Chinese Executives Attend IOA’s Two-Week Program on Doing Business in Latin America

Chinese Executives Attend IOA’s Two-Week Program on Doing Business in Latin America

LA JOLLA and MEXICO CITY – The Institute of the Americas held its first annual Chinese Professional Executive Workshop titled “East Meets West – An Introduction to Latin America” from May 5-16, 2014.

This two-week workshop was co-organized by the Institute of the Americas and the Institute of Latin American Studies at Chinese Academy of Social Sciences (ILAS -CASS), and sponsored by Development Bank of Latin America (CAF), Vera & Associates, HSBC and Chadbourne & Parke. ChinaGoAbroad from Beijing was the collaborator of the Institute of the Americas on this workshop.

The 2014 program focused on Mexico’s energy reform and secondary regulations, with speakers including Luis Vera, founding partner of Mexico City-based Vera & Associates; Rachel Bierzwinsky, counsel with Chadbourne & Park in New York; and Antonio Borja, attorney with Galicia Abogados in Mexico City, and Institute Energy Program Director Jeremy Martin, as well as economic experts from HSBC Mexico and Deloitte.

During the first week of the program at the Institute’s campus in La Jolla, Chinese executives heard presentations on key Latin American countries including Mexico, Cuba, Chile and Brazil.

Associate Vice Chancellor for Public Programs and Dean of Extension at the University of California San Diego (UCSD) Mary Walshok was the keynote speaker on the opening day of the program.

Ambassador Bruno Bath, Consul General of Brazil in Los Angeles, spoke about business opportunities in Brazil. Francisco Correa, Trade Commissioner in ProChile’s Los Angeles office, spoke about innovative approaches to doing business in Chile. And Richard Feinberg, Professor at UCSD’s Graduate School of International Relations and Pacific Studies, presented his research on Cuba’s emerging entrepreneur and middle class.

Antonio Maldonado, a San Diego-based attorney who specializes in U.S. –Mexico cross-border litigation, spoke about ways of avoiding legal disputes and conflict resolution in U.S.-Mexico-China business transactions.

A highlight of the program was a day-long field visit to Tijuana, Mexico, where the participants met with representatives of Deloitte, led by Tijuana China Services Group Director Gonzalo Gomez, and the Tijuana Economic Development Council to learn about the business opportunities of operating a maquiladora in the border city.

The delegation also visited Qualcomm Institute on the campus of UCSD, enjoyed wine tasting and dinner sponsored by HSBC at Orfila Winery, and took a ferry across San Diego’s bay for dinner in Coronado.

The second week of the workshop took place in Mexico City, where the participants met with representatives from HSBC Mexico, China Council for the Promotion of International Trade (CCPIT), ProMexico, Huawei, National Exterior Commerce Bank (Bancomext) and Galicia Abogados to further understand business practices and opportunities for Chinese investors.

Salvador Wang, a representative of Huawei’s Public Affairs Department, spoke with the Chinese executives about the giant technology company’s experiences in Mexico. The delegation also heard a presentation by Xiaochu Shi, Assistant Representative in CCPIT’s Mexico office.

At HSBC’s corporate offices in Mexico City, Chief Economist Sergio Martin, spoke about projections for Mexico’s economy. And Raluca Popa, head of HSBC’s China Desk, spoke about the internationalization of the RMB.

At Deloitte’s Learning Center on the city’s elegant Reforma Boulevard, Chinese executives heard detailed information about Mexico’s fiscal reforms and tax laws and met with Xiao Cheng of Deloitte’s China Services Group.

Miguel Siliceo Valdespino, Chief Financial Officer at Bancomext, spoke with Chinese executives about new financing agreements between China and Mexico to promote exports to China. And attorneys at Galacia Abogados, led by Counsel Juan Pablo Cervantes, spoke about a recently approved National Infrastructure Plan, the first such plan in Mexico’s history.

During the week in Mexico City, the Chinese executives made a field visit to a Grupo Bimbo plant, where they toured the plant and learned about Bimbo’s successful strategy to introduce its line of bread products to the Chinese market.

They also toured the majestic pyramids of Teotihuacan to deepen their appreciation of Mexico’s cultural heritage.

Energy in the Southern Cone and Uruguay’s Energy Hub Bid

Energy in the Southern Cone and Uruguay’s Energy Hub Bid

MONTEVIDEO — Even before extreme weather conditions in the Southern Cone burdened national electric grids and energy infrastructure, countries of the region were already struggling to meet their internal energy demand. In some cases, years of poor policy decisions and lack of investment in the sector — particularly in the oil and gas upstream — had left the energy industry in a tenuous position.

Moreover, the pioneering examples of energy integration in the Southern Cone, which had so capably advanced the region’s collective energy and economic outlook, are now more often than not but fading memories.

The stress on the energy sector and by extension national economies has also led to a renewed call for energy diversification and efforts to foster energy security across the region.  And policy makers’ language now includes an important caveat: “diversificación con soberanía (diversification with sovereignty).”

From Montevideo to Brasilia to Buenos Aires, energy policymakers have been forced to reconsider what comprises their national energy strategy, with some more assertive than others in devising the most rational path forward.

Those were the key messages set forth by a distinguished group of government officials, private sector representatives and multilateral development bank representatives at the Institute of the Americas Southern Cone Energy Roundtable held on March 18 in Montevideo.

 

Indeed, in Uruguay the need for clear and stable rules and long-term vision for energy progress, prompted officials to reach political consensus for a strategic energy policy – Política Energética Uruguay 2030 — that sought to reduce their dependency on imported energy, whether oil products, natural gas or electricity. Projects to further deployment of wind energy and incorporate natural gas via a liquefied natural gas (LNG) terminal just off the coast of Montevideo are well underway.

Meanwhile, in Brazil and Argentina policy makers have sought to offset spiking demand by way of imported natural gas and LNG. Argentina has also increased electric imports from Uruguay. Efforts in both countries to advance the role for non-hydro renewables such as wind and solar have received a great deal of attention but are yet to yield the results energy planners expected.

Great anticipation continues to encapsulate the hydrocarbons potential in Argentina and Brazil, with world-class natural gas deposits and immense offshore oil reserves.

Marco Fidelis, ANP; Alvaro Ríos, Gas Energy; Marta Jara, Gas Sayago; Jeremy Martin, Institute of the Americas; Gonzalo Casaravilla, UTE; Carlos Gothe, GNLS (GDF Suez Group)

Development of the reserves remains challenging, time consuming and extremely expensive. Indeed, in terms of exploiting Argentina’s unconventional natural gas resources in the Vaca Muerta formation, the cost of a shale gas well is roughly five times that of a similar well in the United States. Exploiting Argentina’s shale gas reserves requires greater efficiencies and improved infrastructure to truly harness the resource to the benefit of the nation’s energy outlook.

It is conceivable that with the steps already taken, Uruguay will develop into a small scale energy hub in the Southern Cone in the medium term, panelists agreed. This is particularly important as Brazil and Argentina continue to import natural gas from Bolivia, which itself struggles with the possibility of a natural gas deficit by the end of the decade.

Many argued that nations of the Southern Cone would do well to return to their long-ago innovative ways when it comes to energy integration, exchanging both natural gas and electricity. That remains clear regardless of the exact outlines of Uruguay’s role as a regional energy hub.

Take but one example, the AES Uruguaina project: with minor investment and the renewed supply of natural gas made possible by the Gas Sayago terminal in Uruguay, the long-dormant power plant could be restarted and able to offset some of the increasing energy demand in southern Brazil.

However, the Uruguaina project underscores the importance of reinvigorating regional integration. Despite the minimal new investment required, restarting the power station is not feasible without a tripartite agreement amongst Argentina, Brazil and Uruguay for use of pipeline infrastructure to land the gas at the plant.

Countries in the Southern Cone are at a critical juncture in terms of ensuring long-term energy security. Opportunities abound and policy makers would be unwise to allow the moment to pass.

NAFTA and the China Factor is Focus of IOA/USC Conference

NAFTA and the China Factor is Focus of IOA/USC Conference

LOS ANGELES – The University of Southern California (USC) and the Institute of the Americas held conference titled “NAFTA at Twenty: Trade, Transformation and the China Factor” on USC campus on March 5, 2014. The event attracted nearly 100 business executives and academic scholars, as well experts from multi-national organizations such as the United Nations.

China’s role in the North American Free Trade Agreement (NAFTA) was the focus of the first panel. Dr. Enrique Dussel, director of the Institute for China-Mexico Studies at the National Autonomous University of Mexico (UNAM), divided NAFTA’s 20 years into two parts: between 1994 and 2000 there was increasing integration in terms of trade within North America; yet after 2000, China began to compete with both Mexico and US in the regional market, which could be seen as an “interruption” of the integration process of NAFTA.

Dr. Ralph Watkins from Americas Trade Analysis stated that Mexico’s maquiladora sector lost 288,000 jobs due to the China factor, yet China is not mainly to blame for the job loss in US because the imports from China were not high-value-added goods. Dr. Watkins raised the question of ways in which Mexico could compete with China. He suggested that Mexico lower transport costs and shorten the time from manufacture to market. According to Dr. Watkins, Mexico is competitive with China in products that require just-in-time deliveries, frequent changes in design and protections in intellectual property rights.

 

Amy Liang from Deloitte in Mexico City shared her experience in helping a Taiwanese company set up a maquiladora in Tijuana, Mexico in 1999. She recalled the language and cultural barriers of bringing technicians from Taiwan. She said translators and local managers were hired at the maquiladora for better communication and management. She stated that nowadays Chinese companies are focusing on ethical business practices in their global expansion, including in Latin American countries.

The second panel featured American Quarterly’s winter issue on “NAFTA @ 20”. Christopher Sabatini, Editor of American Quarterly, and Ambassador Arturo Sarukhan, former ambassador of Mexico to the United States, promoted the idea of “North American goods” instead of products from the three individual countries. According to Ambassador Sarukhan, the challenge is to re-engage the private sectors from the three countries. He expressed optimism that the Mexican energy reform will open new doors for this process. He promoted the Trans-Pacific Partnership (TPP), saying that it will be the way to bring up the idea of “North American goods” without mentioning NAFTA once again in the political debates.

Jeremy Martin, Energy Program Director of Institute of the Americas, also spoke at this panel and stated that while Mexico’s energy reform will be the big game changer for North America, Mexico still needs to embrace the opportunity in an international context. Martin commented that US-Canada is the world’s largest energy integration, and when coupled with Mexico’s energy reform, a self-sufficient North American energy market will be a driving force with strong competitiveness that will bring geo-political changes to the region.

Three representatives from Tijuana, Mexico, talked about innovation, relocation and human capital. Israel Lopez, from Universidad Technologica de Tijuana, said foreign firms are coming to the city to recruit future engineers for their companies. Flavio Olivieri, of the Tijuana Economic Development Corporation, gave a presentation on innovation and said Asia’s shift towards innovation creates added competition with Mexico. Rafael Solorzano, former Director of Secretariat of Economic Development, named the city of Wuhan as the Chinese Sister City of Tijuana and said that the Chinese investors are increasingly interested in the infrastructure financing opportunities in Mexico.

Dr. Juan Carlos Moreno-Brid director of the Mexico office of the U.N. Economic Commission in Latin America and the Caribbean (ECLAC) gave closing remarks for the half-day conference. He commented on the North American regional integration, and brought up topics of fiscal and banking reform and industrial policy adjustment for both Mexico and NAFTA.

Natural Gas in the Caribbean: Matching Opportunity and Reality

Natural Gas in the Caribbean: Matching Opportunity and Reality

SANTO DOMINGO – For over 10 years, the Dominican Republic has counted natural gas as an important fuel source for its energy matrix. Yet despite developments that have catapulted gas-fired power generation to almost 1/3 of installed capacity, 40% of the nation’s electricity is still generated from fuel oil. Dependence on oil is a familiar story across the Caribbean. According to a study by AES, fuel oil comprises 85% of power generation in the region.

And while the current high price oil environment presents a financial driver to pursue natural gas as an alternate power generation source in the Caribbean, its introduction would also lower the environmental costs of fuel oil consumption.

The natural gas boom in the United States has further piqued the interest of policy-makers and project developers across the Caribbean, raising hopes that cheaper natural gas supplies from the US will open a new chapter for the Caribbean’s energy outlook and an alternate to the status quo.

These were the issues over one hundred policy makers and industry experts debated at the Institute of the Americas’ Forum on the Outlook for Natural Gas in the Caribbean on February 13 in Santo Domingo.

That interest in natural gas for the region exists is not surprising. However, several nations of the Caribbean face a troika of impediments, ranging from scale to supply to credit.

The size of most Caribbean nations and, more importantly, their power generation demand do not reach the threshold for traditional LNG imports. Moreover, their small market size has kept traditional LNG suppliers from focusing on the region. Despite the increased discussion of smaller scale LNG or compressed natural gas (CNG) supply options, none have completely materialized in a commercial manner.

 

Further, when it comes to the LNG business, one industry member was quick to highlight that “credit is king”. When the costs of the LNG business are taken into account and the requirements for strict take or pay terms in contracts are considered, most off takers (utilities, really) in the Caribbean are unable to post the requisite guarantees.

Forum participants agreed upon four focal points that must be further addressed and considered by regional policy makers, multilateral development bank officials and the private sector to overcome these hurdles in the near term: 1) A Caribbean Basin Index; 2) Guarantees and credit enhancement; 3) Supply and the role of Trinidad & Tobago; and, 4) Clarification on US restrictions for re-export of LNG.

Perhaps most challenging, but important, is the need for a price index for natural gas in the Caribbean. Today’s focus on Henry Hub prices does not properly reflect the realistic options for landing natural gas in the Caribbean. A more accurate index as conceived by a “Caribbean Basin Index” would more appropriately inform policy makers and sector participants and allow for more transparency vis-à-vis project development.

Devising a way to address the lack of access to credit or reasonably priced credit options is also key for realizing LNG opportunities in the Caribbean. Moreover, as part of the equation, understanding options to burdensome “take or pay” contract language and clauses is essential.

Indeed, credit enhancement support is perhaps the linchpin to landing LNG in the broader Caribbean basin. It is a role that multilateral development banks such as the IDB and CAF could fill.

The long history of LNG exports from Trinidad & Tobago should be used as a way to further deployment of natural gas in its Caribbean neighborhood. Dealing with the issues of scale must be addressed but there are huge upsides including geopolitical, distance and, most notably, cost. Liquefaction infrastructure in Trinidad & Tobago has the huge benefit of being largely depreciated and thus not as costly in terms of the LNG value chain for new LNG contracts.

The Caribbean coast of Colombia also offers a potential regional supply source and fit in terms of scale, size and cost for the nations of the Caribbean basin.

Finally, there is great optimism that the boom in US natural gas production and potential for LNG exports from the Gulf Coast will provide increased supply options for the Caribbean.
But many of these opportunities rely on the concept of a “hub and spoke” system for delivering natural gas supplies to the broader Caribbean basin. That is, a main, larger scale receipt terminal that distributes smaller cargoes of LNG to forward destinations.

This raises a potential problem for US supplies. If LNG were exported from the US to a “hub” that had a Free Trade Agreement (FTA), such as the Dominican Republic, it is currently unclear whether LNG could then be delivered to a “spoke” location that was not party to an FTA with the US. The issue merits further review and clarification by officials at the US Department of Energy.

The Caribbean’s long-time dependence on oil-derived products for the bulk of its energy needs has increasingly come with deleterious effects. Despite increased attention on diversification and deployment of renewable energy, as well as cut-rate oil imports through the Petrocaribe agreement, the volatility of oil prices continues to impact economies of most Caribbean nations.

The potential and opportunity provided by incorporating (or in the case of the Dominican Republic, increasing) the potentially cheaper and cleaner-burning natural gas supplies has raised hopes for a new chapter for the Caribbean’s energy outlook.

But, as the foregoing analysis underscores, there are several key elements of the equation that demand attention and will determine exactly what role natural gas will play for the energy future of the Caribbean.

U.S., Canada and Mexico: A New Vision of Competitive Clout

U.S., Canada and Mexico: A New Vision of Competitive Clout

Wanted: Government leadership for the North American economy

By Malin Burnham & Charles Shapiro 5 P.M. NOV. 9, 2013

The integration of the economies of the United States, Canada, and Mexico through NAFTA gives us a global competitive edge, but the NAFTA agreement is outdated. If we are going to increase our ability to compete against China and India, government needs to lead, follow, or get out of the way.

The North American Competitiveness and Innovation Conference met in San Diego Oct. 27-29 Three cabinet secretaries — Canadian Trade Minister Ed Fast, Mexican Economy Secretary Ildefonso Guajardo and U.S. Commerce Secretary Penny Pritzker — met in San Diego for the first time that anyone can remember.

The theme of NACIC was “three countries, two borders, one economy.” Experts discussed a vision for North America and the range of issues that can make North America more competitive internationally.

Businesses in the San Diego–Tijuana region get it. They understand the importance of open markets, open borders, and building strength from complementary assets.

Governments, however, are slow learners.

Secretary Pritzker’s Oct. 31 op-ed in the U-T San Diego is encouraging, but needs to go much further if we are to achieve what North America can be. We are delighted that the secretary is interested in making North America more competitive. But after noting the benefits of NAFTA, she shifted her focus to completion of the 12-nation Trans-Pacific Partnership (TPP) trade negotiations.

The Asia pivot makes sense, but we need to pay attention to our integrated economic foundation. We share the same economic interests as Canada and Mexico. Together they represent 60 percent of our foreign trade. We export twice as much to Mexico and three times as much to Canada as we do to China. Mexican manufactured exports contain 40 percent U.S. content, Canadian exports contain 25 percent U.S. content, but exports from China contain only 4 percent.

Mexico, with its relatively young population and growing economy, will generate the lion’s share of the North American growth. Total North American GDP will rise from $19 trillion today to more than $50 trillion by 2050, when Mexico is projected to be one of the world’s five largest economies. Canada provides the key to energy self-sufficiency.

NAFTA was completed in 1994 before the smartphone, before maturation of the IT and biotech industries, before e-commerce or fracking entered our vernacular. North American businesses have developed interconnected, just-in-time supply chains. We manufacture together. We must deepen North American integration if we are to maximize our gains from potential trade agreements with Asia and the European Union.

The “San Diego Agenda” is the road map.

  • Common regulations. Our supply chains run across all three countries. Border and regulatory delays add up to 10 percent to the final product cost. We must adopt common regulations in all three countries so that we’re not making three different versions of the same product.
  • Harmonized North American trade policy. All three countries are part of TPP and the Asia Pacific Economic Cooperation (APEC). Mexico and Canada already have agreements with the European Union. We must leverage our impact by negotiating as a North American bloc with the Asians and the Europeans.
  • Border security and efficiency. The border is a mess. Security concerns trump the movement of legitimate cargoes and travelers. Inspection needs to be moved away from the borders, and processes automated. Make the border a point of data collection with additional inspection only as necessary. It’s time to give the Department of State and the Department of Commerce a larger role in planning so that trade and foreign policy become part of the border equation.
  • Infrastructure. Government investment in roads, bridges, ports both at the borders and in the interior of our countries is key for competitiveness.
  • Human capital. We must improve our education systems in all three countries and we need to make it easier for the citizens of any of the countries to work in the other two.
  • Energy. North America should meet substantially all of its domestic energy needs within the next two decades, providing us a competitive advantage. We need to develop technologies for lower carbon energy and energy efficiency; improve the security and reliability of cross-border infrastructure and offshore safety standards; align regulatory standards for smart grids and renewable energy; reduce regional and local barriers and facilitate cross-border sales of energy; and align clean energy incentive programs.

This will not become a reality unless the United States takes the lead. U.S. leaders shy away from talking about North America, preferring the potential benefits of deals with Asia and Europe over the hard work and political challenges of making North America a single market.

We must recognize once and for all that Mexico and Canada are our partners and act on the San Diego Agenda. The first step is a new vision for North America competitiveness, an idea of what we want to become. Separately we are three very important countries. Together we are a powerhouse.

Lead, follow, or get out of the way.

Wanted: Government leadership for the North American economy

Burnham is co-chairman of Smart Border Coalition. Shapiro is president of the Institute of the Americas at UC San Diego.

© Copyright 2013 The San Diego Union-Tribune, LLC. An MLIM LLC Company. All rights reserved.

Let Small Businesses in Latin America Prosper

Let Small Businesses in Latin America Prosper

BY CHARLES SHAPIRO
This article was posted by the Miami Herald on October 27

At the business meetings around the recent Ibero-American Summit in Panama, almost every speaker — presidents and cabinet ministers, business leaders, and development bank presidents — spoke passionately about the need to help small and medium-sized enterprises in Latin America.

While macro-economic growth is the single most important factor for reducing poverty in a developing country, by itself it is insufficient. According to Costa Rican Minister of Economy Mayi Antillón, 99 percent of businesses in her country are small businesses. Leaving small businesses behind while large businesses thrive is a recipe for political instability.

Helping SMEs makes good economic and political sense. But no one explains how.

The World Bank’s Ease of Doing Business report provides a comprehensive work plan for facilitating SME growth. The first step is to make it possible for Latin American SMEs to get commercial loans from banks. Not subsidized loans. Not risky loans. But loans based on a business’s assets.

Compared to SMEs in Latin America and the Caribbean, U.S. businesses have it easy.

Article 9 of the U.S. Uniform Commercial Code enables businesses to use as collateral any kind of asset a bank will accept, such as inventory, warehouse receipts, equipment, intellectual property and accounts receivable.

Not so in Latin America and the Caribbean where banks will only accept real estate and vehicles as loan collateral. SMEs, like all businesses, need working capital, but 70 percent of SMEs in developing countries do not own the land under their stores, restaurants and repair shops and cannot obtain commercial loans.

Micro-loans are great for informal micro-businesses with few assets, but micro-loans are too small to help SMEs that want to compete in the formal economy.

When countries modernize their laws so that banks can extend loans secured with assets other than real estate, then small businesses will be able to get larger loans at lower rates of interest. This type of small business lending, called asset based lending, is currently impossible in most of Latin America.

The Organization of American States has a model law and model regulations that countries can modify to fit their own legal system. The Inter-American Development Bank (IDB), the World Bank’s International Finance Corporation (IFC), and U.S. Treasury’s Office of Technical Assistance can provide the expertise and funding to countries to help reform their laws and set up the supporting financial infrastructure.

Once laws are passed, electronic registries of pledged collateral must be established. Bankers, lawyers and judges have to learn how to use the new system. Credit bureaus must be established, and small business development centers need to mobilize to provide credit and business management advice.

On Sept. 18-19 in San José, Costa Rica, the Institute of the Americas and the IFC held their second annual conference on asset-based lending. Eighteen countries from Uruguay and Peru to Mexico and Haiti met with technical experts, bankers and political leaders to discuss how to build political consensus to support reforms, understand what other actions are necessary, and to learn from each other. A Spanish representative was there to see what Spain could learn from Latin America.

There are success stories. Honduras established a system of asset based lending in 2011, with the number of loans in 2013 running 30 percent ahead of 2012. Mexico has the gold standard of electronic asset registries and records 5,000 to 7,000 loans per month. Colombian President Santos signed a bill into law in mid-August of this year and the new system will be running by March 2014. El Salvador passed a bill that awaits President Flores’ signature. Costa Rica has a bill pending before its Legislative Assembly. Jamaica, Haiti, Trinidad, Guyana, Panama, Peru and Guatemala are drafting bills or reforming existing laws so the system will function better.

Asset-based lending is not dramatic or sexy or even expensive. It’s the equivalent of “small ball” baseball — the many small actions that add up to a winning game.

Latin American governments can help their own SMEs prosper by implementing the laws that will facilitate their access to credit. Helping small business borrow at lower rates of interest will allow them to compete, expand and hire more employees.

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