Regional Pulse: 7 February 2023

Southern Pulse’s weekly review of need-to-know events curated for people who do business in Latin America.

We help our clients operate successfully throughout the region with enhanced due diligence services, risk assessments, threat monitoring, strategic advisory and executive support.

Get in touch here to learn how we can help you.

KEY DEVELOPMENTS

ARGENTINA

• New public tender for projects in renewable energy
• Fresh investment in lithium sector
• Real wages decline amid rampant inflation in 2022

BRAZIL

• Ministry of Agriculture concerned with bird flu in neighboring Bolivia
• The conservative Big Center caucus keeps control of Congress
• Germany and Brazil discuss Ukraine, trade, and energy

CHILE

• Economy shows signs of stagnation
• Chile’s Colbun and Japan’s Sumitomo to study the feasibility of green hydrogen
• Violent robberies and vehicle thefts are the fastest growing crimes

COLOMBIA

• IMF reduces growth forecast for 2023
• ELN threatens to halt oil production in Arauca
• Unemployment down 2.6% in 2022
• Fight against corruption stagnates

ECUADOR

• Mining exports grew 34% in 2022
• Energy minister under investigation for offshore links
• Colombian and Ecuadorian governments agree to reinforce cross-border security
• OAS investigating suspicious gold trading in 2019

MEXICO

• Government’s green energy project to begin in April
• Oil regulator allows state company to charge customers for fuel theft losses
• Political alliance emerges to swing the nonpartisan vote
• IMF latest growth forecast matches government’s

PERU

• Executive proposal for early elections rejected by Congress
• Pipeline sabotaged in the Amazon
• Las Bambas copper mine suspends operations due to protests
• Moody’s downgrades Peru’s rating forecast

KEY DEVELOPMENTS IN FULL

ARGENTINA

New public tender for projects in renewable energy

On 2 February 2023, the Management Company of the Wholesale Electricity Market (Cammesa) opened bidding for renewable energy production in 20 provinces. Companies can bid on projects in the categories of wind, solar, biomass, biogas, and small hydroelectric plants. The contracts will be granted for 15 years. In 2022, there were 491 projects countrywide, which generated 14.400 megawatts. Renewable energy (excluding large-scale hydroelectricity) accounts for 13% of Argentina’s energy production. The sector grew by 10% nationally last year.

Fresh investment in lithium sector

On 1 February 2023, the company Alcalis de la Patagonia (Alpat) announced that it will invest USD250 million to boost its production of sodium carbonate, a key input for lithium extraction. Alpat aims to expand its plant in the southern Rio Negro province, which is responsible for half of the Argentinian consumption of sodium carbonate. The rest is imported from China and the US. Alpat is part of Grupo Indalo holding, which has companies in various sectors including finance, media, casinos, construction, and oil. The media coverage of Grupo Indalo’s TV station C5N is friendly with the Peronist government.

Real wages decline amid rampant inflation in 2022

On 30 January 2023, the Ministry of Labor reported that real wages, adjusted for inflation, decreased 2.8% last year. Monthly inflation in 2022 was on average 5.8%, while workers’ wages increased only 5.4%. This figure corresponds only to formal workers, who make monthly contributions to social security. Informal workers, entrepreneurs, and self-employed workers are experiencing an even worse economy, as the national bureau of statistics (INDEC) reported the overall wage fell 4.5% short of the rampant inflation.

BRAZIL

Ministry of Agriculture concerned with bird flu in neighboring Bolivia

On 3 February 2023, newspaper Valor reported that Ministry of Agriculture officials were concerned with the wave of bird flu that has reached neighboring countries. So far, Brazil managed to avoid cases that have been reported in 67 countries worldwide, including Peru and Bolivia, which border Brazil. In fact, last week a case of the disease was reported by Bolivian authorities in the department of Santa Cruz de la Sierra, a worrying sign that the virus had moved inland by crossing the natural barrier of the Andean mountains. Santa Cruz de la Sierra borders Brazil’s agriculture belt. A spread of bird flu could affect Brazilian exports of poultry products, which hit a historic record of USD9.7 billion in 2022.

The conservative Big Center caucus keeps control of Congress

On 1 February 2023, lawmakers reelected representative Arthur Lira and Senator Rodrigo Pacheco as House Speaker and President of the Senate, respectively. Both Lira and Pacheco are members of the conservative Big Center caucus, the majority omnibus bloc within congress that supports any incumbent president in exchange for jobs in the government and money for projects in their constituencies. Speaker Lira received the votes of 90% of congresspeople, a historical record. Lira had the support of both the left and the far right. In the Senate, Pacheco faced a more competitive election, as his contender, an ally of former President Jair Bolsonaro, gathered the support of one in three senators. This suggests that the recently inaugurated administration of the left-leaning Luiz Inácio Lula da Silva is likely to meet an entrenched opposition in the Senate.

Germany and Brazil talk about Ukraine, trade, and energy

On 30 January 2023, President Luis Inácio Lula da Silva received German Chancellor Olaf Scholz in Brasília. Lula da Silva denied a request to sell Germany ammunition for Leopard I tanks, which Germany is providing for the Ukrainian war effort. Lula da Silva said that Brazil did not want to get involved in the conflict, and also that he would be open to joining negotiations for peace that could include China, India, and Indonesia. Apart from the Russian-Ukrainian war, the two countries discussed energy and trade. Scholz declared that Germany wants to develop renewable energies in Brazil, and Lula da Silva said that he wants to finalize the free trade deal with the European Union within the next six months.

CHILE

Economy shows signs of stagnation

On 1 February 2023, the Central Bank reported that the economy shrank 1% in 2022 compared to the previous year. The only good news is in the mining sector, where output grew 1.2% and employment 13.3% in 2022. The overall economy, however, is sluggish. The government statistics bureau (INE) reported that the level of employment in construction fell 6.7% and retail increased only 1.4% last year. These sectors are much more representative of the labor market’s health than the mining sector, as they together make up 27% of the Chilean workforce, while the mining sector makes up 3.2%.

Chile’s Colbun and Japan’s Sumitomo to study the feasibility of green hydrogen

On 31 January 2023, Colbun, a leading electricity producer in the country, signed a deal with Japan’s giant holding company Sumitomo to study the development of green hydrogen in Chile. Colburn’s Inti Pacha solar plant in the northern Atacama region will be tested for the production of green hydrogen, which could be exported via Sumitomo’s Mejillones port. In the southern Magallanes region, the two companies will study the feasibility of energy production and infrastructure development for the production and export of green hydrogen. Colbun is controlled by the Matte family, which controls one of the largest fortunes in Chile, and the company has energy plants in Chile and Peru.

Violent robberies and vehicle thefts are the fastest growing crimes

On 30 January 2023, newspaper La Tercera reported that incidents of theft and robbery increased 39% last year nationwide. The investigation police PDI noted that criminal activity is becoming more organized and increasingly includes the participation of foreigners. PDI worked on investigations with counterparts from Mexico, Central America, and the Southern Cone last year. A wider trend can be seen from data from the Undersecretary of Crime Prevention, which shows that the two types of crime that grew the most in the last five years were violent robberies, with a 24% increase, and vehicle thefts, which grew 37% compared to 2018.

COLOMBIA

IMF reduces growth forecast for 2023

On 2 February 2023, the IMF halved its growth forecast for Colombia’s economy in 2023; the GDP is expected to grow 1.1%, down from the previous estimate of 2.2%. The IMF ascribed this change to persistent inflation and rising interest rates. The country’s energy sector, which accounts for around 40% of exports, has witnessed turmoil in recent weeks, with several resignations in the ministry and a contested decision earlier this month to halt oil and gas exploration.

ELN threatens to halt oil production in Arauca

On 1 February 2023, newspaper El Tiempo reported that oil company Parex had halted production in the Arauca region due to a number of threats from the ELN guerrillas. On 30 January, the ELN allegedly told contractors servicing the oil fields that all production was to be suspended indefinitely. In Arauca, average oil extraction is estimated at 50,000 barrels per day. The government is expected to begin peace talks with the ELN in Mexico this month.

Unemployment fell by 2.6% in 2022

On 31 January 2023, the National Department of Statistics (DANE) reported an unemployment rate of 11.2% for 2022, which is a 2.6% drop from the 2021 figure, and marks a return to pre-pandemic levels of unemployment. The largest rises in employment were registered in the arts and entertainment sector, as well as manufacturing. As of December 2022, an estimated 57.6% of the workforce is employed in the informal sector.

Fight against corruption stagnates

On 31 January 2023, Transparency International (TI) published its 2022 Corruption Perception Index, revealing that Colombia has made no progress since last year in the fight against corruption. It was awarded 39 points on a scale of 100, where the latter represents no corruption — the same score as in 2021. Since 2012, the country’s score has stagnated between 36 and 39 points. TI’s office in Colombia highlighted corruption within the “defense and security sector” as cause for concern.

ECUADOR

Mining exports grew 34% in 2022

On 1 February 2023, newspaper El Comercio reported that mining exports between January and November 2022 were valued at $2.5 billion, a 34% increase from the previous year. The total amount for 2022 is expected to meet the government target of almost $2.7 billion. Mining is becoming one of the country’s main exports, although it still trails behind oil, which brought over $10.7 billion in trade revenue in 2022.

Energy minister under investigation for offshore links

On 1 February 2023, investigative newspaper Primicias reported that Energy Minister Fernando Santos has been under investigation by the General Prosecutor’s Office since December 2022. Santos is suspected of owning offshore assets in the Bahamas. This would bar Santos from holding public office. He denied owning any offshore assets when he was sworn into office in October 2022. Santos stated that while he was director of a company based in the Bahamas, he was never a shareholder and resigned days before taking office. He accused political rivals of being behind the accusation.

Colombian and Ecuadorian governments agree to reinforce cross-border security

On 31 January 2023, Ecuadorian President Guillermo Lasso met his Colombian counterpart, Gustavo Petro, to strengthen security cooperation between both countries. They agreed on a joint military plan to tackle organized crime and smuggling along their shared border. While details of the plan were not made public, both leaders highlighted efforts to increase drug enforcement along the Pacific coast.

OAS investigating suspicious gold trading in 2019

On 31 January 2023, the OAS published a report into suspicious gold exports to China during 2019. That year, Ecuador declared gold exports valued at $77 million while China reported imports worth $339 million. According to the OAS, the disparity between figures is explained by illegal mining. While the report notes that these disparities are being reduced, it encouraged the government to continue fighting illegal mining as a threat to the security of the state.

MEXICO

Government’s green energy project to begin in April

On 3 February 2023, Foreign Secretary Marcelo Ebrard inaugurated in northern Sonora state the first phase of the largest photovoltaic solar park in Latin America and the seventh largest in the world. Owned by the state electricity company CFE and Sonora’s state government, the USD$840 million project will use hundreds of Chinese solar panels installed in 2,000 hectares and will produce 120 megawatts of power in this first stage. However, in April the project is expected to begin commercial operations with full capacity at 1,000 megawatts of power using the rest of the USD$1.6 billion budgeted for it. Considering that the country is powered only by 29.5% via renewable sources, Secretary Ebrard described the park as President Andrés Manuel López Obrador’s most ambitious green energy project.

Oil regulator allows state company to charge customers for fuel theft losses

On 1 February 2023, the Energy Regulatory Commission (CRE) approved a draft resolution that permits the state-owned oil company PEMEX to transfer the cost of non-operational losses to small-scale gas users. The decision seeks to make up for losses primarily driven by organized crime fuel theft. This resolution states that economic damages to the fuel transportation system that do not reach the end-users will be entirely the responsibility of the transporter; however, they can request that these charges be reinstated to the users for using state oil infrastructure. In 2021, authorities detected over 10.2 thousand cases of fuel theft, the equivalent of one occurrence every 51 minutes.

Political alliance emerges to swing the nonpartisan vote

On 30 January 2023, a group of politicians, businesspeople, and leaders of civil society launched “Collective for Mexico” (CPM), a new political opposition alliance seeking to “stop the establishment of a one-man’s regime, ungovernability, and polarization in the country.” Founding members include politicians of the nonpartisan social democrat Citizen Movement party (MC), which had previously refused to join the opposition and consolidate itself as a “third option” ahead of the 2024 presidential elections. President Andrés Manuel López Obrador defined the alliance as “the moderate wing of the conservative bloc.” Nonetheless, with the ruling MORENA party having majorities at both houses of Congress and state governorships, CPM is set to face significant challenges to achieve its objective.

IMF latest growth forecast matches government’s

The International Monetary Fund (IMF) raised its economic growth forecast for Mexico to 1.7% for this year from the 1.2% it expected in October, due to the unexpected resilience of domestic demand and stronger-than-expected growth in the economy of its main trading partner (the United States). The IMF’s projection matched the Secretariat of Economy’s expected 1.2% to 3.0% annual GDP growth rate, ranking higher than foreign investment banks anticipated, such as Bank of America’s 0.3%.

PERU

Executive proposal for early elections rejected by Congress

On 3 February 2023, President Dina Boluarte tabled a proposition to hold early elections in October 2023 that was rejected on the same day by Congress’ Constitutional Commission. The proposal had been tabled after Congress, on 2 February, rejected a separate proposal to hold early elections — for the third time since December 2022. President Boluarte had warned that if Congress failed to agree on a date, the executive would submit a proposal to the legislative. Originally, she had also proposed reforming the constitution, but this was rejected by her own cabinet, spearheaded by Prime Minister Alberto Otárola. Congress rules do not allow for the same proposition to be discussed twice within the same legislative term, meaning that Congress will not be able to set a date for early elections. The only legal path left for anticipated polls is if the president resigns.

Pipeline sabotaged in the Amazon

On 2 February 2023, state oil company Petroperú reported that one of its pipelines in the province of Bagua, in the Amazon region, had been intentionally sabotaged. The company requested an immediate investigation into the incident. This is not the first time this section of the pipeline has been attacked this month: on 18 January the pipeline was sabotaged by protesters.

Las Bambas copper mine suspends operations due to protests

On 1 February 2023, copper mine Las Bambas, operated by MMG Limited, announced that it would be suspending its operations due to shortages provoked by road blocks. The mine, located in the southern Apurímac region, extracts around 15% of Peru’s copper and 2% of the world’s total. Las Bambas accounts for around 50% of Peru’s mining output, according to the Peruvian Institute of Mining Engineers, and its closure will affect an estimated 75,000 families in the region. A recent study by labor law firm Vinatea & Toyama found that 32% of mining companies will reduce their staff in 2023 due to the effects of political instability.

Moody’s downgrades Peru’s rating forecast

On 31 January 2023, Moody’s announced that it was downgrading the outlook of Peru’s rating from “stable” to “negative”. While it maintains the country’s credit rating, the agency believes that the deteriorating political situation could impact “governability” and “economic strength” in the next few years. Peru has been rocked by protests since former president Pedro Castillo was removed from office in December 2022.

Wherever you do business in Latin America, Southern Pulse has the expertise, the network, and the relationships to help solve your toughest operational challenges. Want to learn more? Let’s chat.

CC BY-ND