Publish in Analysis - Tuesday, December 17, 2013
The meltdown of the once-powerful Eike Batista empire is the worst business news out of Latin America this year. (Photo: EBX)
The opening of Mexico's oil sector is the best business news out of Latin America this year. (Photo: Pemex)
The best and
worst news in Latin America business in 2013.
BY LATINVEX EDITORS
The best and worst events in Latin American business this
year, according to Latinvex editors.
THE BEST NEWS
Mexico Energy Reform
Mexico’s energy reform is clearly the best business news out of Latin America this year. The reform could double foreign direct investment in the country within the next few years and will place Mexico as one of the hot oil and gas markets in the world. It will also help make state oil giant Pemex more efficient. The reform has already led to a strong interest by foreign oil and gas companies and more Mexico business for such law firms as Haynes and Boone, Holland & Knight, Latham & Watkins, Milbank and Skadden.
The November 2013, $9 billion concession for the airports of Rio de Janeiro and Belo Horizonte was the best business news out of Brazil this year. They follow last year’s auction that awarded rights to major airports in Sao Paulo and Brasilia for 24.5 billion reais - more than four times the minimum bids, according to Reuters.
Mexico Telecom Reform
The telecom reform is the first real attempt to boost competition in the sector. Mexican bank Banorte-Ixe estimates the reforms will bring nearly 150 percent more in investments over the next six years than were invested between 2007 and 2012.
Despite the economic slowdown in Brazil, the initial public offering of Brazilian insurance and pension company BB Seguridade Participações raised 11.48 billion reais ($5.74 billion) in April, the highest amount in Latin America this year. To put that in perspective: That’s more than Twitter and Hilton raised in their IPOs combined, which was $4.5 billion.
On November 28, 2013, Spanish energy giant Repsol announced that it was negotiating final terms of a compensation deal with the Argentine government to end a 19-month conflict over the April 2012 confiscation of Repsol’s assets in Argentine oil company YPF. The likely deal is already spurring more foreign interest in Argentina’s energy sector, especially in shale gas.
THE WORST NEWS
Implosion of Eike Batista’s Empire
The meltdown of former high-flying mogul Eike Batista’s empire stands out as the worst business news out the region this year. It includes the bankruptcy of oil company OGX, the largest ever in Latin America, and ship builder OSX. The fall is dramatic because Batista, who at one point boasted he would surpass Mexican mogul Carlos Slim as Latin America's and the world's richest man, was seen as a symbol of the New and Successful Brazil. Bloomberg highlights the rise and fall of the man who once was Brazil’s wealthiest.
Venezuela: From Very Bad to Worse
Just when you thought things couldn’t get worse, they did. After President Hugo Chavez died in March – after a 14-year reign that ruined the economy -- his successor Nicolas Maduro is now trying to outdo his hero. In addition to seizing control of retail stores to force the prices to fall, he is planning laws that will impose percentage caps on profits for companies operating in all sectors of the economy. The result? Further shortages of everything from toilet paper to food. All this despite $13.7 billion revenues from the US alone during the first half of the year. “The change of the risk-reward equation will most likely force them not to renew their inventories and probably shut down their businesses,” IHS Global Insight analyst Diego Moya-Ocampos warned in a commentary. “During 14 years of Chávez rule, businesses had faced increased expropriation risks and difficulties to repatriate funds, but never limits on their profit margins, which had been the only driver to stay in Venezuela.”
Brazil’s Failed Policies
Despite a clear economic slowdown and widespread protests, the government of President Dilma Rousseff is not changing course in economic policy. Led by finance minister Guido Mantega, the Brazilian government continues its statist policies which are hurting imports and investments while leading to continued problems with inflation. Despite good intentions, central bank president Alexandre Tombini has not been able to keep price increases at a manageable level. The contrast with Mexico couldn’t be clearer, especially now that that country has opened up its energy sector.
Argentina: More of the Same
Poor Argentina, so far from its potential. Argentina marked another year full of economic problems caused by its protectionist government. The Repsol deal notwithstanding, Argentine President Cristina Kirchner has not signaled any change in economic policy – on the contrary. Her appointment of Marxist economist Axel Kicillof as economy minister in November 2013 has increased investor concerns even more. “He is convinced that businesspeople are suspect by nature,” Argentina’s leading newspaper La Nacion said in a profile.
Republic vs Barrick Gold
In February 2013, Dominican president Danilo Medina shocked local business leaders and foreign investors when he gave a state of the union speech attacking Canada-based Barrick Gold, the largest foreign investor in the country. Unless it agreed to renegotiate its contact with the government, he would impose a new tax on the company, he threatened. “The market may be starting to re-evaluate its mild preference for the ruling party after the taste it seemed to show for resource nationalism this week,” the Financial Times wrote after the speech. “This sends a very negative signal to current and potential investors in the Dominican mining sector, as can be seen in the stock price of Barrick and Goldcorp,” William Malamud, executive vice president of the American Chamber of Commerce in the Dominican Republic, told Latinvex. In the end – in August -- Barrick agreed to a new contract whereby it paid an additional $1.5 billion to the Dominican government. The Barrick issue is only the top of the iceberg in Medina’s erratic economic policies, which includes stopping a key extension of a massive metro line, attempting to impose taxes on 911 calls (then backtracking amidst popular protests) and more. Thanks to his economic policies of heavier taxes, GDP only grew 0.3 percent in the first quarter. Medina is clearly trying to differentiate himself from his predecessor, Leonel Fernandez, who brought billions of dollars in foreign investment to the country, negotiated the Barrick contract and started the metro line.
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