Long tipped to be the next big thing, Latin America has been on the investor radar for years. Now, with the price of commodities at an all-time high, this group of resources-rich countries seems finally to be delivering on its rich promise. The path is not free from hurdles, however, as events such as the recent wave of protests against mining and construction projects threaten to deter investors from coming to the region.
The situation is especially prominent in Peru, where in November 2011 works on Newmont Mining’s Minas Conga – a $4.8bn venture in gold and copper – were brought to a standstill by demonstrations by residents in the Cajamarca region.
Two months earlier, in neighbouring Bolivia, 1000 protesters rallied against the Territorio Indígena y Parque Nacional Isiboro Secure (Tipnis) road project, forcing interior and defence ministers, among other senior officials, to resign, and president Evo Morales to suspend construction work.
“Protests can be seen as a typical feature of doing politics here,” says Carlos Rojas, CEO of Lima-based Andino Capital Management. “Since political parties are not very active, [except at] election time, taking to the streets is often considered the only way to raise pressing local issues,” he adds, estimating that there are currently about 250 such “ignition points” across Peru.
While investors active in Latin America largely accept that many of these protests are genuine attempts to voice concerns about environmental issues or the sustainability of these projects, fears are being increasingly voiced that local politicians are organising these rallies to gain popularity and publicity.
“Populism can take a political career far over here. Local leaders or wannabes know that speaking against mining projects or privatisation brings applause from the local residents,“ says Victor Hugo Rodriguez, director of the Latin American chapter at the Hedge Fund Association.
Yet some experts praise the way that Peruvian president Ollanta Humala is dealing with the turmoil surrounding the Minas Conga project. “Special advisers dealing with conflict have been appointed, the cabinet has been reshuffled and financing for the local governments – suspected of using resources to fund protests – has been slashed,” says Mr Rojas.
Mr Humala, who went as far as to declare a state of emergency in the aftermath of the unrest in Cajamarca, also encouraged additional environmental and sustainability studies to investigate some of the concerns raised by protesters. “The bottom line is this: is this government showing its pro-business stance or not? So far it is, so despite meddling at the local level, investors have reasons to expect that they can go ahead with their projects eventually,” says Mr Rodriguez.
Yet concerns about the government’s pro-business approach still remain strong in Bolivia. Ever since Evo Morales, a trade unionist and indigenous movement leader, came to power in 2006, investors have been cautious about doing business in the country. Mr Rodriguez says that investors coming to Bolivia can expect to face difficulties.
However, Mr Rodriguez adds that Bolivia should not be written off just yet. “Profit margins are what really matters. And they tend to be much higher in places where investors [are not abundant], simply because investors can try to establish their operations ahead of others. And Evo Morales will not rule in the country for ever.”