A current review of risks for international business in Latin America
On June 19, 2022, leftist former guerrilla fighter Gustavo Petro won the special run-off Presidential election in Colombia. Petro had faced off with rightwing construction billionaire, Rodolfo Hernández, 77, and won a majority with 50.5% of the votes tallied to become President.
Gustavo Francisco Petro Urrego, 62, was previously a Colombian senator, the founder of the Colombia Humana political party (2011) and the former mayor of Bogotá (2012 – 2015). He is an acknowledged former member of the now disbanded Marxist M-19 guerrilla insurgency group, joining when he was 17 years old. M-19 was involved in kidnapping, hostage taking, assassinations of government officials and allegedly tied to Colombia drug cartels. The M-19 guerrilla group ultimately became the M-19 Democratic Alliance, an official political party in Colombia. Petro later joined the Alternative Democratic Pole (PDA) and in 2006 became a senator from that party. He ran for president in 2010 but failed. Later elected Mayor of Bogotá, Petro faced a recall election in December 2013 for alleged corruption and he was briefly removed from his seat in March 2014 but reinstated a month later. After several runs for the Presidency, Petro finally succeeded earlier this month.
Petro’s rise to power has generated concern in the United States and elsewhere that he will take America’s most staunch ally in Latin America in a new direction towards socialist inspired economic reforms, and possibly more politically authoritarian control by the national government. Time will tell.
But while the election of Petro in Colombia has garnered much recent attention in the United States, this election is only the latest in a series of elections manifesting similar tendencies. Within the past year, Peru and Chile have also experienced election results similar to the recent election in Colombia. The elections of Pedro Castillo in Peru, in July 2021, Gabriel Boric in Chile in December 2021 and now Gustavo Petro last month in Colombia, represent a trend towards disaffection and distrust of capitalistic economic systems where most citizens continue to suffer a worsening quality of life while the wealthiest enjoy ever greater economic and political power.
Foreign investors might be tempted to shrug off this pendulum between supposed “left” and “right” leaders since the political discourse of the candidates often does not match their policies and tangible results from their administrations. The “Status Quo” often continues with no improvement in living standards for the many citizens living in misery thinking it is “business as usual” after the excitement of a new leader vanishes for Latin Americans. And while that would be a fair assessment, sometimes new leaders in Latin America may decide on a more radical approach to “fixing” the problems of the poor. Taking their lead from Cuba, Venezuela, and Nicaragua, among others. They may push for superficial modifications that will impact foreign investors very slightly, or they may insist on more stringent policies. The closer they edge towards radical changes, the greater risk for commercial, legal, financial, and trade impacts for foreign investors and businesses engaged in Latin America. These impacts could materialize in new significant impediments to trading with these nations, visa and travel restrictions, new robust laws increasing taxes, tariffs, excessive labor protection, increased pressure from labor unions and other government-imposed impediments to the regular transaction of international commercial business. In the most extreme cases, governments could bring legal action against unwelcomed foreign companies and even expropriation of properties.
What can international businesses expect because of this political shift in Chile, Peru, and Colombia? What will be the risks to investments and operations there?
It is too early to predict how far, wide and hard these new leaders will try to push their political agendas. Chile will hold a national referendum on a proposed new constitution on September 4, 2022, the results of which may provide more clarity in terms of where that nation is heading. Chile, Peru, and Colombia are all significant trading partners with the United States across a wide range of industries and natural resources. They represent America’s most stable trading partners for the past 30 years in South America.
To mitigate this risk, companies investing or operating in Latin America should keep a close eye on developments and work with business intelligence analysts who are intimately familiar with the region because they live and work there. The objective is to spot and analyze short, medium, and long-term trends well in advance to create time and space within which to mitigate the risk. Waiting until a law or government regulation takes effect will prove too little, too late and the harm will be unavoidable.
This is a time to be on heightened alert and vigilance towards America’s trading partners in South America. There is unlikely to be a monolithic or unitary radical change from all nations with new leaders, but prudence requires constant monitoring and analysis. Whether one supports or opposes this trend, it is real and the consequence to foreign investors is real. Actionable business intelligence will be more important than ever for those operating in Latin America.
Billy Marlin and Manny Supervielle are Founding Senior Partners and Chris Marquet is Senior Partner of Veritas Assurance Partners, a boutique international risk mitigation, business intelligence, litigation support and investigative firm, based in Miami, Florida. Together they have more than 100 years of investigative and independent fact-finding experience. For more information visit www.veritasap.com