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BHP Billiton and Woodside Petroleum seek Mexican drilling permits

(This article was written by Angela Macdonald-Smith and was published in The AFR on July 14, 2015) BHP Billiton has pre-qualified to bid in Mexico's first auction of offshore exploration drilling permits, but the signs are that the mining major may save its firepower for the prized deepwater blocks that are only expected to come up for tender in early 2016.

Woodside Petroleum has also been named as a bidder in a consortium approved to take part in this week's offer of 14 shallow-water exploration permits in the south-east Gulf of Mexico, which marks a historic opening up of the Mexican oil and gas sector after 77 years under state control. Woodside's group includes Mexican oil services company Diavaz Offshore and private Latin American explorer and producer Pluspetrol, according to Mexico's national petroleum authority, Comisión Nacional de Hidrocarburos. In all, 3.9 billion barrels of oil equivalent of known reserves are on

offer in Mexico's first round of auctions, plus 14.6 billion barrels of prospective resources, including offshore, onshore and unconventional fields, according to the government. Further auction rounds are due to take place over the rest of the decade, heralding a new wave of access to oil and gas resources that companies can tap ahead of the next upward cycle in oil prices, consultancy Wood Mackenzie said. Bids for the 14 shallow water permits in the so-called Round 1.1 are due by Wednesday, with contracts to be awarded almost immediately. Next on offer are nine development fields, holding 356 million barrels of oil-equivalent (boe) of reserves also in shallow water, with bids due September 30. To follow are extra-heavy oil and onshore unconventional opportunities, then finally the deep-water licences. BHP is among 18 companies that individually pre-qualified to bid for the shallow-water licences, as are majors such as Chevron and ExxonMobil. A further 16, including Woodside, are involved in seven consortiums sanctioned to participate.

This issue (Click on each heading to open article)

BHP Billiton & Woodside Petroleum target Mexico 1

CIMIC may expand into Latin America 2

University of Queensland hosts scientific encounter 2

Latam Autos all revved up 3

Perth Dinner Reserve the date now!! 4

Minister Julie Bishop visits South America 5

Melbourne Dinner review 6

Chairman’s message 8

Latin America may be next big thing in IT 10

Political turbulences takes its toll on Chilean economy 11

Reach and importance of Spanish language 11

Tourism surges in Cuba 12

Engineering manufacturing – tale of two economies 13

More METS players drawn to Brazil 15

th straight time 23

For the Diary 24

Latam News July, 2015

Bolivia gets BB rating 16

Why Mexico must figure in Latin American strategy 17

Analysis: FDI in Chile – On OECD path 19

Retail e-commerce surges 22

Austerity in Colombia in 2016 22

Integrating Cuba into global economy 23

Brazil raises interest rates for 6

Newsletter of the Australia-Latin America Business Council

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BHP's head of petroleum Tim Cutt has pointed to the need for the group to expand conventional oil and gas opportunities, but he has signalled the focus in Mexico is on resources further offshore in deeper water, where resource plays BHP has developed in US waters extend across the maritime border. "The one that we are most excited about is in the deepwater, and the extension of the Palaeogene play into the Perdido play," Mr Cutt said last September when BHP announced an alliance with Mexico's state-owned Pemex, which has held a monopoly over local oil and gas development until now. Neither BHP nor Woodside would comment on Tuesday, but Deutsche Bank energy analyst Paul Young said the deep-water region was the "most promising and anticipated acreage" of the permits on offer. Some 11 blocks will be offered next year in the deep water, with estimated resources of 1.59 billion boe. Fiscal terms for bidders have been improved to attract foreign players and help offset the slump in crude prices over the past year. But, according to the Financial Times, a requirement for bidders to provide open-ended guarantees in the case of an accidental oil spill has deterred some. It reported that Noble Energy, Glencore, Colombia's Ecopetrol and Thailand's PTT all pulled out of the first round, as has Pemex. Mexico is seen as a long-term play for BHP, with Credit Suisse estimating that success in waters offshore of Mexico would be unlikely to yield new oil production before 2025. ↑Return to Index

CIMIC changes suggest possible entry into South America (This article was written by Jenny Wiggins and was published in The AFR on July 23, 2015) Construction group CIMIC (formerly known as Leightons Holdings) has appointed Spaniard Angel Muriel as its new chief financial officer after reporting a 12 per cent drop in first-half net profits to $257.2 million. Mr Muriel, who replaces Javier Loizaga, was previously chief financial officer of Iridium, a subsidiary of CIMIC's Spanish parent Grupo ACS, and head of corporate mergers and acquisitions at another subsidiary, Germany's Hochtief. Leighton chairman and chief executive, Marcelino Fernandez Verdes (pictured), said Mr Muriel's experience in M&A transactions, financial management and corporate transformations were of "great value" to CIMIC as it continued its strategic review. Mr Muriel's appointment comes as CIMIC, said it was considering expanding its presence in existing markets and exporting skills such as contract mining to new markets, including North and South America. It also signalled it was considering investments in local companies "to support its expansion". ↑Return to Index

University of Queensland hosts important scientific meeting

The 1st

Meeting of Chilean scientists in Brisbane will be held on July 31st

2015, at the Australian Institute for Bioengineering and Nanotechnology (AIBN) at The University of Queensland (UQ). This encounter is expected to attract more than 75 invited guests from research institutes from a wide range of scientific areas such as the Australian Institute for Bioengineering and Nanotechnology (AIBN), the Queensland Brain

Institute (QBI), the Institute for Molecular Bioscience (IMB), covering more than seven Schools in UQ. Confirmed speakers included Professor Lars Nielsen Chair of Biological Engineering at UQ and Professor Juan Asenjo from the Chilean Academy of Science. This meeting is open for all the Chilean in Australia and the UQ scientific community. ↑Return to Index

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LatAm Autos – revved up for online car ads (This article was written by Joe Leahy and was published in The Financial Times on June 30, 2015) For many in Latin America’s increasingly congested cities, the region’s growing love affair with the car is a curse. Although slower economic growth, especially in Brazil, has put the brakes on new vehicles sales over the past 18 months, the continent’s roads are noticeably more crowded. For the decade before that, compound annual growth rates in passenger car numbers were heading for 10 per cent.

But for Australian entrepreneurs Tim Handley (pictured on the right of the photo) and Gareth Bannan (pictured on the left of the photo), Latin America’s car boom is a boon. The former investment bankers last year founded LatAm Autos, the first company to try to consolidate the online car classifieds markets of Spanish-speaking America. A start-up operating in six countries — Mexico, Ecuador, Panama, Bolivia, Peru and Argentina — through its acquisition of five online automotive classifieds companies, LatAm Autos was set up last year and listed on the Australian Securities Exchange in December. As

with similar services in developed markets, car owners and dealers pay to list vehicles for sale on LatAm Autos’ sites. LatAm Autos’ founders want to do for this nascent online auto classifieds market what established regional operators, such as Argentina’s MercadoLibre — the continent’s version of eBay — have done for Latin America’s general internet classified ad market. MercadoLibre has grown from nothing in 1999 to a market capitalisation of $6bn. “Cars in Latin America are highly desired discretionary items and are very much a sign that you have made it,” Mr Handley says of the region’s burgeoning car culture. The affable Australian is speaking in São Paulo, where he still lives — the company’s headquarters is in Ecuador, but he is planning to move to Mexico. LatAm Autos’ rapid birth shows the potential of Latin America as a breeding ground for international tech start-ups in spite of the economic slowdown in the continent with the end of the commodities boom. The story of its founders is also instructive on the region’s idiosyncratic business environment. In 2009, Mr Handley, a former investment banker with UBS in Australia, began looking to work abroad “for a while”, as is common among young Australians. “I was keen to live outside of Australia and while I originally considered New York and London, the jobs markets were effectively closed [because of the global financial crisis],” he says. He settled on Brazil instead, which he had visited a few times. Mr Bannan, who joins the interview by Skype from LatAm Autos’ office in Ecuador, moved from Australia to Brazil around 2010. “When I first went to Rio, it felt like home,” says Mr Bannan, who worked for KPMG Corporate Finance before he left Sydney. The pair met socially and started a boutique investment advisory firm. But their enthusiasm for Brazilian culture soon clashed with the reality of its business environment. To the frustration of their mostly Australian clients, Brazilian companies would take years to close a deal that in Australia might take months. “Australians and Brazilians have a lot in common, enjoying the beach and sport and having a beer every now and again, but one thing I did seriously underestimate was how hard it was doing business in Brazil,” Mr Handley says. “You have to really spend time developing a relationship and it’s got to be a genuine relationship.” In late 2013, when another hard-fought deal suddenly fell through, they decided to quit advisory work. They had noticed that Australian online ad companies were increasingly interested in Latin America. Australian job site Seek, for instance, had acquired its Brazilian rival Catho and Mexican market leader Online Career Centre. But while the Brazil market was saturated, with the world’s leading online classifieds operators doing battle there, Spanish-speaking America’s auto classifieds market was fragmented among smaller domestic players. Drawing on banking and consulting contacts, they persuaded several prominent Australian businessmen to invest and to sit on the board, including Mike Fitzpatrick, a former non-executive director of miner Rio Tinto.



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Mr Handley admits to some nerve racking moments. As the IPO approached, he says: “The Nasdaq hit a high and then there was a six-week period where it was dropping like a stone . . . right at a point where we were finalising the prospectus and asking the underwriters to sign on.” However, two of LatAm Autos’ directors increased their shareholdings by investing in the IPO, which provided a strong signal for institutional investors during the roadshow. The founders claim that most of LatAm Autos’ sites are the market leaders. Pro-forma 2013 revenue, calculated by consolidating the financial results of the new acquisitions, was A$6.6m. The number is surprisingly small given the potential of the market: in a presentation to Australian shareholders in May, LatAm Autos estimated the total auto ad spend in its target countries at A$695m. But the company estimates its revenues will pick up along with online advertising, which is growing at 31 per cent in Mexico and 45 per cent in Argentina. Their experiences of business in Brazil had taught them that local talent is critical for foreign companies doing business in Latin America. This was especially so given their lack of experience in their target markets. While both knew Brazil well and were fluent in Portuguese, Spanish-speaking Latin America was new territory. They appointed as group chief executive officer Jorge Mejia Ribadeneira, who had founded one of the businesses acquired by LatAm Autos, Patiotuerca.com, which operates in Ecuador, Bolivia and Panama. “We speak ‘Portunhol’,” says Mr Handley, referring to the mix of Spanish and Portuguese commonly spoken in the region. “We conducted one of our acquisitions in Lima in Portunhol,” he jokes. But the biggest challenges lie ahead. LatAm Autos’ stock is trading at just below its IPO price of A$0.30 per share, after pro-forma sales for 2014 slumped 8 per cent year on year to A$6.1m, thanks mainly to weakness in Argentina’s car market. LatAm Autos is burning cash: last year it made a net loss of A$3.18m. The founders expect it to become cash flow positive by 2017 at the earliest. But Mr Handley expects the structural shift of auto advertising from print to the internet in the region as well as higher broadband and smartphone penetration to ensure that sales grow. The company is investing in technology and new content, such as car reviews, and increasing its focus on Mexico, whose outlook is more promising thanks to economic reforms: “The biggest and most attractive market is Mexico,” says Mr Handley. Indeed, he is set to leave São Paulo to set up home in Mexico City — where his first tasks may include Spanish lessons. ↑Return to Index

Reserve the date NOW! The 2015 Perth Annual Dinner – 16 September After the historic year that was 2014 for the Australia-Latin America Business Council, 2015 ushers in the launch of the Council’s

next 25 year phase. After a very successful Melbourne Dinner on July 22 attended by some 190 guests, the attention now turns to Perth, where the ALABC will host its annual dinner on September 16 at the Hyatt Regency Hotel, with well-known mining identity Mr John Jones, as guest of honour and keynote speaker. Mr Jones is a non-executive director of Troy Resources and has been associated with a number of other successful mining corporations in his 30 years of business, having served or currently serving also as a chairman/director of North Kalgurli Mines, Anglo Australian Resources, Altan Nevada Minerals and Altan Rio Minerals. The Dinner will be sponsored by Air New Zealand (Platinum) and (Silver). [*Please note that additional Gold and Silver sponsorships remain available. Please contact us at [email protected] if you would like to know more.]

Tickets on sale as from August 5.

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Foreign Affairs Minister Julie Bishop visits South America From 29 June to 7 July, Foreign Affairs Minister Julie Bishop visited New Zealand, Chile, Peru, Brazil and Canada, with the objective of advancing Australia’s strategic interests and promoting economic diplomacy through political, business, education, cultural and people-to-people links.

In Peru, Minister Bishop attended the 10th

Summit of the Pacific Alliance, a free trade partnership comprising Chile, Colombia, Mexico, Peru and 32 observer countries. There she spoke in support of the pro-business goals of the Alliance and announced Australia’s plans to achieve recognition of our educational qualifications with Alliance countries. Minister Bishop also met with Peruvian Foreign Minister Ana Maria Sanchez and Colombian Foreign Minister Maria Angela Holguin. In Brazil, Minister Bishop met with Foreign Minister Mauro Vieira and signed a memorandum of understanding with Education Minister Renato Ribeiro. This year marks the 70

th anniversary of

Australia’s diplomatic relations Brazil. In Chile, she met with President Michelle Bachelet and Foreign Minister Heraldo Muñoz (both pictured), and also signed a memorandum of understanding on education and open CSIRO’s International Centre of Excellence in Santiago.

Australia and Chile: strong partners linking Asia and Latin America The following is an article that Minister Bishop authored and that was published in the leading Chilean newspaper, El Mercurio, on July 2 under the heading, ‘Australia and Chile: strong partners linking Asia and Latin America’. Australia’s relationship with Chile is our most developed and comprehensive in Latin America. It is a partnership that connects two great Southern Hemisphere nations. Our relations go back to the beginning of modern Australia. Chilean wheat imports fed the massive immigrant influx to Australia during the successive gold rushes of the 19th Century. Our third Prime Minister was Chilean. In the 70 years since formal diplomatic relations were established, Australia and Chile have become firm friends. Chile is our platform into this region and we wish to be Chile’s platform into Asia. We enjoy bilateral free trade through the Australia-Chile FTA concluded in 2012, air services, double taxation and social security agreements. We connect the vast South Pacific through the great cities of Sydney and Santiago on LAN and Qantas flights. As free trading nations, we are natural parties to the Trans-Pacific Partnership negotiations, which when finalised will provide new opportunities to drive economic growth and create more inclusive, sustainable and productive economies. We hope that through a finalised TPP agreement and our existing trade agreements, we will see a diversification of our bilateral trade and investment relationship, including in infrastructure, transport, logistics and financial services. We welcome increased Chilean investment in Australia and more joint cooperation on research and development. We work together on international matters, cooperating in APEC, the OECD, the Pacific Alliance between Peru, Colombia, Mexico and Chile – in which Australia was one of the first 32 observers – and on Antarctic issues. Australia and Chile were both non-permanent members of the United Nations Security Council in 2014. My visit to Chile reflects the commitment of the Australian Government to take our bilateral relationship to a new level. This follows on from last year’s Australia-Chile Economic Leadership Forum in Santiago, the first event of its kind we have organised in Latin America. We will continue working together to develop more sustainable and sophisticated mining practices. Australia is a world-leader in sustainable mining, and I am pleased that we are working with Chile through two Chilean-based Australian centres of excellence in mining: CSIRO Chile (Australia’s national scientific research organisation); and the University of Queensland’s Sustainable Minerals Institute.



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I welcome efforts by Chile to address productivity and offer Australia’s experience in this and other areas, such as competition policy, consumer rights and streamlined regulation, to improve the living standards of all Chileans. Australian companies are helping Chile to meet renewable energy targets by investing in solar, hydro, wave and wind energy operations across the country. With both Chile and Australia facing water challenges, we are sharing our experience in water management with Chile. Cooperation on science, education and vocational training between our countries is gaining momentum. It is fitting that during my visit I will sign a Memorandum of Understanding with Chile on Education, Research and Vocational Education and Training, facilitating cooperation in education, including through the strengthening of our institution-to-institution networks. While I want to see Australia’s presence in Chile grow, I also look forward to learning more about Chile’s innovative technology, wine making expertise, and tourism potential. Chile and Australia – likeminded on global issues, partners across the Pacific, trusted friends. ↑Return to Index

2015 Melbourne Annual Dinner makes a big splash The launch of the ALABC’s next 25 year phase received a magnificent launch when 190 guests attended the 2015 Melbourne Dinner at the Australian Club on July 22, and heard a very positive and inspiring keynote address from Australia’s Minister for Foreign Affairs, Ms Julie Bishop. The dinner was also attended by the Latin American ambassadors, who travelled from Canberra for the event and spent the evening mingling with the large number of guests. Amongst the companies that booked corporate tables for the dinner were Karoon Gas, WEG Australia, Dragoman, SED Advisory, Lucsan Capital, Resource Capital Funds, the University of Melbourne and MMG. PwC was had two corporate tables on the night and was joined by the Victorian Department of Economic Development, Jobs, Transport and Resources in using the dinner to entertain guests interested in the Latin America region. The Dinner was sponsored by Air New Zealand (Platinum); MMG, Monas University and the University of Melbourne (Gold); and Resource Capital Funds (Silver).

Minister Julie Bishop photographed with the Latin American Heads of Mission



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Chairman’s Message In an increasingly interconnected world, Australia’s prosperity is more dependent than ever on developments in the global economy. In that context, the Latin America region - with its substantial and growing consumer base, wealth of natural resources, proven food production capability and demand for capital inflows - deserves to figure more prominently than it currently does in Australia’s strategic planning and economic diplomacy. The geographic, historical and cultural separation that kept Australia and Latin America on the periphery of each other’s world view for so long is narrowing, replaced by growing interaction at the multilateral institutional level and increasing connectivity across areas such as commerce, tourism, education, science, sport, the arts and more. That the relationship is heading in the right direction is evident. However, a closer analysis suggests that the depth and pace of engagement is insufficient and that by not giving Latin America the priority that it warrants Australia risks relinquishing the opportunities on offer to more committed rivals. To ensure that this does not happen, Australia needs to change how it views Latin America and to give the region greater recognition, with all stakeholders, from government and the private sector, needing to accelerate their engagement efforts. The global marketplace is changing, distance is no longer the barrier it once was and competition for export markets and capital flows is fierce. In such an environment, Australia should not assume that its proximity to and relationship with the powerhouse Asian markets will automatically guarantee the nation’s economic prosperity. Latin America has what it takes to compete with Australia as a provider of Asia's mineral and food requirements, and as a destination for investment flows. That said, it would be wrong for Australia to merely classify Latin America as a competitor and to therefore shun investment in and engagement with the region. On the contrary, the underlying similarities between Australia and Latin America, and their shared common interests, mean that there is considerable scope for Australia to contribute to and benefit from development and growth that Latin America will undergo. There are compelling reasons for Australia giving greater priority to its engagement with Latin America. Not as a substitute for what Asia has to offer, but as a strategically important component of Australia’s international policy and economic mix. One that will lessen Australia’s risk profile by limiting our dependence on the fortunes of the Asia region and that maximises the strengths that Australia has in services, technology and other areas. Whether as a competitor or partner, Latin America has the capacity to influence Australia’s economic wellbeing. Latin America’s growth may not match that of the Asian region, but the region is on the move. It has witnessed a sea change towards democratic rule, established strong nation states and made progress towards increased integration. Most countries in the region have adopted open market policies and strengthened their fiscal position. The region faces ongoing challenges, but its growth potential is undeniable and Australia must ensure that it contributes to and benefits from that growth. To do this, Australia needs to change its perspective on Latin America and to afford it greater priority. Through involvement in diverse international forums such as the G20, APEC and the proposed TPP, amongst others, as well as regional integration initiatives such as the Pacific Alliance, the Latin American nations are exercising increasing influence in the world economy. Australia needs to acknowledge the region’s collective political weight and to develop the capacity to harness that weight in order to influence the direction of commonly shared issues such as trade liberalisation, climate change, food security and overall global economic management. The broad common interests that Australia shares with Latin America makes us ideal allies. The joint participation in the Cairns Group is an example of how we can work together and is an approach that needs to be expanded across many other forums. On the commercial front, action is needed to expand the bilateral trade and investment relationship beyond the current emphasis on the mining sector. Australian companies, institutions and investors alike need to deepen their understanding of Latin America so as to overcome their apprehension about doing business in the region. The presence of close to 200 Australian companies in the region is positive news, but given the range and depth of opportunities on offer, that number should be far greater. Seeing companies as diverse as Amcor, Goodman, QBE, Lend Lease, SEEK, Origin Energy, Transfield Services, Carsales.com and Pacific Hydro in the region is welcome, but knowing how many more companies would find good opportunities in the region and are not present is disappointing.



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The strong growth in tourism flows and student exchanges - with over 40,000 Latin American students studying in Australia each year - will eventually break down the barriers to doing business in the region, but the issue remains the time that this will take. The progress being made in growing the trade and investment flows, in expanding air services and education links is heartening, but there needs to be greater urgency in building Australia’s links with Latin America. Our delay is our competitors’ advantage. Foreign Affairs Minister Julie Bishop and Trade and Investment Minister Andrew Robb are strong advocates for Latin America within government and are sending the right messages to the market. They are not alone, but the collective voice of those who see the value of closer engagement with Latin America is not yet loud enough to make the required difference to government policy. If support for Latin America has yet to make the required impact across all areas of government - not just federal, but state also - much the same can be said of the situation within the business sector. Here too progress has been and continues to be made. New companies, from a widening range of sectors, are continuing to enter the Latin American markets and are making their mark. Whilst heartening, the trend should not overshadow the fact that the number of companies is short of the potential on offer, that too many of Australia’s large corporates are yet to make a move and that some of the companies entering the region are not doing so with the degree of commitment required to maximise their prospects of success. Companies also need to look beyond the very short term, to plan and invest for the longer term and to contribute to changing the Australian mindset towards Latin America. They need to join forces and to lend their weight to ensuring that doing business in Latin America is perceived in the same way as doing business in Europe, North America or Asia. Only then will investors give full support to companies that choose to pursue the opportunities on offer in Latin America and will more company boards and chief executives be comfortable with approving investments into the region. In overall terms, Australia’s effort to connect with Latin America is making headway, but when measured in the context of what other nations are doing on this front, it is evident that we need to put our foot on the accelerator. Jose Blanco, Chairman ↑Return to Index

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5 reasons why Latin America could be the next big thing in IT outsourcing (This article was written by Esteban Herrera and was published in www.cio.com on July 10, 2015) Fiscal policies and market barriers have long deterred outsourcing buyers and providers from investing in Latin America. But creative sourcing solutions and a shift in corporate culture are helping to change that. The economic opportunities in the region are on the rise.

A friend recently told me an old joke about Latin America in the context of outsourcing: “Latin America is the next frontier in outsourcing—and it always will be.” I have long promoted Latin America as an immense outsourcing opportunity—on both the demand and the supply side. But the obstacles are many and real. With a population of almost 600 million people across 26 nations, Latin America suffers from fragmentation of markets, languages and legal systems. Add cantankerous and protective government fiscal policies that lag behind the progress of globalization and either real or imagined political instability, and you have a formula that scares investors

and multinational corporations from setting up shop. In essence, buyers and providers have found it challenging to successfully execute a regional strategy. Many of these barriers still exist, but outsourcing activity has recently surged throughout the region. Here are five reasons why: 1. Some of the most creative and progressive outsourcing solutions are being implemented in Latin America. Without the

benefit of labor arbitrage, the solutions themselves have had to achieve either a significant decrease in cost or a significant increase in performance. Therefore, outsourcing in Latin America is much closer to the bottom line than it is in other regions.

2. Corporate cultures are changing. Large, family-owned conglomerates are rapidly being turned over to professional management. Moreover, the executive teams in Latin America tend to be younger people from a more global generation ready and willing to work across borders. As increased demand has shown, outsourcing is neither taboo nor strange anymore.

3. Providers are investing. For a long time, HP and IBM were pretty much the only games in town, with Accenture following an

aggressive-but-country-specific strategy focused on the major markets. This is no longer the case. Capgemini, Cognizant, HCL, Infosys, TCS, UST Global, and Wipro, to name a few, have all made significant investments in the region.

4. Free trade is gaining acceptance. The biggest economic success stories in the region have been those that have leveraged

free trade. While Latin America will remain economically more volatile than most markets (there is no central bank like the Federal Reserve or the European Central Bank coordinating monetary policy across Latin America), companies that invest there have more confidence and more options as a result of a slew of free trade agreements signed over the last decade.

5. Merger and acquisition activity is creating global conglomerates like Vale

and Petrobras in Brazil and Cemex and Grupo Bimbo in Mexico. Globally competitive companies need globally competitive outsourcing solutions.

Though anyone would tell you there is much work still to do and that pockets of crisis and disaster still exist, providers and buyers are finding that the economic opportunities far outweigh the risks in Latin America today. We see this in increased investment and in significantly higher deal volume. While, generally speaking, contract values remain smaller than in other parts of the world, the amount of activity seems to be increasing more rapidly than anywhere else. The most exciting news for the outsourcing industry in Latin America is not the uptick in deal flow, however. It is the nature of the solutions being conceived, the creative integration of emerging technologies, the out-of-the-arbitrage-box thinking, and the move toward a more integrated global economy. Outsourcing in Latin America may well define the next “state of the art” and, in doing so, leapfrog other, more developed geographies that are having a harder time letting go of outdated technologies and commercial models. ↑Return to Index



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Political crisis takes a toll on Chile’s economy

(This article was written by Benedict Mander and published in The Financial Times on July 7) Chile’s economic recovery is faltering as business confidence is undermined by President Michelle Bachelet’s reform programme and a political crisis triggered by corruption scandals.

The government announced an abrupt downward revision in economic growth estimates to 2.5 per cent for 2015 on Monday, having initially predicted 3.6 per cent in this year’s budget. Growth of 1.9 per cent in 2014 was the lowest since the global financial crisis erupted. “The good news is that we are reacting as a country, putting growth back at the centre of the agenda,” said Rodrigo Valdés (pictured), the finance minister, in an interview with the Financial Times. He argued that Chile’s economy has turned the corner after implementing a

significant macroeconomic adjustment to clear the way for stronger growth. “Without growth it will be impossible to implement the reform programme,” said Mr Valdés, whose appointment in a cabinet reshuffle in May was seen as an attempt to restore confidence in the economy of the world’s top copper producer which has also been hit by falling commodity prices. Ms Bachelet’s reform programme, which is aimed at tackling inequality by improving access to quality education, has suffered as attention has been diverted by several corruption scandals this year. One of the biggest victims has been Ms Bachelet herself, after her own son caused an uproar for allegedly abusing his privileged position to secure a bank loan. That only quickened the slide in Ms Bachelet’s popularity, which has also been hit by discontent over Chile’s sluggish economy. Her approval ratings reached a new low of 27 per cent in June according to local pollster Adimark, after declining from 54 per cent at the beginning of her second presidential term over a year ago. Mr Valdés admitted that the political crisis has taken a toll on the economy, but played down fears that Chile’s economic woes might in turn hold back Ms Bachelet’s ambitious reform agenda. “Chile has a tradition of being sensible. We will be capable of taking the necessary decisions to escape this [vicious] circle, in which politics contaminate economics, and economics contaminate politics,” he said. A key step in that process is improving relations with the business sector, which was a vocal critic of a big rise in corporate taxes last year to fund increased spending on education. Businesses have also been deeply unnerved by plans to initiate a constitutional reform process in September, as well as a labour reform bill being discussed by the senate that would give greater power to trade unions. “We need to strengthen dialogue to understand each other better,” said Mr Valdés, a respected MIT-educated economist who has worked at the International Monetary Fund. “Through dialogue it will be possible to boost confidence,” he added. ↑Return to Index

The reach and importance of the Spanish language (This article was written by Stephen Burgen and was published in The Guardian on June 30, 2015)

The United States is now the world’s second largest Spanish-speaking country after Mexico, according to a new study published by the prestigious Instituto Cervantes. The report says there are 41 million native Spanish speakers in the US plus a further 11.6 million who are bilingual, mainly the children of Spanish-speaking immigrants. This puts the US ahead of Colombia (48 million) and Spain (46 million) and second only to Mexico (121 million).


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Among the sources cited in the report is the US Census Office which estimates that the US will have 138 million Spanish speakers by 2050, making it the biggest Spanish-speaking nation on Earth, with Spanish the mother tongue of almost a third of its citizens. By state the highest concentration is in the former Spanish colonies of the south and south-west, with New Mexico top at 47%, followed by California and Texas (both 38%) and Arizona (30%). Some 18% of New Yorkers speak Spanish while only 1.3% of West Virginians do. Perhaps surprisingly, more than 6% of Alaskans are Spanish speakers. The report, El español, una lengua viva – Spanish, a living language – estimates that there are 559 million Spanish speakers worldwide, a figure that includes 470 million native speakers and those with some command of the language. The Instituto Cervantes was established in 1991 to promote the Spanish language abroad and last year had more than 200,000 students registered on its courses. It estimates that 21 million people are currently studying Spanish and here, too, the US leads with 7.8 million learning the language, followed by Brazil and France. The report adds that two-thirds of Spanish-linked GDP is generated in two areas: North America (US, Canada and Mexico) and the European Union. Between them they account for 78% while Latin America only accounts for 22%. It calculates that altogether Spanish speakers contribute 9.2% of the world’s GDP. The Index of Human Development ranks Spanish as the second most important language on earth, behind English but ahead of Mandarin. It is also the third most widely used language on the internet, although less than 8% of internet traffic is in Spanish. The report says that Spanish is the second most used language on Twitter in London and New York. It also comes second on Facebook, a long way behind English though well ahead of Portuguese, Facebook’s third language. ↑Return to Index

Tourism is surging in Cuba (This article was written by Ezra Fieser and Rafael Gayol and was published in Bloomberg on July 14, 2015)

Havana is hot. With Presidents Barack Obama and Raul Castro making global headlines for restarting diplomatic relations between their countries after five decades, 2015 is shaping up to be a record year for the Cuban tourism industry. Some 1.7 million people visited the Communist island in the first five months of the year, a 15 percent increase from the same period last year, which ended with 3 million visitors.

Moreover, each of the first five months has seen a double-digit increase in the growth of visitors compared to last year, including a 21 percent jump in May. While Germans, Venezuelans and Peruvians are all pushing numbers higher, Canada supplied the most visitors with 779,576 so far this year, up 14 percent from 2014. But are they really Canadians? A tourist arriving on the Caribbean island via Canada isn't necessarily a Canadian. Instead, many of those rushing to book vacations in Cuba are increasingly Americans trying to beat the crowds before relations between the two countries are normalized. "We saw a real spike in bookings from U.S. clients when President Obama

announced the easing of restrictions because people wanted to go and see Cuba before everything changes,'' said Jury Krytiuk, senior booking agent for A. Nash Travel, an Ontario-based agency that specializes in travel to Cuba. "There are Canadian clients booking beach vacations, but those numbers haven't changed. The real increase is from Americans who want to go to Havana." The Cuban government doesn't disclose the number of U.S. citizens visiting the island. Americans can get into Cuba either on officially sanctioned trips, such as ones organized by educational groups, or via countries with connecting flights, including Canada, Mexico or Panama. Travel for tourism remains officially off-limits due to the economic embargo. About 51,000 U.S. citizens visited the island in the first five months of this year, up from 37,000 in the same period a year earlier, according to data published by the Associated Press. The AP cited Jose Luis Perello Cabrera, an economist in the University of Havana's tourism studies department with access to official tallies, as the source for the figures.



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While Cuba is already the second-most visited island in the Caribbean behind the Dominican Republic, U.S. tourists are expected to begin arriving in droves as trade restrictions that were first put in 1960s ease. Already, Carnival Corp. has won approval to begin cruising to the island next year. JetBlue Airways on July 3 said it added a weekly direct New York-to-Havana charter flight (which is still prohibited to most travellers). Airbnb offers more than 2,000 guest homes in Cuba, yet U.S. tourists are finding it difficult to book luxury accommodations in Havana, Krytiuk said. The country has about 61,000 hotel rooms, according to Tourism Ministry figures. "Americans are going expecting five-star hotels, but there are only a handful of four-plus hotels in Havana," said Krytiuk, who has been selling packages to Cuba for 40 years. "Cuba, in a way, got caught with its pants down by not being prepared for this." ↑Return to Index

Engineering Manufacturing – a tale of two economies (This article has been reproduced from Americas Market Intelligence)

One region that provides a vivid illustration of the diverse impact of low commodity prices on the engineering and manufacturing sector is Latin America. “From an engineering and manufacturing perspective you can divide the Latin American economies in two broad camps,” says John Price, managing director of Americas Market Intelligence. His company has been monitoring economic and commercial trends in the region for the past two decades.

“On one side, you have countries with the right combination of labour availability, proximity to good markets and business-friendly government to become natural homes for manufacturing industries. Today, that largely means Mexico and other parts of Central America. On the other, you have regions where industries have been built on the local availability of natural resources, including mining, agriculture and oil and gas, which is true for a lot of the Southern countries.” Over the last decade, rocketing natural resource prices encouraged a spike in investment in those resource-rich countries, as producers rushed to cash in on rapidly rising demand from China. This boom was great news

for resources companies and their supply chains, but, says Price, it made life tough for Latin America’s indigenous manufacturing industries, which suffered “Dutch Disease” as strong currencies and high input costs made their products expensive by international standards. Today, the pendulum is swinging the other way. Falling commodity prices are challenging for natural resources companies, but they set the stage for “a renaissance in manufacturing,” says Price. “Energy costs have gone down, transportation costs have gone down and Chinese labour costs have gone up, so when you take productivity into account, Mexican labour costs are now on a par with those in China.” Those conditions, combined with its physical proximity to the vast US market are making Mexico a hugely appealing region for manufacturing investment. A victim of its own success? The rise in Mexico’s manufacturing won’t be an entirely smooth one, however. Price describes three key challenges that must be overcome if the country is to capture all the potential offered by today’s economic environment: a scarcity of skilled labour, high electricity prices and poor security. Traditionally, Mexico’s state-controlled higher education system has produced enough graduate engineers to meet demand, he says, but it hasn’t created enough of the skilled technicians needed to operate and maintain sophisticated modern manufacturing equipment. “Right now, forecasts suggest there will be a shortage of 5,000 skilled technicians a year for the next four years.” To tackle these shortages, the latest generation of manufacturing players to enter Mexico will need to follow the automotive



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industry’s example, he suggests, by jointly or independently funding their own training centres and including significant training costs in their inward investment plans. In the short term, the competition for skilled labour may push up costs as well. “Historically, there has been less of a culture of labour mobility in Mexico than in other regions, but that is beginning to change as skilled staff see the opportunities that are available to them,” says Price. “We’ve already seen examples of rapidly rising skills costs in other areas. In Brazil for example, a shortage skills and experience at the very highest level meant that for a while C-suite executives were more highly paid there than in the US.” Tackling Mexico’s high electricity prices will also require private investment, but this time government intervention looks set to clear the way for rapid changes. “Today, the price paid by Mexican manufacturers for their electricity is around 80 percent higher than in the US,” says Price. An energy reform law signed last summer looks set to transform the sector, however, by allowing private companies to enter Mexico’s electricity market for the first time. The same law will also permit the import of natural gas, opening access to cheap shale gas from the US. Today, says Price, there are upwards of a dozen cross border gas pipeline projects under way, with Mexico’s electricity price premium forecast to drop to 30 percent or less over the next few years. Finally, companies must find ways to manage the security of their staff facilities, and products in transit. “It’s been an unfortunate side-effect of Mexico’s war on drugs that the country’s organized criminal gangs are turning to alternative sources of income,” says Price. “That increasingly includes extortion and kidnapping, with foreign companies and their employees a significant target.” extra security costs must be accepted as part of the cost of doing business in the country, he says, adding that, “There’s also increasing recognition of the importance of information security – keeping tight control over the details of what is being delivered to and from your plants, for example.” From borderlines to clusters As Mexico overcomes its structural challenges to manufacturing growth, Price suggests that the industry is likely to change in shape as well as size. “Earlier waves of inward investment were often made primarily with a view to supplying US markets,” he says. “Which led to a lot of development ranged along border.” While such locations were good from a logistics perspective, he notes, Mexico’s Northern regions have problems too, notably shortages of water and of stable sources of labour. “Northern Mexico is the most arid part of the country, which means water is very expensive,” says Price. “And it wasn’t historically highly populated. A lot of the towns that have grown up on the border have done so purely to serve cross-border industry. Their populations are young and they don’t have strong links to the area.” That lack of connection makes it hard to retain workers over the long term, he says, leading to skills shortages when experienced staff move away.

The latest wave of manufacturing investment is likely to look rather different, he suggests. “As the domestic market has grown, along with the economies of other countries in the region, many companies are now looking at a “NAFTA” strategy for their manufacturing investments, with Mexican plants supplying customer’s right across the region.” That approach makes locating close to the border less of a priority, allowing companies to go where they can find the right skills, supply base and logistical links. The result, says Price, is a growth in industrial clusters like those seen in many other regions. “We have already seen hubs starting to form around the sites chosen by the big automotive companies,” he says, “Now the same thing is happening in other industries, with Guadalajara becoming a centre for electronics production, for example.”

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More METS players drawn to Brazil

(This article was written by Daniel Gleeson and was published in the Mining Journal on July 3, 2015) Brazil's growth as a mining services hub has paralleled the emergence and expansion of Vale as the home-grown giant stepped up competition with the likes of BHP Billiton and Rio Tinto for the position of biggest miner on earth. In the current slowdown the questions is, what next for Brazil mining equipment, technology and services (METS) sector?

While the likes of ABB, Sinclair Knight Merz and Worley Parsons have profited from the building of Vale’s huge 90 million tonnes per annum S11D iron ore project in Carajás, Brazil, there are fewer of these massive projects coming on stream in Brazil. Despite this, the likes of Caterpillar, Komatsu and Sandvik have all established hubs in this part of South America and the METS sector continues to evolve with the mining industry. One barometer-reading of this can be found in the attendance and representation at the country’s biggest mining tradeshow, Exposibram, which takes place every other year in Belo Horizonte. In 2013, the last

time the event took place, Exposibram attracted 58,000 visitors to the exhibition, along with 500 exhibitors from 25 countries. In recent years there has been an influx of Australian companies looking to showcase their expertise and potentially expand their sales base. According to Ana Carolina Bonamin, business development manager at the Australian Trade Commission in São Paulo, there were 11 Australian companies registered in 2013, including Immersive Technologies, Snowden, Scantech International and Callidus Welding Solutions. Bonamin said five METS providers had already signed up to the 2015 show in September, showing a global commodity downturn and issues specific to Brazil’s own development had not deterred them. Two such companies that have been gaining traction in Brazil are safety systems provider Seeing Machines and mineral processing plant specialist Gekko Systems. Ken Kroeger, CEO of Seeing Machines, told Mining Journal the company had a very good year in Brazil last year. It recently carried out a pilot test at Mineração Rio do Norte, a joint venture operation owned by Vale, Rio Tinto, BHP Billiton and Alcoa, which happens to be the largest bauxite mine in the world. Running a total of 77 haul trucks at the operation, the potential number of drivers in need of safety monitoring is vast. According to Kroeger, the recent 90-day trial at site, carried out through its regional partner Sotreq, was a big success. Sotreq is in the process of finalising details for another pilot programme at Vale’s Salobo copper mine in Pará state, which it hopes to start running by the end of July. Another mining technology firm, simulation training specialist Thoroughtec, already has a presence in Brazil, with a simulator installed at Anglo American’s US$8.4 billion Minas-Rio iron ore mine in Conceição do Mato Dentro in Minas Gerais state, while rival Immersive Technologies’ presence at Exposibram in 2013 indicates its intent to make more sales in this region. There were a lot of big open-pit mines in Brazil so it is no surprise simulator providers are jumping into the market. For Gekko, a company focused mostly on the gold sector, this year has been about establishing itself in the country – having only recently relocated its South American base from Chile – and getting to grips with working on the country’s deposits. “Most of our work [in Latin America] has come from Peru, Argentina, Colombia and, more increasingly, Brazil. As we got to know Brazil better via our agents Minetec, we found that mineral deposits were more suited to our technology (gold, silver and variety of other heavy minerals). “It was more about the style of the deposits, being coarse, high-grade gold that attracted us to the (Brazilian) market, not so much the long-term potential of the gold market itself. We definitely knew about the importation challenges within the country, however, companies were willing to go through the pain of importing our equipment as it offers very good benefits and value to their operations,” Nigel Grigg, business development manager, at Gekko told Mining Journal.



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The move has already led to the company winning business with Australia-listed companies Orinoco Gold, Serabi Gold and Cleveland Mining, while it had also secured a contract with Brazil’s Mineração Caraíba. “The market is really embracing the technology,” Grigg said. He said the company’s intensive cyanidation systems (InLine Leach reactor) had been the most popular product so far, while interest in Gekko’s Inline Pressure Jig, its continuous gravity concentrator for pre-concentrate applications, and its low-energy modular plants – such as The Python – was rising. The company is hoping its early success in Brazil and a recovery in the sector leads to more contract wins on some of the bigger gold projects in the country. “I believe the mining industry in Latin America (including Brazil) has bottomed out. We are finding that most companies have reached a steady-stage and have recalibrated their expenses and cost structures. I believe that we will see low, but steady growth moving forward. “We are more than happy to get our technology and modular plants into the market and strengthen our reputation as the gold experts. Hopefully our commitment to ‘successful installations’ will help create some market pull in Brazil and provide the opportunity for Gekko to participate in some larger gold projects,” Grigg said. Gekko and Seeing Machines are not the first and, most certainly, won’t be the last to be lured by Brazil’s mining industry pu ll. Long-term thinkers in the METS sector will want to position themselves for the inevitable upturn. ↑Return to Index

Bolivia receives a ratings grade to ‘BB’ from Fitch Fitch Ratings has upgraded Bolivia's long-term foreign and local currency Issuer Default Ratings (IDRs) to 'BB' from 'BB-'. Fitch also upgraded the issue ratings on Bolivia's senior unsecured foreign and local currency bonds to 'BB' from 'BB-'. The Rating Outlooks on the long-term IDRs have been revised to Stable from Positive. In addition, Fitch has upgraded the Country Ceiling to 'BB' from 'BB-' and affirmed the short-term foreign currency IDR at 'B'.

KEY RATING DRIVERS Bolivia has improved the sustainability of its hydrocarbons production, the largest source of exports, fiscal revenue and domestic investment. In the absence of new discoveries, official forecasts indicate that deep drilling and developments around existing fields could provide the marginal output increase to sustain gas production and meet local demand and export contracts with Argentina and Brazil at least until 2019. Smoothing the declining curve of production beyond this date would depend on the capacity to overcome political, technical and financing challenges to the execution of a USD7 billion (20% of GDP) five-year upstream investment plan, primarily focused on exploration.

Regulatory uncertainty and nationalization risks have eased. Government and businesses agreed on reforms to the investment regime that facilitate private participation in sectors that are not subject to state control and recognize independent conciliation and arbitration for contractual disputes. The authorities ceased nationalizations in 2013 and have paid USD690 million (2% of GDP) in compensation to multinational companies. Sustained improvements in rule of law and the business environment are key to lift the country's domestic investment rate, which at an estimated 20% of GDP in 2015, continues to lag behind the 'BB' median of 22%. Bolivia's robust external buffers and ample fiscal policy space render its economy better-placed to absorb adverse shocks and adopt counter-cyclical policies than other commodity exporters in the 'BB' category. Fitch expects that the correction in oil prices and a public investment impulse could swing the budget and current account to deficits of up to 4% of GDP in 2015-2017. A low public debt starting point (30% of GDP), ample public sector deposits (23% of GDP), large foreign reserves (46% of GDP), resilient foreign direct investment and access to multilaterals and global bond markets reduce sustainability and financing risks. Five-year average economic growth rose to 5.4% in 2014, exceeding the 'BB' median of 4.1%. Faster growth has supported the reduction of Bolivia's large per capita income gap, which remains 23% below the median of rating peers. Fitch forecasts that economic activity could keep pace at an average 4.4% in 2015-2017, driven by robust public investment in diversification and industrialization projects and eased domestic liquidity conditions. Further weakening in oil prices, execution bottlenecks and delays represent downside risks to the growth outlook. Higher inflation rates than trading partners have led the Boliviano to strengthen a cumulative 25% in real terms since 2009, the largest appreciation in the 'BB' category. Recent currency depreciations in neighbouring Argentina, Brazil, and Peru are affecting



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the competitiveness of the local industry and increasing incentives for imports. Exchange rate adjustments are unlikely unless the ongoing oil price correction is sharper and more prolonged. Monetary authorities use the nominal exchange rate as a nominal anchor to preserve purchasing power, control inflation expectations and deepen financial de-dollarisation. Fitch forecasts that inflation could moderate to 5% in 2015-2017 from 5.8% in 2014. Fitch revised its Macro Prudential Indicator for Bolivia to '3' from '2' in June 2014, signalling that the potential for financial systemic risks is high due to the combination of rapid credit growth and real exchange appreciation since 2012. The agency recognizes that available real estate and equity market data is less conclusive about the existence of potential bubbles. The implementation of the new banking law is having mixed results on the financial system. Larger banks are better placed to increase lending volumes to mitigate the negative impact of interest rate controls on profitability and capitalization. Microfinance entities have greater difficulties to meet mandatory credit quotas for housing and productive loans due to their large exposure to commercial lending and high dependence on interest margins. The strength of the new deposit insurance and resolution schemes will be important to guarantee financial stability in event that increased competition results in greater consolidation in the system. Bolivia's 'BB' ratings and Stable Outlook balance its stronger sovereign fiscal and external balance sheet than peers, sustained economic growth and record of macroeconomic stability against structural constraints such as low GDP per capita, weak institutional quality and a poor business environment relative to 'BB'-rated sovereigns. High export commodity dependence, at over 70% of current external receipts, is higher than the 'BB' median of 17% and exposes the country's credit metrics to terms of trade shocks and gas supply shortages. ↑Return to Index

Why Mexico should be part of a Latin America mining strategy

(This article was written by Austrade) Australia’s mining sector was encouraged to consider Mexico’s mining opportunities in Mexico during an interactive video seminar held earlier this month. While Latin America has attracted Australian mining equipment, technology and services (METS) companies for a long time, Mexico is often overlooked. Key players across the entire METS supply chain, the Australia New Zealand Mexico Chamber of Commerce and Industry (ANZMEX) and the Australian Latin America Business Council (ALABC) heard from Chris Rodwell, Austrade’s Trade Commissioner to Mexico, Central America and the Caribbean, and Christopher Avila, Deputy Director Government Relations with Grupo Bal. Nicholas Baker, Austrade Trade Manager Resources and Energy, said the video series helped to connect the Mexican mining industry, which reached US$21.4 billion ($28.2 billion) worth of production last year, with the Australian mining equipment, technology and services (METS) industry.

“The seminar is part of Austrade’s Latin America mining strategy and aims to provide greater focus on the opportunities Mexico offers,” said Baker. It also encourages Australian companies active in Latin America to consider Mexico as part of their plans. The video conferences, held in Austrade offices across Australia, also give Australian exporters initial access to market intelligence, tips on doing business, useful insights from local mining experts and direct access to in-market staff. “Australian METS are world-renowned and Latin America, particularly Chile and Peru, see Australian METS goods and services as best-in-breed. So by leveraging enhanced Australian whole-of-government efforts in mining, Austrade can position Australian industry as a preferred supplier of sophisticated solutions,” he added.

The Mexican mining industry has created regional clusters created in mining states, such as Sonora and Zacatecas, to help assist in unlocking the mining potential.



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Christopher Avila, who also was a former Undersecretary for Mines in the State of Zacatecas, said that Mexico needs Australian METS capability and Grupo Bal alone is investing over $700 million in two new mines. “Mining in Mexico accounts for 4.9 per cent of GDP, has low inflation, offers competitive tax rates and is a NAFTA member,” said Avila. “Mexico also has some of the lowest labour costs, a young and qualified population and is an easy place to do business, according to the World Bank. “Offering competitive infrastructure, low transportation costs, well-developed railroads and ports are more reasons to consider Mexico,” he added. Avila said Australian miners should consider Mexico because it is ranked number one in the world for silver production, ninth for gold, tenth for copper and is the fourth largest metallurgical complex in the world.

Chris Rodwell, Austrade’s Trade Commissioner to Mexico, Central America and the Caribbean, commented that although Mexico’s mining sector, like that of many other economies around the world, had experienced a downturn, it still played a vital role in Mexico’s economy. "Mexico has an established mining industry and continues to be the world’s number one producer of silver, a top ten producer in 17 other minerals, and the fifth leading destination for mining investment globally,” said Rodwell. Rodwell noted that while 70 per cent of Mexican territory has mining potential, only 30 per cent has been explored to date. Mexico also has the largest number of exploration projects per kilometre in Latin America. The Toronto Stock Exchange (TSX), home to 58 per cent of the world’s listed mining companies, has ranked Mexico as the third most attractive destination for mining and accounts for 75 per cent of the mining companies operating in Latin America. In 2014, Mexico became only the second country in Latin America to obtain an ‘A’ credit rating. With a low mining political risk, it is ranked fifth worldwide – only 14 points behind number-one ranked Australia. “While Australia has relatively modest commercial interests in Mexico, the situation is fast changing and we are now seeing a surge in interest from our large mining houses, as well as key suppliers in the value chain to operate in Mexico,” said Rodwell. This is reinforced by Rio Tinto’s decision last year to invest in the

Azure Minerals’ Promontorio Copper Project. More recently, BHP-Billiton has indicated its interest in developing large-scale copper projects in Mexico to complement its ambitions in the oil and gas industry. In April this year, a number of highly innovative Australian suppliers, including Ausenco, Gekko Systems, Groundprobe, TSG Consulting, Dalton Training Services and Pit-to-Ship Solutions, participated in a trade mission in Mexico. The mining trade mission focussed on exploring opportunities in areas such as mineral processing, mine safety, logistics, mine planning, environmental management and technical training; with the mission highlighting the strong and growing appetite for these services. Rodwell added that political factors such as the Trans Pacific Partnership (TPP), which is in the final stages of negotiation, will enhance Mexico’s attractiveness. Austrade is coordinating the Australia Pavilion at the Expomin 2015 Mining show, held in Acapulco from October 7 to 10, to further highlight Australian capabilities and create greater opportunities for Australian companies. Australian companies interested in expanding their LATAM or North American businesses to Mexico are encouraged to participate in Expomin Mexico. ↑Return to Index



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Analysis: Foreign Direct Investment in Chile – On the OECD path

(This article was written by Alejandra Maturana and was published in the July edition of BUSinessChile, the monthly magazine of AMCHAM Chile www.amchamchile.cl. ) In response to the changes underway in Chile, and the subsequent need for improved tools and skills for attracting foreign capital, on 16 June President Michelle Bachelet enacted the new Framework Act for Foreign Direct Investment, thereby replacing the previous legal instrument, Decree Law 600, dating from 1974. Chile is an attractive country for investors, as shown by the growth in Foreign Direct Investment (FDI) over the last ten years.

During this period, FDI has risen from US$7.2 billion in 2004 to more than US$22 billion in 2014. This figure, according to the United Nations, means that Chile now ranks among the 20 biggest recipients of foreign investment. FDI in Chile is primarily the result of the country’s large amounts of natural and human resources, as well as its institutional stability and dynamic private sector. Until recently, FDI was driven by Decree Law 600 (DL 600), enacted in 1974, and which was responsible for attracting almost one third of all foreign capital to the country. However, with a view to updating this legislation in response to the changes currently underway in Chile and to position the economy in line with international levels, on 16 June, President Bachelet signed the new Legal Framework for Foreign Direct

Investment into law. This legislation was drawn up under parameters devised by the Organisation for Economic Co-operation and Development (OECD), of which Chile became an official member in 2010. During the enactment of the law, President Bachelet stated, “The positioning of Chile as a serious economy, open to the world, managed responsibly and acting as a nexus between the Pacific Rim and Latin America, provides us with advantages that are difficult to overcome in ensuring foreign companies decide to do business in our country”. The President noted how the new legislation had incorporated proposals made by the Presidential Advisory Committee dedicated to this issue (devised under the framework of commitments made by the Government during the passage of the tax reform). She also explained that it conformed to measure No. 46 of the Productivity, Innovation and Growth Agenda. Like the DL 600, the new law seeks to provide certain guarantees for foreign investors, ensuring them a framework of stability for their investment in Chile. As such, among its main points is a definition of “foreign investor” and “foreign direct investment”, as well as outlining a set of rules applicable to each investment, which may amount to US$5 million in foreign currency received by companies of any size. Furthermore, it guarantees the following: access to the formal foreign exchange market for settling foreign exchange when investments are agreed, such as for the remittance of profit and the repatriation of capital; not to be subject to arbitrary or discriminatory measures (i.e. treating investors in the same way as Chilean companies); and the exemption of sales and services tax on the import of capital goods, in accordance with the provisions of article 12, section B, number 10 of Decree Law 825, dating from 1974. The latter provisions stipulate that any party to a foreign investment project formally agreed to with the State in accordance with the provisions of DL 600, or one which fails to take place in Chile in sufficient quality and quantity, and forms part of a similar national investment project, is considered of national interest to the country and subject to approval by the Ministries of Economy and Finance. In addition, the new law regulates the purpose of the contracts entered into during the term of DL 600, ensuring the full applicability of the rights and duties acquired by foreign investors under this set of legal rules. It also establishes an exceptional right which stipulates that, within a maximum period of four years, foreign investors may request foreign investment authorization under the terms of article 3 of DL 600, in line with the rights and duties therein established, but with tax invariability for a total rate of 44.45%.


http://www.amchamchile.cl/


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Furthermore, the law establishes a Committee of Ministers for the Development and Promotion of Foreign Investment (composed of the Economy and Finance Ministers, as well as Presidential appointees). The Committee will directly advise the President of the Republic on setting national policy on this area, as well as ensuring the creation of a specialized agency to replace the current Foreign Investment Committee (CIE), while also overseeing the fulfilment of these distinct processes.

Jorge Pizarro Cristi, who until 1 July was Vice President of the CIE, and one of the main advocates of the new law, states that, “This way, for the first time in its history, Chile will have a national policy on foreign investment, which will be integrated as a relevant element into the country’s productive development programs”. Attracting greater investment The Minister of Economy, Development and Tourism, Luis Felipe Céspedes, believes that the measures set out under the new law will incentivize increasing numbers of foreigners investing in Chile, “to bring their know-how and to develop their investments”. This is because the new regulations help to ensure serious institutions, with long term outlooks and which are in line with other OECD nations. In turn, this scenario will guarantee that services are provided according to international standards and that the necessary conditions will be

generated to ensure investments take place, “quickly, transparently and effectively” in the regions and sectors in need of development, including mining, energy, services and infrastructure. Minister Céspedes stresses that, “We want to have more and better foreign investment, which is why we are moving beyond a reactive policy of receiving investment, to a proactive one of attracting foreign capital”. He also notes that the new legislation does not only provide guarantees confirming that FDI is welcome in Chile, but that it also recognizes its importance in the current and future economic development of the country. Accordingly, Kathleen Barclay, President of the Chilean-American Chamber of Commerce, AmCham Chile, believes that by attracting greater investment, certain factors particularly valued by foreign investors should be taken into account. Among these, for example, are: a robust democracy and macroeconomic stability; solid and sustained rates of GDP growth (including high rates of domestic investment); strong institutions operating under a national Constitution that protects private property and ensures non-discriminatory measures against foreign investors; access to the formal foreign exchange market for the distribution of dividends and repatriation of capital; and free trade policies regarding openness to foreign trade and the promotion of imports and exports. Furthermore, as the President of AmCham notes, regulations are required which favour competition for investors, such as tax stability, and employment laws and regulations for key sectors, such as finance, energy and mining. Kathleen Barclay notes that, “As a bi-national chamber, we don’t believe that the relative degree of development of a country is, in itself, an important measure for evaluating the mechanisms of required investment. Rather, competitiveness in the global foreign investment sphere should be assessed, in conjunction with the growth performance of the country, as well its economic, social and institutional stability”. She also highlights that AmCham Chile is increasingly promoting the double taxation avoidance agreement with the United States and encouraging greater investment flows to Chile. The new agency According to the new law, the Foreign Investment Promotion Agency will be responsible for coordinating and implementing the State policy on FDI, as established by the Committee of Ministers. Its aim will be to attract all types of foreign capital and investment to Chile. It will have offices abroad and be subject to regional coordination, as well as holding activities to promote investment, both locally and internationally. The Director will be selected via the Senior Public Sector Management system and if no appointment is made in time for its launch, one will be made as soon as possible. Jorge Pizarro Cristi explains that, “We are talking about a highly professional body that will be guided by best international practices, and which will provide services throughout all stages of the investment cycle: from the first contact being made with a potential investor seeking to invest in the continent, to when they are already in place in the country and thinking about reinvestment”. Pizarro points out that this definition stems from an evaluation conducted by the OECD specifically for Chile, in addition to research into best international practices in this field. He also stresses that the continuity of the powers of the agency are safeguarded by the new law. Furthermore, he explains the importance of the work of the agency being guided by both the strategy proposed by the Committee of Ministers, as well as a Consultative Advisory Council, composed of individuals from the public and privates sectors.



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The President of AmCham Chile states that, “It is extremely beneficial that this agency has considered the establishment of a public-private Consultative Advisory Council, which must be an immediate and genuine space for dialogue (and) that will doubtlessly help to ensure that the policies it implements are in tune with private sector needs”. She also points out that an important aspect in need of clarification is how the agency will concretely contribute to maintaining a favourable climate for foreign investors and how to increase the competiveness of the country in this sphere. Around the world there are more than 170 agencies focusing on attracting investment, all competing to attract foreign capital to their countries. As such, the Minister of Economy says that despite Chile being highly attractive to investors, “It is unfeasible to just sit around waiting for capital to arrive using this line of argument, especially in an environment in which the continent has progressed significantly in terms of offering attractive investment opportunities”. The idea is that the arrival of international actors to the economy will make markets more dynamic, enabling new partnerships to be forged between foreign and national companies. The goal is also to attract new technology to the country, as well as good practices, and to develop secondary industries. All of this is beneficial to the national business ecosystem, for example by increasing employment and diversifying products and services. Less than DL 600 Nevertheless, not all actors agree on the benefits of the new law. One example is Bárbara Vidaurre, Director of the Legislative Program at the think tank Libertad y Desarrollo (LyD), who argues that, “unfortunately it doesn’t improve on DL 600, which has worked very well”. This is because foreign exchange, tax and legal guarantees (which used to be included in a contract) drove almost one third of total foreign investment. Vidaurre believes that this gave Chile a competitive advantage, albeit not the only one, in attracting foreign investment. “Some of the guarantees in place under DL 600, such as the ability of foreign investors to choose tax invariability, benefits relating to invariability in terms of large mining projects, and the signing of a legal contract between the State and the foreign investor, all disappear under the new regulations”, says Vidaurre. However, she adds that the provisional article will allow the signing of a contract for the first four years with limited tax invariability. She claims that while the OECD standard seeks to provide a guarantee of seriousness and stability to incentivize the arrival of foreign capital, the maximum guarantee was previously provided for by the legal contract, which now disappears. It should be noted, however, that all current contracts will remain in force. According to Vidaurre, the design of promotion strategies by governmental bodies always entails an element of uncertainty, as it is impossible to know in advance what decisions the President and the Committee of Ministers will take regarding investment promotion. “This will be difficult for investors who have already accepted DL 600 and who are used to the benefits previously established by law (which will be maintained while their respective contracts remain in force), and it’s very difficult to predict the content of the new strategy, as it could be aimed at promoting clusters, mining activity, infrastructure… there’s no way of knowing”, she points out. She believes that the repeal of DL 600 in place of a “weaker” law sends a negative signal to investors, in addition to the uncertainty generated by the tax reform of last year and the general economic slowdown.

“Unfortunate recent events have called into question precisely those elements that are evaluated by potential foreign investors. Until now, we have had great success as a country in attracting investment because we are a nation characterized by seriousness and stability, which is why we hope that this crisis is temporary and that we soon regain trust”, she notes.

Accordingly, and as mentioned by the President of AmCham Chile, Kathleen Barclay, it is crucial just how the new law determines the policies to be implemented for maintaining a favorable climate for foreign investors. Within this climate, coordination and opportunities for dialogue will be fundamental in ensuring an environment conducive to doing business in Chile.



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FDI in Chile and across the region According to the annual report Foreign Direct Investment in Latin America and the Caribbean 2015, compiled by the Economic Commission for Latin America and the Caribbean (ECLAC), Chile was the third biggest recipient of Foreign Direct Investment (FDI) in the region in 2014, recording US$22.002 billion of investment, which is a 14.2% increase on 2013. This scenario is despite the economic slowdown experienced across the region and the lower prices of basic export products. Indeed, in 2014, FDI in Latin America and the Caribbean fell by 16%, totalling US$158.803 billion. This figure represents 13% of global investment flow. This is why Chile has been ranked as one of the 20 biggest recipients of foreign investment in 2014, according to figures from the United Nations. The United States is the biggest investor in Chile, accounting for 16.7% of all investments since 2009, totalling US$16.878 billion. ↑Return to Index

Retail E-commerce sales near US$50bn in Latin America

Retail ecommerce sales in Latin America are growing at a rapid pace, according to eMarketer estimates. Based on the latest figures for total and digital retail around the world, ecommerce sales in the region will reach nearly US$50 billion this year, an increase of 23.9%. Nearly US$20 billion in sales will come from Brazil alone, where ecommerce also makes up a greater share of the total retail market than elsewhere in the region (a still-tiny 2.8%). Mexico is in a distant second, with US$5.70 billion in retail ecommerce sales this year, or 1.5% of all retail sales in the country. Growth is fastest in Argentina, where ecommerce sales will be up 40.0% this year to nearly US$5 billion. By the end of the forecast period, retail ecommerce in Latin America will reach US$84.75 billion, or 3.2% of retail sales in the region. Growth will still be in the double digits in 2019. ↑Return to Index

Colombia Finance Minister announces austerity measures for 2016 Colombia’s finance minister on July 13 warned that next year’s government budget will see major spending cuts as the country is facing a major drop in revenue due to low oil prices. In an interview with newspaper El Colombiano, Finance Minister Mauricio Cardenas said that “revenue is falling because of oil.”

In an interview with Reuters, the minister had already said the government is expecting a 60% drop in oil revenue, usually amounting to 20% of the government’s income. Consequently, “for the coming year’s budget the only thing that can be expected is more austerity everywhere,” said Cardenas. According to the minister, government agencies have already begun applying austerity measures and “reduced general spending with 10%.” The public spending cuts are necessary because the country’s accounts showed a deficit of 7% of the country’s gross domestic product (GDP) in the first quarter of 2015. “In the coming quarters this will be lower, and the idea is to have a plan to bring it below 5%” of the GDP.


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Colombia hopes to improve next year’s balance’s figures by reducing imports. For years the country could count on an international trade surplus, but this has shrunk to a trade deficit. To curb this, the minister plans to “reduce imports, but especially of goods we can produce in Colombia like food and textiles. The idea is that all these [imported] goods can be substituted for national produce.” Colombia’s cheap peso, which has lost value against the dollar for the past nine months “helps a lot to close the deficit,” according to the minister. The exchange rate helps with this because with a high dollar the people will lean towards domestic products,” said Cardenas. The biggest challenge will be to increase non-energy exports that, in spite of being cheap, have failed to increase in spite of the cheap peso. To increase Colombia’s global competitiveness, the government has announced major road infrastructure products that would reduce prices of local agricultural products and manufacturing. However, this is not going to prevent austerity measures on the short term. “These are medium term challenges,” according to Cardenas. ↑Return to Index

How can Cuba more fully integrate into the global economy?

A new Atlantic Council report provides a ten-point roadmap for Cuba's reintegration into the global economy, beginning with reengagement with the international financial institutions. This includes the World Bank, the International Monetary Fund, and the Inter-American Development Bank. Cuba's Economic Reintegration: Begin with the International Financial Institutions is the first major policy publication on Cuba's role in the global economic community since the December announcement of new policies toward Cuba. Cuban economist Pavel Vidal and former Senior IMF Economist Scott Brown, a former mission chief for Albania, examine conditions in Cuba and the

successful reintegration of previously isolated economies such as Vietnam and Albania. Ten concrete recommendations are given for the United States, Cuba, and the international community, including:

Cuba should carefully analyze all of the potential paths toward IFI membership. Lessons from Vietnam and Albania can serve as a guide to potential benefits and challenges, as well as highlight procedures to membership.

The US needs to give Cuba breathing room. The United States should give maximum leeway to the IFIs to begin confidence-building discussions and offer technical assistance to Cuba by not enforcing the legal mechanisms that call for US opposition to multilateral loans to Cuba.

Multilaterals should determine a path for the inclusion of Cuba. The IMF, World Bank, and the IDB should create a steering group to begin officially engaging the Cuban government. The full report and recommendations are available online here.

↑Return to Index

Brazil raises interest rates for the 6th time Brazil's central bank raised interest rates to 14.25% from 13.75% as expected on July 29, delivering another hefty increase to stifle inflationary risks from a sharp depreciation of the local currency. This is the highest rate since October 2006. In a unanimous vote, the bank's monetary policy committee, Copom, decided to hike the benchmark Selic rate by 50 basis points for the sixth straight time. The move was expected by a majority of economists and traders. In the decision statement, the bank said keeping rates at that level for a sufficiently long period of time was needed for inflation to converge to the target in late 2016. In an unusual move, international affairs director Tony Volpon (pictured below left) abstained from voting because of statements he had done previous to the Copom meeting.


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According to the Copom statement, 'assessing the macroeconomic scenario, prospects for inflation and the current balance of risks, Copom decided, unanimously, to increase the Selic rate 50 points to 14.25%. Copom said keeping rates at 14.25% level for a sufficiently long period of time was needed for inflation to converge to the target in late 2016. The decision of the central bank headed by Alexandre Tombini (pictured below right) was unanimous following the assessment of inflation and risks' prospects The decision was supported by Alexandre Antonio Tombini (President), Aldo Luiz

Mendes, Altamir Lopes, Anthero de Moraes Meirelles, Luiz Awazu Pereira da Silva, Luiz Edson Feltrim, Otávio Ribeiro Damaso and Sidnei Corrêa Marques. Previous to the meeting Tony Volpon, international affairs director of the bank decided to abstain from “this Copom 29 July meeting to avoid possible prejudice to the image of the Central bank, and this decision is personal and irrevocable”, according to a message sent to president Tombini, justifying his decision, before the meeting. Copom members understand the decision. At an extraordinary meeting on 28 July, the collegiate directory had already received the clarification of recent statements by Volpon. In effect, Volpon had anticipated publicly his vote in support of the rate increase, and in the 28 July special meeting it was agreed it was not a breach of confidentiality or privileged information for economic agents, but yes, was far from the natural and acknowledged caution on statements that bank members are expected to keep. ↑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: September 16, 2015 Event: ALABC Perth Annual Dinner Venue: Hyatt Hotel, 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 Date: November, 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 Please visit our website www.alabc.com.au for regular updates. ↑Return to Index








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