feature: the future of inter csiro technology to benefit ... 2014.pdfcsiro technology to benefit...

CSIRO technology to benefit mining productivity in Chile The latest in advanced automated mineral characterisation technology from the CSIRO was unveiled in Chile on January 22, providing a whole new level of research potential for CSIRO Chile researchers and local research partners, and ultimately, new commercial solutions for increasing the productivity of the mining sector. Hyperspectral Logging, or HyLogging™, technology responds to the need for industry to increase the objectivity of drill core logging (the identification of key rock characteristics) and dramatically increases both the knowledge and the efficiency of geologists who identify and interpret minerals and ore system mineralogy from drilled materials.

“This research provides a real opportunity for companies to lower their risk, for example by making more profitable their investment in exploration and increase their productivity in the future, one of the key objectives of the mining industry today,” said Orlando Jimenez, Director of the CSIRO Chile Centre of Excellence (pictured in far left of photo). CSIRO’s HyLogging™ Systems use reflectance

spectroscopy to routinely and objectively capture detailed mineralogical information from drill core, drill chips and pulps. They allow for the semi-automated, rapid collection of high density spectral reflectance measurement and continuous high resolution colour imagery of drill core in a non-invasive, non-destructive manner, measuring the drill cores in their original trays.

This issue (Click on heading to open article)

CSIRO technology to benefit Chilean mining 1

Goodman secures regulatory approval in Brazil 2

Productora ready to deliver for Hot Chili 3

Peru’s PROINVERSION’s roadshow to Australia 3

Perth Anniversary Dinner - Tickets selling fast! 4

Expomin to be the centre of attention in April 4

Chairman’s message 5

Relevance of mega-regional trade negotiations 6

Key players in Chile’s new government 7

Argentina’s currency woes 8

The state of education in Latin America 9

Mining Panorama 11

Paraguay’s beef ambitions 11

Chile tops ‘best place to do business’ list 12

Brazil lifts interest rates to fight inflation 12

Feature: The future of inter-American relations 13

Brazil’s banks target international investors 16

Opinion: Castro’s reforms falter 17

The two sides to investing in Brazil 18

Pemex’s first joint ventures on the horizon 20

Golf turns to Latin America 21

Ecuador takes the chocolate crown 21

Brazil’s taste for premium beers 22

For the diary 23

PATRON MEMBERS

Edition: January, 2014

Newsletter of the Australia-Latin America Business Council

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The process is controlled robotically and through the largely automated TSG (The Spectral Geologist) processing and quality control software, enables the identification of a suite of minerals by their diagnostic spectral absorption features displayed in the visible and infrared regions. Furthermore, the HyLogger™ 3 also senses in the Thermal Infrared (TIR) region of the electromagnetic spectrum enabling discrimination of additional minerals such as quartz, feldspars, garnets, pyroxenes etc.

“The HyLogger™-3 will be used in current advanced characterisation research being carried out with the Advanced Mining Technology Centre, which aims to link spectral and mineralogical data with metallurgical processing and use of big data for geoscience research,” said Dr Victor Montenegro, a CSIRO Chile Senior Researcher in this project, who recently spent two weeks at CSIRO’s North Ryde site near Sydney to learn how to operate the technology to ensure the transfer of capability. “This research instrument will also provide a platform for new research investigating the opportunities for

spectral science in ore characterisation for mining and mineral processing and build spectral science capability within the University of Chile and within Chile more broadly” added Dr Leandro Voisin, Leader of AMTC’s Mineral Processing and Extractive Metallurgy Group. Also present at the ribbon cutting ceremony was Conrad Von Igel, Executive Director of CORFO Innova who remarked, “This shows how CORFO’s Program for the Attraction of Centres of Excellence has resulted in concrete access to world class research equipment and the development of technology and innovation in key economic sectors in Chile.” The machine that has been brought to Chile by the CSIRO Chile is the HyLogger™ 3-8, which indicates that this is the 8th (and most recent) HyLogger™- 3 produced. The other seven machines are deployed in Australia – six in Geological surveys and the seventh at a CSIRO site in Sydney. The other HyLogging™ system currently installed outside of Australia is a HyLogger-1 system, sold and serviced by CSIRO’s commercial partner FLSmidth, to the Mexican Geological Survey. FLSmidth are both the agents for the provision of commercial HyLogging systems and services in Chile and the CSIRO’s commercialisation partner for HyLogging technology globally. ↑Return to Index

Goodman secures regulatory approval for Brazilian acquisition

News that Goodman Group has gained regulatory approval for its acquisition of $1.5 billion worth of Brazilian warehouses in partnership with local player WTorre marked another important step in the property group building its global development pipeline.

The acquisition, at a yield of between 9 per cent and 10 per cent, will help Goodman establish a core Brazilian fund with institutional backing and add to its global development pipeline, currently worth $2.5 billion (of which only 30 per cent is based in Australia). The WTGoodman joint venture is small in terms of Goodman’s capital outlay and will have only a modest impact on its earnings, but is an important strategic move for the group. “Strategically, this transaction is clearly a positive for Goodman, again highlighting the group’s ability to both source opportunities and attract third- party capital,” said Deutsche Bank analyst Ian Randall. “We would expect any newly created fund to also act as the take-out vehicle for WTGoodman’s $1 billion

Brazilian development pipeline, providing greater certainty regarding future development earnings.” Credit Suisse analyst Stephen Rich described the potential Brazilian transaction as a positive development with the strategic significance lying in establishing a Brazilian core fund. “The establishment of core funds allow: the crystallisation of development profits, capital efficient co-investment and funds management income growth. “We also find comfort in the quality of the assets, tenant covenant and the developer pedigree (30 per cent of assets are from WTorre and 50 per cent from the respected US Hines group),” said Mr Rich. The global diversification theme has been stressed by Goodman of late. In a newsletter sent to investors, Goodman said a “key driver of Goodman’s growth was its global operating platform”, which provided a competitive advantage and the benefits of exposure to “different economic cycles across different markets”. ↑Return to Index

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Productora ready to deliver for Hot Chili

Hot Chili managing director Christian Easterday has predicted a watershed for the company this quarter as the copper explorer pushes ahead with plans to develop its Chile-based Productora asset. Productora, one of the largest multi-copper assets being developed, is accelerating towards the construction of a large open-pit project after more than 100,000 metres of drilling to prove up the resource.

Mr Easterday said the extensive drilling program was working towards converting the resources into a maiden reserve which would allow the group to begin the last phase of pre-feasibility that is about 70 per cent complete. Securing an infrastructure partner is critical to the success of the project. However,, Hot Chili is in a unique position in Chile because its major shareholder and project partner, Compañía Minera del Pacifico, otherwise known as CAP, is Chile’s largest iron ore miner and also a big infrastructure owner and operator in the region. Negotiations between the two are continuing. “The coming months and particularly this quarter is going to be a watershed for the entire company in terms of how it sets us up for the rest of the year and establishing ourselves as the newest large-scale copper producer on the market,” said Mr Easterday.

‘No one wants big capital expenditure at the moment’ Macquarie Equities analyst Ben Crowley said it expected big share price catalysts over the coming weeks. “An agreement on infrastructure will substantially de-risk Productora and could offer significant capital expenditure savings,” he said. “We also expect the re-estimation of the Productora resource to further de-risk the project with a maiden reserve.” Mr Easterday said the comparatively low costs to develop Productora meant the project was viable and attractive because of the market’s aversion to large-scale, capital-intensive projects. “We can develop the project – a 50,000 tonne per annum copper project on a production basis for $600 million capital expenditure because of the ready-made infrastructure and low power costs,” he said. “No one wants big capital expenditure at the moment.” Productora, which is on track for a decision to mine next year, could be developed at a time when many commodity experts are predicting a gradual appreciation in the copper price amid a shortfall in new copper mines. ↑Return to Index

Peru’s Proinversion to undertake Australian roadshow in March

Peru’s investment promotion entity, Proinversion, has confirmed that it will undertake a roadshow to Australia in March, visiting Sydney and Melbourne. The visit is being arranged by Proinversion in conjunction with the Embassy of Peru in Canberra, Austrade and the ALABC. Details of the roadshow are currently being finalised, but it is confirmed that the Proinversion delegation will be led by its chief executive, Javier Illescas, and that presentations to potential investors and businesses wanting to enter the Peruvian market will be held in Sydney on March 3 and in Melbourne on March 5.

With Peru being of the fastest growing markets in Latin America and offering a wide range of opportunities in the mining, energy, infrastructure and other sectors, it is expacted that the market presentations will be very well attended.

Details of the presentation content and venue will be announced shortly. Persons wishing to lodge expressions of interest in attending either the Sydney or Melbourne events are asked to contact Rosie Atherfold at the ALABC on [email protected] or on (02) 9357 4441. ↑Return to Index


mailto:[email protected]


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2014 Perth Anniversary Dinner – 18 March Tickets selling fast!!! The Australia-Latin America Business Council’s 2014 Perth 25

th Anniversary Dinner promises to be something special, with Daniel

Malchuk (pictured), President – Aluminium, Manganese & Nickel, BHP Billiton, as guest of honour and keynote speaker. This much is clear from the fact that well over 100 tickets have already been sold with just less than two months to go before the big night. Chilean-born Daniel commenced working with BHP Copper in the US in 1996. After spending a number of years with other companies, Daniel joined BHP Billiton in 2002 and worked in a number of roles in the Base Metals division. In 2007 he was appointed Vice President of Strategy and Development for the division, based in Santiago (Chile). Daniel held this role for five years before moving to Singapore in 2012 to take on the role of President of Minerals Exploration. In May, 2013 Daniel was appointed President of Aluminium, Manganese and Nickel and relocated to Perth, where he is currently based. Daniel has a Civil Industrial Engineering degree from the University of Chile and a Masters of Business Administration from the University of California in Los Angeles. The Dinner will bring together ALABC members and guests, including senior business leaders from organisations throughout Australia and from a wide variety of industries, as well as government officials who have interest in doing business in Latin America and in Australia’s overall relationship with the region.

Silver Sponsors

Bronze Sponsors

↑Return to Index

EXPOMIN 2014 promises to be a major drawcard for Australian business April is likely to see considerable Australian corporate activity in Latin America, as the hosting of Chile’s EXPOMIN 2014 promises to be a catalyst for several important delegations visiting the region. The reputation that Expomin has secured over many years as a significant exhibition for all things mining in Latin America, means that some 54 Australian companies have already confirmed

their attendance and participation in the Australian Pavilion being organised by Austrade. The Victorian Department of State Development, Business and Innovation will be taking a delegation of over 20 companies to Expomin, and Queensland’s Trade and Investment will also be arranging a significant delegation, possibly to be led by the State’s Deputy Premier. After attending Expomin, the Trade and Investment delegation will then head to Brazil.

Austmine will also be participating in Expomin and is planning an all day workshop with Codelco in Santiago on Monday, April 21. ↑Return to Index

Event Details Date: Tuesday, 18 March, 2014

Time: 7.00pm for 7.25pm

Venue: Hyatt Regency Perth, 99 Adelaide Terrace, Perth

Dress; Business Attire

Cost: ALABC Members: $140 per person or $1,200 per table

Non-members: $190 per person or $1,700 per table

Register: www.alabc.com.au/Events-Activities

Contact: Rosie Atherfold, Marketing & Events Manager, ALABC

Tel: (02) 9357 4441 or email [email protected]


http://www.alabc.com.au/Events-Activities



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Chairman’s Message Welcome to 2014 and what promises to be a significant and historic year in Australia’s engagement with Latin America. Not only will the Australia-Latin America Business Council be celebrating the 25

th anniversary of its foundation, but the conditions are there for

Australia to make important strides in deepening its links with Latin America. 2014 promises to be a year of celebration and of more significant events than have ever taken place in the Australia-Latin America relationship. Since 1989, the ALABC has grown into an over 200 member strong entity that has carved out for itself an enviable reputation for the quality of the work that it does in promoting Latin America in Australia, and for the successful relationships that it has forged with key allies and stakeholders, both in Australia and in Latin America. 2014 will be a year when the Council and its members – led by the growing number of Patron Members – will showcase Latin America to Australia as never before. Our capital city dinners will take on special significance this year and the Perth one scheduled for March 18 has already received a very strong response. It is well on the way to being the most successful one ever. Thanks to a special sponsorship arrangement that we have entered into with Latam Airlines Group for 2014, we will be bringing 3 high-profile guests from Latin America to Australia to feature in events that we will hold throughout Australia. The first of these will be Pedro Pablo Kuczynski, who was Prime Minister of Perú in 2005-2006, after having served as Finance Minister since 2001, and previously as Minister of Energy and Mines and Deputy Director of the Central Reserve Bank. Mr. Kuczynski was a candidate in Peru’s last presidential election and is Senior Advisor and Partner of the Rohatyn Group, a firm specializing in emerging market investments. He is also Chairman of AMG, a company in special metals related to solar energy, and of Agualimpia, an organization in Perú that helps poor towns and villages set up their water systems. His visit will take place in August and details of his schedule will be made available in coming months. Details of the other guests and of all events will be announced as we move further into 2014, but there should be no doubt that Latin America will figure prominently on the Australian agenda throughout the year. In economic terms, the outlook for Latin America in 2014 is a balance of optimism and risk. The slowdown in global trade, the difficult financial market conditions and less favorable commodity scenario in 2013, have left many countries in Latin America struggling with a relatively weak growth. The World Bank estimates that Latin America will grow 2.9% in 2014 and 3.1% in 2015, while it will accelerate to 3.7% in 2016. The agency notes that the domestic demand has moderated notably in Brazil, although the activity is starting to recover in Mexico and exports are recovering in Central America, in part because of the expansion of the Panama Canal. Even so, the agency estimates that the region’s GDP will have a "sustained strengthening" in the coming years. Despite the relatively low-growth estimates, optimism about developments in Latin America this year is widespread. The World Economic Report 2014 of the Spanish business school ESADE, states that "It is necessary for the economy of the region to strengthen the internal engines of growth to offset the more hesitant evolution of household consumption. It is important to keep encouraging private investment that has grown in recent years". The risk factors that must be taken into account include the impact of the withdrawal of stimulus by the Federal Reserve in the U.S. and the possible slowing of growth in China. Beyond the international factors, the region faces potential higher volatility, a reduced contribution of consumption to GDP growth, a slowdown in wages and credit, and lower fiscal impulse. To address these challenges, countries in the region need to increase competitiveness through diversification of their economies, improved logistics performance and higher positioning within the value chain. The ongoing evolution of the Latin American economies is not without its challenges and not everything will go smoothly. However, the same can be said of any market, and the reality is that Australian business has a great deal to gain from being active in the region and from participating in the process. Success in Latin America requires astute planning and long-term commitment, both of which Australian companies can deliver. Join us to make 2014 Australia’s best ever year in Latin America! Jose Blanco, Chairman ↑Return to Index



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What do mega-regional trade negotiations mean for Latin America?

(Written by Osvaldo Rosales and Sebastián Herreros and published on January 15, 2014 in the Latin American Dialogue).

During this decade, and with particular intensity in recent months, several far-reaching trade negotiations have been in the works worldwide. Chief among them are the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union; a Free Trade Agreement (FTA) between the European Union and Japan; a Regional Comprehensive Economic Partnership (RCEP) among the ten members of the Association of Southeast Asian Nations (ASEAN) plus Australia, India, New Zealand, China, Japan, and the Republic of Korea; and an FTA among the latter three countries. All four processes were formally launched in 2013. They come on top of the Trans-Pacific Partnership (TPP) negotiations, underway since 2010, encompassing twelve countries of Latin America, North America, Asia, and Oceania. All these initiatives— referred to in the literature as mega-regional or mega-bilateral negotiations—should have a deep impact on the global trade and investment architecture of the coming decades, especially given the continued impasse at the Doha Round of the World Trade Organization (WTO). As shown in annex 1 below, a rapidly growing number of FTAs has been a global trend since the 1990s, but the recent mega-regional negotiations have features that set them apart from most existing pacts. The first two distinctions are the number and size of the economies concerned. All of them account for significant shares of world output, population, trade, and foreign direct investment (FDI). Second, these mega-regional negotiations go beyond the bilateral approach of most of the existing FTAs by aiming to create vast integrated economic spaces, whether Asian, transatlantic, or trans-Pacific. Third, the thematic agenda is far more extensive and complex than has traditionally been the case, and it includes a number of areas not covered by WTO agreements.



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This brief by Osvaldo Rosales and Sebastián Herreros of the Economic Commission on Latin America discusses how Latin America may be affected by the ongoing mega-regional negotiations, specifically the TPP and the TTIP. Only Chile, Mexico, and Peru currently participate in the TPP negotiations and no Latin American countries are involved in TTIP talks, but all countries in the region stand to be influenced by both processes. Since the TPP and TTIP negotiations are underway at the time of writing (with the latter in a very early stage), any pronouncements on their outcome are highly speculative. Moreover, time and space

restrictions preclude a detailed country-by-country analysis. Instead, we attempt to identify key issues that would arise from a successful conclusion of both negotiations. Further, in-depth examination by Latin American academics and policymakers is called for in the coming years. This brief focuses on the

possible impact of the TPP and TTIP on Latin American countries’ future trade flows, how both processes might influence these countries’ ability to design and implement a number of public policies, and deals with possible implications for Latin American regional integration. The paper ends with some concluding considerations. The full paper can be downloaded here. ↑Return to Index

Important faces in Chile’s next ministry

Chilean President-elect Michelle Bachelet has named the cabinet of ministers who she hopes will help her pass a planned program of wide-reaching reforms. Presenting the nominations on January 24, Bachelet said she had sought a balance of backgrounds for her government, which will take the reins from the outgoing conservative administration on March 11. She has promised a blitz of 50 reforms in 100 days, including a raft of changes to Chile's tax rules to pay for improvements to education and health. The new cabinet's main challenge will be implementing Bachelet's ambitious program at a time the economy of Chile, the world's top copper exporter, is slowing and with Batchelet's bloc holding only a slim majority in Congress.

Bachelet’s trusted adviser Alberto Arenas (pictured left), an economist and Socialist party member, will take the role of finance minister. He was head of the budget during Bachelet's first term and helped prepare her tax reform package. Arenas said after his nomination that he would be looking to tackle tax reform soon. "Now we will get to work on, among other things, the tax reform and bills so we can send them to Congress when President Bachelet is ready". "Another of the tasks will be an agenda of productivity, innovation and growth to return to a path of growth." Other appointments that will be of keen interest to Australian business include, Maximo Pacheco as

energy minister, Aurora Williams as mining minister, Nicolás Eyzaguirre as education minister and Carlos Furche as agriculture minister.

↑Return to Index

Maximo Pacheco Nicolás Eyzaguirre Aurora Williams Carlos Furche


http://thedialogue.org/uploads/Rosales_Trade_1.pdf


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Argentina’s currency tumbles

Argentina’s currency, the peso, devalued the most in 12 years after the central bank scaled back its intervention in a bid to preserve international reserves that have fallen to a seven-year low. The peso has plunged 12.7 percent over January 22 and 23 to 7.8825 per US dollar, after falling to as low as 8.2435, according to data compiled by Bloomberg. The decline in the peso marks a policy turn for Argentina, which had been selling dollars in the market to manage the foreign-exchange rate since abandoning a one-to-one peg with the U.S. dollar in 2002.

President Cristina Fernandez de Kirchner (pictured left), who said on May 6, 2013 that the government wouldn’t devalue the peso, is struggling to hold onto dollar reserves which have fallen 31 percent to US$29.4 billion amid annual inflation of more than 28 percent. Reserves are the government’s only source to pay foreign creditors. Since changing her economy minister, cabinet chief and the head of the central bank on November 18 last, the peso has fallen 25 percent, the most in the world, according to data compiled by Bloomberg. The tumble in the currency is the biggest since March 2002, the year the government abandoned

a one-to-one peg with the U.S. dollar following a record $95 billion default. A free-floating peso may fall as low as 14 per US dollar, Citigroup Inc. strategist Dirk Willer wrote in a report on January 23. The central bank sold a net US$5.9 billion over the last year in the foreign-exchange market to help bolster the peso. Since her re-election in 2011 when capital flight almost doubled to $21.5 billion, Fernandez has put into effect more than 30 measures to keep money from leaving the country. Her policies have included blocking most purchases of foreign currencies, taxing vacations abroad and online purchases, banning units of foreign companies from remitting dividends, and restricting imports. Black Market The controls cut the total amount traded last year in the local foreign-exchange market in half from 2010, according to data compiled by Argentina’s Mercado Abierto Electronico automated trading system. Banned from purchasing dollars for savings to protect against inflation, Argentines have turned to an illegal currency market, where the price per dollar soared to a record 12.75 per dollar, according to Buenos Aires-based newspaper Ambito. Government Response On January 24, Argentina lifted restrictions on personal US dollar purchases for citizens, ending a prohibition on greenback savings that began at the end of 2011. The new measures, which occur one day after both the official and parallel 'blue' dollar saw record rises, were announced in a short press conference by Cabinet Chief Jorge Capitanich and Economy Minister Axel Kicillof. The measures become effective from Monday, January 27 onwards. "We have decided to authorize the buying of dollars on behalf of individuals, according to their declared incomes," Capitanich announced. He added that restrictions had always been temporary and had served their purpose. At about eight Pesos to the dollar, he said the Argentine currency "has reached an acceptable convergence level" under a policy of "managed flotation". ↑Return to Index



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PISA and the state of education in Latin America (Editor’s Note: The following article was written by Ariel Fiszbein in the PREAL Blog and was published in the Inter-American Dialogue on January 8, 2014)

The release of the 2012 PISA results (PISA 2012 is a survey that assessed the competencies of 15-year-olds in reading, mathematics and science - with a focus on mathematics - in 65 countries and economies) in December presents a good opportunity to reflect on the state of education in Latin America. As is well known, the eight Latin American countries that participated in PISA ranked in the bottom third in reading, mathematics, and science among the 65 countries that took the test. How can we interpret these results? What do they tell us about the challenges of education policy in our countries?

With these questions in mind I contacted a select group of experts in Latin America. Their comments and thoughts offer useful insights to kick-start a debate about the future of education systems in the region. Not surprisingly, all of those contacted expressed concern for the relatively poor performance of Latin American countries. According to Guillermo Perry, former Minister of Finance of Colombia and an influential economist interested in education issues, the PISA results for Colombia are “bad news because they show the quality of basic education remains very poor and unequal, and that most of the children do not acquire the basic skills needed to be productive workers in the world today. Even in private schools the percentage of students with high scores is very low”.

Sergio Bitar was Minister of Education in Chile under the Lagos administration. For him, the fact that Chile is first among all participating countries in Latin America and that its scores have improved does not lessen the concern about results. First, argues Bitar, “we are far from the best in the world and far from countries in Asia. Second, the percentage of youth in the lowest performance levels is very high, and only 1.6% of the students are in the top performance group. This shows that the entire system has low efficiency, even among students in private elite high schools. Third, inequality and socioeconomic segmentation are overwhelming and have a decisive influence on results.” While concern over the low levels was common to all those consulted, the interpretation of patterns of change over time show some interesting differences across countries. According to Santiago Cueto, researcher at GRADE in Peru and one of the main voices on learning assessments in the region, the PISA results for Peru show that we are not doing well, but we are doing better. Cueto points out that “the majority of Peruvian students performed at level 1 (or below) in math, science, and reading. PISA also shows Peru is a highly unequal country: the gap in performance between urban and rural students is striking and has not improved between 2001 and 2012. At the same time, Peru is the country that has most improved in reading from the first evaluation, in a context of considerable expansion in net coverage of 15-year-old students.” Maria do Pilar Lacerda, former Secretary of basic education of Brazil, notes the same tension between levels and changes in a very graphic way. “If results for Brazil are regarded as a photo, they are not good, while if we look at them as a movie, there has been good progress.” Despite the limitations of rankings, the strong contrast between the results of countries in Latin America and East Asia is difficult to ignore. Miguel Szekely, former undersecretary of education in Mexico, expresses frustration that “even when a country like Mexico makes progress, its relative position does not necessarily improve because others are moving faster. One is left feeling that we are running far behind.” The strong contrast between the results of Asian and Latin American countries also signals the potential role of such basic factors as the settings in which educational practices take place in schools and at home.



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Gustavo Iaies, former secretary for basic education in Argentina and director of Fundación CEPP, highlights the fact that Argentina ranked near the top of countries in which students report that they have skipped class in the two weeks prior to the PISA exam and have a high perception of disorder in the classroom. In his opinion “these are indicators of a system that needs to rethink its basic conditions of operation and work on the reconstruction of an ‘educational order’ that replaces the current ‘mess’ in schools.” At the same time, the comparison with East Asian countries brings up the importance of considering the role of individual and family effort in the pursuit of learning achievements. The order to which Iaies refers has many faces—order in school, at home, in the community—that interact in virtuous or vicious ways depending on the case. The PISA results leave open the question of what can be done to improve the level of learning in Latin America. Leonardo Garnier, Costa Rica’s Minister of Education, argues that the most interesting aspect of PISA is not the horse race or the relative position different countries occupy, but the detailed information it provides on the specific strengths and weaknesses in the education systems. “This is what we are more interested in terms of informing decisions,” he stated. Given the widely acknowledged importance of teachers in the learning process, it is not surprising that the experts consulted mentioned teacher policies as a priority area for reforms. Although many inputs determine the quality of education, Szekely argues, “clearly we must improve the capabilities of our teachers.” According to Cueto, in contrast to the evaluative approach of PISA that focuses on problem solving, “teachers in Latin America concentrate their pedagogical work in the classroom on routine tasks, memorization and mechanical application of procedures. Many teachers have difficulties solving problems like those presented in the tests.” In his view, it “seems indispensable to attract stronger candidates to the teaching profession.” Perry agrees and argues that, in the case of Colombia, “the main problem in terms of poor quality of education is, by far, that those studying to become teachers tend to be high-school graduates with weak performance in the entry exams and that furthermore, they do not receive good training or support.” In a recent study by Fundación Compartir, Perry and his colleagues proposed a series of measures to reverse this situation. Similarly, Lacerda argues that it is necessary to make the teaching profession more attractive for ‘the best young people’ and that this may require better wages and career prospects.

Beyond the agreements or disagreements on the necessary policy actions, we must understand that the results of PISA (or similar tests) will not change dramatically overnight. Cueto reminds us that students who took the last PISA test were born at the end of the 1990s. Those who will take the next PISA test in 2015 are currently 13 years old and will have only one-and–a-half more years of instruction before the next assessment takes place. In the same vein, Minister Garnier points out that the reforms that have been implemented in Costa Rica should “be reflected in better

results in tests three, six and nine years down the road.” These comments indicate that, since policy changes take several years to be reflected in learning outcomes, it is urgent that they be implemented immediately and sustained over time. Instead of being discouraged by the long time it may take to improve performance, we must be inspired by the simple logic that sowing early will produce a better harvest later on. PISA plays a critical role in enabling international comparisons of results and giving a complementary perspective of the most frequent measurements of learning at the national level. It reminds us that we can learn from the experience of others, without suggesting that we should mechanically copy policies and programs. In addition, international tests such as PISA can have positive effects on national systems of evaluation. It can highlight needed changes in countries where such systems are not entirely credible and contain important technical flaws. And in those countries that already have solid and reliable evaluation systems, PISA offers an opportunity to use benchmarking as a tool for analysis to inform education policy. ↑Return to Index



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Mining Panorama – What’s Hot

Chile has US$40bn in delayed mining projects Chile has delayed mining projects coming out of its ears and “Chile’s incoming centre-left government must find solutions for the roughly US$40 billion in mining projects which have been put on ice or delayed in the world’s top copper producer, the SONAMI mining association urged on January 16.

President-elect Michelle Bachelet will take the reins of the country, a mining powerhouse, on March 11 with a strong mandate for reform. Awaiting her are a number of mining and energy projects which have been delayed due to unclear regulations and increasing opposition from local communities and environmental groups. Other projects and expansions have been put under revision or pushed back as metal prices slip and production costs increase.

Despite the US$40 billion in delayed or blocked investments, SONAMI’s overall forecast for US$100 billion investment in the Chilean mining industry is still intact, said Alberto Salas, president of the organization.

Peru to lead the way on new copper supply Figures from the International Copper Study Group show that over a quarter of new copper supply over the next five years will come from Peru, with a number of new countries also set to contribute to output. The research, which was based on existing mines and announced developments, predicted an 8% per annum growth rate in 2014-17, with production to reach 28.3 million tonnes per annum in 2017, up 34% from 2012. ICSG noted that many projects had been delayed since 2008 and 60%, or 4.4Mtpa, of the growth was expected to occur in 2016-17. Since last year’s update, many of the projects expected to come online in 2016 had also been delayed. Average annual capacity growth is expected to be around 6.5% in 2014-15 and roughly 9% in 2016-17. Copper-in-concentrate production is expected to increase by 8% per annum to 22.4Mtpa by 2017, while solvent extraction electrowinning capacity will grow by 5.4% per annum to 5.9Mtpa by 2017. By comparison, copper smelter growth is expected to grow by 2.7% per annum, while refinery capacity will increase by 10% by 2017, compared to last year. Peru is expected to account for 26% of new mine capacity between now and 2017, followed by Zambia, the US, Mexico and the Democratic Republic of Congo. The five companies will account for a combined 56% of new mine production over the next few years. ↑Return to Index

Paraguay plans to become world’s 5th-largest beef exporter by 2018 One of Paraguay's priorities is to make the country the world's fifth exporter of beef by 2018, according to Industry and Trade minister Gustavo Leite. The land locked member of Mercosur currently holds the eighth position.

”But we also want Paraguay to become the world's third per capita consumer of beef (behind Uruguay and Argentina), because let's not forget that Paraguayans love to eat beef and love their barbecue”, added Leite. The minister revealed that the plan is based on incorporation an estimated 120.000 small cattle farmers to a national production

program, applying modern technology and sanitary practices. Last year Paraguay exported 1.33 billion dollars in meat products. Together with soybeans, beef is one of the two main export items of the country. Paraguay figures as the world's fourth exporter of soybeans.



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The surge of agriculture and livestock last year, after suffering a prolonged drought and sanitary problems, helped the country's economy expand a record 13.6%, the best performance in Latin America. ↑Return to Index

Chile ahead of Peru as ‘Best Place’ for business in Latin America According to data compiled by Bloomberg, Chile is the best place to do business in Latin America in 2014, with the cheapest costs in the region, The country of about 17 million people secured the top position of 14 Latin American nations based on six criteria,

including the degree of economic integration and labour costs. Peru and Brazil respectively occupied the next two slots. In the global ranking, Chile moved up to 21st from 26th the year earlier. Chile is the only country in Latin America with net savings instead of debt after 30 years of almost uninterrupted growth. The nation has free trade accords with countries including the U.S., China, Mexico, Peru and Colombia, allowing for cheap imports. “The reason why Chile always comes in on top is because it has done the reforms that

improve the business climate,” Luis Alberto Moreno, Inter-American Development Bank president, said by phone from Washington on Jan. 16. “Chile has undertaken a very good discussion about its public policies and there is a good energetic public policy debate.” El Salvador came bottom of the 14 countries ranked in Latin America, below the Bahamas and Ecuador. ↑Return to Index

Brazil lifts interest rate to combat persistent inflation On January 15, Brazil’s central bank maintained the pace of the world’s biggest interest rate increases after inflation last month surged the most in more than a decade. The bank’s board, led by President Alexandre Tombini, voted 8-0 to raise the benchmark Selic by a half-point for a sixth straight meeting to push the key rate to 10.50 per cent from 10 per cent. Latin America’s biggest economy is facing accelerating inflation amid the worst two years of growth in more than a decade. Policy makers last year raised borrowing costs six straight times, including half-point increases at their last five meetings, in a bid to bolster business confidence and combat inflation exacerbated by a weaker real and government spending. December’s surge in consumer prices gives the central bank less leeway to slow the pace of rate increases, according to analyst Neil Shearing. “What’s clear is that policy makers are focused squarely on inflation,” Shearing, chief emerging markets economist at Capital Economics Ltd., said by phone before today’s decision. “Growth is skewed too much toward consumption.” Thwarting Tombini Last year’s inflation can be attributed to a weaker currency as well as pressures from the labour market and transportation industry, Tombini said in a January 10 statement posted on the central bank website. The real weakened 13 per cent in 2013, the worst annual decline since 2008, on speculation the Federal Reserve would unwind monetary stimulus. Inflation Expectations Brazil’s consumer price increases trail only Venezuela and Argentina in Latin America. Annual inflation has remained above the midpoint of the central bank’s 2.5 percent to 6.5 per cent target range since September 2010. Family and business sentiment has not improved in the face of persistent inflation. Consumer confidence as measured by the Fundacao Getulio Vargas fell in December to its lowest level since July, while industrial confidence was lower in December than when policy makers started raising rates in April. ↑Return to Index



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Feature Article: The future of inter-American relations (Written by Peter Hakim and published on January 6, 2014 in Latin American Security: Canadian and International Perspectives, ed. Monique Greenwood Santos and Stephen J. Randall (Calgary: Centre for Military and Strategic Studies at the University of Calgary, 2013).).

In the 1990s, following the end of the Cold War, there emerged for a time what appeared to be a relatively wide agreement in the United States and much of Latin America regarding the direction hemispheric relations should take. The convergence focused on renewed efforts to achieve inter-American cooperation and integration along three axes - economic, political, and institutional. Most nations welcomed the 1990 proposal of President George H.W. Bush to build toward an integrated economic bloc, a hemisphere-wide trade area that would allow for the free flow of capital and goods among all the countries of the Americas. The new bloc, later named the Free Trade Area of the Americas (FTAA), was intended to improve the competitiveness of the hemisphere’s economies, and enable them to keep up with the economically integrated nations of the European Union and with Japan and the fast growing “tigers” of East Asia. The increasingly market-oriented Latin American economies had begun to unilaterally reduce their trade barriers, and saw the value of joining a regional free trade arrangement effectively led by the

United States. Second, the idea that democracy was the only valid form of government was taking firm root across the Americas. Free and fair elections were widely accepted as the only legitimate way to secure power. By 1991, every country in Latin America except for Cuba could boast an elected government. Moreover, the hemisphere’s governments approved Organization of American States (OAS) resolutions requiring collective action to protect and strengthen democratic governance in all nations of the

Americas. This commitment to collective responsibility was subsequently codified in 2001, when every country of the hemisphere (except Cuba) signed the Inter-American Democratic Charter (IADC). Third, the OAS was seen as providing the crucial institutional framework for regional governance and cooperation. It was supplemented in 1994 by the newly launched Summit of the Americas process, which was designed to regularly assemble the hemisphere’s heads of state. This three-pronged convergence, which represented more of an aspiration than a firm commitment from the governments, has mostly evaporated. Negotiations toward a hemispheric trade bloc were halted in 2005 after several years of limited progress, largely because the United States and Brazil could not find common ground on several key issues. The Democratic Charter has hardly ever been invoked, despite many notorious violations of democratic practice. And, after many setbacks, the OAS and Summit of the Americas are both weakened institutions. Today, there is a lack of anything near a consensus on hemispheric relations. Diminishing Ties Between Latin America and the United States The United States and Latin America have been drifting apart for a decade or more. Still, the United States remains the most important external economic presence in Latin America — even though it has been steadily losing ground to Europe and China, which is now the leading commercial partner of several Latin American countries. The United States is the first or second largest trade partner for nearly every country in the region. No other nation invests more in Latin America, transfers more technology, or is the source of more remittances and overseas aid (although the latter is focused mainly on public security and drug-related issues). While its relative economic significance will continue to diminish in the coming period, the United States will surely sustain a robust commercial and financial relationship with Latin America. U.S. political engagement in Latin America has suffered a faster decline. Washington no longer has much influence on most issues and decisions in the region, particularly in South America. U.S. capacity to shape the region’s agenda or affect specific decisions has diminished considerably—and its interest in doing so has shrunk as well. Washington has sharply reduced its involvement in conflict and crisis resolution in Latin America, both within or between countries. The Latin Americans themselves have taken on these tasks, often making use of new regional and sub-regional institutions in which neither the United States nor Canada participate. The United States today has no unifying vision or common approach to Latin America. U.S. policy is largely directed to Mexico and Central America, driven by geographical proximity, economic and demographic integration, and concerns about security and drug trafficking. Brazil—because of its size, economic potential, and regional and global influence—also commands U.S. attention.



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The two countries, however, have not identified any clear path toward a closer, more cooperative relationship, either political or economic. Diverging Trajectories in Latin America Economically, Latin America has divided itself into two blocs. One includes the eleven countries that have free trade agreements with the United States, virtually all of which are seeking even stronger U.S. commercial ties. The other bloc consists of the five members of Mercosur and two aspirants. Nearly all of them enjoy substantial economic relations with the United States, but few have shown much interest in developing more formal commercial ties. There is currently no overlap between the two blocs. Of twenty Latin American countries, only Haiti and Cuba belong to neither. Regional politics are even more divisive. Among Latin American countries, there is no agreement on (a) what norms have to be satisfied for a government to be considered democratic; (b) what should be viewed as a violation of democratic practice, to be corrected and possibly sanctioned; (c) how persistent violators should be dealt with; (d) who should be the judge of whether violations are taking place; and (e) what role the OAS should play in preventing, judging, and responding to violations. Other trends are also evident. Perhaps the most important is Brazil’s assumption of a more active and important regional leadership role, particularly in South America—although it does not yet appear fully comfortable in that role or certain of its objectives. Venezuela is in a transition. During the Chávez years, the Venezuelan government was time and again a disruptive force in inter-American relations. The new government of Nicolás Maduro remains hostile to the United States, but Venezuela’s significance in the post- Chávez era is in question. Latin American countries are diversifying and strengthening their ties outside the Western Hemisphere. China’s presence is expanding almost everywhere in Latin America, including countries that still do not officially recognize the Beijing government. Chinese trade, investment, and land purchases have all exploded in the last ten years, particularly in commodity exporting nations. It is reasonable to expect growing political influence in the region as well, even as the Chinese government has insisted on its only limited interest beyond economics and commerce. Looking Ahead The critical question, however, is not where inter-American relations stand today, but where they are headed in the coming decades. What follows are four possible scenarios for the evolution of hemispheric affairs. They should not be viewed as predictions. Indeed, the most likely outcome is probably some unexpected combination of several of the scenarios. Scenario I: The Drift Continues The most likely scenario is that inter-American relations remain on their present course. The United States continues gradually to disengage politically from most of the region. Economic relations expand with many countries, but the U.S. share of total trade and investments keeps falling as China and other extra-hemispheric nations increase their share. Reflecting evolving political forces, social changes, and national aspirations, hemispheric ties may become less structured and perhaps less coherent. Relations among the countries of Latin America could become more tense and divisive. For the United States, the scenario involves increasingly selective engagement, directed to specific issues, countries, and events—without much attention to developing a broader strategy for U.S. relations with Latin America. U.S. interest in issues of regional scope will continue to recede. U.S. engagement remains strong only in Mexico and Central America, but even there it will be less intrusive as the countries become more independent and assertive. Latin America’s foreign relations grow increasingly diverse as globalization opens up new opportunities and weakens hemispheric ties. Within Latin America, countries continue to diverge and disagree; in some cases their differences may intensify in the absence of a significant U.S. presence. The distancing of the United States and Latin America combined with the divisions within the region will likely continue to diminish the importance of the OAS and Summits of the Americas. Scenario II: A Return to the Pan-American Vision With Chávez gone, the anti-U.S. alliance, ALBA, loses what is left of its drive, direction, and determination. Venezuela faces deeper political and economic challenges and no longer has the money or unity to play much of international role. No effective replacement for Chávez and Venezuelan resources emerge, and what is left of extreme opposition to U.S. engagement in Latin America fades in importance.



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There is broad movement towards the centre — regarding relations with the United States and political and economic issues generally. This shift may already be occurring in many countries and should lead to an easing of tension and division between Atlantic and Pacific nations, and between North and South American countries. Most Latin American countries increasingly adopt orthodox macroeconomic policies, their economies become more closely aligned, and they expand attention to issues of equality and social justice. The continued emergence and strengthening of the middle class helps to sustain a pragmatic centrism in most countries, and allows for an increasingly shared understanding of democratic principles and the rule of law. Mexico and Brazil recognize the value of closer bilateral ties and more regional and global cooperation. For its part, Brazil—whose differences with the United States have frustrated hemispheric economic integration efforts— becomes increasingly concerned about its long-term economic prospects. It recognizes the Mercosur trade bloc as mainly consisting of unstable, economically hobbled partners. Brazil is also painfully aware that other Latin American nations (Peru, Chile, Colombia, Panama, Costa Rica, and Mexico) show greater dynamism and brighter economic futures than the Mercosur group. If U.S. negotiations with Europe and Asia are successful in creating new trade agreements, Brazil knows that its global competitiveness will shrink further. Meanwhile, its expanding middle class presses for faster growth and improved government performance. All of these factors should push Brazil toward greater economic pragmatism and openness, and toward stronger commercial ties with the United States and the

higher performing Latin American nations. The appeal of the Pan-American vision increases as the United States decisively emerges from slow growth and high unemployment, and manages to overcome its current political hyper-polarization. A more prosperous and unified U.S. modifies policies that have long caused friction with Latin America in the past, including Washington’s approaches to drugs, immigration, and Cuba. The United States is viewed as a more responsible and more respectful neighbour. In this scenario, hemispheric economic cooperation becomes more viable, perhaps opening the way for resumed negotiations toward a hemispheric free trade arrangement. The OAS takes on a more

forceful role in regional affairs, and progress toward economic integration allows enhanced political cooperation. Scenario III: Latin American Solidarity Exactly as in the previous scenario, a broad movement towards the centre leads to improved relations among Latin American nations. Most Latin American governments pursue similar economic and social policies, solid (not spectacular) growth rates are attained across the region, middle classes the future of inter-American relations continue to expand, and a shared understanding of democratic practice emerges. The left and right extremes are rarely able to win elections. Latin America’s two giants, Mexico and Brazil, recognize the value of closer economic ties, and greater international coordination. During this period of Latin American convergence around centrist politics and economics, the United States remains unable to regain an adequate trajectory of economic growth, the country’s politics remain dysfunctional, and it finds itself overextended internationally. After conservative triumphs in presidential and congressional elections in 2016, 2018, and 2020, immigration legislation becomes more restrictive and exclusionary, harsher sanctions are imposed on a post-Castro Cuba, and U.S. policy in Latin America focuses mostly on drug and security issues and trade disputes. Under this scenario, political and diplomatic relations remain cordial but the United States’ importance in the region declines sharply. The United States no longer plays a major role in regional affairs. Conflicts between countries or crises within them are addressed by Latin American governments. The United States remains an important economic partner for many nations in Latin America, although a weak U.S. economy leads Latin America to focus increasing attention on other trade partners and investors. The OAS and Summits lose most of their role in hemispheric affairs. Latin American institutions take on many of their responsibilities. Scenario IV: A Hostile Relationship There remains a possibility that Latin American nations could become increasingly hostile or antagonistic toward the United States. Some variant of the anti-U.S. sentiment promoted by Hugo Chávez could take hold in a significant number of countries in the region. Developments in the United States would be the same as those outlined in the previous scenario—a continuing U.S. economic slump combined with highly polarized politics and increasingly isolationist foreign policies. At the same time, Venezuela and Argentina unexpectedly rebound from their economic setbacks, Cristina Fernández de Kirchner takes firm control of Argentina politics, and Maduro or a Chavista successor does the same in Venezuela. Brazil and Mexico, along with several other countries, enter a period of slow or zero growth again, leaving both their low-income populations and what had been expanding middle classes vulnerable and frustrated. Populist, authoritarian leaders win elections in many countries.



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Although extensive economic ties remain in place, neither the United States nor Latin America retains much interest in collaborating with the other. Regional organizations, like the OAS and the Summits of the Americas become moribund, if they survive at all. Some Final Observations Interestingly, of the four scenarios, only the last (by far, the least likely) would necessarily be damaging to long-term U.S. interests, and probably to Latin American interests as well. The Pan-American scenario (Scenario II) is most appealing—in part because we are long accustomed to hearing it portrayed as an ideal model for inter-American relations, but also because it would likely lead to most productive outcomes for both the United States and most countries of the region. But the factors responsible for the already attenuated U.S.-Latin American relationship may have sunk any prospects of a return to the Pan-American framework, at least anytime soon. Since neither the United States nor the countries of the region seem willing to do very much at this point to rebuild vibrant, collaborative relations the best that is hoped is a continuation of some form of selective engagement (see Scenario I). This allows for countries, including the United States, to choose the partners and allies with which it wants to work, and establish appropriate distance from others. It does mean, however, that there will be only limited commitment to any common set of norms or hemispheric institutions. Latin American solidarity (Scenario III) should not be considered a particularly intolerable outcome, particularly if it leads to improved and more constructive relations among the countries of Latin America, and enables them to develop joint approaches to critical domestic, regional, and international issues and needed institutional arrangements to put them into practice. The United States and Latin America might even benefit from a period of disengagement—rather than trying to sustain what has increasingly become, at least for most countries, a largely empty rhetoric of partnership and community. ↑Return to Index

Brazil’s banks target international investors

BTG Pactual and Bradesco, two of Brazil’s largest banks, plan to significantly expand their European and US asset management businesses, despite the recent downturn in Latin American stock markets.

BTG Pactual, which recently announced it would hire 100 people for its fledgling commodities trading business, plans to hire an additional 20 fund management employees for its London office in 2014. The bank, which currently has 150 asset management staff in London, also plans to make a similar number of appointments in its New York office, and is considering launching a commodities hedge fund.

Bradesco Asset Management, meanwhile, plans to develop a Latin American hard-currency bond strategy for international investors. It is also in the process of registering five funds already available in Portugal, Spain, France, Italy and the UK in Switzerland. Luiz Filho, Bradesco’s head of global business development, said he has seen strong retail and institutional demand for Latin America and Brazil-focused funds among Swiss investors. Bradesco, which has $130bn in assets under management, also plans to boost its headcount in Europe and in the US, where it has recently registered two ’40 Act mutual funds. Mr Filho said the fund house will register an additional three funds in the US market, with the goal of increasing Bradesco’s international assets under management from $1bn to more than $6bn. The two groups’ international push, however, comes at a time when investor demand for Brazilian and Latin America funds has fallen in light of poor stock market performance. European investment in Brazilian mutual funds dropped by a quarter last year to €2.3bn, while the assets of Latin American funds fell 14 per cent to €14bn, according to figures from Morningstar, the data provider. Mauro Baratta, a fund analyst at MackayWilliams, the research company, said: “The figures suggest that appetite for Brazilian and Latin American equity funds is not particularly strong.” But with the Brazilian stock exchange, the Bovespa, down 15.5 per cent in 2013, Steve Jacobs, head of BTG Pactual’s $70bn fund business, believed this could represent a strong buying opportunity. “With Brazil coming down 15 per cent last year, it is an interesting valuation right now that is looking quite attractive,” he said. ↑Return to Index



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Opinion: Castro’s unhurried reforms of Cuban economy falter (Editor’s Note: The following article was written by John Paul Rathbone and was published in The Financial Times on January 17, 2014)

In a dusty Havana parking lot, a group of Cubans examine the prices of the modern cars they can now buy from the state for the first time: US$263,000 for a 2013 Peugeot saloon that retails in Europe for US$30,000, or US$20,000 for a 2002 Fiat Uno with over 100,000km on the clock.

“Who are they kidding? At those prices, they have to give a lifetime supply of petrol too,” says taxi driver Antonyne Carrera as he peers through the lot’s wire fencing. “It’s a bad joke,” adds fellow bystander Mauricio, who works in the tourist trade. The car sale is the latest in a series of reforms introduced by President Raúl Castro that are supposed to improve the country’s economic lot and bolster the government’s popularity but which, in this case, has made the authorities a laughing stock among Cubans who earn an average state wage of $18 a month. It also illustrates the hesitancy and contradictions at

the heart of the economic transition begun by Mr Castro and that Latin American heads of state will see when they visit Havana for a regional summit on January 28. Since he became president in 2008, Mr Castro has stressed the need to reduce the state’s role in Cuba’s sagging economy and boost growth forecasts of just 2.2 per cent this year. Foreign debts have been restructured and a unification of Cuba’s multiple exchange rates even mooted. Yet even as he introduces reforms, such as allowing small businesses and co-ops to set up, the ruling Communist party’s blocking habits of command and control remain. This was vividly illustrated in a video leaked on to the internet that showed Juan Triana, a prominent local economist, lecturing a sour-looking group of interior ministry officials on the merits of liberalisation – all within the constructs of socialism and a one party state, of course. “Raúl is going as fast as he can, or he understands,” says Roberto Veiga, editor of Espacio Laical, an independent Cuban magazine funded by the church. “There is a tension between how slow things need to go given the government’s desire to retain control, and how fast they need to given the precariousness of the economy.” Near the colonial era cathedral in old Havana, a privately owned restaurant appropriately named the Moneda Cubana, the Cuban coin, shows the outer limits of what Mr Castro’s reforms have achieved so far. Miguel Ángel opened his bustling establishment three years ago, and by 2013 his business had grown enough that he paid 660,000 pesos (US$26,400) in taxes to the state – a revolution in a country where citizens have never paid taxes before. Estimates suggest taxes paid by Cuba’s almost 500,000 self-employed are equivalent to 2 per cent of the national budget. But, despite his success, Mr Ángel chafes at the government’s record on reform. “It needs to be more direct, to present its reforms all in one go rather than changing the rules all the time,” he says Other entrepreneurs say they know what he means. Across town, Michael Franco has just closed his business reselling imported cell phones and clothes after the government banned the trade in a move that showed who is top dog. “I will have to find something else to do,” he ruminates. “Without hurry, but without pause,” has been Mr Castro’s reform mantra. To emphasise this deliberate if leisurely approach, in December he even told the National Assembly he is making development plans up to 2030. Yet time is not on Cuba’s side. Castro has said he will retire by 2018 and, by then, the economy needs to have recovered sufficiently to meet a demographic transition that by 2021 will see more people leaving the workforce than entering it. “The state bureaucracy, not political dissidents, is Raúl’s true opposition. It has a vested interest in the status quo,” observes Hal Klepak, a Canadian historian who has written extensively on Cuba. “Raúl is meeting that challenge via consensus rather than ruling by decree. The problem is: creating consensus takes time.”



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It is a fine line for the government, and one familiar to many transition economies. Faster liberalisation is needed. But, combined with Castro’s frequent requests for constructive criticism and the “battle against self-censorship”, this invites criticism of other areas too. Indeed, jazz singer Robertico Carcassés surprised the nation last September when he called out for the right to elect the president, in the middle of a televised performance. More surprising still, after an initial sanction, the authorities allowed him to sing publicly again. A mellowing atmosphere can even be glimpsed in US relations. Examples include Barack Obama’s incidental handshake with Mr Castro at Nelson Mandela’s funeral. Last week, the State Department also noted the positive tone of recent Cuban-US talks. All these are welcome signs of fresh approaches that could create other opportunities. Still, concrete changes remain few and only significant in Cuba’s context. “It’s Hungary, circa 1980,” cautions one foreign businessman. “There is still a long way to go.” ↑Return to Index

Investing in Brazil: value creation and value destruction

(Editor’s Note: The following article was written by Jonathan Wheatley and was published in The Financial Times on January 23, 2014)

If investing is all about value creation, the latest batch of figures from Brazil’s central bank make for sobering reading. They show the rich returns you can make when investing in Brazil goes right – and the huge losses that result when it goes wrong. Over the past three years, foreign direct investors and buyers of Brazilian portfolio assets have suffered value destruction on a colossal scale. An analysis of central bank figures by beyondbrics shows that taken together, flows of foreign direct investment to Brazil and foreign investment in Brazilian portfolio assets were worth more than $260bn between January 2011 and November 2013. Over the same period, in spite of those inflows, the value of such assets held by foreigners fell from $1,351bn to $1,327bn, a loss of $24bn, implying value destruction of more than $284bn in less than three years. This is not to say that individual investments have not made money – many have. And in previous years, Brazil has delivered enormous returns. During 2009, according to the central bank, the value of equities held by foreigners increased from $150bn to $376bn – a rise in value of nearly $227bn in a year that saw inflows of just $37bn, implying value creation of $190bn in equities alone during that year. But in the past three years, value creation has turned into value destruction. Some of the blame lies with the global malaise afflicting emerging markets since the boom years before and immediately after the global financial crisis of 2008-09. But critics say

Brazil has fared especially badly because of the rise of a local brand of state capitalism. In part, this has its origins in the crisis itself. When the global recession threatened to derail Brazil’s hitherto impressive record of growth, the government knew just what to do. It slashed banks’ reserve requirements by nearly $50bn and offered $2bn of cheap loans to exporters. The stimulus worked. After a brief recession in 2009, Brazil returned to stellar growth of 7.5 per cent in 2010. But it did not last. Growth has since slumped and stayed

stubbornly below pre-crisis levels.



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For investors, the results can be seen in the central bank figures. For much of the past decade, money has been flooding into Brazilian assets on all fronts. From January 1, 2003 to November 30, 2013, the total flows of FDI to Brazil were worth about $405bn. Over the same period, the total stock of FDI in the country increased from a little over $100bn to more than $725bn, as measured by the central bank. So over that period, investors got a pretty tidy return on their capital.

But those returns were far from consistent. The stock of FDI increased by $113bn in 2009 and by $282bn in 2010, when FDI flows were $26bn and $48.5bn, respectively. But in the three years since then, direct investors sent $189bn to Brazil, only to see the value of the FDI stock increase by just $43bn. Ouch. The discrepancy between flows and stocks is explained by variations in exchange rates and asset prices. Assets may (or not) be bought in Brazilian reals but their value on the central bank’s accounts is expressed in US dollars. So variations in the exchange rate can have a big impact. In addition, assets are marked to market by the central bank, so the dollar amount of money sent to the country can change dramatically once it is spent as asset prices rise or fall. Over the past three years, the exchange rate and asset prices have given foreign direct investors a hammering. True, many are in for the long term and will be more interested in the cash flows their investments generate in future than in whether the dollar value of their investments has changed. But others will be private equity investors looking for an exit. And nobody likes to think they have overpaid. And what of portfolio investors? On the fixed income side, the picture is relatively positive. Flows from January 2002 to November 2013 were worth $106bn. Over the same period, the value of the stock held by foreigners increased by $230bn. In the boom years of 2009-2010, flows were worth $39bn while the value of the stock increased by $89bn; since then, flows have been worth $47bn while the stock has increased in value by nearly $62bn (though there has been a downturn of late: in Jan-Nov last year, flows were $25bn while the rise in value of assets held was just $7bn). For equity investors, however, the past few years have been traumatic. For the full period under examination, flows of $138bn accompanied a rise in the value of equities held of $275bn. For the 2009-10 boom, the figures are $75bn and a mighty $292bn, respectively. But immediately before and since, the numbers are frightful. In 2008, outflows of $7.5bn accompanied a fall in value of nearly $215bn. Since the boom, inflows of $23.5bn have accompanied a fall in value of nearly $130bn. David Lubin, head of emerging markets economics at Citi, says that in some respects, Brazil presents a puzzle. “A casual analysis of what constitutes vulnerability is a large current account deficit funded by speculative inflows in a country with low interest rates and no forex reserves,” he says. Brazil does have a current account deficit, but it is largely funded by FDI, interest rates are high and rising, and it has about $360bn in foreign exchange reserves. “The problem facing investors,” Lubin says, “is that it’s difficult to come up with confidence about Brazil’s growth model.” Lubin and other critics say the fault lies with Brazil’s state capitalism. This can be seen, for example, in the changing roles of private sector and public sector banks. In the boom years before the crisis, private banks accounted for about two thirds of credit in Brazil and public-sector banks, about one third. But as private banks became nervous about the extent of consumer borrowing and reined in lending, the government ordered public banks to step in.



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They now account for more than half of all credit – much of it in subsidised loans provided by the BNDES, the government development bank with a habit of trying to pick corporate winners. Other examples are rule changes for the oil industry, in which Petrobras, the government-controlled oil major, will have a stake in every consortium exploring Brazil’s big new-found oil and gas reserves. Even when government interference is perceived as having beneficial results – such as in a change of command at Vale, the privatised mining giant – it is resented by the private sector as interference. Brazil is far from the only emerging market where the state has an expanded role. Lubin points to Turkey and South Africa. But he says Brazil is further hampered by its currency, still overvalued even after falling 30 per cent against the dollar in the past three years.

John-Paul Smith, emerging market equities strategist at Deutsche Bank, says Brazilian assets risk falling prey to the “it’s so bad, it’s good” trade. “A key thing in Brazil is to monitor what’s happening at the level of corporate governance, in the relation of the corporate sector to the state.” The danger, he says, is that any improvement could be a trigger for investors to pile in – risking further value destruction. ↑Return to Index

Pemex sees production ventures commencing as early as end of 2014 Petroleos Mexicanos, Mexico’s state-owned oil company, expects to sign its first exploration and production agreements with international companies as early as year-end after Mexico ended its 75-year monopoly. Pemex, as the state oil company is known, will initially focus on mature and deep-water fields to establish the ventures, Chief Executive Officer Emilio Lozoya said on January 25.

Possible associations in the refining, transportation and petrochemical businesses can be done once congress approves the so-called secondary legislation, which is expected in April, he said. “We expect that in exploration and production, by the end of 2014 or beginning of 2015 we achieve the first investments or associations,” Lozoya said today in an interview in Davos during the World Economic Forum. “The quickest way to monetize the investments that

Pemex already did in exploration is through joint ventures. This means increasing output and oil income.” President Enrique Pena Nieto ended the seven-decade-plus production monopoly held by Pemex, allowing foreign companies to produce crude in the largest supplier to the U.S. after Canada and Saudi Arabia. The overhaul may bring an additional $20 billion in foreign direct investment as soon as 2015, according to Bank of America Corp. Pemex expects to start new wells in the next few months, helping the company boost its oil output to 2.6 million barrels a day, Lozoya also said today. Output is presently 2.503 million barrels a day, according to preliminary data from the company. ↑Return to Index



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Golf turns its attention to Latin America

(Editor’s Note: The following article was written by Kavitha A. Davidson and was published in Bloomberg.com on January 22, 2014)

Globalization is a focus not just for the business elite gathered this week in Davos but also for professional golf. The Masters Tournament, the U.S. Golf Association and the R&A have teamed up to bring a golf tournament to Argentina as part of "an initiative for the development of the game in Latin America." The Latin America Amateur Championship will be January 15-18,

2015, at Pilar Golf Club in Buenos Aires, giving 120 of the region's top amateurs a chance to earn a spot in the Masters. Recent years have seen golf's growth mirror economic development in emerging markets. Leader boards at major tournaments are speckled with players from Europe, Asia and Australia (with some alarmist articles spouting concern at the foreign threat to American dominance in the sport). In 2009, the Masters and the R&A established the Asia-Pacific Amateur Championship, whose winner also has the chance to play at Augusta. The culmination of the sport's globalization will occur in 2016, when golf will be included in the Summer Olympics in Rio de Janeiro.

Expansion to Latin America also demonstrates a cultural shift in golf, a sport traditionally associated with wealth and nobility and whose cost, space and equipment requirements are generally too great for poorer populations. The late Hugo Chavez criticized golf as "a bourgeois sport," as his loyalists tried to close golf courses in Venezuela. The emergence of players such as Argentina's Angel Cabrera and Colombia's Camilo Villegas on the PGA Tour has gone a long way to reshape golf's image. Of course, there are still challenges to growing a sport in a part of the world defined by poverty and corruption. Look no further than the mess leading up to this year's World Cup, as Brazil struggles to meet budgets and construction deadlines for a sport that already has an enormous following in the region. But with many beautiful golf courses in place and the backing of the sport's major governing bodies, Latin America looks to be the new frontier in golf's push to go global. ↑Return to Index

Ecuador takes the chocolate crown from Brazil

Ecuador, where the fatty beans used to make chocolate have been grown since pre-Columbian times, is surpassing Brazil as Latin America’s top cocoa producer after boosting planting and offering education programs for farmers. Cocoa-bean output rose 13 percent last year to 220,000 metric tons and the South American country is poised to become the world’s fourth-biggest producer by 2015, said Ivan Ontaneda, president of Ecuador’s National Cocoa Exporters Association, known as Anecacao.

Ecuador, an OPEC nation better known for heavy crude oil and bananas, is taking advantage of rising global demand for chocolate to boost output and diversify exports as economic growth slows and its trade deficit widened to the worst level in three years. Output will continue to climb as trees planted in 2009 and 2010 begin to bear fruit and farmers helped by government programs improve harvests, Ontaneda said. “In terms of total production, we outstripped Brazil in 2013,” Ontaneda, who’s also chief executive officer of cocoa exporter Eco-Kakao SA, said in an interview at his office in Guayaquil. “In 2015, we estimate we’ll produce more than 250,000 metric tons and we’ll become the number-four producer of cocoa in the world.”

In Ecuador, where chocolate makers like Nestle SA, the world’s biggest food company, operate, the establishment of new farms with higher yields are boosting cocoa output, according to a December report by the London-based International Cocoa Organization. “Ideal weather conditions” should help increase the 2014 harvest, the organization said in the report.


http://www.anecacao.com/es/


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Gold Medal Ecuador, the world’s top grower of flavoured beans used in fine chocolate, is benefiting from increasing demand in Asia, Europe and Latin America for specialty sweets made with the country’s higher-quality beans, said Santiago Peralta, the 42-year-old founder of Quito-based Pacari Chocolates, winner of the gold medal for dark chocolate at the 2013 International Chocolate Awards in London in October. “In terms of chocolate, the world now respects Ecuador a lot,” Peralta said in a January 14 telephone interview from South Korea where he was traveling to promote his products. “Sadly, fine cocoa production is limited, so prices for Ecuador’s cocoa are going to increase.” ↑Return to Index

Brazil develops a taste for premium beer

While total lager sales across Brazil rose 92 per cent from 2007 to US$44.37bn in 2012, premium lager sales jumped 131 per cent over the same period. Imported premium lager sales surged 184 per cent.

For investors, the niche market offers one of the few remaining bright spots in Brazil, where slowing economic growth and rising indebtedness have cast a shadow over mainstream beer sales and many other previously buoyant consumer industries. Lauren Torres, a beverage analyst at HSBC, estimates that premium beer still only accounts for 5 to 6 per cent of the market, compared with around 15 per cent in countries such as the US, leaving vast room for growth in Brazil – the world’s third-largest beer consumer and producer.

After acquiring Brazil’s second-largest beer group, Schincariol, for R$6.3bn in 2011, Japan’s Kirin is expected to start brewing its Kirin Ichiban beer in the country early this year. Smaller craft producers such as Scotland’s BrewDog are also planning to try their luck in Brazil. The Aberdeen-based producer and pub operator is planning to open its first bar in São Paulo this month, selling local beers from the Brazilian craft brewery Way Beer alongside its own. Ambev, the Latin American arm of Anheuser-Busch InBev and the region’s biggest brewer by sales with around 70 per cent of the Brazilian beer market, has also pursued the premium sector. It has boosted the marketing of its more expensive beers such as Bohemia and launched an even more upmarket version – Bohemia Royale. “We saw the same trend in the US and Europe years ago but the Brazilians and Latin Americans in general were always very brand-loyal,” says HSBC’s Ms Torres. “However, over the last five years Brazil has really started opening up,” she says, pointing to similar moves in Chile, where foreign brands such as Corona have found success. Almost 40m people have risen from poverty into the lower middle classes over the past decade in Brazil, creating a large market for aspirational brands as Brazilians look for ways to show off their new status. Pernod Ricard’s Chivas whisky, for example, recently ranked Brazil’s north-eastern city of Recife as the top market in the world in terms of per capita whisky consumption. However, the growth of Brazil’s premium beer industry comes just as the wider market braces itself for a slowdown. According to data this month from the Brazilian beer industry association Cervbrasil, beer production fell 2 per cent last year – the first decline in at least three years. Ambev has said that it expects consumption to have also dropped last year for the first time in a decade. “There was a reduction in consumers’ disposable income as people had to spend more paying back debt,” says Paulo Petroni, head of Cervbrasil, adding that the 2 per cent decline was equivalent to one fewer can of beer per person per month. However, the World Cup and the late timing of Brazil’s Carnival this year should help boost sales through to July, even as the weather begins to get colder. ↑Return to Index



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For the diary In 2014, the ALABC celebrates the 25

th anniversary of its founding, a significant milestone that the Council plans to mark through

with an increased number of events and a Gala Dinner in Sydney in September. We invite you to join with us in making our 25

th year the best ever, by supporting our events and sponsoring one or more of them,

as a way of highlighting your engagement and commitment to the Latin American region. If you would like to know more about how your company can take advantage of the events that the ALABC will be hosting in 2014, please contact our Marketing and Events Manager, Rosie Atherfold, at [email protected] or Tel: 02 9357 4441 Date: February 24, 2014 [To be confirmed] Event: Briefing by Mexico's Finance Minister Luis Videgaray Venue: Sydney

Organiser: ALABC & Embassy of Mexico

Contact: Rosie Atherfold, [email protected] or Tel: 02 9357 4441 Date: March 3, 2014 Event: Investor Roadshow to Australia by Peru’s Proinversión Venue: Sydney

Organiser: Austrade/Proinversión/ALABC

Contact: Daniel Havas, [email protected] OR Rosie Atherfold, [email protected] or Tel: 02 9357 4441 Date: March 5, 2014 Event: Investor Roadshow to Australia by Peru’s Proinversión Venue: Melbourne

Organiser: Austrade/Proinversión/ALABC

Contact: Daniel Havas, [email protected] OR Rosie Atherfold, [email protected] or Tel: 02 9357 4441 Date: March 18, 2014 Event: ALABC Perth Annual Dinner - Guest of Honour, BHP Billiton’s Daniel Malchuk Venue: Hyatt Regency Hotel, Adelaide Terrace, Perth Organiser: ALABC

Contact: Rosie Atherfold, [email protected] or Tel: 02 9357 4441 Date: April 21-25, 2014 Event: Expomin Mining Exhibition Venue: Santiago, Chile Organiser: Australian Involvement coordination by Austrade/ALABC/Others

Contact: Daniel Sullivan, [email protected] OR Rosie Atherfold, [email protected] or Tel: 02 9357 4441 Date: May 28-29, 2014 Event: Latin America Down Under Venue: Sheraton on the Park Hotel, Sydney Organiser: Paydirt Media

Contact: Lauren Carey, [email protected] or Tel: 08 9321 0355

Date: June, 2014 Event: ALABC Melbourne Annual Dinner Venue: The Australian Club, Melbourne Organiser: ALABC

Contact: Rosie Atherfold, [email protected] or Tel: 02 9357 4441 Please visit our website www.alabc.com.au for regular updates. ↑Return to Index














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