By Alfredo Capote, Managing Director, The Abraaj Group
Having just attended the World Economic Forum in Buenos Aires, Argentina, and based on our own experience of investing in Latin America for over a decade, I was encouraged to see that a common theme resonated at the Forum from investors, governments and stakeholders. Simply put, it is this: Latin America is open for business and represents a compelling investment opportunity, buoyed by regional integration, a rising consumer class, and a continued focus on trade and industrialization. These were some of the highlights from a stimulating few days in Buenos Aires.
Riding the Tide of Integration
While historically, regional integration strategies were not pursued by countries like Brazil and Argentina, that trend is now changing. Having witnessed the success of Chile and Mexico in successfully implementing and benefiting economically from free trade agreements, we will see a new push to forge deeper alliances between Latin American countries. In my view, this would result in the creation of inter-country supply chains, and the resurgence of ‘Multi-Latina’ companies as they seek to compete on a regional and global platform.
Our own experience of investing in ‘Multi-Latina’ companies has been rewarding and enabled us to support our partner companies in their growth ambitions – be that Peruvian gastronomy through Acurio Restaurantes which is now present in Latin America, North America and Europe, or Iasacorp, a women’s accessories business that we helped regionalize during our investment period. More recently, we partnered with CasaIdeas, a retailer of fashionable home decoration items based in Chile that is set to embark on a regional expansion journey from Chile and Bolivia to Mexico and beyond. In short, the transformational benefits of regional integration are now being seen and felt beyond the Pacific Alliance countries, which represents an important step forward for the region as a whole.
A Renewed Push for Industrialization
Argentina, the host country for the 2017 World Economic Forum, has demonstrated resilience in the face of a challenging macro environment. This resilience is marked by an increased focus on industrialization, digital connectivity and investment in human capital. We see greater co-operation between the public and private sector to harmonize policies that aid development, create an enabling framework for investment, and bring about important changes in infrastructure development.
The World Economic Forum delegates were vocal on the need for “a new form of capitalism”, one that delivered economic returns and ensured social impact. By marshalling resources and creating greater efficiencies across key sectors, a vibrant and dynamic growth story can be achieved. Take the example of the Buenos Aires port: by creating an auction for a new concession, it is envisaged that the successful bidder could expand capacity by more than 30% and create a truly meaningful channel for trade and connectivity.
Livable Cities: The Rise of Clean Energy
With urbanization and consumption on the rise, the question that policy makers and city administrators grapple with is both relevant and important: how do we make cities more attractive? One resounding answer came through at the Forum: reduce carbon emissions across the value chain.
As a start, Mexico, Colombia, Peru, Chile and Argentina have determined that a significant portion of their power output will come from clean energy, namely solar, wind, biomass and hydro. The base load of electricity will be obtained from these sources, supported by gas fired plants during peak demand.
Another game changer we heard about was an initiative to adopt hybrid or electric cars across a number of cities. Annual sales for electric vehicles (EV) is expected to reach upto 230,000 units in the next 6 years as per research from IDB. More importantly, public transportation systems will be a faster adopter of clean energy – and in Mexico City, a majority of the buses provided by the city are hybrid vehicles. With companies like Tesla leading the charge on innovation and clean energy, a more vocal commitment such as the one we heard at WEF bodes well for a greener, cleaner future.
Alfredo Capote is a Managing Director in the Abraaj Mexico office, and a member of the Latin America Investment Committee. He is a Young Global Leader at the World Economic Forum.