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The UK’s only Latin America-focused investment magazine
LATIN AMERICA & THE ENERGY TRANSITION
The region will play a key role as the globe goes green
ALSO INSIDE:
Lessons from history for Latin American investors
A report on Latin America’s burgeoning tech scene
IHS Markit analyses the latest financial data from the region
LatAm INVESTOR 1
LatAm INVESTOR 2
EDITOR’S LETTER
Rebuilding Latin America
global transition to cleaner energy. The
US, Chile and the EU have all launched
massive green stimulus programmes in
CONTENTS
response to the pandemic. We haven’t
Editor’s Letter 3
seen similar programmes in cash-
strapped Latin America yet it could end
Mercosur Trade 4
up being the main beneficiary. That’s
because the region has been blessed
Market Analysis 6
with abundant natural resources that
will make it a key supplier for the new
Country Analysis 8
energy sources that are emerging.
Lessons From History 10
Latin America produces 44% of the
Dear Readers, world’s copper - the key metal for
Latin America took a bigger hit from Market Moving Events 12
electric vehicles. There is a similar story
Covid-19 than any other place on earth. in biofuel, where Latin America is the
Even though it is home to just 8% of Energy Transition Report 13
world’s leading producer. A low-carbon
the world’s population, it had 19% of its energy future is also positive for the
coronavirus cases and 28% of deaths. LatAm Tech 50
region’s more responsible hydrocarbon
The economic toll has also been more producers. Finally, Latin America has
severe with a 7.7% increase in poverty Property 56
the greenest power grid on the planet
affecting 22 million people across with more than half of its electricity
the region. Latin American children LatAm Map 58
coming from clean energy.
are also suffering, as nine of the 15
countries worldwide that kept schools We investigate Latin America’s role
shut for a year are in Latin America. in the global energy transition in our
While restricted access to vaccines, special report, that begins on page 13.
LatAm INVESTOR
with the exception of Chile, means that We’ve taken a broad-brush approach, Managing Editor - James McKeigue
it will take longer for Latin America to covering several energy technologies,
Latin America Director - Carla Fierro
UK Director - Gerald Enright
recover from the health and economic and interviewed government ministers, Senior Writer - Sam Joll
damage. Senior Writer - Alisdair Jones
project developers and institutional Senior Markets Analyst - Cris Heaton
investors to explore how this theme Mexico Correspondent - Adriana Curiel
Brazil Correspondent - Adam Patterson
Yet amid the destruction there are will play out.
grounds for optimism. The pandemic Production and Commercial
Art Director - Tania Schoeman
restrictions forced Latin American Elsewhere in the magazine you will Advertising Sales - Terri Haddon
businesses and governments to Head of Digital - Ian Gibson
find the usual features, including IHS
improve their digital infrastructure. As Markit’s analysis of the latest market
Editorial queries: editorial@latam-investor.com
Marketing queries: advertising@latam-investor.com
we explore in our series of tech articles data from the region. We also report on Subscriptions: customerservices@latam-investor.
com
that starts on page 48, the region the prospects for a trade deal between
is fertile ground for tech investors. Tel: 0207 097 5121
the UK and Latin America’s largest www.latam-investor.com
It already has 20 unicorns – tech trade block – Mercosur.
companies worth more than $1billion
– and several demographic and social Enjoy the issue, Printed in the UK by
factors suggest Latin America’s tech The Manson Group
sector will outperform in the coming using only paper from FSC/PEFC
suppliers www.mansongroup.co.uk
decade.
Another positive side effect of
Covid-19 is that it is accelerating the James McKeigue
LatAm INVESTOR 3
LOGISTICS
Will the UK & Mercosur
Sign a Trade Deal?
A post-Brexit deal would see food, technology and investment flowing in
both directions, writes Norberto Pontiroli, member of GPS, a Mercosur-
based food security think tank...
M
ercosur is the world´s Food consumption is a socially
largest net exporter of sensitive issue and it won’t be easy
food, while the UK is one to persuade the British population to
of the greatest net food importers. At begin importing different products
present trade levels are low but the from the other side of the Atlantic
potential for a deal between these two Basin. It also remains to be seen if
complementary sets of economies is the UK will be able to conclude a deal
massive. with Mercosur. Yet given that “Brexit”
represents a turning point for British
The UK is not a significant market foreign trade, the UK will need to build
for Mercosur´s exports, accounting associations and show results for its
for just under 1% of its total external separation from the EU.
sales. However, for processed food and This article is a short,
agri food products, which hereafter updated version of the
will be referred to simply as food, it
document “Challenges
reaches almost 3%. In 2019, around
three quarters of the UK’s food imports and Opportunities for a
came from the EU, with France, the
Mercosur’s wine, post-Brexit Mercosur-
Netherlands, Ireland and Germany the UK Agreement”
main suppliers. No Mercosur countries beef and poultry
(www.grupogpps.org)
are among the main agro-industrial producers stand the
partners of the UK, with the two major
economies of the bloc, Argentina
most to gain from Norberto Pontiroli is a
and Brazil, ranking 12th and 15th a deal member of GPS (Group
respectively.
of Producing Countries
It’s striking that total annual UK food from the Southern
imports are worth almost exactly the Political environment Cone) Argentina and
same as total Mercosur food exports – Sadly, trade deals aren’t solely signed
coordinator of the
both are around $41.5billion. Of course, on the basis of economic rationale –
Mercosur won’t be able to win 100% of politics plays its part too – and there Mercosur-UK working
the market but early analysis suggests are three key challenges to a Mercosur- group. He is also co-
that Mercosur’s wine, beef and poultry UK deal. founder and secretary
producers stand the most to gain from
a deal. To a lesser extent onion, garlic First there is the Malvinas [Falklands]
of Argentina Global
and leek; sugar cane derivatives; fruit issue. The peaceful resolution of the Foundation and an
and vegetable preparations, and fish, sovereignty dispute between Argentina expert on foreign affairs
would also benefit from a reduction of and the UK needs time, creativity
and international trade.
tariffs. and political will. There were a series
LatAm INVESTOR 4
of positive political signals during Which Mercosur country exports the most to the UK?
Mauricio Macri´s administration. Yet
the mood changed with the arrival of
President Alberto Fernández to power
in December 2019, with a number of Uruguagy
players whose pushing stronger claims 1.9%
to the UK and in a more aggressive
Paraguay
tone. Those voices will have to be
managed to ensure productive trade 6.5%
talks.
Argentina
Second, the current intra-Mercosur
55.1%
situation is problematic. As a
negotiating unit, the bloc is going Brazil
through a difficult time and suffers 6.5%
from the poor state of the bilateral
Argentine-Brazilian relationship,
which is indispensable to align
Mercosur objectives. This is particularly
Source: Prepared by GPS based on Trademap (ITC) data.
important in 2021, since both countries
are holding the pro tempore presidency
of the first and second semester, out because of Brexit. it is just dealing with one state, not 27,
respectively. there are fewer potential objections
Windows of opportunity and trade sensibilities, while the UK’s
And third, there is the scope and Even though Mercosur is not an explicit economy is more complementary with
prospect of the “Global Britain’’ priority in Global Britain’s strategy, it Mercosur.
vision. At present there seems can still be an attractive option for the
to be a considerable overload UK. The bloc allows the UK to expand The UK is an attractive market for
of London’s capacity for foreign and diversify sources of commodities, processed, high-quality foods and
economic negotiations following its food and agro-technology, while associated technologies. But it’s also
separation from the European Union gaining access to a market with an economy where 75% of GDP comes
last December. This contrasts with significant purchasing power. A deal from services and finance. That means
Mercosur’s progress with the EU, where would also highlight the UK’s role as a the UK can play a role in exporting
a provisional agreement is undergoing world player. capital and technology to finance
the final legal scrubbing process. That growth in Mercosur. Yes. it’s true that
said, a deal between Mercosur and Indeed, Mercosur’s progress with the the recent past between Argentina
Europe could well provide the UK with EU could help, acting as the template and the UK is unfortunate. Yet, if you
extra motivation to seal its own deal for any deal with the UK. From that go further back Britain played a key
with South America’s Atlantic nations starting point both sides could role in the golden age of many of
to ensure that it is not seen as missing look to negotiate with a Mercosur- these economies. Until the First World
EU “plus” mindset. They War the UK was the leading investor,
could deliver an original, ploughing capital into the meat and
innovative agreement under leather industry, extensive crops and
a foreseeable long-term the lumber sector, to the development
negotiating agenda, but of railroads, services and shipping
with more flexibility than companies, among others. Maybe the
carried out with Brussels. ‘better angels’ of our shared past can
In theory it should be less provide a way forward to the future,
onerous for Mercosur to and inspire the well-needed pragmatic
make a tailor-made deal with approach towards a Mercosur-UK
the UK than the EU. Because agreement.
LatAm INVESTOR 5
MARKET ANALYSIS
Latin America: Recovery
from Depths of Pandemic
Continues
Pollyanna De Lima, Economics Associate
Director Economic Indices, IHS Markit
Overview theme, highlighted by the PMI surveys COVID-19 cases and the reintroduction
was the ongoing detrimental impact of of restrictions caused back-to-
Latin American nations continued to
supply chain distortions on companies’ back declines in services activity.
recover from the pandemic-induced
expenses and profitability. Input costs Nevertheless, business confidence
contractions seen in the first half of
continued to increase sharply, with strengthened in both segments during
2020, with GDP often beating forecasts.
only Brazilian firms able to retain some February as firms hoped that greater
Growth prospects are now brighter
pricing power and pass on a substantial vaccine availability will be successful
given the rollout of vaccines, but still
part of these additional cost burdens in curbing the disease and result in
high numbers of COVID-19 cases and
to clients. controls being lifted.
virus mutations threaten the near-term
outlook. Although key countries in the
In the January economic outlook The official unemployment rate
region came out of technical recessions,
update, the IMF revised higher 2021 remains elevated, though fell for the
output, employment and business
GDP projections for Brazil (+3.6%), third successive month in December to
investment remain below pre-COVID
Colombia (+4.6%) and Mexico (+4.3%) reach 13.9%. The PMI Employment Index
levels.
on the assumption that effective highlighted renewed job shedding
Macroeconomic PMI data, compiled by vaccine rollouts could boost in the private sector as companies
IHS Markit, pointed to divergent trends confidence, consumption and sought to keep a lid on expenses in
across the region at the start of 2021. investment. The forecast for Argentina light of steep cost increases caused by
Factory orders, production and was downgraded to +4.5% owing to material shortages. The central bank
employment in Brazil increased at COVID-19 challenges and fiscal has kept the policy interest rate at a
quicker rates in February but, with constraints. record low of 2% to aid the recovery,
services heavily impacted by the but inflationary pressures will likely
pandemic and national restrictions, Brazil underpin the start of a tightening cycle
private sector sales and output Economic activity in Brazil expanded in the first half of 2021.
declined marginally. The Colombian 3.2% in Q4 2020 from Q3, but closed
manufacturing industry, where a the year with a record reduction in GDP Colombia
notable pick-up in growth was (-4.1%). The IMF had anticipated a The Colombian manufacturing industry
registered at the start of 2020, contraction of 5.8% last October and experienced a mild fall in output during
experienced a setback in February due currently forecasts growth of 3.6% in February due to tighter COVID-19
to the reintroduction of controls aimed 2021. controls, according to the Davivienda
at curbing the spread of the virus. In PMI compiled by IHS Markit, after
Mexico, the downturn in factory orders While the quarterly average of the PMI growth had gained momentum in
and production remained sharp, Composite Index pointed to a solid January. Inflows of new business
despite easing through the first two rise in business activity in Q4 2020, declined, but companies lifted
months of the year. Business monthly falls have been recorded employment amid upbeat sentiment
confidence, however, improved across since the turn of the year. Growth in regarding the 12-month outlook for
the board. the manufacturing industry softened business activity.
in January and recovered some lost
One area of concern, and a common ground in February. However, a spike in Official data pointed to a 6.0% quarterly
LatAm INVESTOR 6
in association with
rise in economic activity in Q4 2020, growth to slow to 2.5% in 2022. high debt, currency instability and
and a softer-than-expected reduction elevated inflation. Parallel to this,
of 6.8% for the year as whole. The IMF February PMI data indicated that COVID-19 restrictions continue to
forecasts growth of 4.6% in 2021 and the Mexican manufacturing industry restrict consumption. Fiscal stimulus
3.7% in 2022. continued to struggle. New orders, and and monetary policy meant to support
production decreased at slower rates the economy are restricted by a spike
Domestic consumption could receive that were nevertheless sharper than in the fiscal deficit and hyperinflation.
a boost from rising employment once any recorded before the COVID-19 In 2020, consumer price inflation was
companies start to replace staff laid crisis. Subdued demand and ongoing at 36% and markets expect it to exceed
off due to the COVID-19 crisis. The increases in input costs led firms to 40% in 2021.
official unemployment rate remains trim employment for the thirteenth
high (17.3% in January), but is some month in a row. Business optimism The official interest rate is currently at
way below last year’s peak of 21.4%. strengthened, however, owing to 38%, while the Argentinian peso (vs
Marginal job creation was signalled vaccine developments. USD) has depreciated by some 45%
by goods producers in the PMI panel over the past year. The unemployment
during February. Despite upward inflationary pressures, rate was at 11.7% in Q3 2020. While
the central bank reduced the policy there were upward revisions to 2021
Mexico interest rate to 4.0% in February — the GDP forecasts in other LATAM nations,
Official data indicated that Mexico’s lowest since May 2016 — in an attempt the IMF lowered the prediction for
economy shrank 8.2% in 2020. Looking to revive the economy. Argentina. Gross domestic product
ahead, the IMF expects economic is now expected to expand by 4.5%,
activity to bounce back by 4.3% in Argentina compared with a forecast of 4.9% last
2021 as the country recovers from the Economic conditions in Argentina October. For 2022, economic activity is
pandemic-induced contraction, then remain challenging as a result of predicted to rise by 2.7%.
Key Forecasts and Manufacturing PMI data
Brazil 70
65
GDP: +3.6%* PMI FEB
58.4
Inflation (year end): +2.9% 60
Unemployment Rate: 14.1% 55
JAN: 56.5
50
45
Source: IHS Markit
55
Colombia
GDP: +4.6%* PMI FEB
Inflation (year end): +2.4%
Unemployment Rate: 15.8%
50.2 50
JAN: 53.3
45
Sources: IHS Markit, Davivienda
55
Mexico
GDP: +4.3%* 50
Inflation (year end): +2.9% PMI FEB
Unemployment Rate: 5.8% 44.2
JAN: 43.0
45
Source of all forecasts: International Monetary
Fund (IMF), World Economic Outlook, October 40
2020.*Updated in January 2021
Source: IHS Markit
LatAm INVESTOR 7
COUNTRY ANALYSIS
Expect Political
Volatility as South
America Braces for
Austerity
writes Gabriel Brasil, Lead Analyst at
Control Risks
I
n 2020, most countries opened A bumpy road ahead persistently high social anxiety levels.
their wallets to battle the social While most governments in the region The pandemic has also aggravated
and sanitary impacts brought acknowledge the need for more fiscal longstanding economic inequalities in
about by the Covid-19 pandemic. prudence in 2021, the road for such the region, so reputational risks will
Relying on record-low global interest a policy shift is unlikely to be easy. remain for companies associated with
rates and extraordinary authorisations Overall, we expect significant political controversial approaches towards
by their parliaments, governments and social challenges to hamper most social issues – a trend that will increase
printed money and got further into austerity-related initiatives in South amid austerity discussions.
debt, introducing unprecedented anti- America in the coming year. With the
cyclical measures to help businesses notable exception of Uruguay – where Different challenges
and the unemployed to cope with President Luis Lacalle Pou enjoys Although Brazilian President Jair
an extremely uncertain economic positive conditions to implement Bolsonaro has maintained an austerity-
panorama. These have been successful his pro-business platform – most focused rhetoric, his administration
in mitigating even more dramatic governments do not have strong has continued, since taking office
contractions in economic activity in the legislative majorities. Some leaders – in January 2019, to face significant
region. The most prominent example such as Chilean President Sebastian challenges in turning pledges into
is that of Brazil, where a large-scale Piñera – cannot afford additional concrete reforms. The government’s
cash-transfer programme has provided reductions in popularity. erratic policymaking – marked by
direct financial assistance to 63 million recurrent coordination problems – will
unemployed and self-employed In addition, the substantial increase likely continue to be compounded
workers across the country since April, in unemployment rates as a direct by his troublesome relationship with
temporarily reducing poverty and result of the pandemic means that Congress, where his coalition holds a
inequality rates. unrest risks will remain elevated. These minority status. Control Risks expects
have already been heightened for the government’s fiscal initiatives,
Nonetheless, the bill for such efforts more diverse reasons since mid-2019 notably an administrative reform, to
will arrive in 2021. As inflation-related – with widespread protests marking evolve slowly and to be diluted by
concerns increase among investors, the political panorama of countries legislators in the coming year. The
governments will be pressured to such as Chile, Colombia, Ecuador administration’s austerity talk will
expend political capital reassuring and Bolivia. There is little evidence to continue to contrast with the lack of
markets about the medium-to-long- suggest that civil society will become political will by the president to pursue
term sustainability of their debts. any less mobilised. While prospects such an unpopular agenda.
According to Oxford Economics, for more violent protests remain
government debt as a share of GDP relatively reduced in comparison In Argentina, where sovereign risks
has increased by double digits in most with those from last year, occasional remain high, the biggest challenge for
of South America, including Argentina, demonstrations will continue to be the administration of president Alberto
Bolivia, Brazil, Chile, Colombia and a regular feature of the operational Fernández stems from its divided plan
Peru. environment on the back of for fiscal consolidation. While Economy
LatAm INVESTOR 8
in association with
Minister Martín Guzmán adopts a Latin American Government Debt Rose in 2020
pragmatic stance vis-à-vis investors,
other members of the government 120%
– notably Vice-President Cristina
108%
Fernández and Production Minister
100% 98%
Matías Kulfas – continue to espouse 90%
a more heterodox view towards the
Goverment gross debt (as % GDP)
economy, consistently advocating for 80%
76% 76%
increased spending. Amid such an 67% 67%
62% 64%
erratic composition, Fernández will 60% 59%
be forced to assert the pragmatism 52% 53%
that helped him get elected in October
40% 37% 39%
2019.
28% 27%
20%
So far, signals have remained mixed,
but the positive advancement of talks
with the International Monetary Fund 0%
Argentina Boliva Brazil Chile Columbia Equador Peru Uruguagy
(IMF) – with whom Argentina is set
to restructure its debt in the coming 2019 2020
months – will likely force the president
into taking a more assertive approach
in 2021. will likely lead to a consolidation of foster job generation.
civil society’s claims for increased
In Ecuador, the executive-legislative social spending. While significant Meanwhile a favourable external
relationship also remains complex, reversals in the country’s business- environment should mitigate South
and the country will hold presidential friendly environment are unlikely, America’s fiscal challenges in the
elections in February 2021. While increased deficits will likely become coming year. Overall, liquidity levels
President Lenín Moreno has committed an important challenge for the public worldwide remain high, and a bullish
to pursue ambitious fiscal targets sector, ultimately hampering growth sentiment among investors has become
in the context of the country’s prospects for the short-to-medium- more prevalent against the backdrop
debt restructuring with the IMF, an term. of the early rollout for vaccines in
uncertain election means that political developed countries. This will likely
volatility will remain high, as will Overall, as each country faces its sustain a more positive outlook for
investors’ concerns over the country’s own challenges, we can expect more commodities, whose prices have
fiscal prospects. Peru – where political political volatility across the region for historically represented an important
adrenaline has remained elevated at least the 12-month outlook. proxy for economic growth – and,
in 2020 – will also hold presidential hence, for governability – in the region.
elections (in April), and will likely Bargain deals
present a highly similar scenario. In That said, while such a constrained South American governments will
Colombia, rating agencies have in the fiscal environment will continue also likely continue to rely on direct
past few months downgraded the to limit most governments’ scope investments from China, which has,
country’s sovereign risk ratings as a for public investment, this will also and will likely continue to, allocate
result of the significant deterioration represent increased opportunities for significant sums of capital in assets
of the country’s fiscal position in 2020. private investment – particularly in across the region, particularly in
sectors such as infrastructure, energy infrastructure. As it is typically the case,
President Iván Duque’s challenging and sanitation. Administrations across a new age for austerity comes with
situation means that far-reaching the region – such as in Brazil, Ecuador challenges, but also opportunities. In
reforms will remain unlikely in 2021, and Colombia – will likely continue to both cases, the continuous monitoring
and fiscal concerns will likely persist. rely on concessions to plug the gap of of political risks will remain a top
In Chile, the constitutional process investment demands and to ultimately priority – in 2021 and beyond.
LatAm INVESTOR 9
LESSONS FROM HISTORY
How the Catholic Church
Shaped Latin American Politics
Oxford Professor, Edwin Williamson, author of The Penguin History of
Latin America, with pointers investors can take from the region’s past…
The Church had once been an Catholicism became a powerful Christian Democratic parties began
integral element of the Catholic rival to socialists and communists to participate in government.
monarchy, but by the early decades in the field of social mobilisation. Eduardo Frei was elected president
of the twentieth century there were The Church set up trade unions, of Chile in 1964 but his ambitious
few republics that had not effectively co-operatives, educational centres, programme of reform foundered on
separated the affairs of Church and peasant leagues and newspapers, the opposition of right and left. The
state. And when governments from and advocated a democratic, Christian Democrat Rafael Caldera
the late 1930s began to adopt a policy socially-responsible form of became president of Venezuela from
of rapid industrial development, the capitalism guaranteeing workers’ 1969 to 1974. Christian Democrats
Church faced the gravest threats yet rights and promoting agrarian in Peru gave tactical support
to its authority. reform. to the reformist government of
Belaúnde Terry between 1963 and
First, there was the disruptive process In the late 1950s Catholic reformism 1968. The fortunes of Christian
of capitalism itself, which tended found expression in Christian Democratic reformism, however,
to undermine were epitomised by
the hierarchical, the fate of the party
paternalist ethos in El Salvador. Its
which the Church leader José Napoleón
had done so Duarte won the
much to preserve presidency in 1972,
in the New World. but his reforms
Secondly, there were thwarted by
was secular the armed forces,
nationalism, whose savage
which was repression provoked
advancing in the a revolutionary
cities, precisely guerrilla war.
where the
Church was most Liberation
rapidly losing theology
ground among The political
the mass of the people. For Democratic parties, notably in Chile, radicalisation of Catholicism was a
these reasons it sought a middle Venezuela, Peru and El Salvador, phenomenon of the 1960s. In part
way between capitalism and though in some countries social this was a reflection of the enormous
revolutionary ideologies, rejecting Catholicism shaped the attitudes influence of the Cuban Revolution.
the class struggle in favour of state of other parties, as in the case of But it was primarily a consequence
intervention to foster the welfare the Conservatives in Colombia or of the Second Vatican Council (1962-
of the most disadvantaged. Social the PAN in Mexico. In the 1960s 5), which re-examined the Church’s
LatAm INVESTOR 10role in the modern world. The most Human rights criticised the abuse of state power by
notable result in Latin America was a With the rise of military dictatorships despotic elites, while the ‘preferential
‘theology of liberation’ which argued in the 1970s, the Church began to option for the poor’ recalled the
that Christian charity entailed working champion the human rights of the commitment of the early missionaries
for the liberation of the oppressed individual citizen against abuses of to the creation of a just society in the
and the poor, even if this involved the power. Such a role had already been New World.
use of violence. Liberation theology foreshadowed in the mid-1950s,
split opinion in the Church but the when the Church in Argentina, during During the long papacy of John Paul
convergence with Marxist ideas of class the last years of Juan Domingo II (1978-2005), the Church reverted
struggle, exploitation and imperialism Perón’s government, acted as the to a more conservative position in
encouraged radical Catholics to make final institutional barrier against the political sphere, and continued
common cause with revolutionary the wholesale ‘Peronisation’ of civil to oppose birth control by artificial
socialists in the fight against capitalism. society. In Chile, after the overthrow of means, divorce and abortion. But new
Salvador Allende’s Marxist government challenges were emerging – divorce,
In the 1960s and 1970s a number in 1973, the Church was one of the few in certain circumstances, came to be
of priests actually joined Marxist institutions able to criticise the military legalised in all Latin American countries;
guerrillas in the countryside. The regime and provide relief from the abortion remained illegal, except under
most celebrated of these was Camilo widespread destitution caused by its strict conditions (it was forbidden
Torres, who incurred the displeasure economic policies. In Cuba, however, outright only in Chile, Nicaragua and
of the conservative hierarchy in it was unable to resist the Communist El Salvador), though in 2007 a bill
Colombia when he issued a radical Party’s grip on civil society. permitting abortion within the first
political manifesto in 1965. Choosing trimester was passed by the Mexico
to be laicised, he joined a Cuban-style However, in Nicaragua during the 1980s City legislature after a bitter campaign
guerrilla force and was killed in action it became a focus of opposition to a which pitted the Church against the
in February 1966. similar monopolisation of power by feminist lobby. And secularisation
the Sandinista Front. In neighbouring was not the only challenge. Since the
Many radical priests took jobs in El Salvador, which suffered an 1980s Protestant churches in the USA
the industrial belts of the big cities, inconclusive guerrilla war throughout had been sending missionaries to Latin
where they could live in the midst of the 1980s, the clergy consistently America, and the emotionally intense
the de-Christianised workers. Others denounced the activities of right-wing style of Pentecostal worship strongly
organised religious and social activities death squads and the use of torture by appealed to the poor in the slums or
in the shantytowns. Missionaries the military. Such opposition led to the in the Indian areas. By the 1990s these
working in the Indian communities murder in March 1980 of the Archbishop new churches had attracted millions of
encouraged political action to win land of San Salvador, Oscar Romero. As converts: in Brazil, for instance, about
reform. Liberation theology inspired the crisis of the state in many Latin 15% belonged to Protestant churches,
a new form of pastoral organisation, American countries became ever more while nearly a third of the population
the comunidad de base, a grass-roots acute, the Church detached itself from of Guatemala had converted to
community of lay people who tried direct association with either the right evangelical Christianity.
to set the teachings of the Church in or the left and maintained a position
a context of action for better social of critical independence from political In 2013 Jorge Mario Bergoglio, the
conditions. interests. Archbishop of Buenos Aires, was
elected Pope, taking the name of
The vast majority of Latin American Although the Catholic Church may no Francis. A long-time advocate of ‘the
laity and clergy was not drawn to longer have had an official role in the preferential option for the poor’, Pope
liberation theology. The Catholic state, as in colonial times, it recovered Francis introduced Vatican governance
Church did not condemn capitalism as two of its historic functions. Reviving reforms, but his more liberal approach
such, but in general the ‘preferential the spirit of Bartolomé de las Casas, the to the challenges posed by secular
option for the poor’ reflected its Dominican priest who had denounced society, such as divorce, gay rights, and
deepening commitment to social and the exploitation of indigenous people women’s position in the Church, proved
economic reform in the 1960s. in the sixteenth century, churchmen controversial.
LatAm INVESTOR 11MARKET-MOVING EVENTS CALENDAR
MARCH APRIL MAY
Monday 1st Thursday 1st Wednesday 5th
11:30 am - Brazil - BCB Focus Market Readout 5:25 am - Peru - Inflation Rate YoY 12:00 pm - Brazil - Industrial Production YoY
4:00 pm - Peru - Inflation Rate YoY 9:00 pm - Brazil - Interest Rate Decision
6:00 pm - Brazil - Balance of Trade Friday 2nd
Wednesday 3rd 6:00 pm - Paraguay - Inflation Rate YoY Tuesday 6th
12:00 am - Colombia - Inflation Rate YoY
12:00 pm - Brazil - GDP Growth Rate YoY Q4
5:00 pm - Paraguay - Inflation Rate YoY Monday 5th 7:00 pm - Argentina - Industrial Production YoY
5:30 pm - Uruguay - Inflation Rate YoY 11:30 am - Brazil - BCB Focus Market Readout
5:30 pm - Uruguay - Inflation Rate YoY Thursday 7th
Thursday 4 th 11:00 am - Mexico - Inflation Rate YoY
3:00 pm - CO - Exports YoY 11:00 am - Mexico - Auto Production YoY
Tuesday 6th 12:00 pm - Brazil - Retail Sales YoY
12:00 am - Colombia - Inflation Rate YoY
12:00 pm - Chile - Inflation Rate YoY
Friday 5th 3:00 pm - Colombia - Exports YoY
2:00 pm - Ecuador - Inflation Rate YoY
12:00 pm - Brazil - Industrial Production YoY
12:00 pm - Mexico - Auto Production YoY
Thursday 8th Friday 8th
10:30 pm - Colombia - Interest Rate Decision
12:00 pm - Chile - Inflation Rate YoY 11:00 am - Mexico - Industrial Production YoY
2:00 pm - Mexico - Monetary Policy Meeting Minutes 12:00 pm - Brazil - Inflation Rate YoY
Monday 8th 11:00 pm - Peru - Interest Rate Decision
11:00 am - Chile - Inflation Rate YoY
Monday 10th
11:30 am - Brazil - BCB Focus Market Readout Friday 9th 11:30 am - Brazil - BCB Focus Market Readout
11:00 pm - Bolivia - GDP Growth Rate YoY Q3 11:00 am - Mexico - Industrial Production YoY
12:00 pm - Brazil - Inflation Rate YoY
Tuesday 11th
Tuesday 9th 11:00 am - Brazil - BCB Copom Meeting Minutes
12:00 pm - Mexico - Inflation Rate YoY Tuesday 13th 11:00 am - Mexico - Gross Fixed Investment YoY
12:00 pm - Brazil - Retail Sales YoY
12:00 pm - Brazil - Inflation Rate YoY
Thursday 11 th
12:00 pm - Brazil - Inflation Rate YoY Thursday 15th
11:00 pm - Peru - Interest Rate Decision 5:50 am - Peru - GDP Growth Rate YoY Wednesday 12th
11:30 am - Chile - Monetary Policy Meeting Minutes 11:00 am - Mexico - Industrial Production YoY
Friday 12th 7:00 pm - Argentina - Inflation Rate YoY
12:00 pm - Brazil - Retail Sales YoY 9:30 pm - Dom Republic - Inflation Rate YoY Thursday 13th
12:00 pm - Mexico - Industrial Production YoY 6:00 pm - Mexico - Interest Rate Decision
Monday 19th 9:00 pm - Chile - Interest Rate Decision
Thursday 18th 11:30 am - Brazil - BCB Focus Market Readout 11:00 pm - Peru - Interest Rate Decision
11:30 am - Chile - GDP Growth Rate YoY Q4 3:00 pm - Colombia - Imports YoY
7:00 pm - Argentina - Current Account Q4 Friday 14th
8:30 pm - Colombia - ISE Economic Activity YoY Wednesday 21st 4:00 pm - Colombia - GDP Growth Rate YoY Q1
2:30 pm - Argentina - Leading Indicator MoM 4:00 pm - Peru - GDP Growth Rate YoY
Friday 19th
12:00 pm - Mexico - Aggregate Demand YoY Q4 Thursday 22nd Wednesday 19th
12:00 pm - Mexico - Private Spending YoY Q4 11:00 am - Mexico - Unemployment Rate
1:30 pm - Argentina - Leading Indicator MoM
1:30 pm - Brazil - Federal Tax Revenues
7:00 pm - Argentina - Balance of Trade
Tuesday 23rd Thursday 20th
7:00 pm - Argentina - Economic Activity YoY
11:00 am - Brazil - BCB Copom Meeting Minutes
7:00 pm - Argentina - Economic Activity YoY
7:00 pm - Argentina - GDP Growth Rate YoY Q4
11:00 pm - Peru - Current Account Q1
Friday 23 rd
11:00 am - Mexico - Retail Sales YoY
Wednesday24th 1:00 pm - Chile - PPI YoY Friday 21st
12:00 pm - Mexico - Unemployment Rate
11:00 am - Mexico - Retail Sales YoY
3:00 pm - Guatemala - Interest Rate Decision
Monday 26th 2:30 pm - Peru - GDP Growth Rate YoY Q1
11:00 am - Mexico - Economic Activity YoY
Thursday 25th 11:30 am - Brazil - BCB Focus Market Readout Monday 24th
12:00 pm - Mexico - Economic Activity YoY 11:30 am - Brazil - BCB Focus Market Readout
12:30 pm - Brazil - Current Account
7:00 pm - Mexico - Interest Rate Decision 1:00 pm - Chile - PPI YoY
7:00 pm - Argentina - Retail Sales YoY
Friday 26th Tuesday 27th Tuesday 25th
11:00 am - Mexico - Balance of Trade 11:00 am - Mexico - Balance of Trade
7:00 AM - Mexico - Retail Sales YoY
2:00 pm - Mexico - Current Account Q1
14:00 AM - Argentina - Retail Sales YoY
Wednesday 28th
3:00 pm - Guatemala - Interest Rate Decision
Friday 27th Wednesday 26th
7:00 AM - Brazil - Unemployment Rate 11:00 am - Mexico - GDP Growth Rate YoY Final Q1
Thursday 29th
7:00 AM - Chile - Unemployment Rate 12:30 pm - Brazil - Current Account APR
12:30 pm - Brazil - Bank Lending MoM
7:00 AM - Mexico - Unemployment Rate
LatAm INVESTOR 12Special Report
Energy Report
LATIN AMERICA GOES GREEN
The region will play a key role in the global energy transition
GLOBAL BRITAIN: IN-DEPTH SECTORAL ANALYSIS: GREEN FINANCE:
Minister for International Trade, Biofuels – Hydrocarbons – Lord Mayor of London,
Ranil Jayawardena, outlines the Metals – Power - William Russell, outlines the
export opportunities Infrastructure investment opportunities
LatAm INVESTOR 13LATIN AMERICAN | ENERGY REPORT
Latin America Leads the
Energy Transition
The region’s natural competitive advantages should help it thrive as the
world transforms its energy matrix…
L
atin America is a clean tech Central America is home to the unique opportunity for British firms
powerhouse. It has the greenest greenest grid on the planet, Costa Rica, to demonstrate how they can help
electricity in the world, with more yet there are also institutional obstacles potential clients in Latin America. It
than half of its power already coming to developing much-needed energy is encouraging that this report shows
from renewable energy. It produces infrastructure. In the northern part of UK companies are already playing an
44% of the world’s copper – the key South America, massive hydroelectric active role in the region’s transition
metal needed for the electrification dams, have boosted renewable power to renewables. From BP signing a
programmes to cut CO2 emissions. production. But with climate change landmark biofuel deal with a Brazilian
It’s the world’s largest producer of altering rainfall, these countries are firm in Paraguay, to London-listed
biofuels and also has the greatest now looking to wind and solar to SolGold developing copper mines in
potential to expand production. Finally, complete their renewable revolutions. the Ecuadorian Andes, British investors
its oversized oil and gas deposits – in are funding Latin America’s renewable
comparison to its population – make it Each country’s success at attracting revolution.
a natural hydrocarbon exporter. That the international investment it needs
last point may seem incongruous in this to fund its energy transition will At LatAm INVESTOR we identified
report but low-carbon, responsibly- depend on the regulatory environment Latin America’s unique role in the
produced oil and gas, will be needed and market rules on offer. Yet British coming global energy transition.
to support the energy transformation. investors must also be patient if they Then we interviewed project owners,
want to earn consistent returns from management, institutional investors
Put simply the world can’t make the this long-term and structural theme. and government ministers to explore
transition without Latin America’s Our articles on one of Latin America’s the investment opportunities it will
copper, biofuels or clean hydrocarbons. largest new copper projects and its create. If you have any questions about
But the inverse is also true. Without most sophisticated biofuels operation, the report or want to get in direct
international capital the region will reveal the immense technical contact with the companies featured,
be unable to take full advantage of challenges of meeting clean tech email editorial@latam-investor.com.
its clean tech potential. In the report demands.
we evaluate the different elements of CONTENTS
the Latin American energy transition We’re delighted to have thoughtful
Introduction 14
and explore the opportunities they – and exclusive – contributions
Irene Cañas 15
could create for British investors. We from UK Minister for International
Biofuels 16
have taken a broad approach because Trade, Ranil Jayawardena and Lord
Lord Mayor 20
the energy transition depends on Mayor of London, William Russell.
Alpala 22
much more than simply building wind Minister Jayawardena outlines the
Clean tech Metals 24
and solar farms. We find that while massive export opportunities being
Mexico 28
incredible renewable resources are created by Latin America’s energy
Minister Jayawardena 30
dotted around the region, there are big transformation. While the Lord Mayor
Renewable Revolution 32
differences in conditions for investors. explains how London’s green finance
Canning House 36
In Mexico a reform to the Electricity expertise can fund clean tech in the
Oil and Gas 38
Industry Law, looks set to reverse region. With the UK hosting the United
Brazil 42
renewable energy’s progress in Latin Nations Climate Change Conference,
Infrastructure 44
America’s second-largest economy. COP 26, in November, this year is a
LatAm INVESTOR 14LATIN AMERICAN | ENERGY REPORT
Irene Cañas,
President of Instituto Costariccense de
Electricidad (ICE), with lessons from the
greenest grid in Latin America…
is part of the OECD and within a few Of course, some impact is inevitable,
years I would expect our power costs especially when you are constructing
to be within the OECD average. Of big hydroelectric plants. Yet
course, there are other issues with the Reventazón won the Blue Planet prize,
LatAm INVESTOR: Costa efficiency at some of our power plants which shows that during the entire
Rica has a public debt crisis and services. And we are working on construction period we respected
that. Indeed, the fall in revenue during sustainability. We created a jaguar
and some of the highest
the pandemic has forced us to become pass, which protected certain areas
power costs in the region; is
more efficient and we have already of forest to ensure a land link across
that the price of renewable taken steps to cut spending. the dam. Jaguars hadn’t been seen
energy? in the region for many years because
LAI: Renewable power of human activity, but now they have
Irene Cañas: Let’s be clear, ICE
plants need more space per returned to the natural conservation
is an autonomous institution. We don’t area that we created.
MW produced than thermal
depend on government finances and
have to live with our own earnings. power stations; how do you It’s down to clean power providers to
The national debt and fiscal situation manage that impact? design, build and operate projects in
are nothing to do with us. We have a way that minimises the impact. But
developed the country’s renewable IC: We are a country full of volcanoes, these power plants have to be built if
power system. And it is true that the which gives us lots of geothermal we want to transition to clean energy.
electricity tariff in Costa Rica is higher energy, however, we also have vast
than in some neighbouring countries. national parks where it is difficult LAI: What will Costa Rica’s
However, we are working to bring to build power plants. Lots of our
energy sector look like in
down prices. geothermal power is found inside
conservation areas so we have had 2030?
A lot of the tariff burden today is caused to adhere to some of the strictest
by the cost of financing. Over the last environmental rules in the world to get IC: By 2030 we will have seen
few decades ICE decided to finance its them built. We pioneered horizontal important changes. Redistributed
biggest construction projects by using geothermal drilling, where we start solar energy – ie small, off-grid solar
a debt fund structure that lent money outside the national park, then go units directly supplying residential
for 12 to 15 years’. But these are power vertically down for hundreds of metres, or industrial users – will be more
plants that have a useful lifespan of before drilling sideways and entering important. A fleet of EVs will also be an
at least 40 years. By paying down the the park deep under the ground. That important player in the grid, releasing
debt in such short time we are putting way it has zero impact on the flora and electricity back into the grid as needed.
unnecessary pressure on consumers. fauna. One of our geothermic plants ICE will still have a significant role but
So, now we are looking to refinance this is in Pailas, which is a Unesco World not just as a provider of power but
debt and lengthen the duration. So, it’s Heritage site. We have to report to also in providing storage and network
not that the ICE model is not successful Unesco every year and the scientists services. As we’ve seen in recent
it’s just a question of how it is financed. have found that the natural habitat has years, power generation and supply is
With different financing mechanisms actually improved since we entered the becoming commoditised, which means
we will bring down tariffs. Costa Rica area. ICE needs to offer other services.
LatAm INVESTOR 15LATIN AMERICAN | ENERGY REPORT
Fuelling the Future
Biofuels are the renewable solution to Latin America’s toughest CO2
emissions challenge - transport...
L
atin America has lots of natural 2nd Generation That flexibility – in both feedstock and
advantages for the coming energy When Brazil’s largest biofuel producer, use – makes biofuel an essential part
transition. It already has the ECB Group, starts operations in of the fight against climate change,
greenest power matrix in the world. Paraguay it will cement Latin America’s says Erasmo Battistella, CEO of ECB
While having the planet’s largest leading position in the industry. That’s Group. “Biofuel has many advantages
reserves of copper make it a key because the Paraguayan project, over electric vehicles. Take London for
provider for international electrification Omega Green, is Latin America’s first example, with HVO you could replace
programmes. Yet transport is its ever second-generation biorefinery. the dirty diesel fuel, with its polluting
Achilles heel. Just 1% of Latin American Omega Green, which opens in 2024, emissions, overnight. You don’t need
transport is fuelled by clean energy. So, will produce HVO, a type of biodiesel, to build new infrastructure, or buy
while more than half of its electricity and SPK, a bio aviation fuel. European costly new busses, you just put our fuel
comes for renewable sources, once you oil majors, Shell and BP, have already straight in.”
factor in the heavy dependence on oil signed offtake contracts for 90% of
and gas for moving people and goods production, underscoring the demand You would expect a biofuel producer
around the region, then the renewable for low carbon solutions to the to talk up the benefits of his product,
share of its primary energy is just 5%. transport problem. BP has pledged but his assessment is confirmed by the
to be carbon neutral by 2050 and experiences of one of Latin America’s
Latin America will only make significant recognises that biofuels can help it leading proponents of electrification,
progress in its energy transition when get there. Countries with ambitious Irene Cañas, President of the Costa
it manages to fuel more transport with environmental targets, such as the UK, Rican Institute of Electricity. Cañas,
renewable energy. One solution will will eventually make the same decision. who oversees the most renewable
be electric vehicles (EVs). However, electricity system in the world, plans
as mining experts reveal elsewhere And it’s the technological advantages to replace Costa Rica’s existing fleet of
in this report, copper supply will of second-generation biofuel – from diesel buses with electric buses. “It will
be unable to replace every existing its feedstock to its uses – that will help begin with a pilot scheme, using three
internal combustion engine with an convince them. electric buses donated by Germany.
EV by 2050. That’s even more true
for aviation, where electric planes are By using an energy-intensive process That will begin this year, as we test the
nowhere near ready for commercial of applying hydrogen to organic buses on different routes to evaluate
passenger flights. matter, second-generation biofuels their performance. The scheme
can produce a wider range of fuels. has been delayed by the pandemic
That means biofuels will also play For example, aviation fuel that because the health restrictions mean
an important role. Latin America is allows biofuels cut emissions that that buses can only carry half the
already the world’s largest biofuel electrification simply can’t reach. passengers, which has cut the revenues
producer and, more importantly, it has Second-generation biodiesel also has for bus companies and made them less
ample room to increase production. more uses than its predecessor, as it willing to invest in electric vehicles.”
A report from the UN’s Food and is a ‘drop in’ fuel that can be placed in With proven biodiesel there is no
Agriculture Organisation (FAO) found existing internal combustion engines need for performance tests. But more
that thanks to abundant supplies of of and work without any modifications. importantly, it doesn’t require costly
unused farmland, Latin America’s has Indeed, you could power your car will equipment swaps.
42% of the world’s potential increase in 100% HVO or mix any percentage with
agricultural production. your usual diesel. Second-generation biofuel’s feedstock
LatAm INVESTOR 16LATIN AMERICAN | ENERGY REPORT
flexibility is another big plus. One of American biofuel is that it will deforest environmental damage is committed
the biggest biofuel criticisms is that it parts of the Amazon. Yet Alfredo by illegal groups in Latin America, for
reduces farming for food production. Mordezki, manager of the Santander example with informal mining. But if
Yet with these new biofuels it’s not Latin America Investment Grade ESG we can funnel money to the best listed
true, says Battistella. “The beauty of Bond Fund, says the Amazon is so companies then it should drive change.
second-generation biofuels is that sensitive that firms who damage it will A Brazilian soy producer that recently
they can use such a wide range of have restricted access to international issued bonds has independently
feedstocks. We are keen to develop a capital markets. “Some may think certified that all of its land, and that
diverse supply of different crops. And of Brazil as this terrible polluter of any suppliers, is not coming from a
that’s why biofuels will be a success that is deforesting the Amazon, but deforested part of the Amazon. That
around the world. Whether it is palm within the country there are many has raised the bar for any further soy
in Indonesia or canola in Canada – companies with great environmental companies looking for investment.”
biofuels can always be made with local practises. Take Brazil’s pulp and paper
plants. And by planting more crops companies. People assume that they That assessment is backed up
we actually increase the food supply. are linked to deforestation but actually by Battistella. “For us to sign the
Because the best parts can be used for they are keen to distance themselves agreements with BP and Shell we had
food and whatever is left as feedstock from the Amazon because they know to certify the environmental impact
for biofuel [...] it can also come from how damaging that can be to their of everything from planting the raw
animal waste, rubbish or agricultural reputation. As a result, most of these material to how the final product
by-products.” companies are making efforts to would be consumed.” That’s why
be more transparent, disclose more “our pongamia is being produced
Environmental impact information and have ambitious plans in the vast, barren Chaco region of
Another supposed flaw with Latin to become greener. A lot of the worst Paraguay. This is not land that has been
ECB
Omega Green
GROUP
Building a greener and
more sustainable world
Reforestation oil:
Oil from Pongamia trees will be one of
the raw materials used in the production
of advanced biofuels, corresponding,
in 10 years, to 1/3 of production.
Trees are highly sustainable and have less carbon
intensity (CI) than other raw materials.
Agreement with Dutch company includes the
planting of 50 million Pongamia trees in Paraguay.
www.ecbgroup.com.br Omega ®
®
®
Green
LatAm INVESTOR 17LATIN AMERICAN | ENERGY REPORT
deforested for our production, but
farming land that we are reforesting
for our project.” Indeed, Omega Green
has already announced that one-third
of its feedstock will be coming from
Pongamia, a tree that doesn’t require
fertilizer, lives for 100 years and has
a low carbon density. “The fuel you
produce actually has a negative carbon
density score. Imagine that – you are
supplying airlines with a fuel that
actually sequesters more CO2 than it
produces.”
Indeed, Battistella feels that biofuel
is subject to far more environmental
scrutiny than EVs. “The supply chains
entire production. That might sound like just by applying new technology and
for a lot of the metals used in electric
a lot of land to someone in London but planting more feedstock.”
cars are not very clean, with child
the Chaco region has 24 million hectares.”
labour involved in mining some of
Again, his words are backed up by the However, it is true that biofuel won’t
the metals. The process for making
fact that BP and Shell are using biofuel be able to replace oil on its own.
batteries can also have a harmful
to reach their ambitious carbon neutral Current global oil demand is around
environmental impact.”
targets. 100 million barrels per day, while
Omega Green’s total production will
Market niche Moreover, the success of Omega Green be 20,000 bpd. Even if you build
The final criticism of biofuel is that it
can be replicated throughout the region, 1,000 Omega Greens, you would
doesn’t produce enough output to
says Battistella. “Even though Brazil is only cover a fifth of oil demand.
make a significant impact on climate
the leader in Latin American biofuels, So, the transition will require a
change. Battistella says the numbers
we also see widespread consumption combination of EVs and biofuel.
from Omega Green prove otherwise.
and production elsewhere in the region. Many investors think of them as
“Pongamia is so productive that just
Colombia, Paraguay, Uruguay, Argentina mutually exclusive, when in fact they
120,000 hectares will produce enough
and Peru are all using and making are complementary.
feedstock for 1/3rd of our needs. With
biodiesel and ethanol. Latin America
400,000 hectares it could cover our
could increase biofuel production tenfold “Look back around 150 years to
the last energy transition, when
Latin America's Transport Infrastructure Deficit oil began to replace coal. Even
40 Biofuel is the quickest way to green the region's underdeveloped transport systems
though oil became dominant coal
30 is still being used today. We will see
20 something similar with this energy
10 transition – oil will still be used for
0 the next 70 or 100 years. And that’s
Index (–100–100)
–10 OK because to limit the impact of
–20 climate change, we don’t need to
–30 replace 100% of oil, we just need to
Advanced Economies Emerging Asia reduce CO2 to historical levels. Oil
–40
Latin America and the Caribbean Sub-Saharan Africa
–50 is built-in to a lot of the technology
we use so it’s impossible for us to
Bolivia
Trinidad and Tobago
Paraguay
Nicaragua
Guatemala
Guyana
Dominican Republic
Suriname
Haiti
Brazil
Venezuela
Costa Rica
Belize
Ecuador
Argentina
Honduras
The Bahamas
El Salvador
Uruguay
Peru
Colombia
Mexico
Jamaica
Barbados
Chile
Panama
ignore it completely. Moreover, rising
energy demand means that we will
need it. For example, cargo volumes
Source: IDB sta Acevedo, Borensztein, and Lennon (2019).
LatAm INVESTOR 18You can also read
