Risks Latin America Will Face in 2014

This article was originally published in Panamerican World (Spanish). The article draws from our Risk Map 2014 event on Feb. 12, jointly-sponsored by the Canadian Council for the Americas and Control Risks.

Risks Latin America Will Face in 2014

By Juan Gavasa, February 24, 2014

“Latin America is facing more challenging conditions in 2014, due to a reduction in global liquidity and a rise in market volatility. However, the risk of forced landing is smaller than it was in the past thanks to commerce diversification and to government policy changes that have happened over the past few years”. This is one of the main conclusions of the 2014 Risk Map report’s chapter about Latin America. A report annually written by the independent consultancy Control Risks.

According to Nicholas Watson, the person in charge of the report for Latin America, this year a division between those countries with big financial needs and risk of economic recession, such as Brazil, and those others that offer a more solid and pragmatic economy, safe from market volatility such as Chile, will be stablished. Now, regarding the macroeconomic, social and political scenery for 2014 in Latin America, several experts such as Jonny Gray, Vicepresident and General Director of Control Risks; Simon Whistler, Senior Manager at Control Risks, and Paul Klein, expert in corporate responsibility, gathered in the Canadian Council For The Americas. There, they identified the weaker zones, where the risks of economic recession or democratic involution are higher.

Simon Whistler started by stating that in the last seven years, the continent has changed greatly, and its general situation has evolved in a favourable manner “The area has changed a lot in this time. Democracy is, in general, more solid, and that benefits investments, political stability and legal security, which is not how it has been in the past”. All of the experts agree on the fact that the growth and consolidation of a wide middle class has helped to stabilize the economy of the main countries by increasing internal consumption. The middle class as a symptom of change, is expressed in a significant manner in Brazil, where social protests of 2013 came from this new social class.

Going into detail, the report written by Control Risk shows four categories that describe the political stability and general business climate of each country. Mexico, Peru, Colombia, Paraguay, Guatemala, El Salvador, Honduras, and Panama are the group of countries with more stable governments and with the most stable politics regarding the promotion of foreign investment. Brazil, Chile and Cuba are ranked in second place, while Bolivia, Ecuador, Argentina and Venezuela have the lowest indicators. Looking at the map of Latin America, only some zones of Mexico, Honduras, Haiti, Jamaica, Venezuela, Colombia and Peru are covered in red, colour that identifies the points of higher risk in security of the planet in Control Risk’s map. In general, the region is levelled between medium and low. However, when it comes to political risks that negatively affect the business climate, Argentina, Bolivia, Venezuela, Nicaragua and Haiti have been labeled as countries with the highest risk level.

To Simon Whistler corruption is still one of the most endemic evils of Latin America along with security and lack of development in key sectors such as infrastructure. Once again, there are strong contrasts along the area; between the systemic stability in Chile and Uruguay and the chaos in countries like Venezuela, all political contrast are shown in the Report of Corruption Perception and Transparency of 2013, a report specially harsh on Maduro’s government. Moving on to the middle of this contrast is Mexico, a country that is facing an important economic growth according to international analysts, but that has gaps in education, energy, telecommunications and that lacks certain reforms that need to be implemented. According to Whistle, the situation is “complex but stable”.

This year will be a determinant in the politics of countries that are facing elections: Argentina, Brazil and Colombia, elections for which the analysts have predictions already. While it is more than likely that someone will take over Cristina Fernandez in Argentina, Dilma Rouseff is the head of the polls to be reelected in the october elections in Brazil. Something similar might happen with Juan Manuel Santos in Colombia, who has in his favour the country’s economic growth and the peace process it is following with the FARC and ELN.

Another element that helps understand the social, political and economic climate in Latin America is the mining sector, key in the development of many countries of the region. Paul Klein thinks that the CSR (Corporate Social Responsibility), is the fundamental figure among which businesses have to revolve around, considering this task “not only a philanthropic exercise of companies but also as part of their business”.

Klein also said that things in the mining sector “won’t be easy, even in pro-business countries”. The increase in the costs of energy and hand labor, the different regulating frames, the increase in exploitation rates, and the social instability will keep adding up towards a complex scenery. To soften the possible conflicts between politicians, Klein calls for a bigger focus in developing social responsibility: “It is not just about a piece of paper, its about committing people to a lot more. Until now, many mining companies weren’t clear in their ways, there were a lot of secrets. Communication and transparence are now fundamental in this business”, said the expert on CSR.

On this note, he also said that it is important for mining companies to listen to the people of the communities where the exploitation happens, “You have to negotiate and share with them your opinions, even if it is complicated, because of the different points of view among one community”. Klein, concluded, “In a vulnerable sector of the legal scope, and facing strong social, and economic pressure in Latin America, social responsibility is the way that big companies looking for business have to follow”.