at what consumers in Latin America are buying in specific countries.

Argentina Likely to be Latin America’s fastest growing consumer market in 2018, Argentines are catching up on spending after a decade of stymied consumer credit and an undervalued peso. Enjoying strongest growth are non-essentials, higher-ticket priced products that require the flow of consumer credit to fuel their growth. The figures in this report are stated in USD. A strengthening Argentine peso therefore exaggerates already impressive volume growth.

Notebook computers: Sales of notebooks in Argentina went up by 55% in 2017 after import tariffs were removed, with a total of 557,000 notebooks sold last year.

Cars: More than 900,000 new cars were sold in Argentina in 2017—a 26.9% increase compared to 2016.

Pharmaceuticals: Sales for the Argentina pharmaceutical sector grew by 26.9% during 2017, while exports of Argentine pharmaceutical products went up by 17%.

Groceries: Final numbers have not been released for all of 2017, but during the first 11 months of 2017, grocery sales in Argentina supermarket went up by 20.6% compared to the same period in 2016; the biggest jumpers were with drinks (25%), baked goods (23%) and meat (22.7%).

Brazil Brazilian households took a beating in 2014-2016 when falling resource prices and a political crisis sabotaged the currency. Overextended with retailer-provided credit, Brazilians have worked hard to pay down their debts. Credit is growing once again and Brazilian consumer confidence is rebounding.

Furniture, appliances and clothes: A report from the Brazilian Institute of Geography and Statistics or IBGE noted that retail sales went up by 2% in Brazil during 2017, with biggest increases happening in discretionary items, including furniture and appliances (9.5%).

Cars: New car sales went up by 9% in the Brazilian market during 2017.

Mobile phones: Sales of mobile phones in Brazil grew by 8% in 2017, with 51.1 million units sold.

Toys: Toy sales went up by 6.2% in Brazil during 2017, with overall sales of 6.3 billion reais (US$1.9 billion).

Books: Overall book industry revenues in Brazil went up by 6.1% in 2017, while unit sales were up by 4.5%.

Groceries: Sales in Brazilian supermarkets increased by 1.5% during 2017.

Chile Recovering copper prices (responsible for more than 50% of Chilean exports), and pre-election public spending helped deliver 2.4% consumption growth in Chile in 2017. The newly installed Piñera administration promises pro-business reforms which should expand investment and fuel more spending in 2018.

Personal devices (including PCs, smartphones and tablets): Sales of these products went up by 116% in Chile over the last seven years (4 times the global growth rate), reaching $800 million in sales in Chile in 2017. Chileans bought 9.1 million smartphones in 2017. As possibly the most mature cellphone market in Latin America, future smart phone sales (in units) will grow very little and may decline slightly as smartphone penetration reaches its natural zenith.

Cars: New car sales went up by 18% in Chile during 2017 to reach a total of 348,000 cars sold—and the Cámara Nacional de Comercio Automotriz de Chile (National Board of Auto Commerce) projects that 400,000 new cars will be sold in Chile during 2018.

Cosmetics: Figures for the first 11 months of 2017 show a 3.1% increase in the sales of beauty products in Chile compared to 2016, which is historically low grow: Chile’s Chamber for the Cosmetics Industry expects 6-8% growth for cosmetics sales in 2018.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 12

Mexico Despite all the political risk hanging over Mexico (U.S. bilateral tensions, NAFTA negotiations and a contentious domestic election), consumers continue to spend. High U.S. factory utilization rates and a weakened Mexican peso combine to drive Mexican export manufacturing sales, an important pillar of Mexican growth. Given that 2018 is an election year and a promising year for el Tri (national soccer team) in the World Cup, there should be a double boost to public spending and consumption. Growth will prove especially strong in the more modest social strata.

TVs: Between 2008 and 2017 (spanning both boom and recession years), sales of television sets in Mexico grew from US$1.3 billion to US$2.9 billion, a 126% increase, while units sold went up by 155% (2.2 million TVs sold in Mexico in 2008 versus 5.8 million TVs sold in Mexico in 2017).

Clothes and shoes: The sales value of stores specialized in clothes and shoes in Mexico went up by 36% between 2012 and 2017, with brands such as Forever 21, American Eagle Outfitters and Banana Republic all growing by double digits during 2017.

Electric cars: While sales of these are still quite modest, sales of electric cars in Mexico grew from 6,277 in 2016 to 8,268 in 2017, an increase of 32%.

Beauty products: The beauty sector in Mexico is growing at 11% a year, with an estimated value of US$8.2 billion.

Movie tickets: Ticket sales in Mexico went up by 6.4% in 2017, with 348 million sold, while overall box office (including concessions) went up by 10.9%.

Toys: The Mexican toy industry set a record in 2017 with sales of US$800 million, a 6% increase over 2016.

PERU Peru is in the midst of a political crisis with the resignation of President Kuczynski. Yet Peruvian consumption growth is flourishing thanks to strong exports of metals, agrifood and fish products. Billions are poised to invest in Peruvian infrastructure and mining, money that will flow once some political stability is formed.

Hardware: Retail sales of hardware products went up by 8.5% during the first nine months of 2017, totalling 3.8 billion soles.

Beauty products: In 2017 Peru’s beauty industry grew by 8.1% during 2017 to reach nearly US$2.3 billion in sales, with perfumes being one of the biggest growth subsectors within the beauty industry.

Cars: New car sales went up by 6.3% in Peru during 2017, totalling 163,668 for light vehicles (cars, pickups, station wagons, SUVs).

Groceries: Supermarket sales in Peru grew by 5.3% in 2017, while overall 2017 retail sales in Peru grew by 3.9% to reach 35.4 billion soles, with 2018 retail sales growth for Peru projected to be 6%.

↑Return to Index

Avanco builds a Brazilian empire (The following is part of an article written by Ben Creagh and was published in Australian Mining on 6 March, 2018)

If there is one piece of advice that Avanco managing director Tony Polglase can offer about mining in Brazil, it’s that local credibility is critical for success. For the Perth-headquartered, ASX-listed company, it has taken around a decade for it to reach the level of credibility it craved in Brazil. Polglase’s belief that Avanco had built a strong reputation in the country was reinforced in January when it secured a deal to acquire the Pantera copper project in Brazil’s Carajás mineral province from mining giant, Vale. The Carajás, which hosts the largest iron ore mine in the world, is in the state of Pará in Brazil’s north. Since its mineral wealth was discovered in the 1960s, the Carajás has grown into one of the world’s most important iron oxide copper gold (IOCG) mining regions, with Vale dominating the landscape of operations in the area. Building a portfolio in a mining region of this stature has been satisfying for Avanco. The company’s latest acquisition, the 9700-hectare Pantera project, is close to its existing operations, and adds crucial potential to significantly grow its resources, reserves and long-term production profile. Polglase said the Vale deal was something Avanco’s management had dreamt about during its decade in the Carajás region. “It is perhaps only in the last two years that our credibility has reached a point at which Vale thinks of us as a peer,” Polglase told Australian Mining.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 13

“That’s quite pleasing for us because the Carajás is the equivalent of the Pilbara in Australia, except that the Brazilian Pi lbara only has two peers — Vale and Avanco.” Polglase described Brazil as a mining jurisdiction that’s not for the “amateur”, but also a country that does have opportunities for foreign mining companies like Avanco. “I’ve worked all over the world and I would say Brazil is as hard as it will possibly be, however, the rewards are there for those that have the tenacity, and the breadth and depth of experience,” Polglase said. “On top of that Vale is a very big company and is very careful of its reputation and because of that is very cautious about doing deals, especially with juniors. “They have been waiting a long time for us to turn into what we are now. We share the same region as Vale and we have reached a point where they feel comfortable to do something with us.” The deal to acquire Pantera will cost Avanco anywhere between $20–$35 million, depending on the exploration and development scenarios agreed on by the two companies. ↑Return to Index

Investment in Latin American oil and renewables likely to grow (This article was published in www.thedialogue.org on 8 March, 2018)

International Financial Law Review speaks with Lisa Viscidi, director of the energy, climate change and extractive industries program at the Inter-American Dialogue. Viscidi analyses recent developments in Latin America’s energy markets, particularly in relation to broadsweep energy market reforms in Brazil and Mexico. While the fundamental dynamics of the region’s economies and the momentum behind investor friendly policies suggest that Latin America will continue to be an attractive investment destination, the renegotiation of NAFTA and other risks loom in the background. What is your reading of the energy sector across Latin America and what are the recent reforms in Mexico and Brazil responding to? There is a trend toward more market-oriented and investor-friendly reform. You see it in Mexico and Brazil, but you also see changes to policy to attract investment in Colombia, Ecuador and Argentina. This is a general trend. It responds mostly to the need to reverse policies that have slowed oil production and led to lower government revenues. In most cases, the changes we are seeing are in response to lower oil prices. Perhaps one exception is Mexico, where the initial reforms happened before oil prices dropped and were made to confront a chronic systemic problem with the sector and a steep decline in production and revenues. In general, reform is happening because of new governments coming into office with a more private sector-oriented approach to energy and to economic policy. These reforms are about domestic politics and they reflect a move away from nationalism and nationalisation across other sectors as well. This theme is especially true in Argentina, where there are major macroeconomic problems that President Mauricio Macri wanted to take on and energy was just one of a number of things. There is a similar case in Brazil, where there was massive public debt and clearly a lot of problems in the oil sector and with Petrobras, as well as other economic sectors. In Brazil this is part of President Michel Temer’s reform agenda. Have these reforms changed the dynamics for private/public sector participation in projects? That changing dynamic is happening and we are seeing more private companies participating in the energy mix. There is also the decline of the national oil companies (NOCs), which is a related but also a separate issue. If you look at all the NOCs in the region they are not where they were 10 or 15 years ago. Many of them have declining reserves, declining profits and a bleak financial situation. Some are starting to turn around but NOCs are no longer as powerful as they used to be. In the case of Brazil, Petrobras was not hit that badly by low oil prices because the vast majority of its oil is for sale in Brazil and Brazil had controlled the price of the market. Petrobras was hit by debt and the fact that its debt was 80% dollar denominated, so when the Brazilian real weakened this debt became hugely inflated. In Mexico, Pemex suffered a lack of investment in technology to maintain production levels. There is also a similar trend outside oil and gas. For example, governments are looking at how to reform state utility companies and one of the options they have is to introduce more competition from the private sector, whether it is by selling part of the national utility company or allowing other players to come in, as in Mexico. You have noted before that climate change mitigation enjoys strong support among Latin American populations. Is that being reflected in current energy policy and in renewable investment? I would say yes. There are a lot of policies to support renewable energy. Many countries including Brazil, Mexico and Peru have renewable energy auctions for specific clean technology, especially solar and wind, and in some cases geothermal. They also have fiscal incentives, carbon targets and carbon credits. The popular support for climate change has overall translated into renewable energy investment and in a lot of the countries’ nationally determined contributions for the Paris Climate Accords there is a focus on non-hydro renewable energy and there is strong public support for that.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 14

Does the regulatory approach to the renewables sector vary a lot across the region? I would say that Latin America has not taken a very different approach to some European countries. There is concern about making energy too expensive for consumers and they do not want it to hit the fiscal budget. They have avoided subsidies like feed-in tariffs. In Brazil, the policies have really pushed non-hydro renewables very quickly. The advantage that developers have in Brazil is that the state development bank (BNDES) has a large amount of capital available at low interest rates. There is also a huge domestic market there, whereas several of the other markets are quite small and that makes it harder to attract developers. What are the greatest challenges to creating strong frameworks for the right sort of energy investment? There are a lot of challenges. One of the top ones that I see is political and regulatory risk. There are constant changes in Latin American energy policy. There are some exceptions though: in Chile policy has been pretty similar and stable across several administrations. But for the most part you can have a new government come in and see a radical swing in one direction or the other. On the regulatory level you can also see a lot of changes and a lot of bottlenecks and red tape. Another challenge is fiscal constraint. Many countries that heavily rely on revenue from oil and gas do not want to give subsidies to renewable energy, even though some are subsidising fossil fuels. In oil and gas, on one level it is driven by oil prices. We have seen some big investment projects recently especially in Brazil because the pricing is now a lot more attractive. Offshore is doing well because oil prices are high enough to support offshore project. Onshore there are a lot of complications, for example many communities do not want oil projects in their area, so getting the social licence to operate is very hard and going offshore is a lot easier in that sense. How important are development banks to the region’s energy market? For renewables projects, development bank financing is really critical. Outside of Brazil the Inter-American Development Bank (IDB), the World Bank and Development Bank of Latin America (CAF) are active. There are also other state development banks aside from BNDES. In Argentina, in the new renewable energy policy framework under Macri, they created a fund for renewables projects. The idea of this fund is not just finance projects but to give incentives, such as a low interest loan to get things started. Development financing is really very important to catalyse those types of investments. Has the Trump administration had a material impact on the profile of energy investment in the Americas? This is hard to measure. I do see some reluctance to invest in Mexico and the biggest direct threat of the Trump administration to investment in energy is the Nafta renegotiation. There are a lot of ways that it could impact energy. There is a lot of concern that the whole process could fall apart and some companies are waiting to see how it pans out before making decisions about Mexico. For the rest of the region, more generally the lack of energy diplomacy could in the long term have an impact on investment. For previous US governments there was dialogue on energy and more engagement with other countries to promote investment, and that has made a big difference to moving investment forward. Energy investment depends a lot on trade and on the trade agreement between countries, so if that breaks down it will have an impact. It has been less than a year so I don’t think you could say clearly that there has been an impact. Will uncertainty on Nafta linger for long enough to have an impact? I think the Nafta negotiations are going to drag on longer than the US government would want. They are not going to be wrapped up this year, not before the elections in Mexico next year and maybe not before the end of next year. They may only conclude in 2019 and I think this process is going to drag on. We then don’t know what the final agreement will look like and whether the whole deal will fall apart. And in the meantime, is there a gap that needs to be filled? There are plenty of other countries investing including China, Russia and European countries. The uncertainty definitely opens up the space for these others and there are plenty of people who can fill that gap. Will Latin America remain an attractive region for project finance? Yes, because energy demand is growing. It is a developing region with growing economies and one where energy demand is still tied to economic growth, it is not decoupled from economic growth as in Europe and the US. Electricity demand is growing and the transport sector is seeing massive growth. These alone will keep it an attractive region. There is also a huge untapped resource base, it has incredible resources for solar, for wind and huge untapped resources for oil and gas – the pre-salt alone could make Brazil one of the three of four largest offshore oil producers in the world. I think the region will definitely continue to be dynamic for project development. ↑Return to Index

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 15

Mexican election scenarios: New oil contracts under threat (This article was written by Justin Villamil and was published in Bloomberg on 19 March, 2018)

Mexican presidential candidate Andres Manuel Lopez Obrador said if he wins the election in July, he will ask President Enrique Pena Nieto to stop awarding all new private oil contracts. The candidate said he would ask Pena Nieto to stop auctions of new oil blocks and reiterated his promise to review contracts made under the Pena Nieto administration to ensure they complied with the law, according to audio of an event Sunday in Mexico City posted to his website. “Particularly, I’m going to tell them to stop with the sale of the Yucatan and Quintana Roo coasts that should not be used for petroleum extraction because it involves one of the most important tourist regions in our country,” Lopez Obrador said. “We will intervene immediately.”

Lopez Obrador also said he would stop the privatization of the electricity sector, as well as work to end crude oil exports by building two new refineries. He promised that Mexico would no longer import foreign fuel by three years into his term to promote energy independence and reduce costs to consumers. While the acting leader of Mexico Oil Company Association has recommended annual crude auctions, this is the clearest indication yet that new contracts could be halted if Lopez Obrador prevails. The candidate has sent mixed signals in the past. On Feb. 15, Alfonso Romo, his top

business adviser, told Bloomberg that Lopez Obrador’s team had found most of the past contracts to be transparent. Later that month, Rocio Nahle, his top energy adviser, was quoted in the Wall Street Journal saying she’d halt new auctions until positive results were seen from the first tenders. The candidate himself did not clarify his position until now. Lopez Obrador told reporters in his comments Sunday it is important to review old deals for signs of corruption, raising the specter of previous contracts with disgraced Brazilian construction company Odebrecht SA. “We don’t want contracts like those of Odebrecht,” Lopez Obrador said. “We don’t want these surprises that have resulted in a corruption scandal on a global scale.” ↑Return to Index

Who has the edge in Colombia’s presidential race? (This article was published in www.thedialogue.org on 8 March, 2018)

Gustavo Petro, a former leftist guerrilla who later served as mayor of Bogotá, and Iván Duque (pictured right), the candidate of former President Álvaro Uribe’s Democratic Center party, are virtually tied less than three months ahead of Colombia’s May 27 presidential election. According to a poll published Sunday by daily newspaper El Tiempo and W Radio, Duque had 23.6 percent support, as compared to Petro’s 23.1 percent, while former Medellín Mayor Sergio Fajardo had 8.1 percent support, and ruling party candidate former Vice President Germán Vargas had 6.3 percent. What issues are shaping Colombia’s presidential race ahead of the May 27 vote, and how have the top candidates gotten where they are today? What factors will decide the election’s outcome? Would any of the front-runners pursue radically different policies from the current administration of centrist President Juan Manuel Santos? Adam Isacson, senior associate for the regional security policy program at the Washington Office on Latin America: “The polls have varied widely, but four candidates appear to stand out in the most recent ones. Let’s list them, from left to right. 1) Gustavo Petro made his name as a senator who investigated corruption and had a stormy 2012-15 term as mayor of Bogotá. 2) Sergio Fajardo, a center-left, pro-free market mathematician, enjoyed high popularity as mayor of Medellín from 2004-2007. Petro and Fajardo are buoyed by perceptions that they are not corrupt. 3) Germán Vargas Lleras, the grandson of a president, has built support among traditional political patronage networks around the country. Though he served as Santos’vice president, he has since broken with the president on the FARC peace issue. 4)Senator Iván Duque is the chosen candidate of the party headed by ultraconservative, still-popular ex-president Álvaro Uribe, which guarantees him support despite low name recognition. Two of these candidates would continue Santos’ slow-moving implementation of the peace accord (Petro and Fajardo). Two would slow it down (Vargas Lleras and Duque), perhaps to the point of undoing it. Petro would significantly increase the state’s role in the economy, while Duque would significantly reduce it. The other two would make leftward or rightward adjustments. If the most recent polls are right and nothing changes, Petro would face Fajardo or Duque in a runoff. But don’t write off Vargas Lleras: polls may not be capturing his formidable, shady get-out-the-vote machinery. Polls tend to give one of the lowest ratings, usually below 2 percent, to the candidate of the FARC political party, Rodrigo Londoño also known as Timochenko.”

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 16

Maria Velez de Berliner, president of Latin Intelligence Corporation: “Polls lost credibility when the ‘No,’ which polls predicted would not win, defeated the ‘Yes’ in the referendum on the peace agreement with the FARC. A March 1 poll by Polímetro shows a tie between Gustavo Petro and Iván Duque. A poll by Celag shows Germán Vargas Lleras first, and Sergio Fajardo second. Speculations about who will win are premature, based on who does the polling, the sample’s composition, and the questions asked. The results of Sunday’s congressional elections will show the coalitions and alliances entered into by the presidential aspirants. Therefore, the legislative vote will be a more reliable predictor of who might win the presidency on May 27, or in the second round on June 17. Three subtexts will drive voters’ preferences: 1) Voters are fed up with the excesses of public corruption at all levels of government and the irrisory penalties. those who snitch and/or collaborate with justice receive. 2) Today’s widespread criminality and personal insecurity is what voters feared would come as a result of the peace agreement with the FARC. 3) Some voters want anyone but a Santos-like president.Given the prevalence of anti-Santos and anti-FARC sentiment, and the electorate’s general dissatisfaction and fear of insecurity and danger, a swing from the center to the hard right seems probable. Should a hardright coalition win the presidency, a majority of Colombians would welcome policies that deal a heavy-hand against criminality, further militarize law enforcement, make changes in the judicial branch, and bring a return of ‘democratic security,’ the signature policies of Álvaro Uribe’s government (2002-2010). Most Colombians long for the relative peace and security they enjoyed under ‘democratic security.”

Juan David Escobar Valencia, director of the Center for Strategic Thought at the Universidad EAFIT in Medellín: “The reason for Petro’s initial success can be explained by the historically known and recurrent phenomenon of societies in crisis, especially economic ones, in which the most affected sectors are attracted by populist proposals. The March 11 legislative elections are not an exact reflection of the presidential ones, but they would put the electoral contest in the final stretch, which will be between those who support and those who oppose the process of appease.ment signed between Santos and the FARC. But there is something that cannot be underestimated. The majority of Colombians have three powerful feelings: 1) They are afraid of becoming the next Venezuela, and that will be a factor

that will be at odds with the Chavista candidate, Gustavo Petro. 2) They never agreed with the appeasement agreement with the FARC, which will be an obstacle for Sergio Fajardo, badly qualified as a centrist, because the allies that he acquired for his campaign, defenders of the agreement, are closer to the left than o the center. 3) They do not want anything that smells like Juan Manuel Santos: his 15 percent approval rating is the best proof of that. Both Petro and Fajardo are defending government projects.” Alberto J. Bernal, chief emerging market and global strategist at XP Securities: “The 2018 presidential contest is a transcendent one for many reasons, but perhaps more so because the next president of Colombia will have to implement the agreements that the Santos administration negotiated with the FARC. Implementing these agreements will prove a titanic ordeal, as they will remain fiscally expensive to implement, and perhaps even more cumbersome, politically costly to implement. If anything, the reduction of violence that has been seen in the country since the negotiations started—violent deaths per 100,000 stood at 24 at the end of 2017, the lowest rate in 30 years—has not translated into increased support for ‘peace’ by the population at large. On the contrary, most Colombians are now demanding changes to be introduced to the Havana agreements. In fact, roughly 70 percent of candidates that are running for seats n Congress this year are promising to introduce changes to the accords. In my view, the 2018 election will be decided in the second round, and it will be a sequel of the peace plebiscite that took place a couple of years ago. The center-right will run an anti-impunity and anti-corruption campaign, and the left will run a ‘pro-peace’ and anti-corruption campaign. My base case scenario remains that hard-left candidate Gustavo Petro and center-right candidate Iván Duque will face each other in the runoff, and that Duque will win the election by a relatively comfortable margin. He is a fiscal hawk and clearly one of the most market-friendly candidates in the roster (together with Germán Vargas and Marta Lucia Ramírez). If my view proves inaccurate, and Petro wins, markets will react violently, as Petro’s economic agenda is highly interventionist and not conducive to Colombia remaining a large recipient of foreign direct investment.” ↑Return to Index

Mexico’s auto sector down, but still kicking (This article was written by Laurence Iliff and was published in www.autonews.com on 19 March, 2018)

By attacking the North American Free Trade Agreement, promising a U.S.-Mexico border wall and embracing protectionist policies, President Donald Trump has managed to dent Mexico's auto industry over the last year. But the damage is far less than what some economic analysts on both sides of the border feared, leaving Mexican trade negotiators holding a stronger hand than expected as talks to renegotiate NAFTA head into their eighth round next month. With two months of Mexico industry numbers in for this year, the biggest casualty of the administration's tough talk is the sharp drop in domestic Mexican auto sales. Economic uncertainty is kryptonite for consumer confidence, and the combination of Trump's threat to exit NAFTA and the prospect of a leftist Mexican president taking power in December after elections in July has car buyers on edge. Auto sales in Mexico fell 7.2 percent in February to 109,484 units, bringing the accumulated retreat for the first two months of the year to 9.4 percent.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 17

Auto deliveries have now fallen for eight straight months, according to the Mexican Automobile Distributors Association. Mexico notched record auto sales of 1.6 million in 2016, followed by a drop to just over 1.5 million last year. While that pales in comparison to the U.S., Mexico is a young market with more than 120 million people and potential for big gains over time. Visions and timetables vary, but it's expected that a dozen years from now, the auto business will be like a third cousin to the one we have today. Every automaker, supplier and dealership on the planet is working with a strategic Ouija board to construe the future, to itemize and organize for the radically reconstituted industry nearly everyone agrees will form between now and roughly 2030. Despite rising interest rates, higher sticker prices and a spike in gasoline prices as government subsidies were lifted, the auto industry and the Mexican economy in general are holding up reasonably well, said industry officials. "The strong economic crisis that some analysts anticipated from anti-Mexico policies and the protectionism exacerbated by Trump has not come to pass," said Guillermo Rosales, head of the auto distributors association. While Mexican consumers are holding back to see what happens with NAFTA and the presidential race, Mexico's auto export sector is going gangbusters and delivering trade surpluses that are helping to stabilize the economy, Rosales said. Auto output rose 6.2 percent in February to 328,352 light cars and trucks. For the first two months of the year, production rose 6.1 percent to a record 632,107 units, according to the Mexican Automotive Industry Association. Mexican auto exports in the January-February period rose 8.5 percent to just over 507,000 vehicles, also a record. About three-quarters of the exports went to the U.S. Eduardo Solis, head of the auto industry association, also stressed another record: Mexico had a nearly $71 billion trade surplus in autos and auto parts last year, including light and heavy vehicles and motorcycles. Most of that is with the U.S., and Mexico's trade surplus was one of the original reasons that candidate Trump put a target on NAFTA with a promise to fix it or abandon it. Mexico's economy minister and chief NAFTA negotiator, Ildefonso Guajardo, said last week that the auto portion of the accord needs to be modernized to reflect the vast changes made in the automobile itself over the last 26 years. The NAFTA accord was negotiated using a 1992 model of the typical auto when determining which parts would qualify as tariff-free North American content, he said. That vehicle no longer exists with all the changes in technology and advances in materials such as plastics, steel and aluminium, Guajardo said at a press conference. His position was a break with the auto industry trade group and Solis, who want the so-called rules of origin to stay the same. Those rules use the parts list from the 1994 agreement and set the minimum North American content for tariff-free treatment at 62.5 percent. The U.S. wants a new parts list, higher levels of North American content and a minimum amount of U.S. content in tariff-free cars as well. Mexico and Canada have rejected the special carve-out for U.S. content as an unfair trade advantage. Still, Guajardo signalled increased Mexican flexibility on the rules of origin, suggesting — hypothetically — that the North America content requirement could remain at 62.5 percent or rise to 67.5 percent or 68 percent "or whatever it ends up being," and include a phase-in period. Guajardo said his message to Solis would be: "We are going to work on new rules for regional content — period." ↑Return to Index

(This article was written by Guillaume Corpart and was published in amiperspectiva on 22 March, 2018)

Technological innovations. Rapid adoption of electronic medical records and telemedicine. A rapidly aging population. There’s no question that Latin American healthcare markets are changing. Hospitals constantly need to stay in front of these trends, and device and equipment manufacturers need to be ready to provide what hospitals need, when they need it. As part of our tracking of the medical device/equipment market in Latin America, AMI’s sister company Global Health Intelligence (GHI) has focused on predicting what 2018 will hold for the industry. Here’s a look at those predictions—and the data that’s fueling them.

Analysis: The top 2018 trends in Latin American healthcare

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 18

Brazil Will Bounce Back According to projections from the International Monetary Fund (IMF), the Brazilian economy posted a meagre growth of 0.7% in 2017. However, 2018 appears poised to paint a better, more robust picture. Economic growth is projected to more than double and reach 1.5%. As part of this, GHI anticipates that medical equipment and device sales in Brazil will surge in 2018 compared to current levels. One major reason for this projection is due to increasing import levels. As we reported not long ago, as per ShareScope—GHI’s service to analyze import data and market share/size for medical equipment brands—the forecasted value of medical equipment/devices imported into Brazil in 2017 went up 15%. This is significant for the marketplace, because generally speaking, import numbers are a direct proxy to sales, given that equipment is imported with the objective of being sold. In addition, based on extrapolations from HospiScope — GHI’s LatAm hospitals database —figures are also pointing toward a strong 2018 in Brazil. This includes increases in installed base equipment between 2016 and 2017 in Brazil, such as:

A 34% increase in electrocardiogram machines in Brazil’s hospitals in 2017

14% growth in nuclear medicine systems-positron emission tomography in Brazil’s hospitals in 2017

A 10% uptick in endoscopy machines in Brazil’s hospitals in 2017

A 4% increase in X ray machines in Brazil’s hospitals in 2017 Mexico Makes Its Mark Like Brazil, Mexico has experienced volatility in recent years when it comes to both overall economic and healthcare sector growth. GDP growth in Mexico has remained fairly flat in recent years, with 1.3% growth in 2013 to 2.3% in 2014, 2.5% in 2015 and 2.3% in 2016 (Source: INEGI). In October 2017 the IMF forecasted GDP growth to be 1.9% for Mexico in 2018. Not surprisingly, the country’s recent economic difficulties have affected the medical device market in Mexico. ShareScope data analysis indicates that after solid growth in import values and quantity in 2015 and 2016, there will be a forecast drop of 19% in 2017 (final figures not yet available). However, the news isn’t all bad in Mexico. The sexenio, the common word for the six-year term limit placed on the Mexican president, is up in 2018, and many are projecting that healthcare spending could rise with the election of a new president. While HospiScope data indicates that 60% of the hospitals in Mexico are private, the rest are public. This becomes significant in terms of spending because public hospitals in Mexico have a much higher bed count than private hospitals—roughly 90 beds per hospital versus 15 per hospital in the case of private hospitals. As such, public hospitals in Mexico account for approximately 80% of the hospital beds in the country. With the new administration in place, public spending on healthcare could increase. In addition, GHI’s HospiScope has been tracking increases in installed base of capital equipment in Mexican hospitals between 2016 and 2017, including:

A 12% increase in newborn cribs in Mexico’s hospitals in 2017

A 10% increase in x-ray machines in Mexico’s hospitals in 2017

A 5% increase in endoscopy towers in Mexico’s hospitals in 2017

An 8% increase in ultrasound machines in Mexico’s hospitals in 2017

A 20% increase in PACS in Mexico’s hospitals in 2017 Smaller Markets Surge The big players of Brazil and Mexico aren’t the only countries that GHI expects good fortune from in 2018. Smaller markets like Chile, Peru, Guatemala and Costa Rica should become increasingly important players in the medical equipment markets, as well. Here are just a few areas where these countries are showing increases in installed base of capital equipment between 2016 and 2017:

Chile

A 9% growth in radiotherapy equipment in Chile’s hospitals in 2017

A 34% increase in stereotactic mammography machines in Chile’s hospitals in 2017

A 10% upsurge in CT scanners in Chile’s hospitals in 2017 Peru

An 18% growth in nuclear medicine systems-positron emission tomography in Peru’s hospitals in 2017

A 27% increase in ultrasound machines in Peru’s hospitals in 2017

A 24% uptick in ventilators in Peru’s hospitals in 2017 Guatemala

A 134% increase in PACS in Guatemala’s hospitals in 2017

A 73% upsurge in CT scanners in Guatemala’s hospitals in 2017

A 67% uptick in infusion pumps in Guatemala’s hospitals in 2017 Costa Rica

A 48% increase in anesthesia machines in Costa Rica’s hospitals in 2017

A 49% increase in endoscopy towers in Costa Rica’s hospitals in 2017

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 19

A 42% uptick in laparoscopic surgery equipment in Costa Rica’s hospitals in 2017 Private Healthcare Continues to Increase One of the major trends that GHI projects for 2018 and beyond is a growing customer base for private medical services. Increasingly, the middle class is complementing their public health coverage with a private option, so much so in fact that Latin America’s health insurance companies have the most rapid level of growth in the world, with 30% growth each year projected through 2025, as per McKinsey and Company. With these changes also come opportunities to serve working-class individuals who feel the financial squeeze. Increasingly, specialized outpatient low-cost institutions are becoming part of the LatAm private health care system. In fact, a recent article by the Oxford Business Group noted that the public and private sectors of the healthcare system in Mexico are increasingly coming together and cooperating in order to better serve all of Mexico’s patients. As new facilities become a part of this rapidly changing healthcare environment, GHI will keep you up-to-date on the device and equipment needs of any new facilities that form as a result, as well as the evolution of the competitive landscape surrounding insurance and offering. Penetration of Low-Cost Products It is no surprise that Latin American healthcare budgets are tight and will continue to be tight heading into 2018. Naturally, this means that LatAm hospitals will continue to be attracted to lower-priced alternatives. An interesting development is that Asian markets have begun to form partnerships with Latin American healthcare systems. Both China and Korea, for example, have formed steadily growing partnerships with the region, thus increasing the flow of goods between the regions. If you’re a medical device or equipment manufacturer or distributor with an interest in Latin America, this is certainly a trend that’s worth keeping an eye on. ↑Return to Index

After Raul: What next for Cuba’s political economy? (This article was published in www.thedialogue.org on 1 March, 2018)

On February 22, the Inter-American Dialogue in partnership with the Brookings Institution’s Latin American Initiative hosted an event titled “After Raul: What Next for Cuba’s Political Economy?” to discuss the political and economic challenges Cuba will face amidst a presidential transition. This event was moderated by Michael Shifter with panellists Richard Feinberg from the Brookings Institution and William LeoGrande from American University. Feinberg drew from his report, “Cuba’s economy after Raúl Castro: A tale of three worlds” (February 2018) to present the challenges facing the Cuban economy and propose comprehensive reforms which the next administration should pursue. He pointed out areas which have contributed to the country’s economic stagnation such as a weak agricultural sector, low energy production, and a “brain drain.” On the other hand, Feinberg argued that Cuba has diversified its international commerce, doubled its tourism sector, and achieved growth in the private sector. He suggested a couple of broad policy goals going forward: collaboration between state-owned enterprises and international firms to attract foreign direct investments and improve performance, greater bureaucratic efficiency and response, and monetary reform. LeoGrande discussed the political environment within the Communist Party and what the presidential transition would look like. A major challenge for Castro’s successor, Miguel Díaz-Canel, will be to establish his legitimacy as president. The Castro brothers had the revolutionary ideology to establish theirs but Díaz-Canel is unable draw from that. Without legitimacy, LeoGrande argued, it would be difficult for him to push for necessary economic reforms. Furthermore, there are divisions within and outside the Communist Party between the older and younger generations. LeoGrande offered the possibility that Díaz-Canel could build a broad coalition within the party and with the Cuban society and private sector. This challenge, along with the uncertainty of state capacity, harbors a situation where the existing leadership lacks urgency in moving forward with ambitious reforms. As for the future of regional relations, the debate over Venezuela has become a sticking point, especially since President Maduro was disinvited by the Peruvian government from attending the Summit of the Americas. The Cuban government denounced the move but does not intend to boycott the event. It is unclear what posture Díaz-Canel will take with the United States and region as a whole. The panellists concluded that the challenges for the Communist Party and Castro’s successor will persist if it does not respond to the public’s dissatisfaction with an economy and political system that has become unresponsive and ineffective. ↑Return to Index

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 20

Piñera’s second term (This article was published in www.thedialogue.org on 21 February, 2018)

On February 15, the Inter-American Dialogue hosted an event titled “Piñera’s Second Term” to discuss the implications and challenges of president-elect Piñera’s second term. This event was moderated by Michael Shifter with speakers Robert Funk (Universidad de Chile), Gabrielle Trebat (McLarty Associates), and Sergio Urzua (University of Maryland). The speakers discussed the social, political, and economic implications of Piñera’s victory and forthcoming challenges. According to Funk, an important outcome of this election was that no one group could claim absolute victory. For one, Piñera’s Chile Vamos coalition did not win a majority in the legislative assembly. This will make it difficult for him to push forward substantial changes to President Bachelet’s reforms. Piñera has the option of working with the Christian Democrats or relying on executive orders. On the other hand, the Nueva Mayoría (successor of the Concertación) lost votes to the unexpected rise of the left-wing Frente Amplio. President Bachelet’s low popularity, internal party divisions, and weak candidates diminished the appeal of the continuation of the incumbent governing coalition. Funk attributed the traditional parties’ weakness to changes in the electoral system which allowed the entry of non-traditional parties. He also identified significant changes happening in the country’s political parties, its leadership, and demographics and economics. Urzua commented on Chile’s economic conditions and its impact on the elections. Chile, he stated, runs the risk of falling into a middle-income trap. As a result, the middle class wanted to secure its progress and felt that Bachelet’s reforms failed to do so. Poor performance in recent years has been shown in weak copper trade, high corporate tax rates, and low foreign investments in the country. Economic inequality still remains a prominent issue, which Urzua believed Bachelet inadequately addressed in her education initiatives. Piñera is challenged with building an “open-access society, where opportunity is merit-based.” Overall, he will likely not embark on ambitious reforms, but small changes to improve macroeconomic conditions. Trebat offered her perspective and insights from the investor community. She expressed that many financial investors are feeling cautious about the necessary changes that Piñera could bring. They have recognized that he will need to balance ongoing social pressures and economic competitiveness. Piñera’s biggest policy challenges are pension reform, health care affordability, and regulatory reform. Moreover, he will like demonstrate continuity in reinforcing Chile’s leadership in regional trade agreements such as the Trans-Pacific Partnership, the Pacific Alliance, or Mercosur. Trebat argued that he ultimately has the advantage of appearing as a pragmatic candidate which will permit him to pursue incremental changes. Given the imminent change in leadership across the region, participants asked what we could expect from Chile’s foreign policy. The panelists believed that the incoming government’s initial focus will be regional. But the border dispute with Bolivia and Trump’s dismissal of a multilateral system may provide initial challenges. The speakers identified the future viability of the traditional political parties/coalitions as the major political challenge. The changes which Funk identified are causing divisions not along the left-right spectrum, but along generational lines. The formerly strong coalitions of the left and right have relied on Bachelet and Piñera to win presidencies, with little innovation in future leadership. Urzua further added that there is a new generation of voters who did not live under the dictatorship. Consequently, the younger generation is questioning why the Pinochet-era setup of institutions continues to exist. If the parties do not actively respond to these frictions, then they may inevitably continue to lose ground to non-traditional parties. ↑Return to Index

Latin America claims top exploration region spot globally in 2017 (This article was written by Jacqueline Holman and was published in Mining Journal on 26 February, 2018)

Latin America continued to be the most popular exploration location in 2017, with the region claiming a 30% share of the global exploration budget. S&P Global Market Intelligence's mining and metals research team's Alex de Leon said the total exploration budget for the region rose 20% year-on-year in 2017 to US$2.38 billion, with its share of the global budget up from 28.5% in 2016. In the December quarter, financing for the region climbed to $1 billion, up from $426 million in the September quarter.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 21

According to Mining Journal's World Risk Report 2017, South and Central America have a combined average investment risk index rating of 62.5/100, with Chile, Peru and Mexico all receiving ‘A' ratings with an index of over 70/100. De Leon also named these countries as the top three in the region, with them claiming 25%, 22% and 21%, respectively, of the region's overall exploration budget, and 68% collectively. This is not surprising, as copper generated the highest total production revenue of $53.6 billion for Latin America, according to S&P, and these three countries account for most of the region's copper reserves. Iron ore and gold also generated high total production revenues for the region at $32.5 billion and $19.3 billion, respectively. Capital investment for the year was mainly focused in the copper arena where announcement funding totalled over $9 billion, followed by lithium and then gold, which were both over $3 billion, de Leon said. In Chile alone, a total of $5.5 billion is planned to be spent on two copper projects — NGEx Resources' (CN:NGQ) $3.1 billion investment on the Constellation project and BHP's (LN:BLT) $2.5 billion investment to extend the Spence mine's life to more than 50 years. During 2017, most drilling was carried out during the March and December quarters, with drill holes totalling 1,853 and 1,972, respectively. S&P said gold had been the most targeted commodity in terms of the number of holes with significant drill intervals, with silver and copper following closely. ↑Return to Index

Upheaval in Peru – New President faces uphill climb to 2021 (This article was written by Alex Emery and was published in BNamericas on 23 March, 2018)

Peruvians are hoping that newly sworn-in President Martín Vizcarra will put an end to months of bitter wrangling between branches of government that have stalled the economy. Investors and political insiders say that will be easier said than done. Vizcarra, a 55 year-old civil engineer, rose to power last year as the vice president and transport minister for Pedro Pablo Kuczynski, who resigned March 21 amid mounting corruption and influence-peddling scandals after just 20 months in office. Vizcarra, who had been serving as ambassador to Canada, returned to Peru early Friday after Kuczynski faced accusations that scandal-plagued construction firm Odebrecht hired his investment funds while he was a government official a decade ago. Kuczynski has denied any wrongdoing, accusing the opposition-controlled congress of not allowing him to govern. Later in the day, congress accepted Kuczynski's resignation and welcomed Vizcarra with a standing ovation. He was sworn in by the head of congress Luis Galarreta (pictured) to serve out the remainder of the term ending in July 2021. "To grow, our country must be more competitive," Vizcarra said in his inaugural speech. "We will foment private investment and construction of infrastructure will be a priority for our government, especially as we have a pending reconstruction that is urgent to carry out." Vizcarra urged lawmakers to work with him to fight corruption, ensure credible democratic institutions and spur economic growth. "This is the moment to come together as Peruvians, standing firm and optimistic amid the challenges awaiting us," Keiko Fujimori the leader of the largest opposition party, Fuerza Popular, tweeted shortly afterwards. "Personally, and from the FP, we wish President Vizcarra success in the administration he begins today." Fujimori, who lost the 2016 presidential election to Kuczynski by the thinnest of margins, never congratulated the outgoing head of state on his victory, and was in fact a driving force in the congressional opposition that forced him to resign. Next Steps One of Vizcarra's first tasks will be to mend fences with the 130-strong congress and name a new 19-member cabinet before setting out to regain investor confidence. A close ally of Kuczynski, Vizcarra has had a thorny relationship with congress, which forced him to resign as transport and communications minister last May on accusations that a contract to build an airport in Chinchero, Cusco, was unfavourable to the state. The government later scrapped the contract and assumed the airport construction as a state project. Overall, billions of dollars in infrastructure projects remain suspended, including a natural gas pipeline, highways and irrigation projects, many of them awarded to Odebrecht.

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 22

"Vizcarra is likely to face a number of the challenges that confronted Kuczynski – primarily a highly obstructive congress," Diego Moyas-Ocampos, an analyst at UK consulting firm IHS Markit, wrote in a report. "This could involve the blocking of key legislation and motions to censor ministers, as well as new allegations of corruption." Vizcarra also faces the urgent reboot of a 26bn-sol (US$8bn) flooding reconstruction program, widely criticized for running behind schedule. Widespread floods, torrential rains and landslides caused by El Niño phenomenon in 1Q17 left at least 163 dead and 291,000 homeless, and caused billions in damage to roads, railways, power plants, schools and hospitals, mainly along the north coast. "It's comprehensible that there are doubts about the time it could take for the continuity of public works given the restructuring of the executive," Lima regional government president Nelson Chui told state news agency Andina. "The new president's experience in public administration and his democratic credentials will help to restart work, correct mistakes and make necessary improvements." Mining In Vizcarra's favour is his investor-friendly track-record as former president of the Moquegua regional government, when he campaigned to advance Anglo American's Quellaveco copper project in his region. The new president will also benefit from the headwinds of global growth, which spurred a rally in metals markets over the past 12 months, boosting Peru's exports 21% to a five-year high of US$44.9bn in 2017. Surging copper, zinc and lead prices increased metals export revenue 24.7% to a record US$27.2bn. Peru, the world's second largest copper and silver producer, is counting on the mining industry to start work on over US$11bn in new projects this year. "The challenge for our authorities is to recover the leadership and trust of the population and guarantee institutionalism," the Peruvian mining association (SNMPE) said in a statement. "We must overcome the uncertainty that has reigned in recent months." While ratings agencies Standard & Poor's, Moody's and Fitch Ratings said the resignation wouldn't affect Peru's investment grade rating, the country has seen economic growth slow to 2.5% last year from 3.9% in 2016 as companies postpone investment decisions. Major infrastructure projects including line No. 2 of the Lima metro and the Lima airport expansion are years behind schedule as companies battle bureaucratic obstacles and lengthy permitting processes. "The damage is done. The government didn't know what to do," political analyst Fernando Tuesta said. "The uncertainty has kept business executives from making decisions." ↑Return to Index

(This article was written by Beryl Seiler and Ben Raderstorf and was published in www.americasquarterly.org on 9 March, 2018)

Chile’s President Bachelet leaves office after a second term widely seen as disappointing. But her influence was more transformative than many recognize. To live by approval ratings is to die by them. No Latin American head of state has seen this as clearly as Chile’s Michelle Bachelet, who leaves office March 11 after her second (non-consecutive) term in office. When Bachelet left office the first time, in 2010, her approval ratings soared above 80 percent. That popularity helped carry her back into office in 2014, winning by the largest margin in Chile’s post-dictatorship history. But in the time since, corruption scandals, an economy dragged down by low copper prices and unmet expectations quickly weighed on her poll numbers, which at times dropped below 20 percent. Her cabinet was often dysfunctional, and many of her most ambitious ideas – such as a new constitution and badly needed pension reform – never got off the ground. Voters’ overall impression was of messy politics hobbled by squabbling and poor governance. She has since bounced back a small amount, and limps out of office with the support of approximately four in 10 Chileans. This arc has created a common narrative that her second term represented disappointment, if not failure. To The Economist, it has been “frustrating.” The Chicago Tribune described the electorate as “disillusioned” with politics. U.S. News & World Report called hers a “mixed legacy.” Certainly Chilean voters report negative sentiments – a February poll found that 57 percent feel she leaves the country no better off than she found it in 2014. But there are reasons to think that Bachelet deserves more credit than given by voters and analysts, and that her legacy will be more enduring than her poll numbers would suggest.

Opinion: Michelle Bachelet’s underappreciated legacy in Chile

www.alabc.com.au

Newsletter of the Australia-Latin America Business Council Page 23

She entered her second term with promises to reduce income disparity and reform the education system after a series of student-led protests pressured the government to take action. Although expectations were, in retrospect, probably impossible to meet, her efforts still yielded real results. As part of a fundamental reform of the country’s voucher-heavy education system, she banned for-profit institutions in primary and secondary schools. At the university level, her reforms did not live up to the promise of “free university for all,” but they did deliver it for the bottom 60 percent of households. True, there are many ongoing faults and criticisms. Universities, for example, are worried about declining educational quality and some experts argue that a major investment would have been better spent on early childhood education rather than university. Still, the progress in responding to the demands of the student protests is hard to ignore. In part to pay for this expansion of public education, and in part to address the second-highest inequality rate in the OECD, Bachelet also pushed through a comprehensive tax reform package. Above all, the reform made the tax code more progressive, raising taxes on corporations and top earners. The top 1 percent, for example, saw their average taxes rise by almost 50 percent according to the World Bank. The reform also removed opportunities for tax evasion and implemented new excise taxes on tobacco, alcohol and sugary drinks, and “green taxes” on carbon and motor vehicles – part of the reason Chile is now a regional leader in renewable energy, with half of Latin America’s installed solar capacity. To be sure, one of the most enduring criticisms of the Bachelet government is that the tax reform killed investment and slowed the economy. Economic growth averaged less than 2 percent a year through the course of her second term, compared to over 5 percent under her predecessor. But while critics blame the complexity of the new tax rules, external factors such as the fall in copper prices may be more responsible. Indeed, neighbouring economies such as Brazil and Argentina have fared even worse over the same period, and Peru and Colombia performed only marginally better. And now that copper prices are rising, the economy is accelerating again. Moreover, regardless if one agrees with Bachelet’s progressive politics, the tax reform – together with labour reforms that strengthened union rights and collective bargaining – arguably represents a seismic shift in Chile’s approach to inequality. Bachelet – who is the only remaining female president in the Americas – also leaves behind a legacy as a regional leader who shifted the conversation and moved the national consensus on gender and identity. In 2016, the administration created a Ministry of Women and Gender Equality to address issues of gender disparities and discrimination. After decades of antiquated restrictions, she spearheaded a landmark decision to decriminalize abortion under three circumstances against powerful opposition from the church and right-wing parties. Bachelet was also an advocate for same-sex couples, passed a law allowing civil unions, and proposed a marriage equality bill. All told, Bachelet’s second government was arguably the most impactful – in a purely ideological sense, for good or ill – of any in Chile’s post-dictatorship history. But her real legacy may be apolitical. First, the 2015 electoral reform, although often not recognized as part of her reform agenda, effectively remade how Chile’s congress is elected, moving from the Pinochet-era binomial system (where each district elected the top two vote-getters, effectively guaranteeing two-party dominance) to a more proportional and representative system. Most importantly, the reform dramatically lowers the barriers to entry for small parties. This will hopefully have a transformative impact on politics, making elections more responsive and dynamic. Eventually, the new system may also help stem the sense of discontent with what Bachelet called the “permanent draw” between centre-left and centre-right, which had resulted in of declining party affiliation and rising abstention. And most importantly of all, the buck stopped with Bachelet when it came to the biggest crises of her second term: corruption. When confronted with a wave of destabilizing conflict of interest scandals implicating actors on all sides of the political spectrum, including her own son, she tackled the problem with a systematic, sober and (critically) bipartisan presidential commission headed by economist Eduardo Engel to propose ethics and campaign finance reforms. To date, 63 percent of the commission’s slate of 236 recommendations has been enacted. Bachelet could have responded to the scandals with a political dogfight. Instead, she pursued a consensus response. In doing so, Bachelet arguably ended up taking most of the public blame for corruption – but was also able to guarantee meaningful progress against structural corruption. According to a poll in 2016, 60 percent of Chileans believe that these measures could restore trust in politics. With any luck, the commission and its reforms are likely to become an example for other countries in Latin America. When she exits La Moneda for the second and almost certainly last time on Sunday, Michelle Bachelet will leave a legacy that is in the end defined by how one keeps score. Relative to expectations, her tenure has surely been disappointing. In terms of longevity, the jury is still out – her successor Sebastián Piñera has pledged to leave some of her reforms in place, but just how much he changes is uncertain. But in absolute terms? The sheer scale of her impact over four years is important to recognize. More than anything, her disappointments are perhaps a product of her own lofty ambitions. Maybe that alone is a positive reflection on her legacy. To focus on the parts of Bachelet’s agenda that were not realized, instead of the many successes, would be to punish boldness, creativity and a reformist approach to politics. In a moment of widespread political and institutional stagnation, that’s the last thing that Chile – and Latin America – needs. ↑Return to Index