Tuesday, January 26, 2010

Hydrocarbon investments in Peru to total US$ 2 billion in 2010

Investments in the hydrocarbon sector projects in Peru would amount to 2 billion dollars taking into account the implementation of various ongoing projects and those in the planning stage, reported Peru's National Mining, Petroleum & Energy Society (SNMPE).

According to the president of the SNMPE Hydrocarbon Committee Guillermo Ferreyros, the biggest investment in the hydrocarbon sector this year is the execution of a liquefied natural gas project of Peru LNG in the country.Export operations are scheduled to commence in the second quarter of 2010. In 2009, Peru's hydrocarbon sector received $1.6 billion and if the works are carried out according to schedule, the accumulated investment in 2010 would be higher.

The Peru LNG project is set to be one of the most important resources of the Peruvian government's future energy strategy. The project, which was launched in January 2007, will also be one of the largest industrial projects ever to be undertaken in Peru.

The international project consortium for the project consists of Hunt Oil Company of the United States, SK Corporation of Korea and Repsol YPF of Spain. The operator for the Peru LNG gas export project will be Hunt Oil Company as the subsidiary Hunt Oil Peru.

The hydrocarbon project offers opportunities for supply of inputs for the project.

Reliance from India has entered Peru for exploration of oil and gas.

Saturday, January 16, 2010

Falabella expands with 1.74 billion dollar investment

Chile's Falabella Department store chain announced on 14 January that it would invest $1.74 bn 2010 to 2012 to expand its operations. Falabella is one of South America's top retailer. It has 65 department stores, 95 Home Depts and 33 supermarkets located in Chile, Argentina, Colombia and Peru. It has eight stores in Buenos Aires itself.

It plans to invest around $492 million this year, $620 million in 2011 and $632 million in 2012. Falabella invested $280 million in 2009. The company has expanded its businesses in the region over the years.

Falabella sells clothes, hometextiles, electronics, furniture, healthcare products and other such consumer goods. India is an important source of their purchases. Indian companies can expect more business from Falabella in the coming years.

Monday, January 11, 2010

Devaluation of Venezuelan currency Bolivar – 8 January 2010

This was announced by the President of Venezuela on 8 January. Besdies devaluation, the President also introduced a two tier exchange rate system. The bolivar will now have two government-set rates: 2.6 to the dollar for transactions deemed priorities by the government, and 4.3 to the dollar for other transactions.

The priority exchange rate of 2.6 Bolivar for a dollar will apply to imports of priority items such as food, machinery and equipment for economic development, health care items and books and supplies for schools, family and pensioner remittances as well as public sector imports. For all other imports and non essential items the exchange rate of 4.3 will apply.

Before this devaluation, the official exchange rate had been held by the government at 2.15 bolivars to the dollar after the last devaluation in March 2005. President Chavez imposed exchange controls in 2003 after the coup attempt against him. At that time the exchange rate was 1600 Bolivars to a dollar. In February 2004 the rate was changed to 1920 Bs for a dollar and later in 2005 it was further devalued to 2150 Bs to a dollar. In January 2008, the government changed the currency to a a strong Bolivar ( Bolivar Fuerte) and fixed the new rate at 2.15 to a dollar, eliminating three zeros from the old currency.

The black market rate in January 2010 is 6.25 Bs to a dollar. Because of the foreign exchange restrictions and complicated procedures to get foreign exchange, there has been a thriving black market in foreign exchange transactions since 2003.

According to observers, the new exchange regime is a reminder of a similar situation in 1983, when President Luis Herrera Campins devalued the bolivar and established a multi-tiered exchange system, known as Recadi, after oil prices plunged. Inflation soared to 40 percent in 1987 from 7 percent in 1983 as capital flight led Herrera Campins’s successor, Jaime Lusinchi, to devalue the currency further. By the time Carlos Andres Perez replaced Lusinchi in early 1989, the system had collapsed. The country was running out of foreign reserves and food shortages were mounting. Perez eliminated the multi-tiered system, unifying the currency at the free-market rate, and lifted price controls. Consumer prices soared 21 percent in one month alone, leading to the “Caracazo” riots that killed hundreds and spurred a military coup attempt.

Venezuela has the highest inflation in Latin America and one of the the highest in the world. The inflation was 29.5 % in 2009 and is expected to worsen and reach 30% in 2010. It may be noted that the average inflation of Latin America was 6.1% in 2009 and is projected to decline to 5.2% in 2010

The government of President Chavez sets retail prices on hundreds of products and threatens strong action against violations. The President announced this week that the military would monitor prices of essential items in shops.

There is an energy and water crisis in the country. President Chavez has advised the Venezuelans to shorten the shower time and not sing in the bathroom. The crime rate has reached unprecedented proportions.

Poor Venezuela... so rich in oil, minerals and natural resources...and yet so poor...

Thursday, January 07, 2010

Scores of 2009 and Promises of 2010 for Business in Latin America

2009 Scores
Messi won the best football player award of the year
Del Potro won US Open tennis
Luciana Aymar was selected as world´s best woman hockey player for the fifth time this year
Loreena Ochoa retained number one ranking in women´s golf
Cambiasso, the world´s best polo player won the Polo Open
Cabrera won the Masters Golf
And… Brazil won the Olympics venue, beating the heavyweights. ¨Sim Podemos¨ overtook ¨Yes we Can ¨.

The Latin American market could not score that well in 2009, since it got hit by the global crisis. GDP of the region fell by 1.8% in 2009, after having had an annual average growth of 4.8% in the previous six years. In 2009, ten countries managed to grow between 0.2% and 3.5%( Bolivia) while ten countries suffered GDP contraction ranging from -0.4% to -6.7%( Mexico). Exports and imports decreased by about thiry percent.

The good news is that the region did not go under due to the external shock as badly as it would have done in the past. Here is what Pamela Cox, vice president of the World Bank Vice President Latin America & The Caribbean wrote on 28 December 2009 under the title ¨Latin America enters new decade with more clout ¨,
“What a difference a decade can make. Ten years ago, Latin America and the Caribbean received the new century in the midst of tremendous uncertainty. …Today, the picture looks very different. News of default jolts other regions - not Latin America. Thanks to sound fundamentals, such as improved financial regulation and supervision, budget surpluses, and high international reserves, the region has weathered the current crisis without massive currency devaluations, bank collapses, debt defaults, inflationary spikes or capital flights. In other words, the region has learned from its past and is on track toward a better future¨

The OECD Latin American Economic Outlook 2010 says,
“ Latin America has not escaped the global economic crisis, but it has stood up to it with a new resilience. However, it is already apparent that Latin America is rebounding from the shock more rapidly than the majority of developed economies. Most importantly, it is doing so without compromising its significant progress towards its long-term development goals.”

Growth in domestic demand helped many countries to tide over the global crisis. For example, auto sales in Brazil increased to an impressive record of 3.01 million units in 2009 from 2.66 million in 2008. The sales are expected to increase by 10% in 2010. What is more… General Motors Volkswagen and Ford plan to invest a combined 14.2 billion reais ($8.3 billion) in the coming years to increase production capacity. More .. in my article ¨ "Brazil: Short skirts and Big B arouse Global Interest" published in Miami- based Latin Business Chronicle - 17 December.

Average inflation of the region is estimated to have declined to 4.5% in 2009 from 8.3% in 2008. The currencies and exchange rates remained stable. Some currencies such as Brazilian Real strengthened while Mexican peso maintained its rate and Argentine peso depreciated.
External debt was within manageable limits. The Brazilians rewrote the history of Latin America by becoming Creditors from Debtors. They lent US$ 10 billion to IMF in 2009 !

The region continued its consolidation and strengthening of democracies with regular elections and peaceful transfer of power with the exception of Honduras. In the 2009 elections held in Ecuador, Bolivia Uruguay, and El Salvador Leftist presidents were reelected / elected. In Panamá a centre right candidate became the President and in Chile´s first round a centre right candidate got more votes.
In 2010 Brazil, Costa Rica, Chile (second round) and Colombia will go for elections.
It does not matter whether the presidents are left or right. The general trend and consensus in the region is towards pragmatism with agenda for the poor and pro business policies. There are of course a few exceptions…
2010 is the year of bicentennary of independence from Spain for Venezuela (16 April), Argentina (25 May),Colombia (20 July),Chile (18 September) and Mexico (16 September)

The coup in Honduras in June 2009 was an unpleasant reminder of the past. President Zelaya was put in a plane at gun point and sent out of the country. But the Golpistas did not go all the way to install a classical dictatorship by military or by a Caudillo. They held elections in which a new President has been elected.

India´s score in Latin America in 2009
India´s exports to the region went down by about 30 percent in 2009 in comparison to 2008. This was expected, after the global crisis and local import restrictions by the governments which wanted to protect domestic industries and minimise outflow of foreign exchange.
Chemicals, engineering products and textiles were the major exports from India. Crude oil, edible oil and minerals were the main imports.
The India- Mercosur PTA, became effective from June 2009. This should give a boost to our trade with the four Mercosur countries.

Indian IT companies expanded operations in Latin America including in Brazil, Mexico, Argentina and Chile
These companies which set up operations in the region initially to service their North American and European clients, have now started focussing on local cients and have been getting local contracts

Renuka sugar mill made an investment of 240 million in the acquisition of two sugar factories and sugar cane estates in Brazil. This is the first agribusiness investment by an Indian company in the region.

Panama liberalised its business visa system for Indians. Indian business visitors holding US or Schengen visas do not need visa to visit Panama under a Presidential decree issued in July 2009. The decree is for all foreigners including Indians. The visitors can stay for 30 days during each visit. Earlier Panama embassy in Delhi had to send every visa application to their immigration authorities which would take months for clearance. Ecuador, Costa Rica and Honduras are the other countries which have waived visa requirement for Indian business visitors.

During the visit of Argentine President to India in October 2009, we signed a visa agreement under which Argentina has agreed to give five year multientry visas free of cost with validity of 90 days during each visit.
Visa is no longer an obstacle for Indian business visitors to Latin America……

Promises of 2010
Latin America will grow by 4.3 % in 2010, according to ECLAC estimate in their report of 10 December. The growth of Latin America in 2010 is higher than the growth projected for developing countries ( 4%) except China and India.
Brazil will be the 2010 champion of the region with the highest growth of 6%. Ooops... I do not recall Brazil topping the growth chart of the region in recent times. Uruguay and Peru will be runners-up with 5% each. Mexico will grow by 3.5%. Argentina, the third largest market will grow by 4%.It is no surprise that the least growth in 2010 in the region will be in Honduras, which is in a political crisis.While South America is expected to grow by 4.7% in 2010, the Caribbean and Central America are projected to grow by around 2%.

Opportunities for Indian companies
Petrobras, the state oil company of Brazil is investing 174 billion dollars in the period 2009-13 in exploration and production of the recently discovered offshore oil fields. This is the world’s largest corporate investment plan at this moment.
The ongoing Panama Canal expansion project is over 5 billion dollars.
Venezuela , Argentina, Mexico, Colombia, Ecuador and Bolivia also have investment plans in their oil and gas sectors.
Projects related to Olympics and World Cup in Brazil
The manufacturing sector in the big and medium countries of the region are modernising to survive in this time of globalisation and against the competition from Chinese goods.This opens up opportunities for supply of equipments, machinery and spare parts.
Agricultural production in South America is steadily increasing thanks to the growing world demand and high prices. This means more scope for exports of inputs for agribusiness such as agrochemicals.
The new area opening up for Indian exports is Defence equipments and items. India has sold helicopters to Ecuador air force. Other countries have shown interest.
India will be importing more edible oil, crude oil and minerals from the region in 2010 and in the coming years.
Indian companies should consider buying/ leasing farmland in south america to grow oilseeds, grains, sugarcane and pulses, which are needed in India. Thousands of hectares of productive land are available in the private sector at prices less than in Punjab. There is no local government restriction.
Indian companies can also consider investment in commercial forestry in order to have direct access to wood and paper pulp whose imports are also growing in India
Mining sector is another area for Indian entry.
Investment in petroleum sector can be increased
Operations of Indian IT companies can be expanded
Entertainment Industry
Indian films were shot in Rio and Machu Pichu. There are other attractive shooting locations in the region. Latin Americans are keen to collaborate with Indians for coproduction of films and exchanges of soap operas and TV productions.