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Amcor makes acquisition in Brazil (This article was written by Sue Mitchell and was published in the AFR on April 9, 2015) Outgoing Amcor chief executive Ken MacKenzie is tidying up loose ends before he steps down in July, announcing Amcor's second

bolt-on packaging acquisition in the space of two weeks. Amcor has agreed to pay $US30 million ($39.1 million) for the Brazilian tobacco packaging operations of Souza Cruz, which is majority owned by British American Tobacco plc and is the market leader in the Brazilian cigarette market.

The deal includes a long-term supply contract between Amcor and Souza Cruz and the business, which is based in Cachoeirinha, Rio Grande do Sul, is expected to achieve annual sales of approximately $US63 million. Mr MacKenzie said the acquisition, which is conditional on approval from the Brazilian Anti-trust Authority, was aligned with Amcor's strategic objective of growing its packaging operations in Latin America. "It represents an excellent opportunity to support an important global customer by extending access to Amcor's global innovation platforms and strong operational capabilities," he said. Brazil represents 35 per cent of the Latin American cigarette market and is the 12th largest tobacco market in the world. Amcor has made 16 acquisitions over the past four years in rigid plastics and flexible packaging. Each acquisition has delivered returns at or above its benchmark return on investment hurdle of 20 per cent. The global packaging giant has identified a $US2 billion pipeline of potential deals, mainly in emerging markets such as Africa, Latin America and Asia, which are growing at more than twice the pace of developed markets such as North America and Europe. ↑Return to Index

This issue (Click on each heading to open article)

Amcor makes another acquisition in Brazil 1

Carnegie secures wave power deal in Chile 2

Macquarie to set up America’s quantitative hedge fund 2

MMG on track with Las Bambas 3

Hopes for lower airfares on Pacific route 3

Chairman’s message 5

Strategy: Education sector encouraged to look to Latin America 6

Latam Autos launches regional content platform 7

Downing Teal opens office in Sao Paulo 8

Analysis: No more abundance for Latin America 8

Colombia proposes integration of Pacific Alliance pension funds 9

Investors face a rough road in Cuba 10

LAN’s inaugural Boeing 787 flight 11

Chile to spur investment with new environmental law 11

Chile’s rainy day refuge 12

Mexico the new China for GM and other manufacturers 13

Ecuador aims to grow its mining appeal 14

Peru’s retail booms to see surge in mall developments 14

Colombia could host next offshore boom 15

Brazil to join the Asian Infrastructure Investment Bank 16

Chile’s telecoms industry clears hurdles 16

Opinion: Latin America’s future intertwined with China 17

Analysis: Latin America has growth problems 18

Ecommerce in Latin America – Challenges & Opportunities 19

Latin America’s image problem 20

For the Diary 21

Latam News April, 2015

Newsletter of the Australia-Latin America Business Council

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Carnegie secures wave power deal in Chile

(This article was written by John Conroy and was published in The Australian on April 16, 2015) Wave energy developer Carnegie Wave Energy Limited has signed a "collaboration agreement" with a Chilean private/public research hub to drive commercial wave projects in the country. The ASX-listed firm's deal with Fundación Chile - the main applied

innovation centre in the region, with a focus on sustainability - will include the assessment of wave resources at various sites, the regulatory environment, site identification and development and project financing and construction. Carnegie’s business development manager, Edoardo Sommacal, said Fundación Chile was a key player in

the development of the renewable energy and innovation in South America, and that Chile had a "world class wave resource". Fundación Chile’s renewables head Juan Ramon Candia said the foundation had been in the past been very active in promoting the development of solar in the country, with Chile now one of the world's key solar markets. "The agreement we have signed with Carnegie represents a great opportunity for our organisations to collaborate towards making wave energy a reality in this part of the globe," he said. The project will include a survey of the energy requirements of the coastal sector of the Region of Valparaíso including assessing for the first time wave resources at Robinson Crusoe Island and possibly Easter Island. The signing of this agreement comes several weeks after Carnegie announced to the market that it had identified significant potential for wave power and desalination projects in South America, and Chile in particular. This announcement was made at the time that Carnegie signed an agreement with Perth-headquartered water treatment specialist MAK Industrial Water Solutions to act as its exclusive agent for South America. Recently, the Chilean government created an International Centre of Excellence (ICE) for marine energy and chose Carnegie as a wave technology partner in a consortium led by DCNS and Enel Green Power. Carnegie’s CETO technology uses an array of fully submerged buoys tethered to seabed pump units. Moved by the waves, the buoys drive the pumps which pressurise water. The water is delivered onshore via a pipeline and used to drive hydroelectric turbines that produce electricity. ↑Return to Index

Macquarie to set up a US$1bn Americas quantitative hedge fund (This article was written by Bei Hu and was published in the AFR on April 20, 2015) Macquarie Group plans to start a quantitative hedge fund this year that will invest in stocks listed in the US, Canada, Brazil, Chile and Mexico, said people with knowledge of the matter. The fund will trade stocks in the Russell 2000 Index, avoiding larger

companies targeted by peers, said the people, who asked not to be identified as the information is private. It is expected to have the capacity to manage $US1 billion of assets, including allocation from a global fund that Macquarie is starting, they added.

One in three investors in a Deutsche Bank survey said they will allocate more money to quantitative hedge funds this year, including equity strategies similar to Macquarie's, after strong performance in 2014. In the past year, Ray Dalio's Bridgewater Associates and Steven A. Cohen's Point72 Asset Management have been among firms that hired people or created new units that use computers to help with investment decisions. Nick Bird leads a Macquarie team of more than 20 people in Hong Kong, Sydney and New York that picks stocks with computer models without betting on broad market moves. Their investment approach allows fund managers to override decisions made by computers when the markets are at major turning points – like in the wake of the 2008 global financial crisis – or because of issues such as regulatory risks or mergers, the people said. Fiona McDonald, a Hong Kong-based spokeswoman for Macquarie, declined to comment on the fund plans.

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Macquarie is starting the Americas fund after assets for its Asian quantitative equity hedge-fund strategy reached $US2 billion and a similar strategy focused on Europe gathered $US759 million, according to March newsletters sent to investors. Both have hit their investment capacity and stopped accepting more money from investors, the people said. Macquarie will cap the size of the global fund at $US1 billion and it will allocate capital to the three regional strategies, the people said. The Macquarie Asian Alpha Fund, the team's oldest, has had a compounded annual return of 9.3 per cent between inception in October 2005 and March, according to its newsletter. The Eurekahedge Asian Hedge Fund Index returned an annualised 7.9 per cent over the same period. The fund, one of the largest quantitative equity hedge funds focused on the region, started with $US20 million of Macquarie capital in 2005, one of the people said. The European fund generated a compounded annual return of 11 per cent since inception in August 2012, according to its newsletter. ↑Return to Index

MMG on track for Las Bambas copper production in early 2016 (This article was written by Alex Emery and was published in BNamericas on April 20, 2015) A consortium led by MMG is on schedule to start production at its US$7bn Las Bambas copper-molybdenum project in Peru by early next year, local investment bank Credicorp Capital reported.

MMG, which is Hong Kong-listed but Melbourne headquartered said the mine is 90% finished, according to Credicorp analyst Héctor Collantes who cited a conference call given by MMG CEO Andrew Michelmore. "Our focus is now on construction of the primary concentrator, logistics of production and other key infrastructure," Credicorp quoted Michelmore as saying on the call.

The 140,000t/d capacity mine in Peru's Apurímac region, designed to produce 450,000t/y copper and 5,000t/y molybdenum, has begun pre-stripping work at the Ferrobamba pit, shifting 7.2Mt of earth in the first quarter, and has nearly finished relocating local residents to the new town of Nueva Fuerabamba, the brokerage said. MMG, expected to invest up to US$2.4bn in the project this year, is working on a road and rail system to transport concentrates from the mine to the southern coastal port of Matarani. Las Bambas is the largest project in Peru's US$62bn mining investment portfolio over the next decade, according to the energy and mines ministry (MEM). The government is counting on Las Bambas, Chinalco's US$3.5bn Toromocho operation, Hudbay Minerals' US$1.4bn Constancia deposit and Freeport McMoRan Copper & Gold's US$4.6bn expansion of its Cerro Verde mine to double the country's copper output to 2.8Mt/y by 2017. ↑Return to Index

Expectations grow for lower airfares on South America route (This article was written by Matt O’Sullivan and was published in Sydney Morning Herald on April 25, 2015) Australian travellers who have long complained about the high cost of flights to South America are set for a welcome boost as Chile's LAN Airlines and Qantas increase capacity, and Air New Zealand breaks their duopoly later this year when it resumes flights to Argentina. The extra flying is likely to put pressure on fares, and LAN concedes that demand has already softened on the long-haul route between Australia and South America in the first quarter of this year due to mining companies tightening their spending and a weaker dollar deterring some travellers.



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LAN has begun flying its new Boeing 787-8 Dreamliner aircraft between Sydney and Santiago via Auckland once a day, as a pre-emptive strike ahead of Air New Zealand launching direct Boeing 777 flights from Auckland to Buenos Aires three times a week in December. Chile's flag carrier will also switch to flying the stretched version of the more fuel-efficient Dreamliner, the 787-9 – which has 66 more seats than the smaller 787-8s – in the second half of this year. The larger aircraft will boost the airline's capacity on the route about 30 per cent.

Qantas, which is a code-share partner of LAN's, also increased its direct flights between Sydney and Santiago using 747-400 jumbos from three to four a week in February. LAN is part of the Santiago-based LATAM Group, which owns Brazilian airline TAM. Travel agents say the entry of Air New Zealand will put pressure on Qantas and LAN to lower fares on what has been one of the most expensive long-haul routes from Australia. LATAM Airlines Asia-Pacific managing director Patricio Aylwin said the airline had plans to boost capacity further in the longer term, although he

conceded this would depend on the performance of the existing daily services between Sydney and Santiago. "We want to continue expanding our operations into Australia and New Zealand … and develop this market even further," he said. "But it really depends on how successful we are in developing the market and how fast we can do it." Mr Aylwin said a weaker Australian dollar and intense competition for travellers from other destinations and airlines had resulted in passenger growth from Australia slowing this year. "We have had better years than we have had so far this year but we are certain that there is huge potential here in Australia and New Zealand," he said, noting that Australasia was a small market for LAN compared with the US or Europe. A slowdown in the mining industry – a large contributor to economic growth in South America and Australia – had also resulted in softer demand from corporate travellers. Mining company employees have historically made up a significant portion of LAN's business-class travellers on flights between Australia and the equally resource-dependent South America. "We have seen definitely softer markets on the corporate side … at both ends in Australia and South America. Companies are cutting the cost of travel," he said. Air New Zealand is also hoping to funnel Australians on to its flights to Buenos Aires when it begins services in December. However, a potential Achilles heel will be its code-share partner, Aerolineas Argentinas. Louise Hill, product manager for travel company Scenic, said Qantas and LAN had a significant advantage over Air New Zealand because of the Chilean airline's extensive network throughout South America and service perceptions with Aerolineas. "Aerolineas has always been the poor sister of South America, so that is where Air New Zealand will face a challenge," she said. "Air New Zealand's product is excellent but Aerolineas' is not. There is a lot of work they need to do on the ground." Argentina's flag carrier ditched flying between Sydney and Buenos Aires early last year due to mounting losses on the route. It flew ageing A340-200 aircraft to Australia. The airline's exit left LAN and Qantas as the only two airlines flying between Australia and South America. Mr Aylwin said LAN had significant respect for Air New Zealand, although he noted that the partnership with Aerolineas would be a "soft point" because the latter's network was smaller than LAN's. "Qantas struggled some time ago [flying] into Buenos Aires because they didn't have the right kind of connections," he said. "It will be a soft point for any other carrier going into South America." ↑Return to Index



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Chairman’s Message This edition carries an article from the Sydney Morning Herald that raises the possibility of lower airfares on the Australia-South America route as a consequence of increased competition (through the launch of the Air NZ Auckland to Buenos Aires service in December) and capacity (with both Qantas and LAN introducing either more services or more modern planes). If this ‘forecast’ comes to fruition, we are likely to see an explosion not only in tourism flows in both directions across the Pacific, but also in trade and investment flows. Lower airfares should enhance the ability of Australian teaching institutions capturing more students from Latin America, something that is high on the strategy paper recently released by the federal government as part of its review of the international education sector. The devaluation that most Latin American currencies have had against the US dollar over the past year will also enhance Australia’s appeal as an education provider. Tourism flows should also flourish, as there are ample signs that Australians are falling in love with South America and that interest in visiting the continent is growing at a rapid rate. With so much to offer, it is not surprising that the region is fast becoming an important option for Australians searching for something different and truly inspiring. Many of those tourists will also be business people and their visit to the region will serve to open their eyes to the opportunities on offer. Outdated or erroneous perceptions of the region will be wiped away and people will come to appreciate that there is wealth in the region, that economic activity remains healthy, that the markets offer plentiful opportunities and that it is not difficult to engage with the locals. Published reports can help to educate and inform people about the markets, but there is no substitute for on the ground contact and personal observation. At the same time, companies and their senior management need to accept that we are in a low-growth cycle and that this may be with us for some time. They therefore need to adapt to the new ‘normal’, but not solely by going on the defensive and shunning investment. Companies must invest in growth strategies and be prepared to look beyond their traditional safety zones, including markets. A recent paper published by the Boston Consulting Group advocates that “In order to succeed, you have to innovate, restructure, and grow. It’s an agenda of constant change in a new era of drastic change. Nothing is sacred. Your product portfolio is not sacred. . . . Your domestic market is not sacred, either. In today’s globalized world, staying loyal to the place where your company was born could be a fatal mistake.” I concur with this assessment and firmly believe that many more Australian companies should be looking to enter one or other of the markets of Latin America. These markets will not be for everyone (none ever are), but as it stands, too many of our companies are missing out on opportunities that others are only too happy to seize. Failure to act has a cost, even if it is hard to quantify. Change is constant and, quite often, what separates winners from losers is courage, foresight, perseverance and plain hard work. Embracing new markets is not for the faint hearted or ill-prepared, but can be very rewarding. Fortunately, we have in Australia a growing pool of talented executives that possess considerable experience in doing business in Latin America. Some are finding their way onto company boards, e.g. Alberto Calderon at Orica, Charlie Sartain at Austin Engineering and ALS, and Guy Cowan at Coffey International, to name but a few), but far too many are being overlooked by companies that would benefit from the advice and connectivity that these persons have to offer. Successfully operating in Latin America does require experience and this is not easily acquired. Companies should be willing to look beyond their established teams to find trusted advisors and executives who possess the language skills, cultural understanding and in-market networks to facilitate doing business in the region. By all means focus on controlling costs, but balance that focus with identifying a strategy for sustainable long-term growth. A good start might be to invest in an airline ticket to visit Latin America in order to see what’s there. You could be very pleasantly surprised and return with a gem of a plan. Jose Blanco, Chairman ↑Return to Index



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Strategy: Education sector urged to look to Latin America

(This article was written by Matthew Knott and was published in Sydney Morning Herald on April 2, 2015) Australia should look beyond the Asia-Pacific and lure more international students from Latin America and the Middle East to study at local campuses, according to a major federal government review of the $16 billion international education sector. Half of Australia's international enrolments come from just five countries - China, India, Vietnam, South Korea and Thailand. The government wants Australian higher education providers to expand into other regions where demand is booming while also building on their strengths in Asia. The review of Australia's biggest service export industry will also put pressure on the NSW and Victorian governments to reduce public transport prices for international students, who have complained of being treated like "cash cows" because they pay more for bus and train fares than local students. International student enrolments grew over the past year but have dropped by 6.5 per cent since 2009. Overseas vocational education and training enrolments plummeted by 28 per cent over that period. The Abbott government's draft national strategy for international education, to be released for consultation by Education Minister Christopher Pyne on Wednesday, finds the value of the international education market could double to almost $30 billion by 2020. But Australia will have to offer international students a better deal on course quality, public transport and accommodation as well as ensuring that visa arrangements remain competitive with overseas countries.

The Productivity Commission is currently examining whether Australia's policies on international student visas need to be updated. "We must secure the growth we are starting to see and be creative in the face of intensifying competition for market share," Mr Pyne said. "Maintaining quality in our institutions, marketing effectively and welcoming students from diverse locations are key." The draft national strategy finds that Latin American countries are encouraging their students to study overseas to solve local skills shortages. The government will work with governments in Latin America, the Middle East and Africa to sign bilateral education

agreements and increase scholarships for students from these regions. The biggest source country for international students outside Asia is Brazil with 22,000 students currently studying in Australia. This compares to 150,000 from China and 63,000 from India. The government is also calling on state governments to consider introducing equal access to public transport concessions. Unlike most other states, NSW and Victoria - where 60 per cent of overseas students study - do not provide transport concessions equal to those of local students. International students in NSW can apply for discounted yearly and 90-day travel passes, but not for single trips or passes in the MyMulti1 zone. Victoria this year launched a three-year trial offering international students a 50 per cent discount on annual public transport passes. The government will also consider options to improve access to affordable accommodation, including planning incentives for property developers to invest in student accommodation. Only 51 per cent of international students are satisfied with the cost of their accommodation, according to a 2013 government study. While overseas students must pass language tests before beginning their studies, the review identifies concerns they do not always maintain their English proficiency during their courses. There were 590,000 international students studying in Australia in 2014. Higher education enrolments grew by 8.5 per cent over the past year while vocational enrolments increased by 11.7 per cent. The national strategy for international education, Australia's first, will involve input from the education, foreign affairs, trade, immigration and industry portfolios. ↑Return to Index



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Latam Autos launches regional content platform (This article was written by Damon Kitney and was published in The Australian on March 16, 2015) LatAm Autos, a roll-up of online advertisers operating in Latin America that listed on the Australian Securities Exchange in December, is also rolling out its proprietary technology known as PTX that will provide the company with a unified, cloud-based platform for the first time.

LatAm has a portfolio of automotive websites in Argentina, Mexico, Bolivia, Ecuador, Peru and Panama and an automotive magazine in Argentina. Its shares are now trading above their 30c issue price after falling as low as 21c in late January. Its new automotive content platform, motorbit.com, is based on the success of the company’s Peruvian site todoautos.pe and will contain content on new cars and automotive technologies. “(This) will reduce our reliance on google marketing in the future ... It is really an additional spoke in our traffic

internet strategy,’’ LatAm Autos executive chairman Timothy Handley said. Morbit.com will reduce LA’s cost of acquisition over a customers’ lifetime because it will only need to acquire them once, wh ile it will also offer an additional revenue channel from advertising. The new site will also use a network of journalists in Panama, Ecuador and Argentina as well as journalists and video production and post-production experts in Peru. LA is also recruiting in Mexico. The journalists will provide content to support the platform. Both Seek and Carsales have targeted Latin America as a key driver for future growth and LA is looking to capitalise on that opportunity. By 2017, internet penetration in Latin America is expected to be at 63 per cent. The company has been speculated as a potential takeover target for Carsales, which owns the leading Brazilian auto marketing group WebMotors. Mr Handley dismissed concerns that the business was being valued as another roll-up play, some of which have been shunned by the sharemarket in recent times, especially in the education sector. “We don’t see our company as a roll-up,’’ he said. “Some of the risks that you have in integrating more bricks and mortar businesses don’t exist in this type of business. It is very much a people, marketing business. Seek and carsales have shown this can be done.’’ LA’s proprietary technology PTX will be rolled out across all its sites by the end of May. It will allow for faster navigation, increased functionality and user-friendly search functions within the platform, across multiple devices. It will also include a free car valuation tool for users based on current and previous listings of same model cars. “This will give us a very significant advantage over any of our competitors,’’ Mr Handley said. “This will be the backbone of the whole business. This has been a work in progress for quite a while. “It is mobile-friendly. The smartphone in Latin America is going to accelerate the internet penetration, even faster than we have seen in Australia. It is fundamental to have that strategy in place. From a general user point of view, when you look at the competing websites, the quality is pretty low.’’ The company has now completed two acquisitions it had planned before the IPO: Demotores in Mexico and Peru and Avisoriaweb in Ecuador, Panama and Bolivia. Mr Handley said LA remained on the lookout for other deals, but would be constrained by its current balance sheet. “There are some opportunities out there that we are always looking at. If we were to do an acquisition it would be funded via a capital raising,’’ he said. ↑Return to Index



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Downing Teal opens office in Sao Paulo Perth-based executive search and recruitment firm, Downing Teal, has launched operations in Brazil through the opening of an office in Sao Paulo. General Manager of the office is Luiz Mattos, who spent 25 years with Orica Mining Services in Brazil, in senior management roles. Downing Teal was established in Perth in 1966 and now has a presence in five Australian cities, and internationally in Chile, Peru and Colombia. The company also has alliance partners in South Africa and Canada.

The Brazil office joins other successful Downing Teal businesses in Latin America, where the company has been active since 2001, when it opened its Chile office. In Latin America, Downing Teal has built a strong reputation in the resources and associated industries. Coupled with the Australian parent business, which opened in 1966, Downing Teal brings the ability to source executive and operational management on a global basis, using senior consultants who gained their experience in resources oriented companies."

↑Return to Index

Analysis: Latin America – No More Abundance

(This article was written by Jens Erik Gould and was published on www.thefinancialist.com on April 1, 2015)

Much of the developing world has cheered on the steep decline in commodities prices over the past year. The nations of Latin America, however, aren’t clapping so loudly. After all, many of the countries in the region depend heavily on raw materials exports—from oil to copper to soybeans—to keep government revenue and growth afloat. After enjoying nearly a decade of increasing commodity prices, the region’s economies have been hit hard by the recent declines.

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While the price of Brent crude oil has increased 24 percent from its January low of $45 per barrel, it’s going to take a much greater reversal than that to make Latin America happy again. That’s because prices fell too far and have stayed low for too long — Brent was at $115 last June — and the region has a long way to go to work through the damaging effects the decline has wreaked on fiscal accounts. Accordingly, Credit Suisse has downgraded its 2015 growth forecasts for six of the eight countries it covers in the region, in the process reducing its overall projection for the region’s real GDP growth this year to 1.3 percent from 2.2 percent.

Economic growth isn’t the only statistic that’s deteriorating. Credit Suisse has also widened its projection for the region’s overall 2015 current account deficit to 3.7 percent of GDP from a forecast of 3.1 percent a quarter ago. Venezuela’s current account deficit is forecast to be 3.3 percent this year, a notable increase from the previous estimate of 1.6 percent. Credit Suisse has also increased its projected fiscal deficit for the region to 4.6 percent of GDP from 4.2 percent. Individual deficit forecasts have widened by at least 0.5 percent in Peru, Brazil, Venezuela, Colombia and Ecuador. Perhaps the most troubling case is that of Brazil, where Credit Suisse expects the economy to contract 0.5 percent this year instead of a previous forecast of 0.6 percent growth. A key reason for that change is falling prices for agricultural, mining and other primary products, which make up around 50 percent of the country’s exports. Because of this, fiscal revenues

have fallen, which, along with an increase in administered prices such as gasoline and electricity and a weakening real, have pushed inflation above the upper limit of the central bank’s inflation target. Accordingly, the central bank is expected to raise its benchmark rate to 13.75 percent by June – a 100 basis-point increase from current levels —which will likely further hurt business and consumer confidence. “It’s compatible with a deceleration in household consumption and a strong reduction in investment, which should keep economic activity on a downward trend,” Credit Suisse’s Brazil analyst Nilson Teixeira wrote in a March 9 report. Oil-exporting nations Colombia and Ecuador have also taken their blows. The former, recently regarded as a rising economic star in the region, is expected to see growth slow to 3.8 percent this year from 4.7 percent last year, according to Credit Suisse. Fiscal and current account deficits will widen due to lower oil prices, and the currency could weaken to 2,700 pesos per dollar by the end of 2015 from 2,560 pesos currently. Ecuador already announced $1.4 billion in spending cuts earlier this year, and it may have to cut outlays even more if it can’t find enough external financing to cover a deepening fiscal deficit. Credit Suisse downgraded its growth forecast for the country to 2.3 percent from 3 percent. In Mexico, while the impact of lower oil prices has been harsh, the government demonstrated a commitment to fiscal prudence by cutting public sector spending by 0.7 percent in the face of declining government revenue. “We think this move speaks volumes about the government’s strong commitment to maintaining a healthy macro framework,” Alonso Cervera, Credit Suisse’s Mexico analyst, wrote in a report. On a brighter note, Mexico’s belts may not need to be tightened much more since a strong U.S. economy and a weak peso are leading to acceleration in manufacturing export growth. ↑Return to Index

Colombia proposes integration of Pacific Alliance pension funds

(This article was written by Kieran Lonergan and was published on BNamericas on April 20, 2015) Colombian finance minister Mauricio Cárdenas proposed the integration of the Pacific Alliance countries' pension funds, according to a release by local pension association Asofondos. In practice this would mean treating Colombian pension fund investments in the other Pacific Alliance countries of Peru, Chile and Mexico the same as domestic investments, said Cárdenas at the eighth Asofondos congress. The minister also said that the Inter-American Development Bank (IDB) would soon be ready to present its report on necessary Colombian pension reforms. IDB senior specialist Maríano Bosch confirmed at the conference that the entity would present its findings and recommendations in the coming weeks. The IDB report will complement a study conducted by the OECD earlier in the year on how Colombia can improve its pension system. Colombia has come under pressure in recent months to urgently reform its pension system in order to make it more sustainable and fair, and increase coverage. "This is a reform agenda that should be discussed by all, in the coming months, to see which reforms we should introduce," said Cárdenas.



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Under the current system, which combines public defined benefit and private defined contribution plans, less than 40% of Colombians have a pension, while half the elderly population lives below the poverty line, according to the OECD's report. With the right reforms, however, coverage could rise to at least 60% in the next 10 years from 30% currently, Asafondos president Santiago Montenegro has said. At a separate presentation on the closing day of the association's conference, Angel Melguizo, head of the Latin America and Caribbean Unit at the OECD Development Centre, said informality was the biggest problem facing Latin American pension systems. In Colombia's case, the main elements contributing to high informality are the size of the minimum wage in relation to per capita income, high non-salary staff costs and a lack of skilled workers, said Melguizo, adding that the workforce should be trained according to the market's needs. Meanwhile, Colombian vice president German Vargas Lleras closed the event by echoing calls made by president Juan Manuel Santos that pension funds participate in the country's 4G highway construction projects. ↑Return to Index

Investors face a rough road in Cuba

(This article was written by Daniel Sachs and was published by Control Risks on April 17, 2015) The path toward normalized relations between the United States and Cuba is littered with hurdles. While negotiations between the two countries have proceeded in earnest since President Obama’s initial overture last December, considerable obstacles remain. Yet one of the biggest seems to have been eliminated this week when the White House signalled its intention to remove Cuba from the State Sponsors of Terrorism List. It’s not a completely done deal: the US Congress has 45 days to block the move. But any resolution in Congress seems unlikely to muster the necessary support to overcome a presidential veto. Thus it appears almost certain that Cuba will be removed from the list for the first time since 1982. The move will have an immediate effect, albeit a subtle one. In particular, it will mean an easing of financial sanctions that will give Cuba access to major foreign banks; cutting interest rates and lowering transaction costs. Latin American and European investors, particularly in banking, telecommunications, agriculture and infrastructure, may take particular interest in this development. Of course, the US trade embargo remains a major deterrent to investors—and perhaps the largest obstacle in the way of

normalized US-Cuban ties. The embargo is unlikely to be lifted anytime soon. Such a move requires congressional approval, which is highly improbable with a Republican-controlled legislature, especially in the run up to the 2016 presidential election. Other obstacles will also persist. Arguably the most complex issue to be resolved is outstanding property claims by Cuban exiles in the US, which total tens of billions of dollars. Any deal on this – and Cuba’s counter-claims that it is owed billions for revenue lost to the trade embargo – will be complicated and require significant compromises on both sides. Cuba’s relationship with its principal patron, Venezuela, is another potential stumbling block. Cuban President Raul Castro cannot afford to jeopardize the

aid he receives from Caracas and he will almost certainly continue his public support for Venezuela. Yet in doing so, he is unlikely to take any measures that would potentially derail talks with the US. Regulatory hurdles to foreign investment aren’t the only thing keeping companies from jumping headlong into the Cuban market. Even if the embargo is lifted, investors will face a range of longstanding and critical operating deficiencies in Cuba, including rampant corruption, weak financial and physical infrastructure, high levels of contractual risk and excessive bureaucracy. Cuba will remain attractive for its potential—and novelty—but harnessing that potential will require careful planning and risk management. ↑Return to Index



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LAN’s inaugural Boeing 787 flight from Sydney to Santiago LAN Airlines, part of LATAM Airlines Group, South America’s leading airline network, celebrated the inaugural flight for its Boeing 787 fleet between Sydney and Santiago, Chile, the gateway to South America, on 18 April, 2015. Passengers flying with LAN from this date forward will experience Boeing’s new generation of aircraft on all seven weekly flights from Sydney to Santiago, Ch ile with the 787-8 model initially on the route and the 787-9 entering the schedule from the second half of this year. “This is an extremely exciting milestone for us in the Pacific region,” said Patricio Aylwin, Managing Director Asia Pacific, LATAM Airlines Group. “The introduction of the Boeing 787 on our popular Sydney to Santiago, via Auckland, route allows us to offer more customers cutting-edge technology and increased comfort and efficiency.”

“With the new Boeing 787-9 also joining the Pacific schedule in the second half of this year, LAN is able to increase its volume on the route, with the model providing 27 per cent more capacity. We are proudly the first airline to announce delivery and operation of the 787-9 aircraft in this region.” These new updates on the ex-Pacific route are in line with LATAM Airlines Group’s global strategy to offer the most modern and diverse fleet in the industry. “The flight is a milestone for our company and for the global aviation industry, as LAN spearheads the future of long-haul flights. The benefits include more direct routes between distant cities, time savings for our passengers and the reduction of CO2 emissions,” he said.

“Advances involving the 787 model in the Pacific region are amidst ongoing improvements and developments for LATAM Airlines Group worldwide and are testament to our commitment to providing customers with the best connectivity and inflight experience across our network.” With the new flight, LAN Airlines has become the world’s first carrier to operate this route using a twin-engine jet airliner, the new Boeing 787. With this new craft, the long-haul flight over the South Pacific now offers its passengers cutting-edge technology and a chance to experience the next generation of aircraft and the future of flying. LAN’s 787-8 carries a total of 247 passengers, with a two-class layout featuring 30 business class seats, in a 2-2-2 configuration, and 217 economy seats in a 3-3-3 configuration. In the second half of this year, the 787-9 fleet will introduce further upgrades and significantly increase capacity and offering in the Pacific region. The newer model leverages the visionary design of the 787-8, offering passenger-pleasing features such as large windows, large stow bins, modern LED lighting, higher humidity, a lower cabin altitude, cleaner air and a smoother ride. With the fuselage stretched by six metres over the 787-8, the 787-9 will also fly more passengers an additional 830 kilometers with the same exceptional environmental performance – 20 percent less fuel use and 20 percent fewer emissions than the aircraft it replaces. LATAM Airlines Group is Latin America’s first operator of both the 787-8 and 787-9 variants of the Boeing 787 family when the airline group launches the 787-9 services on select South American routes from April. ↑Return to Index

Chile eyes new environment rules to spur investment Chile will move to make changes to its environmental regulations to reduce uncertainty and encourage investment, President Michelle Bachelet announced on April 15. Bachelet said she has appointed a commission to work over the next nine months to come up with a new environmental regulatory framework. The commission is led by the environment minister and is composed of academics and specialists in environmental, social and indigenous issues. "This commission should generate proposals to modify and modernize the system, with the aim of developing a more expedited process," Bachelet said.



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A number of major projects in Chile, the world's No. 1 copper exporter, have become ensnared in environmental red tape and endless court cases brought by increasingly active local communities. As well as proving a costly headache for investors, such delays threaten economic growth, which is still largely reliant on mining. Barrick Gold's Pascua-Lama mining project, for example, was halted in 2013 after the company had already spent $5 billion, plagued by problems that included wrangling over environmental permits. Endesa Chile's $1.4 billion Punta Alcalde coal-fired power project and its $9 billion HidroAysen dam joint venture are also both in doubt. Some copper projects in Chile will not see the light of day because of their inability to comply with sustainability rules, Nelson Pizarro, chief executive of top producer Codelco, predicted earlier on the same day. A blocked pipeline for new projects casts doubt on projections for Chile's medium- to long-term copper production, one of the issues that was under discussion at the CESCO/CRU world copper conference in Santiago. ↑Return to Index

Chile’s rainy day refuge

(This article was written by Jens Erick Gould and was published on by Credit Suisse on February 20, 2015) Ever since commodity prices began to fall last year, investors have regarded Latin America with caution. After all, the region is heavily dependent on exports of oil and gas, metals and agricultural products. With global prices for those goods falling significantly in recent months, some countries are facing declining government revenue and weaker growth. Of those most affected, there’s the obvious example of Venezuela, which depends on oil for around half of its government revenue. Then there’s Argentina, which is hurting from lower soy prices. Chile, too, is impacted by significant declines in copper prices. But it’s not like these countries didn’t know they’re dependent on revenue sources that follow a boom and bust cycle. Shouldn’t they have planned for this? Many countries do seem to be trying. In recent years, several in the region have created sovereign wealth funds and oil stabilization funds—including Venezuela, Mexico, Peru, Colombia and Panama. The idea is a good one: Latin American exports are largely concentrated in industries that don’t offer significant job creation and are dependent on world commodity prices. It makes sense, then, to stash away some of the spoils in boom times in order to have extra cash during the lean years. And why is it so important to have extra revenue on hand? It may sound simple, but public spending is a major stimulus for growth, so it hurts economies when governments have to cut outlays in times of lower global prices. So which countries get good marks and which don’t? If we examine the market-friendly countries in the region, there’s an obvious comparison. Chile, the world’s largest copper exporter, has acted with more foresight than anyone else. And oil-exporting Mexico – well, let’s just say it hasn’t done the same. First, let’s take the former. Chile’s government is required to deposit an amount equivalent to between 0.2 and 0.5 percent of the previous year’s GDP into a pension reserve fund. It is also required to put a percentage of its fiscal surplus into its so-called Economic and Social Stabilization Fund. Of course, it’s one thing to have rules, and another to follow them. But Chile actually does, and does so methodically. The size of the latter fund has increased from $2.6 billion at its inception in 2007 to $14.7 billion in December 2014. There’s no time like the present to have that cushion. The price of copper, which represents more than half of Chile’s total exports, has fallen 12 percent to $2.6 per pound since last June. That was a major reason the economy only grew 1.8 percent last year, the slowest pace since 2009. Despite the declines in revenue, the country has yet to draw on the fund or announce any spending cutbacks. It may tap the fund this year if copper keeps falling, but that wouldn’t have a negative impact on the economy. “If they need to cut spending, they could fill it with proceeds from the stabilization fund,” says Alonso Cervera, Credit Suisse’s economist for Mexico and Chile. Then there’s Mexico, whose public spending decisions pretty much ebb and flow based on current revenues. The country, which depends on oil for roughly one-third of government revenue, spent without much reservation between 2000 and 2013. It didn’t put away much of its money, and is suffering as oil has fallen 60 percent since last June. In fact, the government has cut public spending by about 0.7 percent of GDP for this year. “Mexico wishes it has a stronger oil buffer than what it has,” Cervera says. “It wouldn’t need to cut spending that much if it could draw on a fund.”



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The moral of the story? Countries that are heavily dependent on commodities exports shouldn’t spend in a manner that’s too pro-cyclical, like Mexico does. “When times were good, Mexico spent significantly; now it is retrenching, after oil prices have fallen 50%,” Cervera says. “Whereas in Chile, government spending has not been a function of how much revenue is coming in.” The proof is in the numbers. Chile’s fund equalled 5 percent of GDP at the end of last year, while Mexico’s oil fund only held 44 billion pesos ($3.0 billion), equal to a mere 0.2 percent of GDP. “If Mexico had 5 percent of GDP saved in an oil fund, that would make a huge difference to its economy,” Cervera says. “You have to save for a rainy day.” ↑Return to Index

Mexico is the new China for GM and other multinationals

(This article was written by James Detar and was published on Investor’s Daily Business on April 2, 2015) "Made in North America" may be the new motto for large U.S. manufacturers, as Mexico draws a rising tide of investment that helps keep firms competitive while preserving some American jobs. Mexico has 12 trade agreements involving 44 countries, more than any other country in the world, making it an attractive export hub for automakers like General Motors and Ford Motor, as

well as IBM, Procter & Gamble and 3M. General Electric alone has 17 plants and a centre for advanced engineering in Mexico. General Motors announced that it would invest $350 million in its Coahuila, Mexico, facilities to make the next-generation Chevy Cruze. Also, Mexico's labour costs now undercut China's after being nearly three times higher a decade ago. And Mexican factories help offset a rising dollar and support U.S. workers who supply American-owned plants there. "The strong dollar means it's cheaper and cheaper to make goods in Mexico," said Boston Consulting Group senior partner Harold Sirkin. "Another benefit to the U.S. is you have four

times more U.S.-made content than if you made it in China." Suppliers Plan $20 Billion Mexico's auto industry is poised to benefit more: Officials estimate that global automakers and parts suppliers plan $20 billion in new investments there. On March 23, General Motors announced that it would invest $350 million in its Coahuila, Mexico, facilities to make the next-generation Chevy Cruze, part of $5 billion in investments that GM plans to make in Mexico by 2018. Two days later, auto parts maker BorgWarner said that it will expand its plant in Ramos Arizpe, Mexico, to meet rising demand from automakers. "Mexico as a whole has climbed its way up the manufacturing ladder," Tom Fullerton, economics professor at the University of Texas at El Paso, told IBD. "Just about any second-generation product can be successfully made in Mexico today." To be sure, some investments in Mexico could have come here. Volkswagen's Audi, for example, built a factory in Mexico to produce SUVs despite having an option to do so in Tennessee. But investment is flowing the other way, too. Volvo, which is owned by Chinese automaker Geely, said March 30 that it will build a $500-million manufacturing plant in the United States to bolster flagging U.S. sales by giving it a local presence and reducing the effect of the strong dollar. And last August, GM confirmed that it will shift Cadillac SRX SUV production from its Ramos Arizpe plant to its Spring Hill, Tenn., factory. On April 2, Ford confirmed that it and Chongqing Changan Automobile, its joint venture partner, will buy and upgrade a factory in northeast China for $1.1 billion, various reports said, citing a company spokesperson. The new plant is expected to boost Ford's China output by 200,000 vehicle a year. Meeting Regional Tastes GM, like other automakers, is building cars to suit regional buying patterns. Luxury vehicles such as Cadillacs have sold briskly in China and the U.S., but smaller cars are more popular elsewhere. "Auto products made in Mexico are primarily in two groups, small cars and compact cars," IHS Automotive analyst Stephanie Brinley said. "Those are the two largest categories globally. ... It makes sense to build those products in Mexico."


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Mexico has been invited to join the proposed Trans-Pacific Partnership, a 12-nation Asia-Pacific trade agreement that represents nearly 40% of global GDP and will be the world's largest trade agreement. And as a labour dispute at U.S. West Coast ports disrupts supply chains across industries, Mexico's direct links with the U.S. look more appealing. Spurred by the North American Free Trade Agreement, shipping via truck or by Kansas City Southern's 6,000 miles of railroad tracks between the U.S. and Mexico is cheaper and faster than shipping from China.

For most U.S. multinationals, "the pendulum has swung back in favour of Mexico," UTEP's Fullerton said. ↑Return to Index

Ecuador aims to grow its appeal as a mining destination

(This article was written by Juan Andres Abarca and was published by BNamericas on April 13, 2015) The government of Ecuador is looking to boost the country's appeal as a mining exploration destination by implementing new measures and clarifying certain tax aspects that have limited its potential in the past. One of the measures is the creation for the first time of a mining ministry, which was set up three months ago, Jerónimo Carcelén, advisor to the Ecuadoran presidency, said at the Exploration Forum organized by Chilean think tank Cesco. The new ministry is currently organizing and growing its technical staff, as well as implementing the regulatory and legal framework under which it will operate. In the mid-term, Ecuador is looking to open its roster for areas up for concession to carry out exploration, which the country closed some years ago. One of the most important measures the government is taking is the clarification of certain tax aspects for the extractive industries. As an oil-producing country, some of the tax income from that "traditional" sector were transferred to the mining industry, which is not considered traditional, and so clarification is needed, Carcelén said at the event in Santiago. With the clarification of the rules, the tax burden for the mining sector has been lowered to 27% from 35% previously, less than top mining destinations in South America like Colombia and Peru, according to the official. PROJECTS MOVING FORWARD Some of the mid and large-scale mining projects in Ecuador that are currently moving forward include Lundin Gold's Fruta del Norte, Corriente Resources' Mirador, Junefield's Río Blanco, INV Metals' Loma Larga and Llurimagua, a JV between state mining firm Enami EP and Chilean state copper giant Codelco. There are currently 19 private sector projects at the exploration stage in the country, while Enami EP is actively exploring eight prospects, two in partnership with Codelco, Carcelén said. The government has defined 13 blocks with the potential to be auctioned for exploration, some of which are expected to be offered this year, said Carcelén. ↑Return to Index

Peru’s retail boom to lead to explosion in mall development

The President of the Association of Shopping and Entertainment Centres of Peru (ACCEP) Jose Antonio Contreras estimates that the growth of the retail sector will be “sustained” throughout the next years in Peru. "Before the year 2020, there will be over 100 malls across the country," he expressed. It must be noted that Peru "will conclude the current year having built, as a whole, a total of 80 malls" after having reached 72 by 2014’s year end. 12 commercial centres had been planned to be constructed between 2015 and 2016, the ACCEP President reminded.


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Growth Potential in the provinces According to ACCEP, there is a "higher" development potential in the provinces "because it is easier to find land near the cities’ downtowns," which can be used to build commercial centres. Thus, "in Peru, there are important cities, such as: Tacna, Cusco, Huancayo, Trujillo, Huaraz and Ayacucho," where opportunities for the retail sector can be approached. The jungle In regard to reaching "further development" in the country, the ACCEP representative assured cities, such as Tarapoto, Yurimaguas and Iquitos -all of them located in the jungle- offer a “huge” development potential, as well. He went on to add there are "relevant precedents" in Pucallpa, where two malls had been built, which according to ACCEP "brought development" to the area. In order to build a commercial centre in a certain city, between 200,000 and 250,000 people must be residents of the area, he explained. Southern and Eastern Lima According to the ACCEP, the investors’ interests are aimed at investing in Southern and Eastern Lima. However, there is a “lack of available land over there," it was informed. Thus, efforts are being carried out to continue building malls in the provinces. ↑Return to Index

Colombia could host the next Latin American offshore boom

(This article was written by Alexis Arthur and was published by www.oilprice.com on April 6, 2015) Mexico’s proximity to proven reserves in the US Gulf of Mexico as well as its spotlight-grabbing energy reforms have rightly drawn investors’ gaze. But Mexico is not the only player in the game. Colombia in particular has touted its offshore prospects, though an inauspicious global investment environment as well as problems at home have seen investors withdraw from this once-promising energy space. To be fair, investor interest in offshore exploration has ebbed across the region but Colombia in particular is struggling. The one-time darling of the Latin American energy world is taking a sobering look at its declining production and reserves, with serious concerns for its future energy security. Still, Colombia’s potential should not be so readily discounted. According to an oft-cited 2012 study by the National University of Colombia, the nation’s offshore resources could triple Colombia’s natural gas reserves and increase its oil reserves by a factor of six. Offshore reserve estimates range from 10 billion barrels of oil equivalent to over 55 billion.

The Colombian government is banking on major discoveries to reverse a trend in declining production and reserves. After almost doubling oil production between 2008 and 2014, and reaching the 1 million barrels per day milestone in 2013, Colombia has just 6.6 years of estimated oil reserves and 15.5 years of natural gas. The National Petroleum Agency (ANP) has argued that Colombia must drill between 200 and 230 wells per year to turn the situation around. In the first two months of 2015, just six wells were drilled. A lack of exploration activity has been linked to low global oil prices, increased taxes on energy companies, and Colombia’s political and business environment more generally.

For those who observe Colombia closely, this is not wholly unexpected, particularly in the wake of a lacklustre oil and gas auction last year. Just 26 of the 95 blocks on offer received bids under Ronda Colombia 2014. Moreover, the $1.4 billion raised came in well under the expected $2.4 billion. The offshore results were a little less disappointing. Four firms bid on the five offshore areas, with a total investment commitment of $540 million. A Shell/Ecopetrol venture in the deepwater was the top bid overall; a $231 million investment in SIN OFF 7. The third largest bid of the auction was also an offshore block, with Anadarko bidding $152 million for COL 6. Both are off Colombia’s northern, Caribbean coast. The entrance of Norwegian oil company, Statoil, was also a positive sign. The company now has two farm-in deals with Repsol as well as a share in COL 4 block with ExxonMobil and Repsol.


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Some were surprised that the 19 offshore blocks available failed to attract more attention. Regional competition, in particular from the newly-opened Mexican market, was one factor. The high risk of investing in Colombia’s relatively untested offshore waters was another. There's an incredible energy development we've been keeping track of for you over the past year... It's the reason Saudi Arabia is acting in desperation... depressing oil prices... and even risking internal unrest. Their (and OPEC’s) very survival is being threatened. Low oil prices have only added to the challenge. Colombia’s national oil company, Ecopetrol slashed its offshore budget this year, bringing it down to $200 million from $632 million in 2014. Although this is in line with regional and global trends. Colombia’s energy strategy is still banking on a major offshore discovery to revive its energy fortunes. Petrobras and Ecopetrol have announced a natural gas discovery at the Orca 1 well in the shallow waters off Guajira. While further evaluation is necessary, early signs are good. A major find would be the first since the 1990s in Colombia and a much-needed boost for the nation’s energy sector. Further success would lower the risk in adjacent areas, sparking more interest in future bid rounds. For now, the Colombian government has announced that it will not be holding an oil and gas auction for at least two years while it focuses on increasing production in existing concessions. Including those awarded in Ronda Colombia, the government has 23 active contracts for offshore blocks – 21 off the Caribbean Coast and 2 off the Pacific. The ANP and national government have announced a new plan to address some of the institutional barriers in an effort to reduce the cost of drilling, again with a particular focus on stimulating offshore interest. In the short term, Colombia has a tough road ahead but oil and gas projects - in particular offshore - are a long term business. Political, financial, and institutional changes can be made to streamline the process and make Colombia an attractive place to do business again. In its current situation, Colombia has little to lose. ↑Return to Index

Brazil to join the China-backed Asian Infrastructure Investment Bank

Brazil said on March 27 that it had accepted China's invitation to join its Asian Infrastructure Investment Bank (AIIB) as a founding member.

"Brazil is very interested in participating in this initiative," the office of President Dilma Rousseff said in a short statement. It said no conditions were made for joining. The AIIB has been seen as a challenge to the World Bank and Asian Development Bank, and a significant step for China's global influence. China is Brazil top trading partner.

China says some 57 countries have so far signed on as charter members of the Asian Infrastructure Investment Bank. ↑Return to Index

Chile’s telecommunication’s industry clears hurdles (This article was published by The Economist on April 8, 2015) Last year, the telecoms sector was hit by a double whammy of Chile's economic slowdown and the implementation of new, consumer-friendly rules that increased competition for subscribers. The economic slowdown driven by adrop in commodities prices has affected Chile's economy, as it still relies on the all-important copper sector. According to estimates by The Economist Intelligence Unit, GDP growth reached a modest 1.8% in 2014, a year when consumption slowed down significantly in the country.



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Meanwhile, new laws strengthening the rights of mobile phone users have made it easier for clients to switch mobile phone providers by reducing tariffs and sharply cutting the fees charged by companies to terminate their contracts (which are now 75% lower than before). As a result, some companies have drained clients while also losing an important source of revenue. Entel, the second largest provider of mobile services in Chile, reported a 3% drop in the number of mobile phone subscribers in 2014, to 10.1m. This took place mostly in the prepaid sector, where customers are more sensitive to lower prices. Total revenue was burdened by the cut in termination rates, falling by 9% to Ps389.4bn (US$641m), dragged down by a 16% drop in the fees charged for services to mobile phone users. Telefonica's Movistar, the leading operator, managed to increase its mobile client base by 2%, to 10.7m. But mobile phone revenue fell by 3.8% in the course of the year, mainly owing to a 9.1% reduction in revenue from services related to the handsets, which were affected by the new termination rates. Total revenue closed the year 3% down, at Ps2.1bn. América Móvil's Claro, for its part, reported a 3.3% decrease in the number of wireless subscribers, which closed the year at 5.75m. The impact of the new rules was felt with a 16.8% drop in payment fees related to the termination of wireless services. Overall, revenue dropped by 7.8%, largely the result of a 12.7% reduction in income from the wireless business. The new portability rules have also empowered smaller players who are trying to make a dent in the market. In the case of VTR, a cable and internet provider, it managed to acquire 39,000 new mobile phone subscribers, closing the year at 110,000. In general, because of fiercer competition, average revenue per mobile phone client has gone down sharply across the board. Income from fixed telephony has also suffered, as the new consumer laws have also cut tariffs and service fees in that segment. But all companies have reported increases in the number of much coveted post-paid customers, as well as in revenue generated by the consumption of data by users of top shelf phone sets. As the industry matures, in fact, high value-added services should become one of the main sources of revenue in Latin America's most developed telecommunications market. Therefore, the removal of a hurdle to the development of more powerful 4G services has been particularly good news for the sector. In January, a judge dismissed an injunction presented by Telestar, a small telecommunications group, requesting the annulment of the tender of a 700Mhz band performed by the government at the beginning of 2014. Because of the legal case, the authorities had withheld the granting of licences to Entel, Movistar and Claro, which had won the tender. Now that the complaint has been dismissed, the process should resume as planned, enabling the companies to expand their 4G LTE offer in the near future. The expansion is necessary. The number of users who have access to 4G plans was already growing fast in 2014, almost doubling between the second and third quarters of the year, according to Subtel, the industry supervisor. The pace should accelerate as companies focus on the high end of the market and smartphones, whose sales are also increasing solidly, become more widespread. However, analysts expect that companies will have to reduce the subsidies provided to clients that want to update their gadgets. Also, the offer of bundled packages that include video streaming, pay TV and other services constitutes one of the main areas of promise for the industry. Consequently, investment is required to meet the expansion of infrastructure needed to meet a growing demand for powerful networks. Recently, the government and the industry announced a joint plan to invest U$23.5bn in the space of ten years, to l ift internet and mobile phone use in Chile closer to the OECD average. The government is also drawing a new plan to promote the use of internet and other technologies among the population. Better news could come from the economic side too, as analysts expect the current malaise to give away to more acceptable rates of growth this year and the next. Chile's telecoms sector may now be going through a difficult stretch, but it could be in line for rewards in the future. ↑Return to Index

Opinion: Latin America’s future intertwined with China (This article was written by Ashley Kindergan and was published on World Affairs on March 3, 2015)

China’s rapid economic transformation over the past decade had effects that rippled well beyond the country’s own borders. Australia, with its rich iron ore deposits, rode Chinese demand for the commodity to its own impressive streak of economic performance. And then there’s Latin America. The commodities-rich region was only too happy to deliver its own iron ore and copper to build offices, apartment buildings, and other infrastructure, as well as soybeans and meat to feed a growing middle class – not to mention oil. China’s share of Latin American exports grew tenfold between 2000 and 2013.



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Over the past four years, though, China’s new partners are feeling the pain. Australia has seen unemployment jump from 5.4 percent in 2010 to 6.3 percent as of January, and thousands more layoffs are expected in the mining industry. Latin America has also been grappling with the downside of throwing its lot in with the new economic superpower. As the world’s second-largest economy shifts away from manufacturing and exports and toward domestic consumption, it has helped pull the bottom out from under what was effectively a decade-long commodities supercycle. The spot price of iron ore sits at just over half what it was a year ago at $68 a tonne (down from $128), while copper spot prices have plummeted from above $3.20 a pound to $2.68.

As Nouriel Roubini, Chairman of Roubini Global Economics said at Credit Suisse’s recent Latin American Investment Conference in Sao Paulo, “Most of the economies in Latin America were not ready to adjust to this change in commodity prices.” GDP growth in Latin America has fallen steadily, from 6.3 in 2010 to 1.2 percent in 2014. The World Bank’s statistical models predict that if Chinese GDP growth drops 1 percentage point over the course of two years, Latin American output would shrink by 0.6 percentage points as a result. There are some bright spots on the horizon. Credit Suisse sees room for a rally in copper prices this year as the State

Grid Corporation of China, the state-owned electric utility plans to increase spending 24 percent over last year to a record 420 billion yuan ($47 billion). An official from the Chinese Iron and Steel Association recently said he expects imports to rise 7.1 percent this year — and that combined Brazilian and Australian market share would rise from 77 percent to 80 percent. Jayme Nicolato, CEO of Brazilian iron ore producer Ferrous Resources Ltda. noted at Credit Suisse’s Latin American Investment Conference that cheap oil prices are actually helping regional exporters due to lower fuel costs, and said that Brazil’s high-quality product gives it a leg up in global competition. “I think we are in good shape to compete,” he said. Of course, a bounce in the price of two commodities doesn’t erase the challenges the end of the supercycle poses for Latin America. But as the World Bank recently suggested, the end of the miracle decade might actually provide a push for the region’s leaders to take further steps to improve both economic management and the business climate. Latin America also desperately needs infrastructure investment in order to grow faster in the future. While a sluggish economy doesn’t make it easy to achieve that goal, help from a familiar source has been forthcoming. According to the Inter-American Dialogue, the China Development Bank, China Export-Import Bank, and a variety of other state-owned companies and Chinese commercial banks loaned a total of $22.1 billion to Latin America in 2014 – more than the World Bank or the International Monetary Fund combined. Chinese loans, the think tank noted, tend to concentrate on energy, mining, and infrastructure projects. Thus, it appears that the very country whose slowdown threatened Latin American growth is providing a ballast. China and Latin America are no longer just flirting – they’re in a serious relationship now – and it seems like it has the potential to last through good times and bad. ↑Return to Index

Analysis: Latin America has a growth problem (This article was published in Bloomberg on April 9, 2015)

Latin America's economies are in serious trouble. The region's growth is down to levels last seen in the 1990s, and its debts are heavy and getting heavier. The scale of that problem is captured in a new forecast by the Inter-American Development Bank. Slower growth in China and a plunge in oil prices have hit the exports and tax collections of commodity producers. Governments and companies alike had already taken on more dollar-denominated debt to ride out the Great Recession. The prospect of higher U.S. interest rates and the fact of a much stronger dollar make those debts harder to service. Meanwhile, falling local currencies are pushing inflation higher. The travails of South America's biggest economy are a severe case in point. Brazil faces slumping prices for the commodities that make up half its exports. Its economy may shrink by nearly one percent this year. Public debt has climbed to nearly 65 percent of gross domestic product. Its currency has weakened by 14 percent this year against the dollar, the biggest drop among the 31 most traded currencies.



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Overall, the IDB predicts that growth in the region's economies over the next two years will be much worse than before the recession. Countries such as Venezuela, Mexico and Chile, which lean heavily on commodities for tax revenues, could take in an average of 9 percent less. Yet social spending in the region is trending higher, and fiscal balances have swung on average from a

primary surplus of 2 percent of GDP in 2008 to a primary deficit of 1.5 percent in 2013 and 2014. In a wide-ranging interview with Bloomberg News, Brazil's President Dilma Rousseff said she would do whatever it takes to get her country's fiscal house in order. What she didn't say is that Brazil's expansion of social benefits during its boom years, not to mention her election-year promises, helped cause the problem. Generous pensions, cash transfers, wage increases and energy subsidies lifted millions of Brazilians out of poverty and shielded them from the global financial crisis. They also cut the money available for investments in infrastructure and put an insupportable burden on government finances. To satisfy citizens' economic hopes, this will have to change.

Infrastructure and education should be the priorities. Efforts to widen the tax base and crack down on tax evasion, which is rampant, can help as well. Pensions and transfers should be targeted more carefully. Lower oil prices should make it easier to phase out subsidies and free up money for other uses. The theme of this year's summit of the Americas is "Prosperity with Equity" -- and that's certainly what the region needs. But getting there will require more than better fiscal discipline. Thornier issues such as spurring competition and getting more workers into the formal economy will also need to be faced. Above all, the region's governments need to lift the pall of high-level corruption that hangs over Santiago, Brasilia, Caracas and Mexico City, to name just four of the region's afflicted capitals. ↑Return to Index

Ecommerce in Latin America: Challenges and Opportunities (This article was written by Marcia Kaplan and was published in www.practicalecommerce.com on February 26, 2015)

Latin America presents a paradox to ecommerce merchants. It contains a rapidly growing middle class eager for a larger selection of quality goods, but the region has unreliable shipping operations and limited consumer use of banks and credit cards. The World Bank estimates that more than 50 million Latin Americans joined the middle class between 2000 and 2010. About 30 percent of the Latin American populace is now considered middle class and most of the growth — 35 million people — has occurred in Brazil. Nevertheless, at about $57.7 billion in online sales in 2014 according to eMarketer, Latin America has the second lowest level of digital sales worldwide, surpassing only the Middle East and Africa. Latin America: Market Size Forrester Research’s 2015 report, “Latin America eCommerce Forecast, 2014 To 2019,” predicts that business-to-consumer ecommerce sales in Brazil will increase from $17.8 billion in 2014 to $40.8 billion in 2019. However, the year-over-year growth rate will decline to single digits by 2016. The number of online buyers is expected to increase from 33.5 million in 2014 to 61.8


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million in 2019. Brazil has the most mature ecommerce market in the region and with a 2014 population of 202 million people — 62 percent of whom are under 30 years of age — it offers an appealing market. In Argentina, the second largest market, ecommerce sales will grow from $3.4 billion in 2014 to $8.3 million in 2019 and the country will have 12.6 million online consumers, up from 7.8 million in 2014. Mexico, with $2.8 billion in ecommerce revenue in 2014, will grow to $6.7 billion in 2019. Mexico already had more shoppers than Argentina in 2014, with 10.1 million buyers — but they spent less. Forrester predicts that Mexico will have 21.1 million online customers in 2019. Cumulatively, customers in these three markets will spend $32 billion more online in 2019 than they did in 2014. Chile and Colombia are the other countries showing some traction in ecommerce, but Chile has a small population of 17.4 million and Colombian consumers are slow to adopt digital buying. Ecommerce Challenges in Latin America In a recent article, “Mexico Poised for Ecommerce?,” I presented some of the challenges of distribution and payment in that country. These extend to other Latin American countries as well. Ecommerce merchants must resort to alternative payment methods to reach those without credit cards, debit cards, or checking accounts. In Mexico and Argentina, some online retailers offer cash on delivery as an option, while in Brazil merchants can apply online for the boleto bancário — a “bank slip” — from EBANX, an ecommerce payment provider. Boleto bancário is a printable, bar-coded invoice that is regulated by the Central Bank of Brazil and can be paid by consumers online or offline. (An ecommerce merchant can issue a boleto bancário to a customer, who then pays it at ATMs, supermarkets, or online.) Chargeback risk is eliminated and EBANX provides weekly settlements to merchants. Shipping is problematic in Latin America and consumers are sceptical about product quality and actual delivery. That is why they prefer to pay cash on delivery. Several local ecommerce companies provide their own shipping services and have lenient return policies as they try to gain the trust of consumers. While mobile shopping is becoming more popular, mobile purchasing is generally under five percent of online sales. Most of Latin America has slow 3G networks that are not conducive to online browsing or purchasing. American merchants can avoid the difficulties of direct sales by using a marketplace. Traetelo is a cross-border marketplace that allows sellers to publish and sell their products to customers in more than 20 countries. Sellers list their products, receive the orders, send the items to Traetelo’s logistics centre in Miami, and get paid directly by Traetelo in U.S. dollars. There is no listing fee but Traetelo takes a percentage of sales. Traetelo handles the taxes, duties, and international shipping. All orders are protected with Traetelo anti-fraud screening. ↑Return to Index

Latin America’s image problem (This article was written by Jorge Mariscal of UBS Wealth Management and was published on www.etcnbc.com on April 8, 2015)

In Latin America, growing scandals over corruption and conflicts of interest suggest its institutions leave much to be desired. Brazilian President Dilma Rousseff's statement that she will do "whatever it takes" to meet the government's budget target is to be welcomed in a country that is suffering a harsh economic deterioration. Like Rousseff, Latin American leaders will have to work harder to bring institutions up to standard — or face calls from voters and markets to step aside. First, the scandals. Brazil's oil sector is grappling with corruption allegations of little historical precedent. Infiltration of organized crime in Mexico's local police forces and controversies surrounding the highest levels of government have tarnished the country's image as a model reformer. Argentina is still reeling after its recent default. Consumer goods companies are expropriated daily in Venezuela, and many owners jailed, as the country struggles with massive shortages. Caracas mayor and opposition member Antonio Ledezma has also been jailed and accused of being involved in an alleged U.S.-backed coup. The number of cabinet ministers sacked in Peru has risen to over 50 in less than five years. This week, the country's prime minister became the most recent victim. Even Chile, a Latin American institutional role model, has suffered controversy amid allegations that President Michelle Bachelet's son used his influence to get his wife a $10 million loan for a real-estate deal.


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Perception of Latin America's institutions is deteriorating. AmericasBarometer data show that in 2014, local trust in courts and in the justice system decreased to its lowest point in the past decade, with trust in local governments at its lowest since 2004. It is no coincidence institutions are declining in commodity-rich Latin America at a time of lower commodity prices and slower economic activity. We expect the region to grow by just 0.4 percent this year, roughly a sixth of the U.S. growth rate and a twentieth of China's. We also expect it to underperform in 2016 as commodity prices remain subdued and global interest rates rise. But poor rule of law, impunity, and lack of transparency threaten to create a vicious circle by undermining business confidence and potential for structural reforms. The clearest example is Brazil. The country was already under intense market and economic pressure. But since the corruption scandal erupted in November, the equity market has lost close to 20 percent in U.S. dollar terms, gaps between U.S. government and Brazilian borrowing rates have widened, and the real is down about 18 percent. Investors are taking note of the region's institutional mishaps. Rousseff has had little choice but to install a reforming finance minister, Joaquim Levy, and say she'll do 'whatever it takes' to back his budget adjustment goals. The silver lining is voters. Approval ratings of most leaders in the region are sinking. In Mexico, after riding high at close to 60 percent during the first half of 2013, President Enrique Pena Nieto's popularity rating has plunged to 39 percent, according to research firm Buendia y Laredo. In Brazil, Rousseff's rating sank to 12 percent in March, the lowest since she took office in 2011 and the worst for any Brazilian president since 1999, according to the Brazilian Institute of Public Opinion and Statistics (IBOPE). In Peru and Venezuela, presidential approval ratings stand at a meagre 25 percent, according to market-research firm Ipsos in Peru and Datanálisis in Venezuela. Voters' loss of patience raises hope that more Latin American leaders will do "whatever it takes" to reverse institutional deterioration. In particular, countries in the region can steer toward a better institutional framework by collaborating with international organizations. The likes of Transparency International offer countries anti-corruption programs. Joining the Organization for Economic Co-operation and Development would also represent a constructive step. The accession process involves clear targets in areas like anti-bribery, public and corporate governance, and regulatory policy. This has helped Colombia since it announced its intention to join in October 2013. It is also no coincidence that two of the countries that are faring better, Chile and Mexico, are also the OECD's only Latin American members. These steps should not only be taken at the national level but also multilaterally, within regional forums such as the Pacific Alliance and Mercosur. Latin America's leaders face a choice — clean up or step aside. Unless they choose the former, voters and markets will likely force the latter upon them. ↑Return to Index

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, Maria Cordova at [email protected] or Tel: 02 9431 8651 Date: May 7, 2015 Event: Chairman’s Leadership Luncheon – Featuring Austrade’s Crispin Conroy Venue: PwC Sydney Organiser: ALABC Contact: Maria Cordova, [email protected] Tel: (02) 9431 8651 Date: May 12, 2015 Event: Chairman’s Leadership Luncheon – Featuring HE Mr Luis Quesada, Ambassador of Peru Venue: PwC Melbourne Organiser: ALABC Contact: Maria Cordova, [email protected] Tel: (02) 9431 8651 Date: May 12, 2015 Event: PwC Latin American Investment Briefing: Risks & Opportunities Venue: PwC Perth Organiser: PwC Contact: Nicolas Soza, Tel: (03) 8603 4280 or email: [email protected]


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Date: May 18, 2015 Event: Brisbane Market Briefing – Featuring Austrade’s Daniel Havas (Peru) and Kym Fullgrabe (Brazil) Venue: Piper Alderman, Brisbane Organiser: ALABC Contact: Maria Cordova, [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: Mel Fogarty, [email protected] Tel: (08) 9321 0355 Date: May 26, 2015 Event: Melbourne Market Briefing – Featuring Austrade’s Daniel Havas (Peru) and Kym Fullgrabe (Brazil Venue: Herbert Smith Freehills, Melbourne Organiser: ALABC Contact: Maria Cordova, [email protected] Tel: (02) 9431 8651 Date: July 22, 2015 Event: ALABC Melbourne Annual Dinner Venue: The Australian Club, Brisbane Organiser: ALABC Contact: Maria Cordova, [email protected] Tel: (02) 9431 8651 Date: August, 2015 (Date to be confirmed) Event: ALABC Sydney Annual Dinner Venue: Pending Confirmation, Sydney Organiser: ALABC Contact: Maria Cordova, [email protected] Tel: (02) 9431 8651 Date: September, 2015 (Date to be confirmed) Event: ALABC Perth Annual Dinner Venue: Pending Confirmation, Perth Organiser: ALABC Contact: Maria Cordova, [email protected] Tel: (02) 9431 8651 Date: October 15, 2015 Event: University of Queensland ‘2015 Latin American Colloquium’ Venue: Pending Confirmation, Brisbane Organiser: ALABC Contact: Maria Cordova, [email protected] Tel: (02) 9431 8651 Date: October 15, 2015 Event: ALABC Brisbane Annual Dinner Venue: Customs House, Queen Street, Brisbane Organiser: ALABC Contact: Maria Cordova, [email protected] Tel: (02) 9431 8651 Please visit our website www.alabc.com.au for regular updates. ↑Return to Index












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