hairman’s message - alabc australia-latin america ... · according to bank of america merrill...

Chairman’s Message With major economies struggling in terms of growth (Europe in particular) and China also showing signs of gradual slowing, it is not surprising that over the past few years the GDP growth rates of Latin American economies have diminished compared with the 2003-2007 period, which were the initial years of the current expansion cycle. The question that is difficult to answer is whether the somewhat lower growth is simply the natural result of worse demand conditions in the global economy or if there are domestic factors at work in individual economies. Certainly, productivity growth in the region in recent quarters seems to be lower than in 2007 or 2010, and its contribution to total potential growth appears to be stable or diminishing. In this regard, the remarkable growth in employment experienced in virtually the entire region is indicative that an increasing share of potential growth is the result of the accumulation of the labour factor, something which is unlikely to be maintained at such a high pace. The consensus amongst analysts seems to be that that Peru, Chile, Colombia, and Uruguay offer the best chances of sustained high growth rates in coming years, estimated at above 4%. It should come as no surprise that the first three countries lead the investment-ratio rankings in the region, both in terms of levels and performance in recent years. In contrast, the outlook appears to be less positive in the biggest three economies, where per capita income convergences make fast growth more challenging. Mexico’s potential growth is on the rise, but from a low starting point and the market is yet to pass judgement on how the impact of the new government. In Brazil, the structural challenge that has to be addressed is fostering infrastructure and investment, as fast long-term growth is simply not possible with standard productivity growth and an investment ratio below 20%. In Argentina, current policies seem to be very positive for promoting demand growth but ineffective to revamp the supply side of the economy. In addition, many of the measures taken by the government have not been well-received by a range of players in the market, both local and foreign. Beyond that macro assessment of the region’s economies, the reality is that Australian companies continue to be very enthusiastic about the opportunities on offer. Companies

This issue (Click on heading to open article)

Chairman’s message 1

South America targets Aussie tourists 3

Qantas update 3

Mark the dates – our capital city dinners 4

Launch of 2012 Business Excellence Awards 5

In the spotlight – Neil O’Sullivan, NOJA Power 5

Bilingualism volunteers needed to research 7

Brazil and Chile’s universities rate highly 7

Argentina cancels double tax treaty with Chile 8

Profile: Helix Resources 8

Launch of Latam Airlines Group 9

Mexico – one of the best emerging markets 9

Brazil’s Vale reviews investment plans 10

Foreign investors nervous about Argentina 11

Colombia doubles its middle class 12

Feature: CSR makes gains in Latin America 12

Entrepreneurship in Chile 15

Argentine government takes planning control 17

Rousseff pledges to tackle ‘Brazil cost’ 17

Humala’s focus on infrastructure 18

A single customs window for Chile 18

Venezuela joins Mercosur 20

For the diary 21

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Edition: July, 2012

Newsletter of the Australia-Latin America Business Council

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already in the region are achieving good results and many are embarking on expansion plans. At the same time, quite a few new players are close to entering the region. It’s not difficult to see why that is the case. In the simplest terms, Latin America is a region that warrants our attention and our engagement for a diverse range of reasons, including that it occupies some 14% of the earth’s land surface area, has a population estimated at more than 590 million and a GDP in excess of USD 5 trillion; has 25% of the world’s arable land (including 32% of the unused land suitable for farming), 20% of the world’s fresh water, 10% plus of the world’s oil reserves and generates 10% of global agricultural exports, producing over 50% of the world’s soybean exports, over 33% of the world’s corn and 44% of the world’s beef. If that impressive list of credentials is not sufficient to produce a resounding vote in favour of closer engagement with Latin America, we can add to it an abundance of mineral resources, including 40% of the world’s copper and silver reserves, and sufficient reserves of iron ore to allow it to rank as the second largest exporter behind Australia. According to Bank of America Merrill Lynch research analyst, Felipe Hirai, the global mining industry expects to invest US$100bn in Latin America during the next five years – half of its total investment prospects for the period – thereby cementing Latin America’s position as the main target of global mining investments in 2012-17. Hirai forecasts that the mining industry's expansion plans will suffer a setback because of the current economic slowdown, but that metal prices will remain high in the short term and therefore the market will remain attractive. He nominates Peru, Chile, Brazil and Mexico as the main targets of mining investments. Beyond the mining perspective, there are trends that are likely to prevail in Latin America in coming decades that will transform the region in economic terms and offer exciting and rewarding opportunities for those businesses willing to make the required commitment. These key trends are contained in a report published by Frost & Sullivan’s Visionary Innovation Research Group and are defined as being: (a) As is the case in most emerging markets, a dramatic expansion of the middle class and the consequent boost to consumerism

and GDP growth that it will produce; (b) Availability of a young and sizeable working age population at a time when there will be strong demand for labour in many

developed economies; (c) Enhanced quality of human capital due to a reversal of the brain drain from the region and the flow of skilled migration out

of some countries; (d) The spread of urbanisation, which will see a greater concentration of population in major cities and their surrounds; (e) The introduction of products at affordable prices and in various economic sizes that will seek to target the buying power of

the lower socio-economic class; (f) An increase in infrastructure development that will deliver improved productive capacity and competitive advantage to the

region, and allow it to achieve a forecast GDP of $6.8 trillion by 2020. So much activity across so many fronts represents a multitude of opportunities for Australian business. Latin America may not be about to buy our commodities, but it has a profound need for the skills and capabilities of our services sector, as well as for many of the products that are ‘made in Australia’ and are world class. A basic review of the profile of the Australian companies already operating in Latin America shows the breadth of the opportunities on offer. Existing companies represent the engineering, insurance, packaging, retailing, legal, banking, energy, entertainment, mining and tourism sectors, to name just a few. To these we can easily add others such as logistics, asset management, design and more. The question that Australia has to ask itself is ‘do we want to and are we ready to engage with the region in a way that will allow us to profit from its evolution?’. Anything other than a resounding ‘Yes!’ to the first part of the question would mean that Australia will forgo a sizeable and rewarding opportunity to broaden its economic base and to reduce the risk profile that it currently faces from overdependence on Asian and Chinese growth in particular. Jose Blanco, Chairman ↑Return to Index


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South American campaign to attract Aussie tourists

A new marketing campaign set to launch later this year, has been developed by tourism leaders in Argentina, Chile and Colombia to draw in Australian visitors. The national tourism offices of the three countries will be responsible for the project which will take advantage of the recent positive growth in visitor numbers. The three tourist bureaus will visit Australian shores in August 2012; staging events in

Melbourne, Brisbane and Sydney, advocating tourism opportunities and hosting key industry representatives. “In 2012 Australia is a growth market for us and one which will continue to build,” Turismo Chile long haul market manager Carolina Valenzuela said. “We are coming to Australia in response to demand from Australian wholesalers and travel agents now seeking more and different information about how to package and sell travel opportunities to more of South America.” Ms Valenzuela cited value and affordability as the leading factors encouraging Australian visitation to South America. “With greater air access, we see significant inbound potential for our countries and that also means business opportunities for the Australian trade.” Argentina is currently the leading destination for international visitors to South America, posting eight per cent annual tourist growth last year. “We expect continued growth from the Australian market and together with Aerolineas Argentinas we are making a strong campaign to promote our destination and the

airline’s new Airbus services direct from Buenos Aires to Sydney,” Instituto Nacional de Promocion Turista market coordinator for Asia Pacific and Middle East Mariano Vila said. Ms Valenzuela said Chile has never been more accessible for Australians, with LAN and Qantas operating regular flights between Sydney and Santiago. “Expanding air connectivity between Australia and Chile now allows Australians to travel easily to Chile and to deeper South America due to great regional connectivity and frequent daily domestic connections.” Colombia also displays one of the highest annual growth rates in Australian arrivals. “In 2011 we welcomed 10,363 Australians to Colombia, an increase of 15.4 percent from 2010 so Australia is a fast growing source market for Colombia,” President of Proexport Colombia Maria Claudia Lacouture said. ↑Return to Index

Qantas update on group restructure

In May, the Qantas Group announced a restructure of the Qantas Airlines business and changes to its executive team as it enters the next phase of the five-year transformation plan launched in August 2011.

As reported at the time, Qantas International and Qantas Domestic – previously combined as ‘Qantas Airlines’ – will be formally managed as two distinct businesses effective 1 July 2012. Each will have its own CEO and its own operational and commercial

functions. Their financial results will also be reported separately.

According to Qantas, this change will enable a greater focus on the priorities of turning around the Qantas International business and enhancing the strong Qantas Domestic business, as part of the overall Group strategy.

Qantas has reaffirmed that South America remains a key focus for the airline and that the restructure will have no impact on Qantas’s recently launched service to Santiago. Together with LAN Qantas offers ten services per week between Sydney and Santiago and access to LAN’s extensive South American network. Growth markets such as South America, and alliances with partners airlines, are major elements of the Qantas International strategy. ↑Return to Index


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Mark the dates in your diary . . . August 29 in Melbourne:

2012 Melbourne Annual Dinner You are invited to join us at our 2012 Annual Dinner in Melbourne that will feature as guest of honour and keynote speaker, Orica’s chairman, Mr Peter Duncan, who in addition to leading one of Australia’s most active companies in Latin America, also served as President of Shell Venezuela during his career. Date: Wednesday, 29 August, 2012 Time: 7.00pm – 11.00pm Venue: Chapter House, Flinders Lane, Melbourne Registration: www.alabc.com.au/events

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September 19 in Sydney:

2012 Sydney Annual Dinner

You are invited to join us at our 2012 Annual Dinner in Sydney that will feature as guest of honour and keynote speaker, Worley Parsons’ Managing Director, Mr John Grill, who has led the company on a very successful international expansion, including a very solid footprint in key markets of Latin America. Date: Wednesday, 19 September, 2012 Time: 7.00pm – 11.00pm Venue: Tattersall’s Club, 181 Elizabeth Street, Sydney

Registration: www.alabc.com.au/events

October 10 in Brisbane:

2012 Brisbane Annual Dinner You are invited to join us at our 2012 Annual Dinner in Brisbane that will feature as guest of honour and keynote speaker, the Hon Tim Nicholls MP, Queensland Treasurer & Minister for Trade, who will outline the government’s plans for engagement with Latin America Date: Wednesday, 10 October, 2012 Time: 7.00pm – 11.00pm Venue: Customs House, 399 Queen Street, Brisbane

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Launch of 2012 Australia Latin America Business Excellence Awards Since 2001 the Business Council has been proud to join forces with the Council on Australia Latin America Relations (COALAR) to host the annual Australia-Latin America Awards, a joint initiative that has over the years highlighted the success of a wide range of companies and individuals.

The 2012 Australia-Latin America Business Excellence Awards are now open and all members are encouraged to apply. This annual awards program recognises excellence in doing business with Latin America. Whether you are exporting, importing, have established a business in the region or are providing services, you are eligible for an award. Each year we receive many high quality applications from all across Australia and from a diverse range of industries and business sizes. The judges look for excellence

in a number of factors including:

Strategy in doing business in Latin America;

Growth of your business in Latin America;

Innovation in terms of either product or service, business model or operations;

Commitment to doing business in Latin America now and in the future.

In 2011, awards were given to Chimu Adventures, Ausenco and to Bernard Wheelahan (former Chairman of Pacific Hydro and of COALAR), who received a special award for his outstanding contribution to the development of Australia’s business relationship with Latin America). Congratulations again to these winners. To apply for the 2012 awards, please complete the application form which can be found on the ALABC website at www.alabc.com.au/. Applications close on Friday 14 September and the awards will be presented at the Brisbane Annual Dinner on 10 October 2012. For further information, please contact Kim Robinson on (02) 9357-4441 or [email protected]. ↑Return to Index

In the spotlight - interview with Neil O’Sullivan, Managing Director, NOJA Power:

(Editor’s Note: Each edition of Latam News will feature an interview with an individual who has been at the forefront of leading his company’s foray into the Latin American region. Our objective is to recognise the contribution made by such individuals and to have them share some of their knowledge with our members and supporters.) LN: When did you first become involved with the Latin American region and under what circumstances? NO: I was first required to travel to Latin America in 1992. On that occasion I visited Argentina and Brazil to appoint new distributors to represent our medium voltage switchgear products in these countries. I remember very

fondly the stark contrast between Buenos Aires a magnificent city with cobble stone streets and real European flair and Sao Paulo a very large industrial city on that first visit. LN: With which markets in the region are you currently involved? NO: NOJA Power is currently supplying our medium voltage switchgear to every country in South America and the majority of countries in Central America. We have distributors in every country and we have subsidiary entities in both Chile and Brazil. NOJA Power do Brasil based in Campinas Sao Paul is also currently developing the capacity to manufacture our products locally.

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mailto:[email protected]


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LN: How often do you visit the region? NO: I normally visit Latin America every quarter and during the visit would normally visit 3 or 4 countries in the region subject our business activities at the time. LN: Are your visits always for business or have you also been able to holiday in the region? If the latter, where have you visited? NO: Whilst my visits to Latin America over the last 20 years have always been for business I have always found it a pleasure to visit the region. There is an enormous amount of affinity between Australia and every country in Latin America not only from a climate, culture and food perspective but I believe Latin America people and Australian people get on very well together because of similar life styles and ways of thinking. With the exception of the language barrier I believe the markets are very similar. LN: What is your preferred route for travelling to the region? NO: I always prefer to travel with One World Airlines when I can so my preferred route is always to fly with Qantas from Sydney to Buenos Aires and then to commute from Buenos Aires around Latin America. Unfortunately this sector is not available any longer so the alternative is now Sydney to Santiago. I really think it is about time there are direct flights between Australia and Brazil as whilst Australia and Chile and Australia and Argentina are very strong trading partners Brazil is clearly the powerhouse of Latin America and there should be direct flights from Australia to Brazil to support the enormous business and tourist trade opportunities. LN: How important do you see the Latin American markets becoming to your overall business? NO: The Latin America market is very important to our business and when you consider Australia and Latin America are really the powerhouses of the southern hemisphere it makes perfect sense the regions developing strong trade relations. LN: What, if any, are the major differences that you have found between doing business in Australia and in the Latin American markets where you are operating? NO: The major difference I see in doing business in Australia to doing business in Latin America is obviously managing the foreign currency exposure and understanding the tax systems which are very different in some countries in Latin America. We have always found our customers in Latin America to be reliable in terms of meeting their contractual obligations and understanding their contractual obligations so in that regard we don’t see any strong barrier to doing business in Latin America. LN: What is the most important advice that you would give to any Australian company seeking to enter the Latin American markets? NO: In terms of advice to any Australian company to enter the market I think the best advice that I can give is that you are entering a very exciting market but you have to embrace the language so your products and the marketing documentation operating instructions’, labelling, all must be in Spanish or Portuguese language variants, you should embrace opportunities to hire Latin America employees in Australia. A lot of NOJA Power’s success has come through sponsoring student interns with the right language and cultural skills and in some cases those interns have returned to Latin America and are working for us today. LN: If there was one thing about doing business in Latin America that you could change, what would it be? NO: Doing international business is all about embracing the country in which you are doing business. If you expect people to change to do business your way you will not be successful. LN: Which is your preferred city in Latin America? Why? NO: I don’t think I have any preferred city or country in Latin America. I believe they are all exciting for different reasons. Rio is an magnificant multi-cultural city; Buenos Aires is a beautiful European city in the Latin American Region. Bogota has magnificent old world charm and Sao Paulo has some of the best barbeques I have ever enjoyed to mention only a small sample of what this region has to offer. ↑Return to Index


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The Experience of Bilingualism in Australia - Volunteers required

The School of Psychology at Griffith University is seeking research participants willing to donate 30 minutes of their time to complete an online survey about the experience of bilingualism in Australia. The objective is to examine Latino immigrants’ attitudes to speaking English as a second language

The research aims to investigate the emotional effects of living in a second language, depending on people’s personality type and demographic variables such as gender, age, time since immigration, etc.. The type of volunteers needed are Australian citizens or residents (no tourists) aged 21 years or older who speak Spanish as their first language AND who arrived in Australia when they were 20 years old or older.

All that you will be required to do is complete an online survey about demographic information, language information, and emotions and personality test, all of which will take approximately 30 minutes. To volunteer or find out more, please email: [email protected] and she will send you the link to the survey or answer any questions. Alternatively, if you have no questions and would like to participate in this worthwhile initiative, you will find the survey at: https://prodsurvey.rcs.griffith.edu.au/secondlanguage ↑Return to Index

Chile and Brazil have the most universities amongst Ibero-America’s top 10

Given Australia’s keen interest in forging closer educational links with Latin America and the growing importance to our universities and other teaching institutions of students from the region, it is worth noting that Brazil and Chile have seven universities among the top ten in Ibero-America according to the 2012 QS World Ranking, including Sao Paulo and Catholic university of Chile ranked one and two. Mexico, Argentina and Colombia help complete the list of the top 20 universities of the region that also includes Spain and Portugal. The four Chilean besides the Catholic University are Universidad de Chile (4); Universidad de Concepción (9) and Santiago de Chile, (10). Brazil’s two others are State of Campinhas (3) and the Federal University from Rio do Janeiro (8).


https://prodsurvey.rcs.griffith.edu.au/secondlanguage


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Mexico’s National Autonomous University ranks fifth and Monterrey Technological Institute, in position seven. Colombia completes the top ten with the University of los Andes in sixth place. The list follows with the University of Buenos Aires (11); Colombia’s National University (12); Minas Gerais Federal University, (13); Rio Grande do Sul Federal University, (14) and the Sao Paulo Federal University (15). The Polytechnic Institute (Mexico) (16); Julio de Mesquita Filho State University of Sao Paulo (17); Catholic University of Rio do Janeiro, (18); Mexico’s Autonomous Technological Institute (19) and the Saint Mary Catholic University of Buenos Aires closes the top twenty. ↑Return to Index

Argentina cancels double tax treaty with Chile dating from 1976

For those Australian companies engaged in doing business between Argentina and Chile, the task just became a little bit more complicated from a taxation perspective. This is the consequence of Argentina’s decision to end a double taxation agreement which had been in force with Chile since 1976 and exempted Chileans and Argentines doing business in the neighbouring country from paying taxes as long as they were already contributors at home Chilean Foreign Minister Alfredo Moreno (in picture below) said on July 7 that he regretted the decision. “These are treaties that are positive for both countries and therefore ending them is bad news”, said the Chilean Foreign minister commenting the Argentine unilateral decision.

The agreement, which will officially cease on December 31, was first signed in 1976 and has been in effect since 1986. Moreno’s words echo those of Adolfo Zaldivar, the Chilean ambassador to Argentina. “I think this is a negative measure for Chilean investments and a detrimental one to our integration,” Zaldivar said after the treaty was cancelled. “It should be corrected for the sake of harmonious bilateral trade.” “It is a general measure, taken because Argentina believes there is a lot of tax evasion," Zaldivar said. "Under the agreement, businesses pay taxes to their country of origin, so Chilean investors in Argentina do not pay certain taxes to the Argentine government.” Argentina, relying on a clause in the treaty that allows cancelling it in the period running from January 1 to June 30 of any year, announced its unilateral decision to Chile on June 29 alleging as it was “promoting a great fiscal evasion and elusion”. Nevertheless the treaty remains effective for the

following six months, period in which Chile will try to renegotiate the conditions of the accord, anticipated Moreno. The double tax accord subscribed in 1976 and ratified in 1986 by both countries, frees Chileans in Argentina from paying earnings’ taxes, to contribute in the event of capital earnings, on net income and on the profits of certain games and competitions, if they are registered taxpayers at their home country. In Chile the Argentines did not have to pay income or housing taxes. According to Chilean sources the Argentines also put an end to similar double taxing treaties with Switzerland and Austria. Despite the decision there is hope that it can be ‘remedied’ in the near future, as the two countries are working on a new fiscal treaty “to sustain the good relations we’ve always had with Chile”. ↑Return to Index

Helix Resources – making headway in Chile

Perth-based Helix Resources Limited is one of the growing number of Australian mining companies that have made the move into South America. Listed on the ASX since 1986, Helix is a minerals exploration company focused on the identification, acquisition and development of gold and copper projects in Australia and, more recently Chile, where it has been active since 2010. According to Executive Chairman, Greg Wheeler, Helix decided to enter the Chilean market because it has a mining culture with strong support from all levels of Government and the community. The fact that Chile produces 40% of global copper production and hosts many of the largest copper mines in the


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world was a key factor, but so too was the fact that the Chilean Government recognizes that exploration is the key to a robust future mining industry and has established the ‘Fenix scheme’ (co-funded with private equity) for +US$150M, to encourage exploration activities and promote future investment. Since its entry into the market in 2010, Helix has acquired seven copper/gold projects predominantly in Region IV of Chile, has secured an experienced Chilean technical team based out of Ovalle and spent $3M exploring. The company’s main focus is on advancing three projects: - Joshua Copper Porphyry Project - Huallillinga Copper/Gold Project - Hado Gold Project All Projects are held 100% by Helix and require funding to move them up the value curve. The company is currently in discussions with Chilean based investors and miners who are interested in what Helix has achieved in such a short timeframe and the mineral prospectivity of Region IV.

The Helix strategy is to develop exploration models and secure large ground positions in prospective regions with operating mines and good infrastructure. Earlier this month the company announced the purchase of the Blanco Y Negro mine and surrounding mining leases in Region IV, some 10km from Ovalle. Helix has agreed to purchase the mining concessions from a private vendor for US$80,000, giving the company 100% ownership of approximately 128Ha of exploitation concessions within the regional Huallillinga Project. The purchase will allow Helix to fast-track its goal of defining an economically exploitable copper/gold system which is attractive to nearby operating mills who can contract mine and/or toll-treat the material, with Helix using any emerging cash flow to fund exploration on our larger targets, including the Joshua Copper Porphyry Project. ↑Return to Index

Launch of Latam Airlines Group

LAN Airlines S.A. and TAM S.A. have completed their merger, creating the new LATAM Airlines Group. In a media release issued this month the Regional Director for Australia and Asia, Mr Patricio Aylwin, stated that “we share the dream of making air travel easier and more accessible, facilitating connection between people in the countries in which we operate”.

Latam Airlines offers a network of 150 destinations in 22 countries with the best connections for customers flying LAN, TAM or any of their respective subsidiaries, whether to, from or within South America. This

includes all of the domestic services throughout Brazil, Chile, Argentina, Ecuador, Peru and Colombia.

LAN, TAM and their respective affiliates will continue operating under their current names and both airlines will remain in their present offices in Australia. ↑Return to Index

Mexico – One of the most attractive emerging markets in the world?

(Editor’s Note: The following article was written by James McKeigue and was published on 13 July 2012 in www.moneyweek.com) Behind the negative headlines generated by Mexico’s violent drug war lies a country with strong economic growth and surprisingly prudent management. The fact is that Mexico could be one of the most attractive emerging markets in the world, largely on the back of the manufacturing boom that it is enjoying.

http://www.moneyweek.com/


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This may surprise you, but Mexico has become a formidable export power. Manufacturing accounted for just 2% of GDP in the 1980s. Now it’s 24%. The boom began when the North American Free Trade Agreement (Nafta) was signed in 1994. Over the last ten years, the weak peso has given the sector a further boost. Healthy demographics - with a large and growing work force - also checks wage inflation and makes Mexican goods more competitive.

The gap between Chinese and Mexican wages has narrowed sharply from 260% in 2006 to just 10% today, notes HSBC’s Sergio Martin. Taking into account travel costs, Mexican factories now beat Chinese ones on cost for many goods. That explains why 12.5% of America’s imports currently come from Mexico. That’s the highest in a decade, and second only to Canada. Of course, with so many of its exports going to one place, Mexico’s fortunes are tightly tied to America’s. But that’s not necessarily a bad thing, as David Rees at Capital Economics points out: “With America growing at around 2%, Mexico’s economy should

grow at between 3% to 4%.” It’s “not spectacular”, but it beats plenty of other parts of the world. More importantly, while Mexico is still growing its share of the US market, it's also increasing sales to its Latin American neighbours. In the last six years, the share of Mexican exports going to the US has fallen from 90% to 80%. Meanwhile, the overall value of exports, which currently stands at $700bn, is expected to double within the next eight years. Mexico is also ‘moving up the value chain’. “More jobs, more energy, [and] more foreign investment are going into more advanced applications”, says Scot Overson, boss of chipmaker Intel’s Mexican division. These include “technology and aerospace”, or “advanced manufacturing, not just simple unskilled manufacturing. Those aspects of Mexico economy seem to be accelerating.” The country has also been wise enough to avoid squandering the proceeds of the boom. Public debt stands at 35% of GDP and falling (even using the most forgiving measures, Britain’s is well over 60%). Inflation, historically a bugbear, is hovering around 3.8% - below the upper band of 4% targeted by the central bank. It helps that central bank governor Agustín Carstens is seen as a safe pair of hands. As finance minister, he hedged Mexico’s entire oil output just before the oil price tanked in late 2008. It saved the nation $8bn and - so the joke went - made him “the world’s most successful, but worst-paid, oil manager”. ↑Return to Index

Brazil’s Vale reviews investment plans

(Editor’s Note: The following article was written by Jeff Flick and was published on 26 July 2012 in the Wall Street Journal) Declining profits and a gloomy global outlook are forcing Brazilian mining heavyweight Vale SA to review its investment plans and mining operations, despite expectations for a rebound in iron ore and base metals prices in coming months.

In a series of conference calls on 26 July, Vale Chief Executive Murilo Ferreira said a "challenging" second quarter marked by lower prices for the company's products and troubles at nickel and coal mines explained the nearly 60% year-on-year drop in net profits. "We are working with a scenario of lower prices than what was expected for this year," Mr. Ferreira said. The world's largest producer and exporter of iron ore and blast-furnace pellets registered a nearly 30% decline in prices from the second quarter of 2011, while nickel prices fell as well.

"In general, the mining sector has had its shares penalized as a function of the decline in commodities prices," said outgoing Chief Financial Officer Tito Martins in explaining the recent tumble. The uncertainties have made Vale turn a closer eye to its planned $21.4 billion investment budget for 2012, with a "continuous review" underway, Mr. Ferreira said. The company expects to release its 2013 strategic plan in November, when investor days are planned for New York and London, the executive added.


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Vale needs to exert greater "capital discipline" after receiving preliminary environmental approval for its $8 billion, 90-million-ton S11D project, also known as Serra Sul. The company expects final approval in 2013, but holds out hope that it could still obtain the license this year, Mr. Ferreira said. The world's No. 2 nickel producer is "fine tuning" its investments, but CFO Martins later told reporters that no big changes are likely. "There won't be any significant revisions, either to increase or to reduce [investments]," Mr. Martins said. Most likely, the company will trim costs from projects under development, the executive added. The mining company doesn't want to make any hasty decisions about reducing investments now, executives said, because the global scenario could change quickly via government stimulus measures, especially in China. "We are moderately optimistic," said Mr. Martins. "Adjustments are being made and in the second half [of 2012] we expect a recovery in both demand and prices." ↑Return to Index

Foreign investors are getting nervous about Argentina – again

(Editor’s Note: The following article was written by Daniel Kerner of Eurasia Group) Argentina is once again rattling the nerves of foreign investors. The country that has been struggling to move on after its 2001 default and checkered economic history has recently nationalized the country's largest private company, Repsol's YPF, without any signs of providing compensation. Additionally, there have been growing rumours and divergent signals that the government might "pesify" its debt obligations -- in other words, convert dollar-denominated debt into the less valuable local currency -- to contain the outflow of dollars. Government officials have denied such rumours, knowing that debt is a very sensitive issue for its own voters. Indeed, the near-term probability of debt pesification seems low given that the government is, in part, imposing tough foreign exchange restrictions so that it has enough reserves to meet debt payments. That being said, the risk will probably increase over time. Economic dynamics will likely worsen in the next few months, and the government is likely to double down on interventionist

measures even as economic distortions grow. Argentina has experienced high rates of economic growth since 2003 (with the exception of 2009), but in a context of growing macroeconomic problems. Now, with economic growth faltering, and the central bank increasingly financing the treasury, Argentina seems to be headed toward a negative equilibrium of low growth and high inflation. But fear of following more orthodox policy prescriptions that, in the government's view, caused the last crisis (and Europe's recent troubles), may be generating the next economic crisis. Financial investors clearly have a reason to be concerned. Argentina still has

debt in default and has been tweaking official statistics in part to pay less debt. The paradox, however, is that the government is imposing trade and foreign exchange restrictions precisely to have enough dollars to meet its debt obligations. To some extent, this is because the effects and memory of the 2001 debt default are still alive. Fernandez de Kirchner's government is a product of the economic crisis, and during her presidency and that of her husband, the late Nestor Kirchner (2003-2005), the government was willing to take interventionist actions to service the debt for fear that financial troubles could cause them political troubles, even if these measures are now generating inflation and a sharp economic slowdown. In fact, the memory of the crisis can also be seen in the government's obsession with maximizing short-term growth and consumption, and in its reluctance to implement needed macroeconomic adjustments (especially if they are seen as orthodox measures). At the centre of the problems is rising inflation. Official inflation is at 9.9 per cent, but the credibility of those figures has been questioned since 2007 (private estimates put inflation above 25 per cent). Inflation first picked up following Argentina's 2002 devaluation and has been rising over the past few years due to expansionary fiscal and monetary policies. In contrast to most of its neighbours where independent central banks actively fight inflation, the government has been increasingly relying on the central bank to finance the treasury, and even reformed the bank's charter earlier this year to gain further support.


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High inflation, and the government's reluctance to let the currency depreciate substantially, has led to a rapid increase in imports and capital flight ($21 billion in 2011), all of which have put pressure on the currency. Low investment in the energy sector, a result of low prices and interventionist policies, has led to ballooning energy imports (which increased by 113 per cent in 2011). The government responded to the deterioration in the external accounts by restricting purchases of dollars, limiting imports substantially, and nationalizing the largest energy company, all measures that have aggravated the country's problems. Argentina seems to be caught in economic limbo. It is aware that making its debt payments is of paramount importance, but is unwilling to adopt the economic policies that would make it easier to do so without causing more economic damage. Foreign investors are right to be experiencing flashbacks. ↑Return to Index

Colombia’s middle class doubled over the past decade

Colombia's middle class has grown from 15% of the population in 2002 to 28% in 2011, a study by Bogota's Andes University showed. The study "Social Mobility in Colombia" estimated that the middle class reached 30% of the population in 2012, which would mean the country's middle class would have doubled over the past decade.

The study defined the middle class as the group of Colombians with a monthly income between $1,100 and $5,500. Economist Alejandro Gaviria, leader of the study, warned that the new middle class is still fragile and could fall back into poverty because of its credit situation. "The study shows that income has increased, as in, there is a real sustainability, but this has been amplified by an expansion of debt,

mainly in consumption, which has grown to be more than 30% in the past years. This is worrisome. It has happened in Brazil [where] they recently put the brakes on the economy because there was an unsustainable increase in families' debt," Gaviria was quoted as saying by economic magazine Portfolio. According to the study, Colombia is still significantly behind other developing Latin American economies like those of Chile and Mexico where the middle class consists of respectively 50% and 40% and poverty has dropped to respectively 7.1% and 17.4%, while in Colombia more than 35% of the people live below the poverty line. According to 2010 World Bank figures, Colombia had the highest unemployment, poverty and inequality rates of its neighbours. ↑Return to Index

Feature: Corporate Social Responsibility makes gains in Latin America

(Editor’s Note: The following article was published in Knowledge@Wharton) In April, singer Shakira took the stage in front of the Western Hemisphere's most influential business leaders and delivered a message: Open your wallets. "It would be fantastic to see the business leaders of Latin America embrace philanthropic capitalism in the way that executives in other countries have, for example Bill Gates and Warren Buffett, who ask multimillionaires to promise that they will pledge half of their fortunes to help the poor," she said, addressing the first ever CEO Summit of the Americas in Cartagena, Colombia, her home country. The audience included chief executives from Fortune 500 companies, foreign presidents and the heads of international organizations. Shakira, whose own charity has worked with poor Colombian children for the past 15 years, challenged them to "compete to see who writes the biggest check."


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Whether a check-writing campaign will ensue remains to be seen. But Shakira's plea highlighted a question that's being pondered in business schools and boardrooms alike: Should corporations and their executives do more to help the poor? It's an issue of particular importance in the developing world, where the chasm between rich and poor has turned the spotlight toward the role multinationals play in communities. Latin America's economic growth has meant boom times for corporations, which have benefited from widespread privatization of services and the consumption of products by a growing middle class. The growth has made millionaires and billionaires, including the world's richest man, Mexican telecommunications mogul Carlos Slim, whose net worth hovers around $69 billion. In contrast, 161 million people, about 30% of the region's population, still live in poverty, according to a survey by the Argentine Universidad Nacional de La Plata and the World Bank. What's more, access to health care and quality education remains out of reach for the majority. Corporations have moved to address social development as part of business practices as much as philanthropy. "There's a growing awareness about the need to focus on developing the broader institutional and social structures in which companies operate, which will then help the overall market and economy and community develop," says Nien-hê Hsieh, a professor of legal studies and business ethics at Wharton. In a climate in which public trust in corporations is near an all-time low, according to polls, such well-meaning endeavors can go far in rebuilding trust and restoring the public faith in a company. Latin American consumers say corporations are improving in their approach to social responsibility, according to the "State of Corporate Social Responsibility 2011" report by Chile-based Forum Empresa, which surveyed 3,200 people, including 1,279 executives. Seventy-two (72)% of respondents said that the CSR practices of national companies had improved from 2009 to 2011 and 64% said the practices of multinational corporations had improved during those two years. Corporations have for decades instituted social programs into their corporate social responsibility strategies. While companies are paying more attention to social development, they are split over how heavily to incorporate poverty alleviation into projects. Strategies that focus on helping the poor, such as the so-called bottom of the pyramid approach, have won supporters and drawn critics. "The biggest discussion has been around whether bottom of the pyramid strategy is really the best way to alleviate poverty. That's a debate that's still underway," Hsieh notes. Coimbatore Krishnarao Prahalad, whose 2004 book The Fortune at the Bottom of the Pyramid suggested that multinational companies should focus on the world's poor as a market for products, brought the approach into the public consciousness. Prahalad died in 2010, but in a 2009 interview with Knowledge@Wharton, he said the idea had transformed efforts at poverty alleviation on many levels. "For example, several of the multi-lateral institutions -- The World Bank, UNDF [United Nations Development Fund], IFC [International Finance Corporation] and USAID -- have fundamentally accepted the idea that involvement of the private sector is critical for development....," he noted. "I asked 10 CEOs of companies as diverse as Microsoft, ING, DSM, GSK and Thomson Reuters to essentially reflect on whether the book has had some impact on the way they think about the opportunities. Uniformly, everybody -- whether it is Microsoft or GSK -- essentially says not only that it has had some impact, but that it has changed the way they approach innovation and ... new markets." Researchers have questioned the ethics of such an approach to poverty alleviation. The "strategy has some inherent problems, however, and [Prahalad] admits that 'profit creation and poverty alleviation do not mix easily or well,'" wrote Kirk Davidson, professor of international studies at Mount St. Mary's University, in the Journal of International Business Ethics in 2009. "Whether his vision is feasible or whether it is a 'mirage' ... is a debate that should engage scholars for some time to come." While that debate continues, many companies, large and small, have begun instituting programs that focus on benefiting the poor while also the bottom line. In one case, a Nicaraguan cigar manufacturer opened a daycare centre across the street from the factory. The workers are allowed to leave the job whenever necessary to meet with teachers or attend to their children. Aside from a convenience for workers, the center helped the manufacturer improve production by cutting down absenteeism. On a broader scale, foods giant Nestlé, aiming to improve the lives of small producers in the region that provide its raw materials, modified its value chain to work more directly with farmers. The corporation, with annual sales of more than US$4 billion in Latin America, says the change will benefit its 150,000 suppliers in the region. The change also gives preference to those suppliers producing products in an environmentally sustainable way. "To us, corporate social responsibility is not something that is imposed from the outside, but is an inherent part of the Nestlé business strategy," Peter Brabeck-Letmathe, the company's chairman and chief executive, said in a statement.


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In Mexico, PepsiCo decided it wanted to use healthier oils to produce fried snacks. It began working directly with sunflower farmers in the southern Mexico state of Chiapas. PepsiCo received a dependable source of oil and the farmers received the training and support to increase production and, ultimately, sell more sunflower seeds. A common thread among those examples is that they link corporate social responsibility to business goals. "Companies are looking to make a business case for their social programs. The programs have to be tied to their strategy," says Steve Puig, vice president for the private sector at the Inter-American Development Bank. He pointed to the issue of youth unemployment in Latin America. Across the region, nearly 16% of youth -- ages 15 to 24 -- were unemployed in 2009, according to a study by the Economic Commission of Latin America and the Caribbean. In some countries, the unemployment rate for that group was closer to 50%, feeding a cycle of poverty and youth violence that has contributed to the growth of gangs and criminal activity. While it could be seen as a purely a social issue, youth unemployment also affects business. For a McDonald's franchise, or a Wal-Mart store, the availability of qualified workers is imperative. In 2011, a survey by human resources firm Manpower found that 40,000 businesses in Latin America and the Caribbean struggled to find qualified employees. In April, at the same event where Shakira spoke, the Inter-American Development Bank announced a ground-breaking initiative aimed at Latin America's youth. During the next decade, the corporations will train one million youth in Latin America and the Caribbean. The so-called New Employment Opportunities program puts the private sector at the forefront of a key social problem that feeds poverty in Latin America, Puig notes. "It's an approach that is pan-regional and involves some of the biggest employers in Latin America," he says. Among those that have signed on are Wal-Mart, Caterpillar, Microsoft, cement company CEMEX and the leading McDonald's franchise. Together, those companies already employ around 500,000 people in the region. So far, companies have committed some $37 million in cash or contributions, including promises for job placement. By coordinating efforts across borders and across corporations, the bank hopes to create a sustainable platform to address youth unemployment, Puig adds. Beyond the Buzzwords Sustainability has long been a buzzword in corporate social responsibility circles, fuelled in part by a rejection of previous practices. Corporations have been roundly criticized for relying on one-off projects -- like funding the construction of a health clinic with no regard for how it will be staffed or kept full of medicine -- to curry favour with consumers. Local companies are moving away from that approach, however, and opting for long-term projects. Justin van Fleet, a Brookings Institution researcher studying corporate social responsibility trends in Latin America, said multi-Latinas (home-grown Latin American corporations with operations throughout the region), more than multinationals, are investing in multi-year projects that have a direct effect on their consumers or workforce. "[Multinationals] are engaging in a lot of the same things, relatively small projects with short-term, or one-time, grants," he notes. "Multi-Latinas, on the other hand, have more three- to four-year projects." To carry out those projects, corporations are working through local channels, like non-governmental organizations, and, where applicable, government agencies. "There's a thought that to address sustainability in a real way, you have to ... get local stakeholders involved," Puig says. "One of the ways around the challenges of [working on projects in foreign countries] is through partnerships with NGOs, governments and other organizations that know how to engage that community." For example, the New Employment Opportunities program calls on Latin American governments to commit to job training programs. It also partners with the International Youth Foundation, an international NGO that specializes in youth programming. The success of the program "relies on public and private sectors working together ... including interacting with governments," Puig notes. According to van Fleet, corporations are also looking beyond traditional areas in an effort to establish more sustainable projects. Whereas health projects, like building a clinic, were once the mainstay, corporations are investing in other sectors, like education. Investment in education, van Fleet notes, has reached between US$500 million to $1 billion. While that's just a fraction of the roughly $8 billion invested in social programs, it's increasing substantially, although the figures have not been tracked over time. Yet, sustainability has yet to be fully embraced by the business community. Only 55% of corporations surveyed in the "State of Corporate Social Responsibility 2011" report had published a sustainability policy. Hsieh sees a similar split within the corporate community over the role of corporate social responsibility in general. "There remains a debate and I think it will be this way going forward, about whether corporations should be focused on profit for shareholders or whether they have a greater responsibility," Hsieh says. "That's a debate that we have not yet answered." ↑Return to Index


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Entrepreneurship in Chile – Beyond the Start-Up

(Editor’s Note: The following are excerpts from an article written by Julian Dowling and published in bUSiness Chile, the newsletter of Amcham Chile, on 18 July 2012) Over 100,000 new businesses have been created in Chile in the last two years as public programs and private investment have encouraged Chileans to become their own bosses, but more venture capital is needed to allow promising start-ups to expand

globally. A key facilitator of this growth has been, Start-Up Chile, a government program which gives entrepreneurs US$40,000 each to spend six months developing their ideas in Chile. Since President Piñera took office in March 2010, Chileans have started over 100,000 new businesses, which was the government’s goal for its four-year term. This includes 15,007 in the first three months of this year alone, up 37% from the same period in 2011, according to figures from the Ministry of Economy. These figures are particularly impressive in an economy at, or close to, full employment. Around 30% of total entrepreneurial activity in Chile is still out of necessity, and most new businesses have less than five employees, but the percentage

with the ambition to grow is climbing. According to the 2011 report by the Global Entrepreneurship Monitor (GEM), 23.7% of Chileans surveyed said they had started a new business within the last three and a half years – roughly 1 in 4 Chileans – compared to 17% three years ago. Of these, 17.6% said they planned to hire 20 or more people in the next five years, which is up from 14% in 2009. “The report shows Chile has reached an inflection point in terms of entrepreneurial activity,” says José Ernesto Amorós, director of research in the Economics and Business Faculty at the Universidad del Desarrollo, which participated in the GEM study. Part of the surge in new business creation, after a decade of sluggish growth, can be explained by a cultural change in Chilean society in the last five years that has increased the “social valorization” of entrepreneurship, says Amorós. And, as entrepreneurship has become fashionable, the number of small business owners calling themselves “entrepreneurs” - from the empanada vendor on the street corner to the founder of an Internet start-up – is rising. But Chile’s entrepreneurial explosion would not have been possible without public support. President Piñera understands the importance of entrepreneurship as a tool for increasing social mobility and meeting his government’s goal of making Chile a developed country within this decade. In fact, he has declared this to be Chile’s Year of Entrepreneurship to be followed next year by the Year of Innovation. This includes measures to reduce paperwork for entrepreneurs and a series of events throughout the country organized by the government’s Economic Development Agency (CORFO). “Today, there is much more concern for entrepreneurs than ten years ago. This government has put a lot of emphasis on this issue,” says Andrés Concha, the president of Chile’s manufacturers’ association, Sofofa. For example, it has reduced the time required to start a new business from 27 days to seven, and a bill currently before Congress would allow this procedure to be completed in a single day at zero cost, which Concha says would be a blessing for entrepreneurs. In January, CORFO created a new Entrepreneurship Division to coordinate and expand the agency’s programs in areas such as venture capital, loan guarantees and seed capital. But it’s not only about the money, says Cristóbal Undurraga, CORFO’s manager of entrepreneurship. “Money is important, you need it to grow, but there is much more to making a successful business,” he says. According to Undurraga, entrepreneurial spirit, like athletic ability in soccer players, is innate in Chileans, but CORFO must create the conditions for them to thrive. “Many Chileans have the skills to succeed, they just need the right environment,” he said. “We’re trying to create an ecosystem of entrepreneurship.” This starts with education. In this regard, CORFO has created a program that has benefited 40,000 students by getting them excited about entrepreneurship from an early age.


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Chilean women are another largely untapped source of entrepreneurial potential. Some 45% of women are not currently part of the workforce, but CORFO is working with 10,000 women throughout the country to help them start their own businesses. “We believe entrepreneurship is an important vehicle for women to create value for themselves, their families and the country,” says Undurraga.

CORFO’s programs are national, but the proximity to clients and support networks makes it easier to develop high-tech businesses in Santiago. Start-Up Chile, which has selected over 300 start-ups from around the world through five rounds of applications, is also biased towards Internet ventures that can be easily moved on a plane. Elsewhere in the country, reconstruction after the February 2010 earthquake helped to drive entrepreneurship in the hardest hit areas, but it is also climbing in areas that weren’t affected. According to the GEM study, the highest rates of entrepreneurship are in the northern regions of Antofagasta and Tarapacá – 27% and 29% respectively, versus 24% in Santiago – mainly due to growth in services related to the mining industry. The rate is also growing in southern Chile, especially in areas related to agroindustry and tourism,

but the regions of Valparaíso, Santiago and BíoBío have the lowest overall rates because they offer more employment opportunities. “The opportunity cost of entrepreneurship in these areas, especially in Santiago, is much higher,” points out Amorós. Despite efforts to reduce red tape, there are still important obstacles for entrepreneurs, especially in terms of access to banking services. CORFO’s programs and better protection for intellectual property have had a positive impact on entrepreneurship, but more could be done, says ASECH’s López. For example, in some cases it’s almost impossible for entrepreneurs to open a bank account. Many banks require IVA sales tax receipts, which is a problem when you’ve only just created your company. “If you don’t have a bank account, you don’t have a place for clients to deposit payments and this creates a vicious cycle,” says López. Then there is the high cost of financing. Even with CORFO guarantees, banks are reluctant to loan money to early stage entrepreneurs who are considered very risky. Even if they do succeed in getting a loan, they are charged relatively high rates. “This is a major obstacle to entrepreneurship and something we’re working on,” says CORFO’s Undurraga. “But this can not only come from the government, it’s a public-private effort.” There is also the social stigma attached to failure. While this is considered part of the normal business process in other countries, in Chile it can mean difficulty in obtaining loans and even the end of a career. Part of the problem is Chile’s bankruptcy legislation. It can take months for entrepreneurs to extricate themselves from a doomed venture and, by the time they do, their assets have shrivelled. In the United States, lenders recover about 80% of the value of their investment, versus about 30% in Chile. But the government is working to change the law to make it simpler and faster to close a business. “This represents a significant change from the past where bankruptcies were synonymous with death of the enterprise and the entrepreneur,” says Concha. Finally, another obstacle is the high concentration in some sectors of Chile’s economy. This is a fact of life for entrepreneurs everywhere in the world, but even more so in Chile’s small market. By bringing entrepreneurs together, however, ASECH is trying to level the playing field. “We’re not asking for a free ride, but the self-made man needs a chance to make it on his own,” says López. Ultimately, it might take five years for the entrepreneurship ecosystem to be truly formed in Chile, but the government, universities and entrepreneurs share a common objective. There are still obstacles, but the tidal wave of entrepreneurial fervour appears unstoppable. For the sake of the country’s economic and social development, that is a good thing. As Undurraga says, “Chile will only become a developed nation if people can develop themselves.” ↑Return to Index


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Argentine government takes control of oil and gas industry planning

At the end of July, the Argentine government announced the creation of an oil planning commission that will set national energy goals and have the power to review private companies’ investment plans.

Oil producers will be catalogued in a national registry overseen by the new commission, according to a decree published in Argentina’s official Gazette. Companies will have to submit annual investment plans by September 30 and the commission will be able to reject proposals it deems aren’t consistent with the national energy goals that the body sets. The decree strengthens Argentina’s control over the oil industry after the April nationalization of YPF, Argentina’s largest energy company, on the grounds that it failed to invest enough to increase output. Argentina seized a 51% stake from Spain’s Repsol SA after opposing the company’s payment of dividends.

The new commission will be made up of officials from the planning, energy and internal commerce ministries, the official bulletin shows. It will seek to “increase and maximize investments employed to explore, exploit, refine, transport and sell hydrocarbons with the goal of guaranteeing self-sufficiency and sustainability,” according to the document released by the Argentine government. The body will have 60 days to review the annual investment plans submitted by energy companies and “verify their consistency and adaptation” with the goals it establishes. It can “request the submission of a new annual investment plan that adjusts to the requirements of the national plan for hydrocarbon investments,” the document shows. The government is authorized to fine companies that don’t comply with national regulations and cancel their concessions,

according to the document. ↑Return to Index

Rousseff pledges to tackle the ‘Brazil cost’ with new stimulus

Brazilian President Dilma Rousseff said on July 27 that her government will unveil more measures to stimulate the economy in the next few months, including investments in ports, airports, railroads and highways.

Speaking to reporters in London, where she was attending the opening of the Olympic Games, Rousseff also said Brazil's economy will grow at a faster rate in coming months, despite the impact of the global economic crisis. “We will move forward with our counter-cyclical program in August and September” she said, referring to the raft of stimulus measures Brazil has deployed since the beginning of the year, such as tax breaks to stimulate consumer demand. The government does not rule out additional tax breaks, but the focus now seems to be on tackling the so-called “Brazil cost” - the mix of logistical bottlenecks, high taxes and other costs that make Brazil one of the world's most expensive places to do business. “We're very worried about the country's cost,” Rousseff said, citing plans to reduce electricity costs by lowering taxes for energy utilities. Brazil, which will host the World Cup in 2014 and the Olympics two years later, has

been struggling to improve and expand its infrastructure as its economy grinds to a near halt.


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After strong growth of 7.5% in 2010, the economy grew by just 2.7% in 2011. This year, economists are forecasting growth of as low as 1.5%. Rousseff said additional stimulus measures will not compromise Brazil's fiscal stability, even as some economists warn the country may miss this year's primary surplus target. “We surely are on a path to stability. We will do all of that while maintaining our fiscal strength, inflation under control and keeping our social policies,” she pledged. ↑Return to Index

Infrastructure a key element of Humala strategy

Peru's President Ollanta Humala announced an imminent reform of the national public investment system (SNIP) and the start of the investment process for a new international airport in Cuzco during a speech on July 28 that marked his first year in office. With regard to the SNIP, "we are introducing changes that will allow the speeding up of the whole investment process and extend the scheme to issues related to the management and adoption of new technologies to benefit of 1,600 local governments," Humala said. As for the long-awaited Chinchero airport, congress will soon receive a bill to give Cuzco's regional government the power to move ahead with acquiring the land needed for the works, Humala said. Investment promotion agency ProInversión is looking to sign the Chinchero concession contract in 2013, ProInversion's interim head Héctor René Rodríguez said. The controversial US$200mn Majes-Siguas II irrigation project is also about to be carried out under a "bi-regional framework," Humala added. On a broader level, the president committed to carrying out by 2016 Lima metro line 2, the paving of the Longitudinal de la Sierra highway, the building of 1,000 bridges across the national road network and the extension of broadband internet access to 195 provincial capitals. ↑Return to Index

A single window customs clearance system for Chile (Editor’s Note: The following are excerpts taken from an article written by Aaron Nelsen and published in bUSiness Chile, the newsletter of Amcham Chile,on July 17) Despite Chile’s numerous free trade agreements and relatively efficient customs procedures, obtaining clearance to export and import goods can be time consuming, but a new single window system is designed to change that. Chile sees itself as a business leader and model of economic stability in the region, but this image is belied by unwieldy customs procedures. Development agencies are fond of using Chile as a benchmark in Latin America for trade facilitation initiatives. And

yet, according to a recent World Bank report, Chile’s clearance procedures “remain time consuming and cumbersome”. Overall, Chile ranks 14

th in the Global Enabling Trade Index 2012, up four positions from

2010 and top in the region. But the report says it takes 21 days to export goods from the country versus an average 18 days in Latin America and the Caribbean, 10.9 days in the OECD, and just six days in the United States. According to World Bank estimates, a day's delay reduces exports by around 1%. Therefore, given that Chile’s goods exports reached US$80.6 billion in 2011, every additional day of delay entails costs of some US$806 million. Halving the clearance time could, in theory, save the country around US$8 billion annually.

The report notes that, in spite of these problems, Chile has made significant strides toward modernizing its customs regime, including efficient procedures and little corruption, but clearly there is more to be done.


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Jose Raúl Perales, executive director of the Association of American Chambers of Commerce in Latin America (AACCLA), says Chile stands out among its peers in terms of its customs management and port facilities. Chile has achieved an advanced system of customs management aimed at simplifying procedures. In fact, Chile has reduced tariffs on almost all its imports and is considering a bill that would gradually eliminate the general import duty by 2015, which would be a tremendous incentive for trade.

Yet, despite these advances, considerable challenges remain. When compared to the developed economies of the OECD, Chile ranks near the bottom in terms of the expediency of moving merchandise. And there are still difficulties and limitations with the digitalization of procedures, as well as occasionally poor coordination between the various ministries, private agencies and the Armed Forces, says Perales. “You may have a situation where you’re bringing in a good that appears on the Armed Forces control list,” Perales explained, “and they can detain that good without being fully cognizant of the rules and regulations in the Free Trade Agreement.” Single window system To avoid these types of messy entanglements and reduce red tape, Chile is working

on a single window system, known as the Integrated Trade System (Sistema Integrado de Comercio Exterior, or SICEX), which is designed to halve the average number of days required to clear customs. The idea behind this, explained Alejandra Arriaza, technical manager at Chile’s National Customs Service in Valparaiso, is to provide government agencies, exporters and importers with an online process for coordinating the movement of goods in and out of the country. Chile has been working on an electronic trade facilitation system since 2004. It integrated some customs agencies in 2006 and created a website to provide information for exporters in 2008, but the government of President Sebastián Piñera has made the single window system a priority. A presidential advisory committee was created to study this in November 2010 and, a year later, an international bidding process was launched for the design and implementation of SICEX. The winning bidder of the contract, announced in March this year, was a consortium comprised of the Spanish consulting firm Everis and eTrade services provider CrimsonLogic Panama. In its first stage, the new system will incorporate 18 different government agencies by the end of this year, capping the export clearance procedure at 14 days. The second phase, scheduled to be up and running by mid-2013, will incorporate importers, and in 2014, the system will attempt to bring transport and logistics companies into the fold, a feat that Arriza says would reduce clearance times by several more days.

“The absence of a unified system is a problem because it involves physically going to several different places before a product can be exported or imported,” said Paulina Nazal, head of Market Access at the Foreign Ministry’s Department of International Economic Affairs (Direcon). “Exporters and importers tell us all the time that if there was an integrated system where they could get all the necessary certificates in one place, it would make their job much easier.” Seasoned customs broker Alan Smith, who heads the National Association of Customs Brokers (ANAGENA), also believes the single window system will improve procedures that he says can, at times and for some specific products, be a bureaucratic nightmare. However, he points out that the SICEX system, as it is currently designed, does not incorporate private companies such as freight forwarders, shipping lines, port terminals, customs warehouses, insurance surveyors and local trucking firms. Even if these companies were included in the system at

a later date, he is dubious that they can all be successfully brought under the umbrella of one system.


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But there are other ways to speed up the customs process. One feature of the current import system allows for advance clearance up to a week before arriving at port, shaving potentially days off the time it takes to clear customs. Given such time-saving devices, Smith disputes that clearance procedures average anywhere near 21 days, as the World Bank indicates. “We estimate the number to be somewhere between 10 and 14 days,” he said. Around 80% of all cargo has left the pier within 48 hours of arrival , while another 20% - usually agricultural products - requires additional inspection, but the average time for that cargo to clear is between 3 to 4 days. In general, exporters of perishable items have few complaints about customs procedures, which include inspection by the Agriculture and Livestock Service (SAG). The paper trail occasionally causes “some minor delays when demand is high,” according to Ronald Bown, president of the Chilean Association of Fruit Exporters (ASOEX), but nothing that can’t be fixed with a little tweaking. In reality, however, there are other obstacles that companies face in achieving smoother import and export procedures, which a single window can’t fix. Infrastructure bottleneck The challenges faced by fruit exporters are fairly representative of the country’s infrastructure limitations. The Ministry of Agriculture recently reported that more than 90% of all produce is exported from the ports of San Antonio and Valparaiso. In fact, around 70% of all exports and imports move through these two ports, creating a bottleneck and occasional issues with the movement of merchandise. While there have been efforts to develop ports in Iquique and Punta Arenas, the fact remains that Chile has a complicated geography. Beyond this, however, Chile’s institutions need updating, says AACCLA’s Perales. Over the past decade, while the country was busily signing free trade agreements, notably with the United States in 2003, modernizing its customs procedures and port infrastructure wasn’t considered a necessary part of negotiations because there was already a very good system in place – imports had been electronically processed since 1997 and exports followed shortly after in 2000. Since then, the US has penned free trade agreements with Peru and Colombia as well as Central American countries, all of which contain commitments addressing trade facilitation. “One of the things Chile doesn’t have with the United States that countries in Central America do is a chapter on capacities to modernize customs and allow for the faster movement of goods,” noted Perales. “Part of that was because Chile came first, but part of it was the Chileans had already done a lot of the leg work before the agreement was in place, and in the minds of US and Chilean negotiators Chile did not have a need to develop its institutions.” Nevertheless, export-based industries have high hopes that a single window system will solve many of their problems. ↑Return to Index

Venezuela joins Mercosur trading blocc

Venezuela has joined Mercosur, six years after first applying to join the South American trading bloc. President Hugo Chavez went to Brazil for the ceremony – held on July 31, in his first official trip abroad since being diagnosed with cancer more than a year ago.

"We have waited for this day for many years. This is our path, it is our project, a South American union," said Mr Chavez. Mr Chavez was welcomed in Brasilia by President Dilma Rousseff and the leaders of the other full members of Mercosur - Argentina's Cristina Fernandez de Kirchner and Uruguay's Jose Mujica. Venezuela's inclusion was made possible with the temporary suspension of Paraguay in June over the impeachment of president Fernando Lugo.


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It ends a long drawn out process that began in 2006 and is a chance for the Venezuelan leader to argue that his country is not economically isolated. Earlier in the year Venezuela left the Andean Community of Nations, the region's second largest trade bloc, which includes key allies of the United States. Venezuela's admission to Mercosur was blocked for years by Paraguayan congressmen because of concerns about Chavez's democratic credentials. 'Oil interest' A statement by the Brazilian foreign ministry said "the incorporation of Venezuela alters the strategic positioning of the bloc, which will now extend from the Caribbean to the extreme south of the continent". Brazil said Mercosur was "also positioning itself as a global energy power in renewable and non-renewable resources". ↑Return to Index

For the diary Date: August 28, 2012 Event: ALABC Roundtable with the Latin American Heads of Mission Venue: 55 Collins Street, Melbourne Organiser: ALABC [By invitation Only] Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Date: August 29, 2012 Event: Melbourne Annual Dinner Venue: Chapter House, 197 Flinders Lane, Melbourne Organiser: ALABC

Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Date: August 29 - 30, 2012 Event: Melbourne Latin America Dialogue Venue: Level 7, Raymond Priestley Building, University of Melbourne Organiser: The University of Melbourne (By Invitation Only) Contact: Zoe Dauth ([email protected]) or Tel: 03 9035 6387 Date: September 19, 2012 Event: Sydney Annual Dinner Venue: Tattersall’s Club, 181 Elizabeth Street, Sydney Organiser: ALABC

Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Date: September 19 & 20, 2012 Event: South American Diggers 2012 Conference Venue: Sydney Exhibition & Convention Centre, Darling Harbour, Sydney

Organiser: Association and Communications Events

Contact: www.southamericandiggers.com.au Date: October 10, 2012 Event: Brisbane Annual Dinner Venue: Customs House, Queen Street, Brisbane Organiser: ALABC

Contact: Kim Robinson ([email protected]) or Tel: 02 9357 4441 Please visit our website www.alabc.com.au for regular updates. ↑Return to Index





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hairman’s message - alabc australia-latin america ... · according to bank of america merrill...

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