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Latin America Outlook 2011Valve Manufacturers Association of America

Ritz – Carlton Hotel

Phoenix, Arizona

January 24-25, 2011

José Luis Vittor

Partner

McDermott, Will & Emery, LLP

Houston, Texas

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Latin America Outlook 2011

– Section 1: Introduction

– Section 2: Regional Outlook

– Section 3: Country Outlooks

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Countries in Latin America have managed to resist the global economic and financial crisis more

successfully than in many other regions of the world. Similarly, they are showing relatively faster signs of

recovery. Economic growth in the region is expected to be stronger than in most OECD countries in 2010,

… [and] improved macroeconomic management contributed to Latin America’s economic resilience.”http://www.latameconomy.org/fileadmin/uploads/laeo/Documents/E-book_LEo2011-EN_entier.pdf

The United Nations Economic Commission for Latin America and the Caribbean (CEPAL) predicted 4.2

percent regional 2011 economic growth after 6 percent growth in 2010, with such countries as Argentina,

Brazil, Chile and Peru all expected to exceed the regional average.

http://www.bloomberg.com/news/2010-12-13/latin-america-economies-may-grow-4-2-in-2011-un-says-

update1-.html

The Inter-American Development Bank predicted 11 percent 2011 growth in regional exports compared to

an extremely high 23 percent surge in 2010. In 2010 trade within the Mercosur bloc of Argentina, Brazil,

Paraguay and Uruguay increased 41 percent, while regional exports to China grew almost 50 percent in

2010, from a year earlier. http://www.businessweek.com/news/2010-12-10/latin-american-export-growth-

to-slow-in-2011-idb-says.html

http://www.latameconomy.org/fileadmin/uploads/laeo/Documents/E-book_LEo2011-EN_entier.pdf





http://www.bloomberg.com/news/2010-12-13/latin-america-economies-may-grow-4-2-in-2011-un-says-update1-.html





























http://www.businessweek.com/news/2010-12-10/latin-american-export-growth-to-slow-in-2011-idb-says.html























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Non traditional players

Brazil

India

China

– China is sailing up as a major force in Latin American mergers and acquisitions. Last year, China accounted for the

third-largest origin of acquirer companies involved in Latin America’s 100 largest deals, according to a Latin Business

Chronicle analysis of data from Thompson Reuters. That put it ahead of US and Spanish companies and only behind

Brazilian and Mexican companies.

– Chinese oil giant Sinopec acquired Brazil assets of Spain’s Repsol for $7.1 billion and US-based Occidental’s

Argentina E&P assets for $2.5 billion. Meanwhile, Chinese chemicals company Sinochem acquired 40 percent of the

Peregrino oil field project in Brazil for $3 billion, while the State Grid Corp. of China acquired several Brazilian power

firms for $1.7 billion.

– America Movil’s $27.4 billion acquisition of 100% of the stock of Carso Global Telecom-both companies controlled by

Mexican mogul Carlos Slim-tops the sixth annual ranking of Latin America’s Top 100 Mergers & Acquisitions from

Latin Business Chronicle and Thompson Reuters. It also ranked as the world’s largest deal last year, according to

Thompson Reuters.

Source: Latin America M&A’s: China Surges (www.latinbusinesschronicle.com)

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Power: need for new generation and transmission infrastructure (US$600 billion in new power investments through 2030).

Power demand, most notably in Peru, Brazil and Chile is set to keep pace with, if not outstrip, GDP.

Renewable and energy efficiency.

Thermoelectric from coal will not lose favor.

Central American power grids (Siepac) interconnection and diversification introducing natural gas.

Hydro: preliminary works set to begin at Brazil’s 11.3 GW Belo Monte, Colombia’s 2.4GW Ituango, and Ecuador’s 1.5. GW Coca Codo Sinclair in spite of NGO’s resistance.

Source: www.BNamericas.com/web/outlook/2011

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Latin American Outlook 2011

Oil & Gas: Politics and Country.

Strong International Sector Participation (Colombia, Peru and Brazil).

New policies and models (Mexico, Ecuador, Bolivia and Venezuela).

Drilling expected to start in Trinidad & Tobago, Guyana, Suriname and Paraguay.

Non conventional gas expected to grow (Colombia, Argentina).

Still attractive to LNG market.

Chinese presence increasing (Sinopec- Repsol; Sinopec- Oxy; CNOOC-Bridas; CNOOC- BP).

Source: www.BNamericas.com/web/outlook/2011

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Infrastructure: Key to growth and competitiveness.

Region projects to invest just over $450 billion in 2011-2015.

Project funding source provided by multilaterals (CAF,IADB, WB) or governments.

China new funding player.

Leading Sectors through 2015: Water, wastewater infrastructure investment to reach $17billion.

Transport $43.6 billion.

Ports and Logistics: $12.9 billion.

Urban Mass Transit: $12.6 billion.

Source: Water World.seehttp://www.waterworld.com/index/display/article-display/4031667154/articles/waterworld/world-regions/latin-america/2010/04/Water-wastewater-infrastructure-investment-in-Latin-America-to-top-17B-by-2015.html


Water and Wastewater Treatment:

Water quality issues (Chile and Uruguay best rated)

Water treatment plants costly, sector suffers a chronic lack of access to financing

First priority is service coverage for distribution of potable water, and only when

covered, water utilities consider wastewater treatment plants (Chile has attractive

regulatory and business model and wastewater treatment level comparable to US

and Northern Europe)

Argentina closed doors to foreign private sector, Peru offers opportunities under

the concession model to support state-run service providers.

Brazil collects around 50% of sewage , but no more than 32% of the collected

water is treated.

Mexico is expected to deploy significant amount of projects in the sector .Source: Business News Americas and World Bank – Infrastructure Intelligence Series

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Argentina

Population: 40,134,425

GDP: $307.155 Billion

Elections will be held in 2011

Market Entry Strategy

– Close personal relationships are important.

– U.S. Companies typically market their products

and services through Argentine agents,

representatives and distributors.

– Companies are encouraged to visit or exhibit at

local and regional trade shows.

Source: United States of America Department of Commerce

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Argentina

Leading Sectors for U.S. Export and Investment

– Agricultural Machinery Parts and Irrigation Equipment

– Building Products and Renewable Energy Equipment for Green Buildings

– Food Processing & Packaging Equipment and Parts

– Medical Equipment, Instruments and Supplies

– Security Equipment

– Travel & Tourism

– Education Services

– Information & Communication Technology

– Mining Machinery & Equipment

– Sporting Goods


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Argentina

The domestic economy continued to expand and isconsolidating its growth path, supported mainly by privatesector consumption, strengthened by a range of factors and rising external demands.

Corporate investment is also rising as a consequence of sustained growth in domestic and foreign demand and continuous improvement in economic outlook.

Exports of goods continued to grow at a high rate, prolongingthe growth phase that began in the second half of 2009.

Key elections


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Argentina

Distribution and Sales Channels

– Ninety percent of the Argentine population is concentrated in urban

areas, with over 40% living in Buenos Aires and its suburbs.

– Large firms generally buy directly from overseas supplies, while

smaller firms prefer to buy through intermediaries.

– Industrial equipment is sold by sales agents through trade fairs, while

consumer goods are increasingly sold through large outlets such as

supermarkets.


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Argentina

Selling Factors/Techniques

– The United States continues to be one of Argentina’s top trading partners.

– Success requires taking the time to develop a close personal relationship with the representative, agent or distributor.

– Always use a professional translator, and if possible, have a native Argentine speaker, review any materials before using them in the Argentine market.

– Price and financing terms have become increasingly important selling factors.


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Brazil


GDP: $1.573 Trillion

Elections held in 2010


– Business culture based on personal relationships.

– Companies need to have a strong presence and invest time in developing relationships.

– Important to meet one on one with potential partners or clients.


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Brazil


– Agriculture Equipment

– Aircraft parts and Aviation

– Airports

– Telecom Equipment and Services

– Transportation

– Insurance

– Electrical Power

– Safety and Security

– Oil and Gas

– Environmental Technologies

– Mining

– Computer Software

– Drugs and Pharmaceuticals

– Medical Equipment


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Brazil

With major infrastructure needs, Brazil offers substantial opportunities for private equity investments and construction projects in transportation (ports, roadways, airports, railways, shipping) and energy (oil and gas offshore production, as well as such renewable energy sources as hydro, wind, solar and biofuels).

China, India, the U.S., Norway and the Asia-Pacific countries are major investment sources, although a tax increase on foreign investment is a possible concern.

There is also a new oil and gas regulatory framework that includes an emphasis on local content in projects. Overall, however, the incumbent government is expected to continue positive economic policies.


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Brazil


– All of the customary import channels exist in Brazil: agents, distributors, import houses, trading companies, subsidiaries and branches of foreign firms.

– Brazilian importers generally do not maintain inventory of capital equipment, spare parts or raw materials, partly because of high import an storage costs.

– Recently, because of the creating of additional bonded warehouses, industries that rely heavily on imported components and parts are maintaining larger inventories in these warehouses.


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Brazil


– Price and payment terms are extremely important sales factors.

– U.S. companies should adapt their products to local technical

requirements and culture.

– Competing with an ever increasing amount of Chinese imports can be

difficult because of their lower price; therefore, emphasizing product

quality, customer service, and warranty terms are key factors for U.S.

companies.


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Chile



No elections in 2011


– Establish a local subsidiary or

branch office in Chile is easier than

in other jurisdictions.

– Appoint an agent or representative

with good access to relevant buyers

and solid technical expertise.


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Chile


– Electric Power Equipment

– Construction

– Mining Equipment

– Financial Services

– Healthcare/Medical Equipment

– Computer Hardware/Software/Services

– Food Processing/Packaging Equipment

– Telecommunications Sector

– Pollution Control Equipment

– Travel and Tourism Services

– Franchising


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Chile


– Establishing a local subsidiary or branch office in Chile offers would-be

exporters the best guarantee of efficient service and appropriate

product promotion.

– A practical and more common market entry strategy, especially for

new to market exporters, is appointing an agent or representative with

good access to relevant buyers and with solid expertise.

– Most manufacturing, trade and service activities in Chile are managed

from Santiago.


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Chile


– Depending on the product or service, price can be the key sales factor in Chile.

– Price-competitive products from places such as Taiwan, China or India often outsell more expensive European or North American products, especially in consumer product categories such as electronics, appliances and automobiles.

– Where product dependability becomes more important, (i.e., advanced electronics of heavy machinery) Chilean customers often prefer more expensive U.S. products.

– All sales materials should be in Spanish.


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Colombia



Elections held in 2010

Market Strategy:

– Focus on formality, personal relationships,

and trust when negotiating agreements and

contracts.

– Secure a representative in Colombia.

– Support your local partner’s marketing

efforts. Permanent contact.


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Colombia


– Oil and Gas Machinery and Services

– Plastic Materials and Resins

– Construction and Mining Equipment

– Telecommunications Equipment and Services

– Information Technology

– Safety and Security

– Automotive parts and Accessories

– Electrical Power Systems

– Travel and Tourism

– Building Materials

– Food Beverage Processing/Packaging Equipment

– Medical Equipment

– Pollution Control Equipment


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Colombia

Colombia has a clear legal framework that respects foreign

investment, which has been growing for the past five years.

The country’s economic fundamentals are strong and

support expansion in the infrastructure (roads, ports, airports,

water treatment), energy (oil and gas, electricity generation)

and mining sectors.

Although it is not anticipated that the general framework for

foreign investment will be changed, fears over revaluation of

the peso against the dollar might lead to currency

restrictions.Source: United States of America Department of Commerce

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Colombia


– Colombia offers a full range of sales channels to consumers, with various distribution methods.

– These methods range from traditional wholesalers selling to traditional shops which then sell to the public, to more sophisticated methods, such as large department stores located in malls, which are increasingly popular outlets.

– Most imported items are still purchased through agents and distributors, some large domestic manufacturing companies import goods directly.


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Colombia


– Quality, profitability, functionality, financing and price all play an

important role in the buying decision.

– After-sales service is significant, not only in the original buying

decision, but also in maintaining the sales relationship.

– U.S. supplies must either have their own representative with adequate

operations or obtain a Colombian representative who can offer

sufficient after-sales service.

– Free Trade Zones (15%income tax rate)

– Special systems of import-export to optimize tariffs and custom duties

for exports.Source: United States of America Department of Commerce

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Mexico





– Develop and maintain close personal relationships.

– Direct Communication is important.

– Mexican companies are extremely price conscious and tend to desire exclusive agreements.


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Mexico


– Agribusiness

– Automotive Parts and Supplies

– Education Training and Services

– Energy Sector

– Environmental Sector

– Franchising Sector

– Hotel and Restaurant Equipment

– Housing and Construction

– Internet and IT Services

– Packaging Equipment

– Security and Safety Equipment and Services

– Telecommunications Equipment

– Transportation Infrastructure Equipment and Services

– Agricultural Sector


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Mexico


– Most Mexican companies, regardless of their geographic proximity to

Laredo/Nuevo Laredo, prefer having their good shipped through this

point because the customs agents and customs brokers there are the

most experienced.

– President Calderon has enacted an aggressive program to improve

Mexico’s infrastructure, giving priority to the constructions of new

highways and modernization of existing roads to create an efficient

road network across the nation.


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Mexico


– In addition to developing strong working relationships with Mexican

partners, U.S. firms should use Spanish-language materials and speak

Spanish whenever possible while doing business in Mexico.

– Hiring local staff can help facilitate these relationships and provide

U.S. companies with insight on selling to the Mexican market.

– Pemex is considering new model contracts and currently plans to visit

the US to introduce the new regime


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Peru





– Appoint local representatives to investigate market opportunities and to establish sales networks.

– US –Peru Free Trade Agreement.


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Peru


– Mining Industry Equipment

– Plastic Materials & Resins

– Construction Equipment

– Industrial Chemicals

– Oil & Gas Field Machinery

– Telecommunications Equipment

– Pumps, Valves & Compressors

– Air Conditioning & Refrigeration Equipment

– Computers & Peripherals


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Peru

The oil & gas and general energy sectors are both expanding

considerably, and there is substantial investment in infrastructure

projects, from public works (transportation, sanitation, hospitals) to oil &

gas, mining and power generation projects.

Most investment is coming from Asia and from other countries in the

region, with less coming from the US and Europe.

Potential changes in tax legislation.


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Peru


– The most common method of distribution is the appointment of a qualified

representative. Appointing an agent or distributor is advisable for companies

seeking to develop a market on a sustained basis.

– Decentralization of government budgeting and spending authority can make

completing sales more challenging, especially in municipalities or provinces

where government agencies may have limited experience in undertaking

public tenders or lack of financial procurement expertise.

– An alternative approach to distribution is to establish a local subsidiary or

branch office.


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Peru


– Product pricing is a key selling factor in the Peruvian market.

– Products from Asian countries often outsell more expensive European

and North American consumer products.

– Equipment performance and efficiency influence the decision-maker

when purchasing capital goods.

– Many of the larger representatives have small regional offices in a few

additional cities outside of Lima.



Political risks

Labor issues

Intellectual Property

Taxes (Federal, state, local, remember?) Treaty Network

Corporate presence not always required

Distribution & Customs

Trade Agreements and BIT’S

ADR: ICSID- New York Convention

Compliance

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CONCLUSIONS

Conclusions

Region poised to grow

Real opportunities and long term potential

Proper advise getting in could facilitate exit strategy

Local partner always important but key in certain markets

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QUESTIONS & ANSWERS

Q & A

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Jose Luis Vittor focuses his practice on business law, including commercial and corporate transactions, public and

private partnerships, infrastructure and other project development and finance transactions, securities, real estate

transactions and international arbitration.

José Luis provides counsel and representation to some of the world’s largest banks and corporations, corporate

boards and top management in commercial and corporate transactions, privatizations, project development and

finance, cross-border banking, mergers and acquisitions, and direct foreign investments in Latin America, Europe,

Asia and the United States.

José Luis is a former president and a member of the board of the Instituto Argentino del Petroleo y del Gas, Houston

(IAPGH), an independent business relations trade organization comprised of multinational energy companies.

José Luis is a member of the Buenos Aires Bar Association and the International Bar Association, and is a founder

member of the Society of British and Argentine Lawyers. José Luis is admitted to practice in Argentina and is a

Foreign Legal Consultant with the state of Texas. Jose Luis is a member of the International Advisory Board of the

Museum of Modern Art in Sao Paulo, Brazil.

[email protected] Tel: 713 653 1702

Cell: 832-867-9957

mailto:[email protected]

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