Vazquez Air New Zealand to fly direct to Buenos Aires from ... · Air New Zealand to fly direct to...

Air New Zealand to fly direct to Buenos Aires from December 2015 On December 12, Air New Zealand announced that it will launch direct flights between Auckland and Buenos Aires - the airline’s first ever scheduled service to South America. An Air New Zealand Boeing 777-200 aircraft will operate three return services a week on the route all year round. Air New Zealand Chief Executive Officer Christopher Luxon (pictured) said that the new destination, the airline’s 28th international port, opens up an exciting new world for travellers from both New Zealand and Australia. “South America was once the domain of the intrepid explorer, but the direct service to Buenos Aires, with a flight time of around 12 hours, means a quick and action packed getaway is now a reality. “Buenos Aires is the most popular tourist city in South America and is a perfect stepping stone for those who then want to explore the country, or continent, further.” “We’ve been very clear about our aspirations for growth in the Pacific Rim. Our flights to Singapore commence next month and this new route to Buenos Aires further strengthens our network in the Pacific Rim. Argentina is an exciting new destination for New Zealanders, and with seamless one-stop connectivity through Auckland it will provide a fantastic opportunity for Australians as well.”

The service will also enable Argentineans to travel directly to New Zealand and then on to Australia on Air New Zealand’s extensive trans-Tasman network, or to Singapore and South East Asia. Air New Zealand will enter into a code share agreement with Aerolíneas Argentinas, subject to obtaining regulatory approvals, which will see Aerolíneas Argentinas’

code return to the South Pacific market on the new route and on key connecting Trans-Tasman services, and Air New Zealand will code share on Aerolíneas Argentinas’ services to Brazil. “We are particularly excited that Aerolíneas Argentinas has agreed to support the service with code share, which we expect to help further stimulate tourism to New Zealand from this rugby loving nation,” said Mr Luxon. Flights will commence in December 2015, with tickets on sale in March, subject to obtaining necessary approvals. ↑Return to Index

This issue (Click on each heading to open article)

Air New Zealand to fly to South America in late 2015 1

Latam Autos debuts on ASX 3

Ministers Bishop and Robb visit South America 4

Mexico on radar of Australia’s sheep meat sector 5

UQ offers minor in Latin American Studies 5

Coverage of Australia-Chile Economic Leadership Forum 6

Chairman’s message 7

Economic Snapshot of Latin America 8

World Bank opts for Chile for first R&D centre in Latin America10

Brazil gains momentum as regional R&D hub 10

Mexico emerges as tech and entrepreneurial hotspot 12

Colombia’s $50bn infrastructure needs 13

Latin American airport traffic to soar 14

Opinion: Australia and Chile as regional platforms 15

Opinion: Cuba’s economy at the crossroads 17

Waiting for change in Argentina 18

Peru’s tax cuts to spur investment 19

Mexican mining after the tax reforms 20

Brazilians brace for austerity 21

Vazquez win cements rule of Uruguayan leftists 22

Income gap shrinks in Chile 22

Tracking Mexico’s energy reforms 24

For the diary 26

Edition: December, 2014

Newsletter of the Australia-Latin America Business Council

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Latam Autos debuts on ASX December 17 saw the ASX listing of Latam Autos Limited, a dedicated online auto classifieds and content platform with operations in six countries in Latin America - Argentina, Mexico, Ecuador, Peru, Panama and Bolivia. The South American headquarters of the company are located in Quito, Ecuador, and the Company’s CEO is highly experienced digital media executive and renowned South American businessman Jorge Mejia Ribadeneira.

According to Tim Handley, the company’s co-founder, six of the 14 pure-play online classified sites listed globally are Australian. “Australian investors really understand the power of the business model’’ says Handley. “This is mainly due to the success of Seek, Realestate and Carsales, which have now become global.’’ LatAm hopes to be the next online force, having closed its $18 million initial public offer on December 12, ahead of the ASX debut. Handley said the underwritten raising, which did not have a general retail component, was “well supported.’’

As with the Carsales-backed iCar Asia which listed in 2012, LatAm’s spiel highlights the appeal of populous geographies where car ownership is increasing but online penetration is still in its infancy. “You can think of it as being 10 years behind Australia,’’ Handley says. Across the combined population of 222 million people in the six countries where LatAm currently operates, car numbers have been growing at a compound rate of 5 per cent over the past seven years. In Mexico, the growth has been 20 per cent. Put another way, for every 1000 people there are 150 to 200 vehicles, compared with 750 in Australia. The Latin American auto appeal has not been lost on Carsales, which in early 2013 paid $90m for 30 per cent of WebMotors Brazil, the World Cup host’s biggest car classifieds site. “Outside of Ecuador there’s no dominant player,’’ Handley says. “No one has attacked the auto vertical with a well-funded strategy.’’ Ironically, close to one-third of LatAm’s revenues derive from the old world: an Argentinian print magazine called Auto Focus. “Over time, magazine revenue is decreasing and moving online,’’ Handley says. Not coincidentally, all of the target countries are Spanish-speaking, which helps when it comes to joint marketing and administrative cohesion. Unlike Carsales, LatAm doesn’t see the appeal of Portuguese-speaking Brazil — easily the region’s biggest car market, but also highly competitive. A former investment banker, the Sao Paulo-based Handley founded LatAm with fellow deal maker Gareth Bannan. Through their involvement with the sale of Pacific Hydro, the duo became acquainted with AFL chairman and infrastructure guru Mike Fitzpatrick. A foundation investor in LatAm, Fitzpatrick will emerge with a 14 per cent holding after investing a further $2m via the IPO. Simon Clausen, co-founder of Freelancer.com, will hold 8 per cent after pitching in $3m. Joining Fitzpatrick and Clausen on the board is Colin Galbraith, a current Arrium director and former CBA board member. LatAm does not expect positive cash flow until at least 2017. ↑Return to Index



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Ministers Julie Bishop and Andrew Robb visit South America The Minister for Foreign Affairs, Julie Bishop, and the Minister for Trade and Investment, Andrew Robb, visited South America this month. Minister Bishop travelled to Lima to attend the United Nations Climate Change Conference, at which Australia pledged $200 million over four years to the Green Climate Fund, as its contribution to the global response to climate change. The pledge to the Green Climate Fund will facilitate private sector led economic growth in the Indo-Pacific region with a particular focus on investment in infrastructure, energy, forestry (building on the successful Asia Pacific Rainforest Summit hosted in Sydney in November) and emissions reduction programmes. She was joined in Lima by Minister Robb, whose visit to the region also included Brazil and Chile. Mr Robb’s trip was aimed primarily at promoting bilateral trade and investment, and at exploring ways to enhance Australia’s engagement in the region. Whilst in Lima, Minister Bishop officially opened Australia’s Embassy, which has been operating since 2010. The event was marked by a reception at the residence of Australian Ambassador, Mick McCaffrey, attended by both Ministers and important members of the Peruvian political and business sectors. Also present was Council on Australia Latin America Relations (COALAR) chairman, Chris Gale, and many representatives from the growing number of Australian companies with operations in Peru. Peru was represented at the reception by the Deputy Minister of Foreign Affairs and former Ambassador to Australia, Claudio de la Puente.

Prior to his arrival in Lima, Minister Robb visited Rio de Janeiro to participate in the COALAR-supported Water-Food-Energy Nexus Seminar and to meet with Brazilian and Australian businesses operating in Brazil to identify ways to support and increase economic engagement between Australia and the world’s seventh-largest and fellow G20 economy. In Chile, Minister Robb attended the inaugural Australia-Chile Economic Leadership Forum, where he delivered the keynote address. The Forum explored avenues to further expand what is Australia’s most dynamic and mature economic partnership in South America. Minister Robb also met with a number of Chilean Ministers and signed a minor amendment to the Australia-Chile Free Trade Agreement, Australia’s first FTA with a Latin American country. “Australia’s economic relations with Brazil, Peru and Chile are well-established, with strong foundations in mining and agricultural cooperation and collaboration. Australia is also fast becoming a sought-after destination

for Brazilian, Peruvian and Chilean students, welcoming more than 21,000 to Australia in 2013,” Mr Robb said. “Over the past decade, Australia’s trade and investment relationship with South America has increased significantly. In 2013, the bilateral trade in goods and services with Brazil, Peru and Chile was worth more than $4 billion and the bilateral investment relationship was estimated to be worth more than $20 billion, which is a good foundation for further growth,” he said. ↑Return to Index

Minister Bishop surrounded by staff of the Australian Embassy in Lima.

Ministers Bishop and Robb, Peru’s Deputy Minister of Foreign Affairs, Claudio de la Puente, and Australian

Ambassador, Nick McCaffrey



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Mexico is on the radar of Australia’s sheep meat sector

The Sheepmeat Council of Australia and the Mexican sheep producers organisation, Organismo de la Unidad Nacional de Ovinocultores, have signed a Memorandum of Understanding (MoU) on sheepmeat co-operation. The MoU, which was supported by Meat and Livestock Australia and Beef and Lamb New Zealand, recognises that the sheepmeat industries of Australia, New Zealand and Mexico share a goal of building sheepmeat demand globally.

They have common objectives including animal health and welfare, food safety, environmental sustainability and industry profitability. In-coming council president Jeff Murray said the agreement will benefit producers in all three countries. "By working with the Mexican industry, Australia and New Zealand can help grow their domestic production and increase the consumption of sheepmeat," Mr Murray said. "It's a win-win for all parties.” "All three countries see great opportunities in the sheepmeat industry. The signing of the MoU is an important statement that recognises some of our common objectives."

The agreement outlines areas where co-operation could bring mutual benefits, including sharing results of the organisations' respective animal production research and development work. Each organisation could share information on their respective approaches to industry systems, including food safety, animal traceability, marketing and promotion, their experiences of building demand for meat products, and information on global sheepmeat market developments. Beef and Lamb NZ director Andrew Fox said working together could achieve considerable advantages. "The Australian and NZ sheepmeat industries are seeking to build relationships with producer organisations around the world," Mr Fox said. "The reality is sheepmeat faces strong competition in the marketplace from other protein sources. It is important the sheepmeat industry works together to promote our premium product." Spokesperson for the Mexican organisation Juan de Dios Arteaga said the co-operative approach would help increase productivity

and demand for lamb, which would benefit all three countries. ↑Return to Index

Spanish Program paving the way for Latin American Studies in Queensland The University of Queensland recently announced the introduction of a Latin American Studies Minor in the Bachelor of Arts, Bachelor of Arts dual degrees and Diploma in Arts from Semester 1 2015. The Spanish Program in the School of Languages and Cultures at The University of Queensland has developed a minor in Latin American Studies, the only one in Queensland. The courses are offered in English and the Minor consists of four courses:

a Gateway: Cultures of Latin America

and a Cornerstone: Imagining Latin American in the 20th century

and two other courses: Magical Realism and Beyond: Contemporary Latin American Literature and Latin American Perspectives The Minor can be taken alongside any of student’s Majors as part of their BA (or other Bachelor degrees). Those students studying Spanish, can access it on to their Spanish Major or Extended Major so that they can graduate with a Major or Extended Major in Spanish with Latin American Studies. Full details of the course are available at: http://www.slccs.uq.edu.au/index.html?page=217365&pid=70701. ↑Return to Index


http://www.uq.edu.au/study/plan.html?acad_plan=LATINZ2320

http://www.slccs.uq.edu.au/index.html?page=217365&pid=70701


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Report on the inaugural Australia-Chile Economic Leadership Forum The inaugural Economic Leadership Forum “Australia-Chile: Asia-Pacific Regional Platforms” was held in Santiago on December 11 and 12. Organised by the Australian Embassy in Santiago and the Chile Australia Chamber of Commerce, the Forum proved to be a resounding success, having attracted the participation of the current Chilean president, two past presidents, about half a dozen

current government ministers, as well as prominent members of the Chilean business community. On the Australian side, the visiting delegation was led by the Minister for Trade and Investment, Andrew Robb, and featured business leaders from a variety of sectors. The Forum featured sessions that covered Australia’s and Chile’s shared interests in mining, energy, transport and logistics, water management, education and pension funds. All were very well attended and featured high profile speakers from both countries. The highlight of the two-day event was a dinner that featured President Michelle Bachelet as guest of honour. Amongst the Australian companies that supported and were

represented at the Forum were BHP Billiton, Pacific Hydro, Ausenco, Qantas, Origin Energy, Worley Parsons, Macquarie Graduate School of Management, the CSIRO and the University of Western Australia. Victoria’s Commissioner for the Americas, Michael Kapel, also attended. The ALABC supported the Forum and was represented by its chairman, Jose Blanco, who participated in the panel on Australia and Chile as regional platforms into their respective geographic markets. The Forum received wide coverage in the Chilean media and there is a strong likelihood that the Forum will be repeated in 2015 or 2016. One already known outcome of the Forum is that Chile will be sending a trade and investment-focused delegation to Australia in 2015 to promote greater awareness of the opportunities on offer in Chile and to generally build on the momentum generated by the Forum.

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Chairman’s Message As this is the last newsletter of the year, I would like to take this opportunity to extend season’s greetings to all of the members and supporters of the ALABC, praying that you all have a joyous Christmas and a safe and rewarding 2015. I would also like to thank all of you for your ongoing support of the ALABC during this, our 25

th anniversary year.

I spent the first half of December in Chile, meeting with friends and clients, attending the inaugural Economic Leadership Forum “Australia-Chile: Asia-Pacific Regional Platforms” and generally bringing myself up to date with current developments in a country that in all likelihood ranks as Australia’s closest ally in Latin America. That combination of activities and length of time in Santiago, served to reinforce in my thinking how far Australia has come in its relationship with Chile, how much we have in common with Chile - politically, economically and socially - and how much remains to be done if Australia is to extract full benefit from our relationship with a very worthy partner. By whatever measure we wish to apply, Chile represents the type of ally that Australia should seek to have throughout the world. Unfortunately, it does not always receive the acknowledgement that it deserves – primarily from our media and wider business community. There could not have been a better indicator of the depth of Chile’s desire to engage with Australia than its response to the inaugural Economic Leadership Forum, which sought to focus attention on sectors where Australia and Chile have shared interests, namely, mining, energy, transport and logistics, water management, education and pension funds. As is reported elsewhere in this newsletter, the Forum and related events attracted the participation of the current Chilean president, two past presidents (Ricardo Lagos and Eduardo Frei), about half a dozen current government ministers, as well as prominent members of the Chilean business community. It would have been unreasonable to expect anything more from the Chilean side. The work sessions that took place in relation to the abovementioned sectors reinforced the complementarity of our economies, highlighting some of the common challenges that we face and the ample scope that exists for us to work together and to learn from each other. Both during the Forum and in the daily media, it was evident that Australia and Chile are having to adjust to the post-mining boom and the consequent slower rate of growth. In both countries the debate is about cost reduction, innovation and increased productivity, and more. The many similarities that connect us suggest that there is still ample scope for us to increase trade and investment flows. There may be other markets that are geographically closer or less developed or have larger populations, but I believe that there are compelling reasons why Australia should continue with its efforts to strengthen our relationship with Chile. Strong friendships and strategic alliances should not be at the mercy of short-term economic cycles. More Australian companies should take a closer look at what Chile has to offer and we should strive to encourage Chilean companies to invest in Australia and to see us as a viable platform from which to access opportunities on offer in the Asia region. When it comes our turn to host the next Economic Leadership Forum or similar event, we should be ready to respond with something similar to the enthusiasm and commitment shown by the Chileans this month. Doing so will not be easy, because the focus of Australia’s attention is primarily northward, to Asia. However, in an increasingly volatile global marketplace, risk mitigation is of paramount importance and we cannot afford to place all of our bets on Asia. Chile deserves to be part of our strategy and also offers an enticing platform from which we can expand our dealings into Latin America. The evolution of Australia’s relationship with Chile is also an indicator of what can and should be done as regards our engagement with other markets in Latin America. The region is not without its challenges, but its potential is equally undeniable. Failure to explore and exploit the opportunities on offer will be to Australia’s detriment, as other competitors will fill the void and reap the benefits that could have been ours. One party may have come to an end and the next of its like may not come our way for many years, but in the interim, there is plenty to be done and rewards to be secured, and they are waiting for Australian business in Chile and other developing markets in Latin America. Take the time to understand these markets and you will be rewarded. Jose Blanco Chairman ↑Return to Index



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Economic Snapshot of Latin America (This article was written by Focus Economics and was published on December 9, 2014)

More complete data showed that growth in most Latin American economies bottomed out in the second quarter and that it is picking up slowly in the second half of the year. In the third quarter, the regional GDP estimate (excluding Venezuela which hasn’t yet published GDP figures for 2014) showed that the economy grew 0.7% year-on-year, which came in slightly above the 0.6% expansion observed in the second quarter. Economic growth in the majority of economies is gradually picking up. However, a contraction in Brazil and deteriorating economic activity in Chile and Argentina are weighing on the regional average. In Brazil, the economy contracted in annual terms for the second consecutive quarter in Q3. GDP decreased 0.2% year-on-year, which followed the 0.9% contraction registered in Q2. Quarter-on-quarter data, however, showed that the Brazilian economy exited recession, growing a paltry 0.1% in Q3. Meanwhile, economic growth in Chile slowed from a 1.9% increase in Q2 to a lacklustre 0.8% expansion in Q3, due to dampened domestic demand, particularly in investment. In Argentina, official data showed that GDP stagnated in the second quarter and more recent indicators point to a contraction in the third. After reaching a low point in Q2, regional growth is seen embarking on a gradual recovery path in 2015 in line with improving global economic activity, particularly in the United States. Meanwhile, most

currencies in Latin America have weakened in the past months in step with the global strengthening of the U.S. dollar. In recent days, however, most exchange rates in the region experienced high volatility, which was exacerbated by the recent sharp fall in oil prices. Clouds gather on the economic horizon The economic outlook for Latin America deteriorated again in December. This is the sixth consecutive month in which forecasters lowered the 2015 economic outlook. Analysts surveyed by

LatinFocus shaved off 0.3 percentage points from last month’s forecast and now expect GDP to expand 1.9% in 2015. This month’s downward revision stemmed from lower growth forecasts in all but two of the economies surveyed. The only country for which panellists left their growth estimates unchanged was Uruguay, whereas Bolivia was the only economy for which panellists raised their projections. Argentina and Venezuela saw sizeable cuts to their 2015 projections. Meanwhile, accumulating signs of weakness in Brazil and rising concerns that the government will not be able to rekindle growth have prompted economists to cut the country’s forecast. In Mexico, economic growth disappointed persistently throughout 2013 and 2014. Prospects of lower oil prices in 2015, along with increasing doubts about the capacity of the Mexican economy to reap the benefits of an upturn in the U.S. economy, are casting a shadow on the country’s promising economic forecasts. That said, most countries will experience faster growth next year than in 2014—only Bolivia, Colombia, Ecuador and Uruguay are expected to record slower growth next year—whereas the recession expected this year for Argentina and Venezuela is seen continuing in 2015. Improving economic performance across the region is forecast for 2016, when output is foreseen growing 3.0%. BRAZIL | Economy exits technical recession but weakness looms The Brazilian economy expanded a meagre 0.1% in the third quarter and exited the technical recession it entered in the first half of the year. However, the economy is still struggling and inflation remains high. In an effort to bolster confidence, President Dilma Rousseff appointed Joaquim Levy, an orthodox economist who has vowed to cut spending, as Finance Minister. Levy announced that he would target a 1.2% surplus in 2015, which would increase to above 2.0% in 2016 and 2017. However, Levy faces a large amount of rigidity in the budget since the vast majority of spending is attached to constitutionally mandated expenditure. Economists are doubtful that the government will be able to quickly rekindle economic growth and have cut their projections. LatinFocus Consensus Forecast panellists expect the economy to grow 0.2% in 2014. For 2015, panellists see growth at 0.7%, which is down 0.4 percentage points from last month’s forecast.



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MEXICO | Economic activity firms up in Q3, but political and social challenges lie ahead Mexico’s economy gained momentum in the third quarter. Agriculture recorded a strong increase and construction registered notable growth, which suggests that the sector began to recover from the slump observed in the six previous quarters. More recent data suggest that economic growth is firming up in the final quarter of the year. However, an outbreak of social unrest that has emerged in recent weeks could end up having knock-on effects on economic activity.

Massive protests in reaction to the Ayotzinapa tragedy in which 43 students were kidnapped and presumably murdered have gripped Mexico City and other major cities. The government has been criticized for its inability to respond to the crisis, which represents the most severe wave of social unrest since the Peña Nieto administration took office two years ago. The outlook for the economy remains positive, but downside risks to the growth forecast persist. LatinFocus panellists lowered Mexico’s growth forecast for 2015 from the 3.7% expected last month to 3.5%. In 2014, the panel sees economic growth at 2.3%. ARGENTINA | Economy to contract in Q3 following stagnation in Q2 Argentina’s economy has been showing further signs of deceleration since posting flat growth in

Q2. The monthly economic activity indicator contracted in August and September, while exports plummeted in October. The weak position of the Central Bank’s reserves has added to the negative economic environment. A narrowing trade surplus and the continued drop in investor confidence is putting pressure on reserves. Temporary relief has come from two instalments of a currency swap agreement between the government and China. As a result, reserves rose to USD 28.9 billion at the end of November. However, the unusually large debt obligations that the government faces in 2015 will put further pressure on reserve holdings. With presidential elections scheduled for Q4 2015 and the holdout saga unresolved, uncertainty regarding Argentina’s economic outlook persists. Negotiations between the government and holdouts will resume in January, when the so-called RUFO clause expires. However, an agreement with holdouts is not likely to come soon and macroeconomic imbalances are expected to continue next year. LatinFocus Consensus Forecast panellists see GDP dropping 1.1% in 2014. For 2015, the panel sees the economy contracting 0.7%, which is down 0.6 percentage points from last month’s forecast. VENEZUELA | Unstable economic situation and economic policy paralysis weigh on outlook The Venezuelan economy remains in the doldrums. The free fall of the bolivar accelerated in November due to strong purchases of U.S. dollars by Venezuelans in an attempt to shield themselves against skyrocketing inflation. Although President Nicolás Maduro announced that the government will revise the exchange rate mechanism, analysts are sceptical about the scope of the initiative and how successful it will actually be. Moreover, the sharp decline in oil prices observed in recent weeks is expected to put additional pressure on the country’s battered finances. According to some analysts, the country loses USD 700 million a year for every USD 1 decline in oil prices. In November, the government transferred about USD 4.0 billion to the Central Bank’s coffers

in order to shore up the country’s shrinking reserves, which hit an 11-year low in October. The economic climate is deteriorating sharply because of skyrocketing inflation, heterodox and interventionist policies, and falling oil prices. Against this backdrop, LatinFocus Consensus Forecast panellists shaved off 1.2 percentage points from last month’s projection and they now expect a 2.0% drop for 2015. For this year, the panel sees GDP falling 3.3%. INFLATION | Inflation closes 2014 at highest level in nearly two decades Inflation in Latin America is expected to close this year at 12.4% in 2014. If the current estimate is met, it will represent the highest inflation rate since 1996. Moreover, inflation expectations in Latin America continue rising,

mainly due to concerns of ballooning inflation prospects for Venezuela. On average, LatinFocus panellists expect the regional average to close 2015 at 12.0%, which is up 0.7 percentage points from last month’s estimate. In 2016, inflation is seen falling to 9.7%. Please click here to access the Full FocusEconomics Latin America Report ↑Return to Index


http://www.focus-economics.com/online-store/products/annual-subscription/latin-america


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World Bank opts for Chile for Latin America’s first Research & Development Centre

Chile’s Finance Minister, Alberto Arenas, and the World Bank Group (WBG), represented by its Vice President for Latin America and the Caribbean, Jorge Familiar, earlier this year signed a cooperation agreement to establish in Chile the first Research and Development Centre in Latin America, and the second outside Washington, DC. The Global Economic Development Indicator Centre is a pioneer initiative, which will start operating in the first quarter of 2015. The Centre, with a regional and global focus, will carry out an ambitious research program, anchored in the World Bank’s databases. “This is very good news for Chile, it reaffirms that the international community recognizes the value of its institutional stability and its capacity to design and implement public policies,” said Arenas. He added that “the signing of this agreement is a milestone in the strengthening of joint activities with the World Bank. We are confident that we will continue to develop this joint project for the benefit of Chile as well as other members of this corporation. “Chile is the WBG’s ideal partner for this initiative, as it has shown a tangible commitment with sharing its experience and knowledge of economic development. It will now be able to contribute more actively to the development of other member countries of the WBG,” said Familiar. The main studies and areas of work to be performed by the Research Centre include: - Doing Business: The study’s regional management and data collection at Latin

American country level, including Chile, will be performed from Santiago. This is an objective measurement of the guidelines regulating business activity and ease of doing business in 189 economies around the world.

- Chile’s Sub-National Doing Business: This study will conduct an in-depth analysis of the business environment in each region of Chile. The study is conducted at the request of interested parties and this is the first time it will be performed for Chile. It has already been conducted in countries such as Brazil, Mexico, Colombia, Italy and Indonesia.

- Women, Business and the Law: A report analysing the barriers faced by women when undertaking entrepreneurial and business activities. In the case of Chile, the Santiago Study Centre will analyse differences between the formal regulatory framework and its enforcement in practice, identifying existing gaps.

- Comparative Global Agricultural Business Environment Evaluation: this is a new World Bank study that seeks to apply the Doing Business methodology to specific sectors. It is expected that the Santiago Research Center will be able to actively contribute to the definition of this new study, as well as to apply it to maximize Chile’s agricultural sector.

- Enterprise Surveys: It will collect data for this company survey, the most complete of its type in the world, including data from more than 130,000 companies in 135 countries.

↑Return to Index

Brazil gains ground as international hub for research and development (This article was written by Joe Leahy and was published in The Financial Times on December 2, 2014)

It is easy to see why BG Group of the UK is an enthusiastic investor in Brazil. The company hit the landmark 100,000 barrels a day mark in October in its projects in Brazil and averaged 81,000 bpd during the third quarter, making the country its second-largest contributor after the UK. The strong promise of Brazil, in which the company has invested $8bn over two decades and plans to invest another $3bn annually in the coming years, has led it to base its chief technology officer Richard Moore in Rio de Janeiro. “We were prompted to come to Brazil by the success of our exploration activity here,” says Mr Moore, who has a PhD in sedimentology from the University of Leeds.



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BG Group and other international oil groups have been drawn to Brazil by the discovery of some of the largest offshore oilfields in recent history off the southeast coast. Known as the pre-salt, these fields lie 5km or more below the surface of the ocean, buried under a 2km layer of salt. Petrobras, the operator of the pre-salt fields and BG Group’s partner, says the average daily production of the pre-salt fields has risen 10-fold from 2010 until May this year, reaching 411,000 bpd. “This currently represents approximately 20 per cent of our total production, and in 2018 it is expected to reach 52 per cent of the company’s oil production,” Petrobras says. Just as the original discoveries were made possible only by sophisticated technology, so the exploitation of the pre-salt is requiring research into how to operate at depths that are equivalent to the height of a Himalayan mountain. The ultra-deep nature of the pre-salt wells means they face higher pressure and heat, while the salt causes greater corrosion. To handle the research requirements of the discoveries, Petrobras has set up a research centre near a technology park hosting most of its main partners and contractors. The park includes oil services provider Schlumberger, oil equipment, software and services supplier Baker Hughes, their rival Halliburton, underwater technology group FMC, specialist in pipes Tenaris Confab, BG

Group, as well as Siemens, General Electric and EMC. The presence of the research and development centres of these multinationals is attracting other partners, such as software services and consultancy firm, Capgemini, which is developing big data with EMC at the park. “We work together on the oil and gas sector,” says Walter Cappilati, head of the Latam region for Capgemini. BG Group is planning to open its global technology centre at the park next year, reinforcing its research base in Brazil. As a partner of Petrobras, with interests in five big discoveries and with five floating production, storage and offloading platforms in operation in Brazil, BG Group is obliged to invest 1 per cent of its revenue a year in R&D under local regulations. Mr Moore manages a global team of 40 in four countries from his base in Brazil. They are researching subjects such as the behaviour of carbonate rock reservoirs. These are notoriously tricky sedimentary rock formations that account for much of the pre-salt and

indeed global oilfields. “There are some excellent outcrops of carbonate rocks that are analogous to the pre-salt,” he says.



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The team also co-ordinates with universities in Brazil to harness their brainpower. The company is establishing a national centre for studying carbonate rock at the Federal University of Rio de Janeiro, for instance. “We are trying to create a world-class facility for understanding carbonate reservoirs,” says Mr Moore. BG Group is also working with a technical institute in the north-eastern state of Bahia, Senai Cimatec-BA, and another north-eastern educational facility, the Federal University of Rio Grande do Norte, in co-operation with Imperial College, London, and the University of British Columbia in Canada on a “full waveform inversion project”. The technology will allow scientists to build detailed images from 3D seismic data of underground geological formations, including the pre-salt oil reservoirs of the Santos Basin. Another project is a partnership between Imperial College and the universities of São Paulo and Campinas to study gases. In particular, the project is looking at capturing and reinjecting carbon dioxide into reservoirs to help production, along with other measures to mitigate greenhouse gases and harness them for productive purposes. “What we are doing is again leveraging the opportunity to address in a significant way a problem that is facing the whole industry,” says Mr Moore. ↑Return to Index

Mexico: The emerging tech and entrepreneurship community

(This article was written by Carla Holtze (CEO of Parrable) and was published in the Huffington Post on December 4, 2014)

During the week of November 12

th, Mexico City (also known as Distrito Federal or "DF") opened its doors to 54 investors,

entrepreneurs and civic leaders from the United States, Mexico and Colombia to kick off the first annual DF Tech Tour. The three-day event hosted by Angel Ventures Mexico and Start-up Mexico was designed to showcase the growing start-up community in Mexico City and escalate the dialogue around entrepreneurship.

For a country that graduates more than 118,000 engineers each year and with more than 80 institutions specializing in engineering, entrepreneurship represents hope and the prospects of upward mobility for many Mexicans. "Every society that's looking for a better future has positive and negative moments," said Enrique Jacob Rocha, President of INADEM, a government institution supporting entrepreneurship. "Mexico is going through a series of unfortunate events and Mexicans have to be very conscious to avoid this happening again. But the truth is that the Mexican economy is changing, thanks to the agents of change that are part of the entrepreneurial ecosystem."

Like the rest of Latin America, Mexico has caught the entrepreneurial bug. Today, there are 45 venture capital funds registered - up from only 2 funds in 2008 and 14 funds in 2012. The government has also stepped up and expects to spend around $1bn dollars funding entrepreneurial activities through 2018. Mexico has more than 100 incubators, more than 20 accelerators formalized and a crop of crowdfunding platforms that are sprouting up to meet the funding needs of aspiring entrepreneurs. "It's a perfect storm in Mexico today," said Diego Serebrisky, Managing Director at Alta Ventures, a $70mn dollar early-stage fund focused on Mexico. "A wave of entrepreneurship began about three years ago as young engineers and innovators began unleashing their vision to build new products and businesses." While traditionally Mexicans have been risk-averse to investing in early-stage businesses, attitudes are shifting as new venture funds and angel investment groups are raising funds to support emerging companies in the region. Angel Ventures Mexico, which was launched in 2008 and managed by Hernan Fernandez and Camilo Kejner, was created specifically to address this need - transforming high net worth individuals into Angel Investors and now inviting them into a Co-Investment Fund. The $20mn fund is designed not only to invest in companies at the seed-stage, but also to educate and create more sophisticated angel investors who have both the business acumen and technical expertise to help companies get off the ground. "Angel Ventures has been working to develop early stage capital in the country, closing the US$500K to US$2mn financing gap from," said Fernandez, co-Founder and Director of Angel Ventures Mexico. "It is a very different model from developed economies, since in Mexico very few entrepreneurs have had liquidity events and eventually become Angel Investors."



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The Mexican Government has played an integral role in supporting entrepreneurship, as an engine for economic growth in the country. The government has given a $2.5mn grant to help fund Start-up Mexico (SUM), an incubator and shared working space for entrepreneurs, which also provides funding to some of the businesses in its program.

SUM's founders, Marcus Dantus and Guillermo Garza, designed the space and launched SUM this past August. Their vision is to help facilitate the exchange of ideas and expertise among those companies and entrepreneurs working within its walls and also with mentors and funds in its wider international network. "Start-up Mexico is attempting to foster a collaboration culture in Mexico, putting together entrepreneurs of different industries with seed capital funds, services of all sorts and mentors in order to create an ambiance that allows start-ups to take advantage of others' resources and contacts in order to grow faster, stronger and with more possibilities of success," said Dantus. And the SUM community is already starting to work for itself. Marc Segura, founder of PlayBusiness, has housed his crowdfunding equity platform inside of

the SUM co-working space. PlayBusiness launched 90 days ago and the platform has already been used to fund two other businesses within the community - each with $100K - and has five others that are close to achieving their funding goals. "The space in Start-up Mexico is great, it's the first start-up cluster in Mexico City," said Joan Segura, Project and Investment Director of PlayBusines. "It's easy to do things with the experts around you, especially in a city with a lot of traffic where everything is an hour away." While SUM is centrally located in Mexico City, the drive can be up to two hours from anywhere in the city depending on traffic. The co-working space sits on the fringe of the posh Polanco neighbourhood and a grittier, up and coming district where 40,000 square feet of warehouse space was affordable for Dantus and Garza to remodel and operate. Armed guards stand at its gates each day, a reminder to its entrants that DF is a tale of two cities. On November 13th, Dantus opened the doors of SUM to more than 300 entrepreneurs and investors in the community for the DF Tech Summit. The Summit featured over 20 speakers from the United States and Mexico who discussed topics from fundraising to marketing to building an entrepreneurial community. One of the speakers at the DF Tech Summit was Brett Leve, co-founder of Summit Series, a community and series of events that unites entrepreneurs, artists, scientists and non-profit leaders in the United States. Leve is interested turning the largely US-centric Summit Series community into a more global one that can bring the concepts of deep collaboration and cooperation across borders while affording the existing community with high quality inroads into global markets. "What Mexico can take from Summit Series is the importance of a trusted support system and community, people to collaborate with and a fluid exchange of ideas," said Leve. "It's easy to see everything as competition, but ideas are cheap, execution is where all of the value is created. The key is to develop a robust circle of supporters and share your ideas before execution with those who can help you refine them." It is precisely this exchange of ideas, engineering talent, experts and funds both within Mexico and with its neighbours that will help the country unleash its potential. For a vibrant entrepreneurial scene may be one of Mexico's best tools to eliminating the perceived corruption and social immobility that has historically clouded its image. ↑Return to Index

Colombia’s US$50bn infrastructure needs attract the big players

(This article was written by Cristiane Lucchesi and Christine Jenkins, and was published on Bloomberg on December 4, 2014) Grupo BTG Pactual and Ashmore Group Plc are among banks and private-equity funds raising more than $2 billion for Colombia as estimates show the country needs $50 billion for roads and other infrastructure projects.



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BTG, the bank controlled by billionaire Andre Esteves, plans to raise as much as $1 billion for a Colombia infrastructure debt fund and may invest its own capital in debt or equity, according to Juan Luis Franco, the firm’s chief executive officer for Colombia. London-based Ashmore and its partner in the nation, Inverlink SA, are part of a group that’s also targeting more than $1 billion for two different funds, said Lucas Marulanda, an Inverlink partner. “We’ve made several approaches and there is appetite everywhere, from local and international investors,” Franco said in an interview last month at BTG’s offices in Medellin. “Legal reforms are helping project development, and there’s an expectation that finally we’ll see real returns being generated.” Colombia President Juan Manuel Santos encouraged investors this year when he started awarding contracts for the first road projects in the $25 billion highway plan, a building program Moody’s Investors Service cited when it increased the nation’s credit rating to Baa2, the highest ever. Partnerships between the government and private sector for improvements to ports, roads and airports may need an additional $25 billion, according to Ricardo Jaramillo, head of investment banking at Bancolombia SA, the nation’s biggest bank by assets.

Road Quality Colombia ranks 130th out of 148 economies judged by the quality of roads, behind Venezuela and Madagascar on the World Economic Forum’s global competitiveness index. Santos’s road program, known as the Fourth Generation, will try to cut travel times between major population centres by as much as 47 percent while reducing the cost of

transporting raw goods and finished products between industrial zones in the Andes mountains and major ports. BTG will provide know-how acquired in Brazil to structure project financings for Colombian roads, ports and airports, according to Juan Manuel Velasco, the Sao Paulo-based bank’s chief operating officer for Colombia. Franco said BTG might also partner with development agencies and make some of its investments through the bank’s Latin American infrastructure funds. Ashmore and Inverlink, a Bogota-based investment bank, are raising two funds for infrastructure, Marulanda said. The first is a $1 billion debt fund in a joint initiative with the development bank Corporacion Andina de Fomento. Additional Funds The companies are also starting to raise a new infrastructure fund to invest in equity, debt and hybrid instruments, and are managing another fund with $234 million in total assets. Fundraising for Colombian infrastructure got a boost last year with new rules allowing the $75 billion pension industry to invest in debt funds and join banks in syndicated loans to finance projects, according to Bancolombia’s Jaramillo. “Pension funds haven’t yet taken on construction risk on the projects, but are studying ways to do so,” Jaramillo said. ↑Return to Index

Latin American airport traffic forecast to soar in next 20 years (This article was written by Jose Lagorio and published in BNamericas on October 16, 2014)

Airport traffic will grow 4.7% a year until 2034 in Latin America, above the global average, with Brazil becoming the fifth largest market worldwide, the International Air Transport Association (IATA) said in a report. Regional traffic will soar to 605mn passengers annually in 20 years from the current 242mn, with Latin America representing 8.3% of the worldwide total. Brazil will be one of the world's fastest growing markets, adding 170mn new passengers to reach 272mn. Colombia, Brazil and Mexico are among the top 10 fastest-growing domestic markets, with forecast annual increases of 6%, 5.4% and 4.6%, respectively.



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IATA said that, in terms of country-pairs, Asia and South America will see the fastest growth, with traffic between Colombia and Ecuador growing at least 9.5% on average for the next 20 years. The group also forecast a 9.5%-plus increase in traffic within Honduras. Worldwide, airport traffic will rise 4.1% a year on average until 2034, more than doubling traffic to 7.3bn from 3.3bn, with China becoming the largest market by 2030. Latin America is expanding and creating new airports to cope with demand. The largest and most iconic project is in Mexico, where the government recently announced a US$12.9bn plan to expand Mexico City's airport, which is currently saturated. Brazil is also investing over US$10bn to expand airport facilities. Chile is tendering a US$633mn concession to expand and operate Santiago's international airport, while Colombia has launched two airport tenders totalling US$333mn for the expansion, operation and maintenance of airports serving the cities of Barranquilla, Neiva, Armenia and Popayán. ↑Return to Index

Opinion: Australia and Chile as Regional Platforms for Trade and Investment (The following is an address given by Jose Blanco, chairman of the ALABC, on December 12, 2014 at the Economic Leadership Forum “Australia-Chile: Asia Pacific Platforms” held in Santiago, Chile)

This Forum is testimony to the already strong links that exist between Australia and Chile, and to the mutual desire that exists across the political, business and academic spectrum to deepen the relationship even further. We may not be each other’s principal trade or investment partner, or even closest political allies, but as we have heard over the past day and a half, there are many similarities between our two countries that provide ample scope for us to learn from one another and to work together. Ours is a relationship founded on shared economic, social and geopolitical interests. All of which combine to make us ideal partners and attractive platforms from which to engage our respective regional markets. As I hope this Forum has shown, strengthening our relationship and pursuing the regional platform strategy will yield not only mutual economic benefits, but also outcomes that enhance our respective political and social wellbeing. From an Australian business perspective, I have no hesitation in asserting that we regard Chile as an important market; that we want to deepen our engagement with Latin America so as to profit from its growth and that, in many respects, Chile is already positioned as our preferred gateway into the South American market. The facts speak for themselves. Chile is the only country in Latin America with which Australia has an FTA and is home to more Australian companies than any other country in Latin America. Santiago is the sole hub for direct flights connecting Australia and South America, and a series of important bilateral agreements - the most notable being a double taxation treaty that came into force in 2013 - have entrenched Santiago as the preferred location for companies’ regional headquarters. The know-how and capital, and the services and products that Australia has to offer can contribute to Chile’s continued development. Furthermore, joint initiatives in education, scientific research and policy formulation can enhance our mutual competitiveness and deliver economic benefits. Much the same is true of other markets in South America, but our knowledge of, engagement with and risk appetite for those other markets is in many instances less than it should be and than it is with Chile. Consequently, there is an opportunity for Chile to play an important role as a proving ground for Australian businesses before they make the jump into other markets. Also as a strategic partner from whom we can learn about doing business in the region and with whom we can expand into the region. Finally, as an ideal headquarters for regional operations.



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This opportunity presents itself because of Chile’s favourable operating environment; its solid regional connections, including membership of the rapidly developing Pacific Alliance and extensive network of FTAs; its experience of doing business in the region and the successful track record that Australian companies have had of operating in the market. However, there is no room for complacency and ongoing action is required to entrench this gateway status. We need to continue building our existing links, as well as to broaden the engagement between our respective business sectors and to connect our capital markets.

The challenge of today’s low-growth environment and volatile global markets demands decisive and innovative measures to ensure continued success. Maintaining the status quo will not be sufficient and Australian and Chilean companies alike will need to find strategies that will allow them to embrace

opportunities outside their traditional comfort zones. From Chile’s perspective, I suspect that the case for Australia being Chile’s gateway into Asia may not be as evident. I say this because Chile’s engagement with the region is primarily driven by trade rather than investment and Chilean companies have proven themselves very adept at exporting directly to selected markets in the region. However, there are many Chilean companies that can and should be investing in Australia, both to access the sizeable local market and to use Australia as a platform into Asia. This is what companies from other countries are increasingly doing and what I believe more Chilean companies should be doing. I see no reason why many of the Chilean companies that are successfully working with Australian mining companies in Chile cannot also work with them in Australia. In the same way as the similarities between our two economies attract Australian companies to Chile, they should also be attracting Chilean companies to Australia and not only to the mining sector. Not all Australian companies are big and amongst our substantial SME sector there are many companies that could be targets for Chilean companies. Acquiring or partnering with them would provide Chilean companies with access to the Australian market and experience in operating in a more developed market. It would also provide a strong platform from which to enhance their international competitiveness and to access the Asian region, one that represents some two-thirds of Australia’s total trade and is generating increased exchanges of investment. As well as giving access to a substantial market, a presence in Australia would provide Chilean companies with greater exposure to Australian innovation and technology, research and development, capital and world-class education, a high quality labour force, extensive logistical capabilities and much more. Focusing only on well-known markets may be the easy thing to do, but it may not always be the best thing to do. Achieving the goal of greater engagement and reciprocal regional platforms will not happen by luck. It requires commitment and an investment of time and money on both sides. Success will largely depend on us knowing one another even better than we already do. Regular and more focused dialogue is required at all levels and across all areas of activity. Only mutual knowledge and personal relationships can break down the barriers – real or perceived – that are preventing us from doing more deals and joining forces to conquer new markets. We need to exchange more visits by our political and business leaders. We need our respective economists, opinion leaders and media to know both countries well and to thus be able to lead or at least participate in the debate about what we can do together. The list of required action is longer, but for now I invite each and every one of you to make your voice heard. ↑Return to Index



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Opinion: Cuba’s economy at the crossroads

(This article was written by The Editorial Board and published in The New York Times on December 14, 2014) In July 2007, while serving as acting president as his brother underwent medical treatment, Raúl Castro delivered a startling indictment of the Cuban economy when he railed about the inefficiencies of the dairy industry. His description of the onerous and expensive mechanism to get milk from cows to dinner tables was old news to Cubans, who have been subjected for decades to a centrally planned economy that is among the world’s most dysfunctional and anomalous. It soon became clear that Mr. Castro’s unexpected candour that day signalled the start of a transformational era for the island’s economy.

After Fidel Castro ceded power to his brother in 2008, the government initiated reforms that have allowed Cubans to start building livelihoods that are not wholly subject to state control. The pace has been halting, with plenty of backtracking from the government’s old guard, which views further liberalization of the economy as an abdication of the socialist system Fidel Castro made sacrosanct. The looming end of the Castro era — Raúl Castro, 83, has said he will step down in 2018 — is unfolding amid a vigorous debate on the future of the country’s economy.

To date, the Obama administration has watched the reforms with skepticism. The White House has eased restrictions on remittances and travel to the island, but it has done relatively little else to pare down the web of sanctions the United States has imposed on Cuba for decades. President Obama could help expand the role of Cuba’s small but growing entrepreneurial class by relaxing sanctions through executive authority and working with the growing number of lawmakers who want to expand business with Cuba. The White House could start that process by removing Cuba from the State Department list of countries that sponsor terrorist organizations and making it easier for Americans to provide start up-capital for independent small businesses. Doing that would empower Cuban-Americans to play a more robust role in the island’s economic transformation. More significantly, it would gradually erode the Cuban government’s ability to blame Washington for the shortcomings of an economy that is failing its citizens largely as a result of its own policies. Before Fidel Castro came to power in 1959, Cuba’s economy was heavily reliant on the United States, which bought the bulk of its main export, sugar. American tourists flocked to the island, lured by its proximity, tropical weather and raucous night life. After the overthrow of Fulgencio Batista, an authoritarian leader who had protected American commercial interests on the island, Fidel Castro’s government asserted control over virtually every segment of the economy. It seized land and assets from American companies and vowed to guarantee all citizens housing, health care and education. Communism brought an ever more anaemic and backward economy, one propped up largely by Moscow. But after the Soviet Union collapsed in 1991, so did Cuba’s economy. Cubans euphemistically call the stark deprivation of the 1990s the “special period,” a time when the Cuban government was forced to allow in some foreign investment and authorize limited private-sector employment. In 1999, Havana found a new benefactor in the newly elected president of Venezuela, Hugo Chávez — which gave Cuban officials the ability to retighten state control of the economy. But in the last two years Venezuela, which provides heavily subsidized oil to Cuba in exchange for medical services, has struggled with a worsening economic and political crisis, which could force it to cut off subsidies to Havana. The precariousness of that relationship has added urgency to the debate over how fast the Cuban government needs to implement the reforms Raúl Castro endorsed. Old-guard leaders warn that a liberalized market economy could turn Cuba into a less egalitarian society and provide an opening for the United States to destabilize the government through a flood of private investment. Reformists, including some of the country’s leading economists, say the current state of the economy is untenable. The reality is that the island’s social welfare achievements cannot be sustained if current economic and demographic trends hold. Cuba is currently ranked in the top tier of the United Nations Human Development Index, a measure of a country’s education level, life expectancy and other variables. That’s an achievement matched by only two other countries in Latin America and the Caribbean, Argentina and Chile.



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Wages in Cuba are worth roughly 28 percent of what they were before the collapse of the Soviet Union, according to the Centre for the Study of the Cuban Economy at the state-run University of Havana. The devaluation has turned workplace theft into a major problem. It has also led tens of thousands of Cuban professionals to emigrate to the United States and elsewhere in Latin America in recent years in search of a better life. The country’s birth-rate is declining, while its elderly are living longer. The agricultural sector remains stymied by outdated technology and byzantine policies. A foreign investment law Cuba’s National Assembly approved in March has yet to deliver a single deal. Adding to the challenges, the Cuban government has pledged to do away soon with its dual-currency system (which includes a dollar-pegged peso established in the 1990s when tourism opened up), a process that could drive up inflation. Yet against the picture of stagnation is the growth of a new class of private-sector employees, now nearly 500,000 strong. That’s not a huge number in a nation of 11 million, but they are a marvel of ingenuity in a place where running a private restaurant requires buying virtually all ingredients on the black market. Basic staples, like potatoes, must be purchased as contraband in Cuba. Many of those building small businesses, such as bed-and-breakfasts, are Cubans who returned with savings earned abroad and those with relatives outside the country who provided start-up capital. All struggle with the bureaucracy, since they are unable to import legally items as basic as mattresses and pillows. Bringing items from the United States is onerous and complicated by American sanctions. Cuban authorities appear conflicted about the growing private sector. While they welcome the employment and tax revenue it generates, bureaucrats are throttling businesses that are doing particularly well and forcing some to become joint ventures with the state. The underlying message seems to be: We want prosperity but not overly prosperous individuals. Washington could empower the reformist camp by making it easier for Cuban entrepreneurs to get external financing and business training. That type of engagement is unlikely to succeed unless the United States abandons its policy of regime change. Cuba’s economic transformation may be proceeding slowly, but it could well lead to a more open society. For now, continued antagonism from Washington is only helping the old guard. ↑Return to Index

Argentina Update – waiting for change

(This article was published in The Economist on December 13, 2014) Argentina has never been a simple place for foreign companies to operate in. Inefficiency and inflation have plagued the country for decades. That crises occur every dozen years is accepted as fate. Recently, however, government hostility has made doing business even harder. Cristina Fernández de Kirchner, the country’s president, has a habit of bashing foreign firms: she has blamed Shell for forcing her to devalue the peso; she has threatened to slap an American printer, RR Donnelley, with terrorism charges; and she has accused American Airlines of being in cahoots with the creditors that led Argentina to default in July. “Vultures with turbines,” she called the airline.

Yet it is a series of tax raids that has foreign firms on edge. In late November Argentina’s tax agency, AFIP, accused HSBC, a bank, of helping over 4,000 Argentines evade taxes. Earlier that month AFIP announced that it had suspended Procter & Gamble’s operations in the country for allegedly overbilling $138m in imported hygienic products to avoid taxes and get dollars out of the country. P&G since seems to have resumed its business in Argentina. It declined to say whether it had reached a settlement with the AFIP. “Except the agency and the company itself, no one knows what P&G did or didn’t do,” says Santiago Zebel, who heads the tax-law programme at Torcuato

di Tella University. “But we do know that AFIP has dual incentives: like all tax agencies, it aims to collect dues, but it also tries to ensure dollars aren’t leaving the country.”



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Since 2011 companies have been unable to send their profits freely out of the country. Ms Fernández imposed this clamp, along with draconian currency controls, to stem capital flight. She also restricted imports, requiring firms to export goods equivalent in value to anything they imported. To bring in its cars, for instance, BMW has exported rice. Ms Fernández’s plan has failed: currency reserves have plummeted to $29 billion, from $52 billion in 2011. But the measures, along with the price distortions created by having multiple exchange rates and inflation running at 40%, have turned Argentina into one of the world’s worst places to operate a company. It ranks 124th in the “business environment” category in the 2014 Global Innovation Index of Cornell University—below countries such as Ukraine and Mali. In response, some foreign firms have fled the country. According to Desarrollo de Negocios Internacionales, a consultancy, 40 foreign companies have left or frozen their operations since 2011, including Elektra, a Mexican electronics retailer, British Gas and luxury brands such as Calvin Klein and Cartier. Last year Vale, a Brazilian mining giant, pulled out of a $6 billion potash project and has since left the country. In November Carolina Herrera, a clothing brand, announced it would also close its shop due to the difficulty of getting products into the country.

Of the companies that have stuck around, many have scaled back their operations. In August Farm Frites, the world’s second-largest french-fries maker, sold 60% of its Argentine assets. General Motors recently announced it would suspend importing cars into Argentina from Brazil. Foreign direct investment in the first half of this year was minus $55m, compared with $5.9 billion in the same period in 2013. Some firms have come up with creative ways to cope. American Airlines recently stopped selling tickets in Argentine pesos more than 90 days ahead of a flight—to limit its exposure to inflation or a potential devaluation. A subsidiary of Ford recently bought an

olive-oil factory, ostensibly both to grease its import channels and also limit its stock of Argentine currency. Asked what his firm was doing with excess pesos, an executive of another foreign car firm just laughed. “You think in this environment we’re making much of a profit?” His strategy is simple: “Make it to next year.” This attitude seems common among the firms that have not already left. In October 2015 Argentines will elect Ms Fernández’s successor. All three of the leading candidates are reputed to be more business-friendly than she has been. But until one of them takes office, foreign businesses in Argentina are in for a rough ride. ↑Return to Index

Peru’s congress approves cuts to corporate and personal taxes Peru's Congress approved legislation on December 11 that cuts corporate and personal taxes, part of a bid by President Ollanta Humala to jumpstart sluggish economic growth. The new law lowers the corporate tax rate to 28 percent from 30 percent starting January 1, and puts it on track to gradually ease to 26 percent in 2019. It also reduces personal income tax rate to 8 percent next year from 15 percent now. Peru's economy has slowed sharply on falling mining revenues and is now on track to grow by 3 percent or less this year, according to estimates by the government and central bank. Humala has introduced several reform packages over the past year to encourage investments. The measures range from smaller fines for polluters to streamlined approvals for projects. ↑Return to Index



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Mexican mining after the tax reforms

(This article was published in BNamericas on November 25, 2014)

Mexico's tax reform saw mining taxes introduced in the country for the first time in 2014, with companies paying 7.5% on income minus certain deductions and a 0.5% gross revenue royalty on gold, silver and platinum mining. In addition, the reform included new rules meaning exploration expenses can only be deducted against future taxes at a 10% annual rate,

rather than 100% previously, as well as scrapping planned income tax reductions and introducing taxes on dividends. BNamericas spoke to Fernando Lesprón, corporate tax partner at KPMG, about the impact of the royalties on Mexico's competitiveness as a mining jurisdiction, about how companies are adapting to the reforms and about a lack of clarity regarding how the taxes raised will be spent. BNamericas: Is Mexico still a competitive jurisdiction after the introduction of mining royalties? Lesprón: Just looking at the mining royalties the country is still competitive, but you have to take into account all the other taxes and charges such as income tax, the profit-sharing agreements with workers that companies pay in Mexico and the dividend tax, which have some impact on competitiveness at a global level. However, if the price of gold goes up companies are going to be attracted to the country and its reserves of gold and other minerals, and if they can cover their costs and the taxes the country remains competitive. BNamericas: What can companies do to reduce their taxes and the impact of the tax reform? Lesprón: Many companies have restructured themselves in order to obtain or continue to receive tax deductions in investments, for example. Now that they don't benefit from direct deductions companies restructure themselves by leasing assets in order to continue to benefit from deductions. Some companies subcontract workers so that the workers don't have profit-sharing agreements directly with the company, but instead with an external company, the impact of which can be better controlled. Basically, companies try to restructure themselves to reduce the negative impacts of the fiscal reform. BNamericas: Under the tax reform, exploration expenses can only be deducted against taxes over 10 years, or at a 10% rate, rather than 100% immediately as was previously the case. What impact does this have? Lesprón: This impacts directly on mining companies through income tax. There is a lot of investment in exploration which results in losses which companies used to amortize against future taxes. However, as these losses now aren't deductible in the year, profits increase and as a result companies pay more income tax. BNamericas: The majority of the money collected from the mining taxes will go to the municipalities and states where the mines are located. Is it clear who will control these resources and how the money will be used? Lesprón: At this point it is not 100% clear how the money will be controlled and assigned to municipalities affected by mining activities. The number of people negatively impacted by mining is limited as mining companies do a lot of work around their mines, for example building schools and sports centres. If mining companies are being charged a tax which is supposed to be used for community investments you have to look at whether the mining company should continue to meet these costs. How the taxes are going to be distributed is not clear as there are no specific rules on this. BNamericas: Will mining companies stop investing in communities because they are paying mining taxes, which are supposed to meet these costs? Lesprón: It depends on the mission and policies of the company and on the impact of halting investments. As they are already affected by the taxes, companies may reduce but not stop the benefits they deliver to the community, supposing that the state is going to do its part. ↑Return to Index



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Brazilians brace themselves for austerity measures

(This article was written by Joe Leahy and was published in the Financial Times on December 4, 2014)

Brazilians may not be in an exuberant mood this Christmas because of the country’s sluggish economy but those that have any money would be wise to spend it now. After years of fiscal largesse, Brazil’s new finance minister, Joaquim Levy (pictured), already known in the presidential palace as “Scissorhands” according to newspaper Folha de S.Paulo, is preparing an austerity plan

to rebalance the bleeding finances of Latin America’s biggest economy. With the country’s investment-grade rating potentially at stake, Mr Levy’s axe is expected to fall on everything from popular tax breaks for new car purchases to unemployment benefits as he seeks to save about one percentage point or more of gross domestic product. “I would say a good part will be spending cuts and the rest will come from raising taxes,” said Ilan Goldfajn, chief economist at Itaú-Unibanco, of the austerity plan.

The hiring of Mr Levy this month from private sector financial group Bradesco Asset Management marks a turnround by President Dilma Rousseff as she prepares to start her second term in office on January 1. After inheriting an economy that was one of the strongest in the Brics group of large emerging nations that also includes Russia,

India, China and South Africa, she ran headfirst into the Eurozone crisis in 2011 and the end of the commodities super cycle as the Chinese economy slowed. To keep Brazil growing, she and her present finance minister, Guido Mantega, who steps down at the end of the month, resorted to what economists believe was the wrong prescription for a country whose infrastructure was already straining under a credit-fuelled consumer boom — they tried to stimulate yet more consumption. They succeeded in saving jobs, helping Ms Rousseff to narrowly win this year’s presidential election. But their formula of fiscal spending combined with price controls and intervention in industry undermined investor confidence, generating a toxic mix of low growth and persistent inflation. “After years of misguided policy, Mr Levy’s nomination could be a game changer for Brazil,” said Marcelo Carvalho, economist at BNP Paribas in a note.

He pointed to Standard & Poor’s decision last year to downgrade Brazil’s credit rating to one notch above junk. “Brazil has been playing Russian roulette with its hard-won investment-grade sovereign rating.” The Chicago-trained Mr Levy has laid out a target for a primary fiscal surplus — the budget balance before interest payments — of 1.2 per cent of GDP for 2015 and at least 2 per cent for the following two years. While his initial target is modest — Brazil needs a surplus of about 2.5 per cent to begin paying down its public debt again, it will be difficult to achieve in an economy that is not growing. Itaú’s Mr Goldfajn calculates that the primary fiscal surplus now is about 0.2 per cent of GDP including one-off items. Lifting this to 1.2 per cent will effectively remove one percentage point of output from the economy. This must be replaced by the private sector.



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He calculates that if domestic investors were to reverse an 8-9 per cent fall in investment over the past year, this would deliver a 1.5 per cent boost to GDP, more than offsetting the first year of fiscal adjustment. But this growth would take some time to appear. “It would take at least two to three quarters for the economy to regain growth,” Mr Goldfajn says. Most important for Mr Levy will be to convince the private sector that the move to more orthodox policy making is real and sustainable and it is thus safe to begin investing again. “With Joaquim Levy as finance minister, the feasibility of a credibility shock increases — a precondition for an economic resumption,” wrote former central bank governor Carlos Geraldo Langoni in the Brazil Memo, an economic note. As for ordinary Brazilians, they would do well to dust off their credit cards one last time and make the most of this Christmas. Mr Levy’s “credibility” shock with its promise of taxes and higher prices could last for some time. ↑Return to Index

Vázquez win cements rule of Uruguay leftists Tabaré Vázquez won a decisive victory in Uruguay’s presidential elections on November 30, extending the rule of his leftist coalition that has presided over a decade of stability and economic growth for another five years. Mr Vázquez, who first led the Broad Front coalition to power 10 years ago, won 53.6 per cent in the second round run-off vote, leaving his conservative rival Luis Lacalle Pou with 41.1 per cent.

“We don’t have to think so much about the next elections, we have to think more about the next generations,” Mr Vázquez told supporters in a victory speech after Mr Lacalle Pou conceded defeat. The double-digit margin of victory reflects widespread approval of the Broad Front’s mix of pro-business policies and welfare programmes that tackled inequality and helped to slash poverty rates from around 40 per cent 10 years ago to less than 12 per cent. Although the popular outgoing president José “Pepe” Mujica, who took over

from Mr Vázquez in 2010, is banned by the constitution from being re-elected, he will remain powerful as a senator. Mr Mujica implemented a series of progressive social policies that won praise abroad – such as the legalisation of cannabis, same-sex marriage and abortion – but were disapproved of by many conservative Uruguayans. With broad consensus between the different parties on economic policy, the campaign was fought over issues such as education and security, with rising crime representing the biggest concern for Uruguayans even though the country is one of the region’s safest. While Mr Vázquez pledged to continue the government’s blend of investor-friendly policies coupled with redistributive social policies, the 41-year-old Mr Lacalle Pou, a lawyer and the son of a former president during the 1990s, campaigned on a platform of change, in particular to reduce state participation in the economy. Mr Vázquez, whose first presidential election victory in 2004 broke 170 years of domination by Uruguay’s two traditional political parties, now inherits a slowing economy that is struggling with high inflation of around 8 per cent. Growth forecasts of about 3 per cent for this year are down from an average of 5.7 per cent over the past decade, but Uruguay’s economy remains considerably more robust than neighbours Argentina and Brazil. ↑Return to Index

Income gap shrinks in Chile, for better or worse (This article was written by Eduardo Porter and was published in The New York Times on December 2, 2014)

Chile is a stellar performer by almost any standard. Income per person has grown fourfold over the last quarter-century. Today, many Chileans, rightly, see their nation as within shouting range of the advanced industrial world. Yet for all its economic success, the shanties sprawling outside of town are a sharp reminder that Chile has still not shaken the curse that has plagued Latin America for centuries: an immense gap between the haves and the have-nots that is virtually unparalleled in the rest of the world.



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According to data from the World Bank, the richest 10 percent of Chileans capture $42 out of every $100 worth of disposable income, far in excess of the industrial countries Chile would like to see as its peers. In Spain, where the median income is roughly 30 percent higher than in Chile, the comparable figure is $25. In the United States it is $30. “Why is it that when we grow we cannot improve the distribution?” asked Juan Carlos Feres, president of the Overcoming Poverty Foundation here. “We have not managed to break the growth model that produces dynamics of exclusion.” But while vast disparities continue to exist, Chile, like much of Latin America, is practically the only place in the world today where the income gap is actually shrinking rather than widening. “Latin America is experiencing a pervasive decline of inequality when in many other regions it is rising,” said Nora Lustig, an economics professor at Tulane University who has been closely following the trends. “The decline in the 2000s was bigger than the increase in the 1990s, so it’s not insignificant.”

Using the “Gini index,” research by Professor Lustig, Luis F. López-Calva of the World Bank and Eduardo Ortiz Juárez of the United Nations Development Program found that income inequality was lower in 2012 than it had been in 2000 in 16 of the 18 Latin American countries for which there was data to track the trend. The index ranges from 0 in an impossibly egalitarian utopia where everybody earned exactly the same, to 100 where every last penny was hogged by a single person. The decline is widespread. The income gap shrank in

countries run by left-leaning populist governments, like Venezuela and Argentina, and countries run by market-friendly governments to their right, like Peru and Colombia. It shrank in countries that grew faster and countries that grew more slowly. While scholars can point to individual programs contributing to the narrowing gap in some countries — the sharp increase in Brazil’s minimum wage, for instance, or the expansion of pensions in Argentina to cover nearly all women over the age of 65 — nobody quite understands what is driving the region wide dynamic. “It’s the million-dollar question,” said Augusto de la Torre, chief economist for Latin America at the World Bank. “The question is generating a new wave of research in the region and in my office.” Even before there are more definitive answers, Latin American leaders have started to pat themselves on the back about the accomplishment. Trouble is, the improvement might be a symptom not so much of policy success but of deeply rooted economic vulnerability.



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Government redistribution appears to have played some role in reducing the Latin American income gap. Government programs, like the cash transfers under the Oportunidades program in Mexico or the Bolsa Familia in Brazil, have increased the income of poor families. Still, Professor Lustig and her colleagues concluded that new government transfers and changes in pensions accounted for only 30 percent of inequality’s decline. Most of the action appears to have happened in the job market — before taxes and government spending kicked in. Something, it appears, has flattened the distribution of wages. Whether this is good or bad news depends on what that factor is. It could be a result of Latin America’s substantial increase in the supply of university-educated workers, shrinking their wage premium compared with their less educated peers. “I do think that the return to a college education has declined,” said Jaime Ruiz-Tagle of the University of Chile. “It has declined because college education has become massive.” The narrative isn’t entirely convincing, though. Mr. de la Torre notes the educational wage premium widened in the 1990s before starting to shrink in the early 2000s. This doesn’t fit the trend of educational attainment, which has been increasing steadily since 1990.

Other potential explanations don’t tell such an optimistic story. For one, perhaps Latin America’s new college graduates are inferior in some way. Latin America’s education boom has driven the proliferation of private colleges, some of which are of lower quality. The students may be of lower quality too — coming from families that received poorer elementary and high school education and are less prepared for college. Together, these dynamics would reduce the skill level of newly educated workers, shrinking the wage premium they could command over those without a college education.

This story has a lot of traction here, where the government of President Michelle Bachelet this year passed an ambitious tax reform aimed at increasing government revenue by 4 percent of its gross domestic product, which it hopes to invest mostly to improve the quality of education. Mr. de la Torre fears, however, that this is not the entire story, either. The declining return to education, he worries, is not simply about the supply of educated workers. It also has to do with a decline in the demand for skill. From soybeans to copper, China’s insatiable demand for Latin America’s raw materials pushed up the value of currencies across the region even as its cheap manufactured exports undercut Latin American countries’ rickety industrial base, reducing their demand for skilled workers. “In this case, the fall of inequality would be bad news over the long term,” Mr. de la Torre told me. “We would be specializing in sectors that require less knowledge.” What this augurs for Latin Americans’ future growth is hard to tell. But with Chinese growth slowing, there are increasing signs that the overall prosperity of a region that has long relied on commodity exports is now threatened. A slowing China might also put an end to the shrinking income gap. The World Bank argues that the only viable long-term path for Latin American economies is to increase productivity growth, investing in more skill-intensive industries. That makes a lot of sense. But in doing so, it may have to join the rest of the developed world in confronting the challenge of achieving growth without widening the income gap even further. ↑Return to Index

Tracking the progress of Mexico’s energy reforms

Following the passage of secondary legislation in August 2014, Mexico's energy industry is set for profound transformation. As leaders across the public and private sectors face a new era in the country's energy matrix, policymakers across the region are looking to the Mexican experience as an example for both energy reform and an opportunity for integration throughout the region.



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On November 14, 2014, the Adrienne Arsht Latin America Centre hosted Mexico's Undersecretary of Hydrocarbons María de Lourdes Melgar Palacios and the Director General of Mexico's Federal Commission of Electricity (CFE), Enrique Ochoa Reza, for a public discussion at the Wilson Centre. The event was held in partnership with the Woodrow Wilson Centre’s Mexico Institute, Baker and McKenzie LLP, the US Chamber of Commerce, and Platts. David Goldwyn, the Latin America Centre’s senior non-resident energy fellow, joined the discussion with Dr. Melgar and Dr. Ochoa, and Bill Loveless, host of Platts Energy Week, moderated the panel.

After opening remarks from Jason Marczak, deputy director of the Adrienne Arsht Latin America Centre, and Duncan Wood, director of the Wilson Centre’s Mexico Institute, Dr. Melgar highlighted the key implications of the reform for the oil and gas industry. She outlined the new institutional framework inherent to the laws' enforcement that aims to encourage transparency and accountability. These

protracted efforts, according to Melgar, will empower Mexico to become an energy hub, fulfilling domestic demand and rising to international prominence in the energy sector. In his address in front of the packed auditorium, Dr. Ochoa examined the reform process from the CFE perspective, noting that the new legislation has the potential to clear the power generation hurdles facing Mexico. His country's electricity rate is 25 percent than that of the United States largely due to the use expensive oil fuels. Mexico's energy reform will help improve the pipeline infrastructure to transition power plant generation to natural gas and reorganize the natural gas market with the help of the Natural Gas Control Centre (CENAGAS). During the panel discussion, Goldwyn observed that the thrust of Mexico's energy reform is intended to boost the economy. Watch who invests in Mexico and its energy industry, he went on, to measure the success of the enacting legislation. Both Goldwyn and Ochoa noted the significant potential for natural gas pipeline infrastructure development to spur growth in all regions of Mexico. Following a question-and-answer session with audience members, Benjamín Torres-Barrón, partner at Baker & McKenzie LLP in Mexico, discussed the legal mechanisms of the reforms that provide the incentives for the energy industry to expand. He reiterated the panellists’ view that the new energy laws will translate into gains across all sectors of the economy. This event followed two publications in step with the reform process and written by the Adrienne Arsht Latin America Centre’s non-resident senior energy fellow, David Goldwyn, Mexico's Energy Reform: Ready to Launch (August 2014; co-written with Neil Brown and Megan Reilly Cayten) and Mexico Rising: Comprehensive Energy Reform at Last? (December 2013). View the recorded webcast at: https://www.youtube.com/watch?v=TcAP7GG3lZY&list=UUckWkzE1dVhYCtAVrs3sC0g#t=1198 Download the event slides at: http://www.atlanticcouncil.org/images/publications/Nov._14_Mexico_s_Energy_Reform_Tracking_Progress.pdf

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http://www.atlanticcouncil.org/publications/reports/mexico-s-energy-reform-ready-to-launch

http://www.atlanticcouncil.org/publications/reports/mexico-rising-comprehensive-energy-reform-at-last

https://www.youtube.com/watch?v=TcAP7GG3lZY&list=UUckWkzE1dVhYCtAVrs3sC0g#t=1198

http://www.atlanticcouncil.org/images/publications/Nov._14_Mexico_s_Energy_Reform_Tracking_Progress.pdf


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For the diary If you would like to know more about how your company can take advantage of the events that the ALABC will be hosting in 2015, please contact our Marketing and Events Manager, Steph Patrick at [email protected] or Tel: 02 9431 8651 Date: February 3, 2015 Event: Ian Satchwell Address: ‘Sustainable Mining in Latin America – Australia’s Competitive Advantage’ Venue: Norton Rose Fulbright, Level 39, 108 St Georges Terrace, Perth Organiser: ALABC Contact: Steph Patrick, [email protected] Tel: (02) 9431 8651 Date: February 11, 2015 Event: ALABC Adelaide Dinner Venue: To be confirmed Organiser: ALABC Contact: Steph Patrick, [email protected] Tel: (02) 9431 8651 Date: March 11, 2015 Event: Chairman’s Leadership Luncheon Venue: Sydney (to be confirmed) Organiser: ALABC Contact: Steph Patrick, [email protected] Tel: (02) 9431 8651 Date: March 18, 2015 Event: ALABC Perth Dinner Venue: To be confirmed Organiser: ALABC Contact: Steph Patrick, [email protected] Tel: (02) 9431 8651 Date: March 24, 2015 Event: Chairman’s Leadership Luncheon Venue: Brisbane (to be confirmed) Organiser: ALABC Contact: Steph Patrick, [email protected] Tel: (02) 9431 8651 Date: April 15, 2015 Event: Chairman’s Leadership Luncheon Venue: Melbourne (to be confirmed) Organiser: ALABC Contact: Steph Patrick, [email protected] Tel: (02) 9431 8651 Date: May 19-20, 2015 Event: Austmine Conference Venue: Royal International Convention Centre, Brisbane Organiser: Austmine

Contact: Rosie Atherfold, [email protected] Tel: (02) 9357 4660 Date: May 20-21, 2015 Event: Latin America Downunder Venue: Sheraton on the Park Hotel, Elizabeth Street, Sydney Organiser: Paydirt Media

Contact: Lauren Carey, [email protected] Tel: (08) 9321 0355 Please visit our website www.alabc.com.au for regular updates. ↑Return to Index


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