Last month, Gryphon’s Managing Director and Co-Head of Latin America, Pablo Gil de Montes, JD, LLM, participated in a panel discussion at the Houston Bar Association – International Law Section’s first event of the year. Hosted at the offices of Pillsbury Winthrop Shaw Pittman LLP in downtown Houston, Texas, Gil de Montes joined Rafael T. Boza, Special Counsel at Pillsbury Winthrop Shaw Pittman LLP; Miguel A. Nakhle, Executive Vice President at Compass Lexecon; and Richard Deutsch, Partner at Pillsbury Winthrop Shaw Pittman LLP to discuss the challenges and opportunities of doing business in Latin America.
The event, titled “Paradise Lost. Latin America’s Social Unrest and the Disruption of Investment,” addressed the topic from historical, economic, social, legal and geopolitical perspectives to give a holistic view of the region. While many risks exist, as Gil de Montes outlined, the knowledge of the social unrest, past and present, and politics will help firms and individuals prepare for the opportunities that lie there as well.
“The pandemic brought to boil issues that were already simmering,” Gil de Montes said. “The locals are going to think you, an outsider, are the same as the conquistadors; you are coming to take their gold. They have suffered landowner abuses in many countries and those issues are engrained.” He explained that several factors such as the rule of law (or lack thereof), the high levels of corruption, both social and financial inequality, the mistrust of the democratic process and an ever-swinging political pendulum play significant roles in setting the foundation for investment and outside business. Gil de Montes noted, “Many people are trying to create a society where rule of law is accepted. However, you are still seeing politics as a business for personal gain. Democracy and capitalism are not the ideal way for people anymore.”
Following Gil de Montes’ commentary, Miguel A. Nakhle provided a macroeconomic view of the region, beginning with an economy that has yet to rebound after the 1990s boom and the more recent COVID-19 pandemic. According to Nakhle, capital flows are scarce with a tightening financial market and money is in short supply. As a result, foreign direct investments present an initial opportunity. One of the few sources of capital is China, whose trade with the region outpaced that of the United States in 2021, with targeted investments in energy, mining and infrastructure. Nakhle concluded by describing the risks related to the ripple effects of the war in Ukraine, inflation, economic deceleration of key partners and social discontent.
Following Nakhle, Richard Deutsch discussed tools for investment protection and political risk management, including investment treaties via the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) convention.
Beginning his presentation with a reference to Thomas Cole’s 1842 painting, “The Voyage of Life: Manhood,” Deutsch explained the challenges that investors face when looking at Latin America. He emphasized that the attitude towards these challenges cannot be that of the man floating helplessly towards an uncertain ending that he cannot control. Instead, investors must be proactive and knowledgeable. Implementing political risk protections, making full use of ICSID, and a firm’s experiences in arbitration can help firms like Pillsbury Winthrop Shaw Pittman advise clients appropriately and realistically. ICSID offers a forum for dispute resolution to bind countries to arbitration that happens in almost any country. “Members of the convention have agreed that the signatories of courts will treat any decision as a decision of their courts,” said Deutsch. “The idea is that you can take an award to any of these countries and, with certain exceptions, enforce an arbitration award.”
The panelists concluded with thoughts on how the region, even with its challenges, holds promise and opportunity to diligent investors. The panelists emphasized its participation in the green economy with the reserves of lithium located in the “triangle” formed by Argentina, Bolivia and Peru. Chile could help in the development of hydrogen energy and copper, and Brazil is currently the largest oil producer in the region. El Salvador is working on incorporating a working rule of law, and Mexico has the opportunity to do more with the U.S. via nearshoring.
“I can’t emphasize enough the decisions that go into investing in an international market,” said Deutsch. “You have to look at how investors see political risk, not commercial risks or contractual risks. I’m talking about what you can’t cover in the contract.”
Boza, the panel’s moderator, summed up his sentiments with wise words of caution, “Investors would be well advised to take to apply the adage, ‘a Dios rogando y con el mazo dando’ in their investment practices.”