INTERNATIONAL ARBITRATION 1/3LY
SPECIAL REPORT 09
L AWS OF AT TRACT ION
Deep beneath the surface of Latin America lies huge hidden wealth. The region is rich in mineral and hydrocarbon resources that provided the catalyst for a vast expansion in the continent’s major economies in the decade to 2014. Since then commodity prices have plummeted, bringing the economic boom to a sharp halt. But foreign direct investment into the region continues to flourish, especially from China. Argentina, in particular, provides a positive note in Latin America’s recently volatile story. A new pro-business and pro-investment government is bringing the nation in from the cold. It is no longer an international pariah. In Mexico, efforts to liberalise the economy, especially the oil and gas sector, have generated heated international interest. Colombia’s emergence as an economic power and its hefty investment in domestic infrastructure is another paragraph in a more positive narrative. Confidence is especially important following the collapse of commodity prices, political instability and currency volatility. Many of the region’s economies are dominated by the extractive industries, in particular oil and gas and minerals. A sharp collapse in the oil price from over USD 100 per barrel in 2014 to below USD 50 per barrel today has been a key driver pushing many countries into or towards recession, reducing GDP growth and contributing to rising inflation and currency depreciation. Other important industry sectors, such as agriculture, have experienced similar price falls. Understandably, the region has looked to foreign partners to help fund and operate projects that local state-controlled firms no longer have the resources to develop alone. CHINA ACT S A S THE REGIONAL S AV IOUR China has dominated investment in the region in recent years, pledging to invest over USD 250 billion in Latin America over a decade. China is pouring money, resources and labour into the region’s extractive industries and necessary infrastructure. As well as foreign direct investment, China is also lending more to the region. Chinese banks sent nearly USD 30 billion in loans to Latin American governments last year, more than double their investment a year earlier, with a further USD 35 billion of funding for infrastructure projects. Infrastructure and energy projects account for more than two-thirds of China’s total lending, and mining another 25 per cent. In the decade to 2014, Venezuela alone accounted for more than 50 per cent of all Chinese loans. Although that percentage is falling, Chinese funding has helped Venezuela’s besieged economy to stave off outright collapse with a series of oil-backed loans – totalling some USD 65 billion since 2007 – in which funding is repaid with oil exports.
SPECI AL REPORT
IN OUR SPECI AL REPORT WE ADDRESS HOW CORRUPT ION, POL I T I C AL SC ANDAL AND A COLL APSE IN COMMODI T Y PRI CES HAVE AFFL I CTED L AT IN AMERI C A . THERE ARE S IGNS OF RECOVERY, BUT WILL MARKE T L IBERAL I S AT ION BE ENOUGH TO ENT I CE INVES TORS?
RIC ARDO LEWANDOWSKI, PARTNER, CLYDE & CO,
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