15 - MS Consultores

The UK’s only Latin America-focused investment magazine
Q1 2016
Profits Ahoy!
Investors rediscover the Dominican Republic
INSIDE: A detailed report on the DR’s dynamic economy
Javier Córdova, Ecuador’s Minister
of Mining, in our Sector Special
ALSO INSIDE
The investment impact of the Zika outbreak
Aberdeen Asset Management’s Peter Taylor reveals where he’s putting his money
Analysis from Control Risks and Markit
1 | Q1 2016
LatAm INVESTOR
2 | Q1 2016
LatAm INVESTOR
EDITOR’S LETTER
Bargain hunting
Dear reader,
Of course not everything is going well in the
Most Latin American countries will be glad
region. We have in-depth political analysis on
to see the back of 2015. It was a year when
page 46, where Canning House looks at how
the region’s economic growth dropped
Brazil’s corruption scandal is impacting Latin
and financial markets tanked. But while the
America’s biggest economy. Brazil’s clearly in a
headlines might have looked scary there
mess but not all investors are discouraged by
were also lots of positives.
the tough macroeconomic situation. On page
44 we speak to Peter Taylor, manager of the
Editor’s Letter 3
Stories Behind the News 4
6
Briefing8
Sector Special - Ecuadorian Mining Aberdeen Global Latin American Equity Fund,
sell-off in the financial markets as a great
who explains how his bottom-up approach is
buying opportunity. Indeed there is also a
helping him find good opportunities in Brazil
feeling among investors that – if you have
despite – or perhaps even because of – the
cash – now is a great time to be making deals
problems. We also have our regular analysis
in Latin America.
from Markit and Control Risks, while if you go
right to the back of the magazine you’ll see
Contents
Market Analysis Many LatAm INVESTOR readers will see the
10
Market-Moving Events
14
Dominican Republic Report 15
Portfolio Manager Interview
44
Canning House
46
Country Analysis
48
Investment Contacts Directory
51
One area that looks particularly attractive
that this issue’s LatAm INVESTOR Map, charts
is the Ecuadorian mining sector. Ecuador is
corruption across the region.
surrounded by mining powerhouses, like
Peru and Colombia, yet despite having similar
I’m sure that all of that will keep you busy
mineral wealth it has never fostered a large-
for a while but don’t forget that you can
scale mining industry. The government of
also keep up-to-date with breaking Latin
Rafael Correa has worked to change that
American investment stories on our website
by creating a dedicated Ministry of Mining
www.latam-investor.com or follow us on
and reforming the mining code. The early
LinkedIn, Facebook or Twitter. We got plenty
response from investors has been positive,
of feedback and story ideas in 2015 so please
with a string of multi-billion dollar mining
keep those suggestions coming this year.
projects announced in the last few months.
However, there is potential for plenty more
development so in our Sector Special (page
Property52
10) we interview Ecuador’s Minister of Mining,
54
Upcoming Deals 56
LatAm INVESTOR Map 58
In the middle of the magazine, you’ll find
our latest country report – the Dominican
Republic. Most readers probably just see the
Caribbean island as a tourist destination but
LatAm INVESTOR
it also offers a lot for investors. Indeed it’s one
Editorial Managing Director - James McKeigue
Latin America Editorial Director - Carla Fierro
Finance Editor - Daniel Mullarkey
Advisor to the Editor - Edward Longhurst-Pierce
Senior Writer - Sam Joll
Senior Writer - Alisdair Jones
Senior Markets Analyst - Cris Heaton
Central America Correspondent - Louisa Reynolds
Peru Correspondent - Darwin Cruz
America, with a range of emerging sectors.
The DR’s agricultural exports to the UK are at
record levels as British consumers get a taste
for Dominican quality. Another exciting area
is logistics, with the Dominican Republic
holding ambitious plans to become a vital
Printed in the UK by
The Magazine Printing Company
using only paper from FSC/PEFC suppliers
www.magprint.co.uk
James McKeigue
Javier Córdova, and discuss the opportunities.
of the fastest-growing economies in Latin
Latin America in the UK Until next time,
part of the global trade network. We also
investigate the energy, finance and tourist
sectors, which hold promise for investors.
3 | Q1 2016
Production and Commercial
Art Director - Tania Schoeman
Advertising Sales - Terri Haddon
Head of Digital - Ian Gibson
Editorial queries: [email protected]
Marketing queries: [email protected]
Subscriptions: [email protected]
Tel: 0207 097 5121
www.latam-investor.com
LatAm INVESTOR
STORIES BEHIND THE NEWS
Macri’s Momentum
W
institutions within the country.
access to international debt markets.
Yet there is plenty of work left to
New
In short, the task facing Macri is a
do. Spring brings negotiations with
Argentine President Mauricio
daunting one. In just a few months Macri
the trade unions and some sort of
Macri has made an impressive
has managed to tackle several of the most
compromise is necessary if Argentina
start to his term, dismantling several of
pressing distortions. He has eliminated
is to break out of the wage-price spiral.
the economic distortions created by his
the tax on beef, wheat and corn exports
Meanwhile some necessary moves,
predecessor and raising hope among
and reduced the tariff on soy. That was
such as cutting energy and transport
investors.
followed by a devaluation of the peso,
subsidies, can be expected to prove
to put it more inline with market rates,
unpopular with much of the electorate.
How will it affect investors? On coming
and the lifting of capital controls so that
Moreover
to power on December 10, Macri took
businesses can buy and sell dollars more
command a majority in Congress,
control of a country that had experienced
easily. This has eased pressure on the
meaning that he may not be able to
a decade of unorthodox macroeconomic
central bank, which had been using up
deliver on all of his promises.
management. The rule of first Nestor,
reserves to keep the peso at an artificial
then Cristina Kirchner, had created a
rate.
hat’s
happened:
Macri’s
coalition
doesn’t
But when it comes to attracting
international investment, style can be
number of distortions in the Argentine
when
There are signs of more changes in
more important than substance and so
commodity prices were high but when
the pipeline. Macri has promised to
far Macri’s message seems to be getting
the price of Argentina’s main exports
work with the IMF and introduce more
through. The reaction of the financial
fell, the economic strain began to tell.
reliable economic statistics. He has also
markets has been positive with bullish
But unorthodox policies weren’t the only
outlined plans for the central bank to
sentiment already driving up Argentine
problem. Investors were also rattled by
return to inflation targeting – a necessity
equities and bonds. While Coca Cola
the anti-business rhetoric of the Kirchner
in a country where annual inflation is
and Renault have shown early faith in
government,
dispute
running at 30%. Finally, he has signalled
the new regime by announcing billion-
with international organisations such
a willingness to resolve the ‘hold-out’
dollar investment deals. Macri will hope
as the IMF and political manipulation of
dispute, which has limited Argentina’s
that he can keep the up the momentum.
economy.
This
its
didn’t
matter
high-profile
Currency Watch
Macri’s decision to allow the Argentine peso to depreciate made it the biggest faller over the period.
Currency
Last quarter
Current rate to GBP*
Argentine peso (ARS)
14.3
19.84
-38.84
Brazilian real (BRL)
4.9
5.7
3.72
Chilean peso (CLP)
1035.25
1021.26
1.35
Colombian peso (COP)
4505.82
4714.50
-4.6
Peruvian nuevo sol (PEN)
4.87
4.96
-1.85
Mexican peso (MXN)
25.33
26.03
-2.76
LatAm INVESTOR
4 | Q1 2016
% Change from last quarter
Venezuela Nears
Endgame
that the public is disillusioned with the
Chavista regime and surely sounds the
death knell for President Nicolás Maduro.
But while the Congress has the power
What’s happened: Venezuela’s long-
to veto any government measure, it is
suffering economy is deteriorating rapidly
unable to tackle the economic crisis on
while political instability increases.
its own. The central bank governor and
the finance minister are government
How will it affect investors? Aside from
appointees, meaning that it still controls
some sovereign bonds few international
economic policy. That looks likely to lead
investors now have direct exposure to
to a gridlock until presidential elections
Venezuela. Yet as Latin America’s fifth-
in 2019.
The end of Chavismo
biggest economy, and home of the
world’s largest oil reserves,
its plight
But given the scale of the economic crisis
Venezuelan government can no longer
remains important for investors. Many will
it seems likely that the public won’t wait
afford such largesse, meaning its support
be hoping to catch the bottom and while
that long. The Venezuelan economy is
is gradually ebbing away.
‘catching a falling knife’ is a dangerous
contracting by about 10% per year, while
game for investors, there’s no doubt that
annual inflation stands at 720%. People in
In theory the opposition could use its
Venezuela’s descent is accelerating.
the poor neighbourhoods of Venezuela,
two-thirds super majority to demand a
that have traditionally provided the
recall referendum that would give the
First, the good news: the victory of the
support base for the Chavista regime,
electorate the chance to oust Maduro.
opposition coalition in the December
may not know all of the latest economic
Another option would be to take to the
elections for Congress, gives them control
indicators but they’re acutely aware of the
streets and rock the government with
of the country’s legislature. Moreover it
major shortage of basic foodstuffs and
large-scale protests, like those we saw in
showed that despite Venezuela’s poor
daily necessities. Their support was won
2014. Maduro’s government is unlikely to
human rights record the country still
by generous welfare schemes during the
leave power without putting up a fight.
respects elections. It also demonstrated
era of high oil prices. At $30 a barrel the
Things might get worse, before they get
better.
Market Watch
Argentina’s Merval was the best-performing Latin American equity market over the period with Macri’s election victory and
subsequent early policies encouraging investors.
150
140
130
120
110
100
Last Price
Brazil
Colombia
Mexico
Argentina
95
88.24
93.46
102.19
117.76
90
5 | Q1 2016
n’
16
Ja
29
n’
16
Ja
15
5
c’1
De
31
15
De
c’1
5
5
30
No
v
’1
5
15
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v
’1
5
t’1
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30
15
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5
85
LatAm INVESTOR
MARKET ANALYSIS
It’s been another lively quarter for Latin
American markets.
Markit Analyst, Simon Colvin, explains how it
impacts investors...
It was a painful end to 2015 for LatAm sovereign credit as CDS
from the fall in global commodity prices led Fitch to become the
spreads widened significantly across the board. Lingering global
2nd rating agency to downgrade the nation’s debt to ‘junk’ status.
growth concerns coupled with a fresh downturn in commodity
Elsewhere, the oil price rout sent Venezuela’s 5-yr CDS near new
prices saw heightened risk aversion among market participants.
record highs, implying a 96% chance that the oil dependent nation
Brazil’s 5-yr CDS spread surpassed 500bps again for the first
will default on its government debt over the next five years. Soaring
time since the end of Q3, having tightened to under 400bps in
inflation, further oil weakness and deep recession has called for the
November. Ongoing political turmoil and the economic suffering
government to declare a state of emergency.
Markit LatAm Sovereign 5-Year CDS
BRAZIL
MEXICO
PERU
CHILE
COLOMBIA
VENZEZUELA
7000
6000
5000
4000
600
5Y Conventional Spread
500
400
300
200
100
LatAm INVESTOR
6 | Q1 2016
an
‘16
18
J
an
‘15
4J
21
De
c‘1
5
‘15
ec
7D
23
No
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15
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ov
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5
26
Oc
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5
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15
29
Se
p‘
15
p‘
Se
15
1S
ep
‘15
‘15
18
Au
g
‘15
5A
ug
23
Ju
l‘1
5
0
in association with
Brazil and Mexico Manufacturing PMI
MEXICO MARKIT PMI
BRAZIL MARKIT PMI
58
56
54
52
50
48
46
15
c‘
De
‘15
Au
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r ‘1
13
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‘13
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Ja
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13
3
44
The ongoing uncertainty seen in the credit world also reflects
somewhat from the lows seen in November. Mexico’s PMI survey
the slowing economic situation as tracked by Markit’s PMI survey
showed that the country managed to grow its output over the
of manufacturing activity. Brazil’s survey indicated that overall
quarter although the pace of growth had slowed markedly from the
manufacturing activity in the country fell for the 11th month
pace seen at the start of the year. Manufacturing accounts for 18% of
running although the pace of economic deterioration did improve
Mexian GDP and has been a bright spot in the economy.
Markit iBoxx USD Emerging Markets Sovereigns
Latin America Index
The quarter was also very volatile for the
122
region’s dollar denominated corporate
bonds. The iBoxx benchmark index for
120
dollar denominated bonds issued by Latin
American firms was up by as much as 4%
118
at the start of November, but the surging
credit risk, falling commodities prices and
US rate rise saw the index give up the lion’s
116
share of that gain to deliver only 39bps of
total returns for the quarter. The index is
114
also off to a poor start for the year as the
‘15
ct
O
26
t ‘1
5
Oc
15
1O
ct
‘15
continuing economic deterioration has
112
2
5
v‘1
No
16
15
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No
30
15
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De
‘15
7 | Q1 2016
4
Ja
16
n‘
15
Ja
16
n‘
seen the index fall by 2.5% in the first two
weeks of 2016.
LatAm INVESTOR
BRIEFING
Latin America’s Mosquito
Problem
W
hat is happening?
mosquito spreads to new areas. The El
because if one country in Latin America
Latin American is being
Niño weather phenomena may also be
falls short in its response to the virus, it’s
attacked
playing a role.
more likely to spread across the entire
mosquito-borne
viruses and its health systems are
region. Unlike in the EU, where standards
struggling to cope. Some, like dengue,
Can Latin America cope?
can be enforced across jurisdictions, Latin
have been in the region for hundreds of
More than you might think. A 2015
America’s heterogeneity is a weakness in
years, while others, like Chikungunya and
World Bank report that analysed nine
its fight against health threats.
Zika only reached the Americas in 2013
Latin
and 2014 respectively. Of the three, the
regional giants Mexico and Brazil, found
The timing of these latest outbreaks
Zika virus is the most alarming because
that since the early 2000s 46 million
is also unfortunate. According to IMF
it is spreading rapidly and so little is
more people have access to affordable
forecasts,
known about it. Zika is not dangerous
healthcare.
Strong economic growth
Caribbean region’s GDP will shrink by
in itself but can lead to microcephaly
coupled with left-leaning governments
0.3% in 2016. Tighter budgets are bound
(brain
if
vastly improved the public services on
to impact on health spending. In light of
contracted by pregnant women. There
offer. Moreover, nineteen of the region’s
the difficulties ahead, this could prove to
is also a suspected link to Guillain-Barré
thirty-three constitutions declare health
be a real problem for Latin America.
syndrome, which causes paralysis. The
provision a right by law.
deformities)
in
children
American
countries,
including
the
Latin
American
and
What needs to be done?
Brazilian Ministry of Health has confirmed
4000 cases of microcephaly so far and US
Yet while improvements have been
The rapid spread of these viruses in the
scientists writing in the Journal of the
made the recent Zika and Chikungunya
Americas shows that they are incredibly
American Medical Association say it has
outbreaks also show the weaknesses.
difficult to contain. Long-term the only
“explosive pandemic potential.”
There are vast inequalities between
real solution can come through an
the health systems within the region.
international effort to create a vaccine.
Why is this happening?
So while Costa Rica can competently
Given the scale of Zika, a response
The sudden rise of Chikungunya and Zika
deal with the threats posed by chronic
should be quick. But the task won’t be
is linked to the figurative ‘shrinking’ of the
diseases and mosquito-borne viruses,
easy – scientists at the University of
planet. Both viruses originated in Africa
Brazil invests far less into its health system
Texas say that a working vaccine could
but in this age of constant travel and
and subsequently has less capacity to
be ten years away. In the meantime the
migration diseases travel freely across
counter health problems. This matters
current medical advice for women of
borders and oceans. The problem is
Latin America’s Different Health Systems
amplified because these viruses are often
new to the Americas, meaning that there
is less natural resistance to the disease
35
and that governments and individuals
30
and average temperatures increase the
Brazil
Columbia
13
20
12
20
11
20
10
20
09
20
now it is. As climate patterns change
20
0
08
Dengue was not a problem in Argentina,
20
5
07
regions. For example, 20 years ago
20
10
01
of mosquito which is present in topical
20
06
15
05
and Zika are born by the Aedes species
20
20
Chikungunya
25
04
Dengue,
global
20
changing
03
temperatures.
is
20
factor
02
Another
20
are often slow to react to the symptoms.
Public health expenditure as % of GDP
Costa Rica
Source: World Development Indicators: www.databank.worldbank.org/data/reports.aspx?source=worlddevelopment-indicators#
LatAm INVESTOR
8 | Q1 2016
childbearing age is to avoid countries
Disease Control and Prevention (CDC) in
have already sparked an angry response
where the virus is present – currently 22
the US.
from tourist ministers in Latin America.
and rising (see map) – or, if they have
Zika, to avoid childbirth for two years.
Stark choices if you’re a Latin American
woman.
Tourism is a high-growth industry in the
Will they succeed?
region and Zika could pose a threat to
At the moment there are mixed signals.
tourist numbers. That is especially the
If we analyse Brazil, which with its
case for Brazil, which hosts the 2016
large population and topical climate is
Olympic Games this summer.
But while a cure may not be available,
an epicentre for the mosquito-borne
prevention is possible. From keeping
diseases, there are positive and negative
Like any challenge, the mosquito-borne
mosquitoes
repellent
signs. So far its response to Dengue has
disease crisis also presents opportunities.
and nets, to reducing their numbers
not been very successful. Last year it
Latin America’s new middle classes are
through fumigation and eradicating
registered more than 1.6 million cases of
increasingly ‘buying out of the social
stagnant water, there is plenty to be
Dengue, with almost 900 casualties. That
contract’. That’s to say, they do not trust
done. And, in the short term, that will be
breeds little hope that it will fare better
governments
with Chikungunya and Zika.
public services and so turn to the private
away
through
the real question asked of Latin America’s
healthcare systems: can it distribute
to
provide
acceptable
sector. Spending on private healthcare
enough of the necessary materials and
But there are signs that Latin America
has therefore rocketed. Consequently,
information to make a difference? Some
fighting back. Mexico, for example, is
there
hope comes from mainland USA, which
working on a dengue fever vaccine that
healthcare providers or insurers.
has managed to avoid mass outbreaks
is already nearing completion. Colombia
of mosquito-borne viruses that have
is also looking for a scientific solution by
For
affected the rest of the Americas. “Better
releasing swarms of mosquitoes treated
company GlaxoSmithKline (GSK) already
housing construction, regular use of air
with bacteria that limit their ability to
has a large presence in Latin America
conditioning, use of window screens
spread the disease. Meanwhile Brazil
and the Caribbean and its regional
and door screens and state and local
has mobilised 200,000 troops to destroy
headquarters
mosquito control efforts helped to
habitats where mosquitoes breed and
announced that it is looking into using
eliminate widespread transmission of
handout
its vaccine technology to find a cure for
mosquito-borne infections like malaria
citizens.
prevention
information
to
are
opportunities
example
British
in
for
private
pharmaceutical
Brazil.
It
recently
Zika. Another beneficiary could be Bupa,
the UK-based private health insurer that
and dengue from the mainland,” says
Lyle Petersen, director of the division of
Investment impact
has made huge inroads into the Latin
vector-borne diseases for the Centers for
The dire travel warnings from the CDC
American market.
Countries with evidence of Zika virus transmission
Locally acquired cases
Serosurvey data only
Source: Centers for Disease Control and Prevention
9 | Q1 2016
LatAm INVESTOR
SECTOR SPECIAL
Interview with Javier Córdova,
Ecuador’s Minister of Mining
LatAm INVESTOR: Ecuador
is a country with immense
mineral wealth but no largescale modern mining sector;
why is that?
This government has long recognised
Minister Córdova:
The simple
answer is oil. Ecuador is an oil country
with more than 40 years producing it.
The focus on oil made us forget the
mineral wealth that we have. So this is
why the government last year decided to
create the Ministry of Mining, which we
had never had before. Previously mining
was controlled by the Ministry of Energy
and Mines, but the problem was that
the ministers were always oil specialists,
which naturally caused those ministries
to focus more on oil than on mining. As a
result we had small mining developments
but never really created the conditions to
cultivate large-scale mining projects.
offer from a mining company.
the problem. First it tried to split the
ministries into renewable and non-
We realised we had to make a tougher
renewable resources but that didn’t work
mining code.
either. After all, mining and oil both may
the 2009 code was too closed, too
be non-renewable resources but there
complicated and ultimately didn’t achieve
are still lots of differences between the
the goal of attracting new investment
industries and business models. So then
which was always our goal. Probably the
in February last year the government
nadir of this period was when Canadian
decided to create the Ministry of Mining.
miner Kinross left Fruta del Norte.
However, in hindsight
We’ve just celebrated our first-year
anniversary and we’ve achieved a lot in
the first 12 months. Now we are ready
to take advantage of this country’s great
LAI: What changes did you
make to boost investment in
mining?
mining potential.
LAI: There have been lots of
‘false dawns’ in the Ecuadorian
mining industry; why should
LatAm INVESTOR readers
believe it will be different this
time?
MC:
After Kinross the government
decided to think about what we were
doing wrong. It didn’t make sense
that we weren’t attracting investment
because we have great conditions for
mining. Of course the most important
factor to mining success is geology, and
we have great deposits, comparable to
MC:
There is no denying – indeed
mining neighbours such as Colombia and
President Correa has stated this publicly
Peru. But there are lots of other crucial
– that we made some policy errors. Albeit
factors that also work in our favour. For
that those errors were made in good
example, we have abundant supplies
faith. For example in 2009 we brought in
of cheap electricity, which is crucial for
a new mining code that was very tough
the development of an energy-intensive
on mining companies. In reality a change
industry like mining. This government
was needed because the previous code
invested $9billion in developing nine
was too open. It let anyone get a mining
new hydroelectric plants, which come
concession
online this year.
and
created
too
much
speculation.
The cost of electricity here is one-third
Ecuador’s Minister of
Mining, Javier Córdova
LatAm INVESTOR
Of course we realise that speculation is
less than Peru and just half the cost in
part and parcel of the mining industry but
Chile. We also have lots of water, which
the problem was that when junior miners
again is vital for mining. In Chile, for
came to us with interest in an area they
example, BHP is spending $3.6billion on a
couldn’t get it because the concession
desalination plant, so it can really impact
had already been granted. And often the
the economics of a project. Another
concession holder wasn’t working the
advantage is our infrastructure. We have
mine; they were just waiting for a big
a first-rate road system and five sea ports
10 | Q1 2016
that miners can use for exports and we
are a small country, all of which reduces
the transport costs.
Given all of those advantages we realised
that there must be a problem with our
mining code, so we commissioned Wood
Mackenzie to evaluate our system. They
identified that our tax structure was
much higher than other mining countries
in the region. For comparable projects we
had a tax burden of 35% compared to an
average of 26%. So this encouraged the
president to develop some tax incentives
to make us more competitive.
We realised that our windfall tax was a
disincentive in the existing form so we
established a formula that based the
tax on a ten-year average price, giving
investors more certainty. We also made a
change that allows companies to recover
all investment before it is subject to the
windfall tax.
MC :
Yes and no. Essentially I say
no because it’s not like the mining
development is happening now just
because the country is in a difficult
economic position. The government
use the great mineral resources that it has
ignored for so long.
LAI: In recent years investors
have seen bad community
relations in Latin America
destroy large mining projects;
what is Ecuador doing to
manage this?
understands – indeed we’ve made this
very clear to the public – that mining is
MC: You have hit the nail on the head –
a long-term industry. It’s not a quick fix to
the social element is our main challenge.
problems that we have now.
All the other factors, the taxes etc, can
always be adjusted to make a project
Moreover the decision to develop this
work but you can’t get a social license
industry was taken years earlier. Of course
unless you have good relations with the
we made some mistakes, which we have
community, so it’s complicated. We’ve
now corrected, but this is a decision with
seen painful examples around the region
a long-term trajectory. The majority of
where billion-dollar projects have been
the projects which are being developed
suspended because of community issues,
will only begin production after this
so it’s something that we’ve ffocused on
government term in 2018 so it’s not like
and made a priority.
we’re doing this for instant benefit.
Our solution is that we don’t let the
We realised investors want visibility
so we now implement tax stability
contracts that guarantee tax levels for
up to 30 years. We also have tax breaks
for investment in capital goods and even
some VAT discounts. Now our tax burden
comes in at 26%, on par with the rest of
the region.
It’s true that mining will deliver a large
companies handle the relations with the
investment boost in 2016 and 2017 but
communities on their own. Of course
with this president we are working for the
each company will have their community
next generations not the next elections.
strategy but we are also an active partner
We have established that 2025 will be
in this. We send specialist teams that
the year of peak production, by which
explain to the communities what a
time we will be long gone. We estimate
project will entail and how it can benefit
that $8billion dollars of investment will
them.
be needed between now and 2025
The new tax regime, coupled with our
additional advantages, make Ecuador one
of the world’s most attractive destinations
for mining investment. It’s also an
exciting play for exploration because
less than 10% of the country has been
properly explored for mining. We are now
in a very attractive position, so now we
need to let people know that we are open
for business. Mining investors coming
here should know that they now have
a dedicated minister taking care of the
sector and the support of the president.
LAI: Does
government
mining
stem
from
the
economic difficulties created
by the collapse in oil prices?
the
current
support
for
to develop these projects that will,
If you look at the oil industry in
by then, be generating $4billion per
Ecuador it had problems where areas
year in exports, making it the second-
such as the Amazon were generating
largest export after oil, and bringing in
the wealth but didn’t see any of the
$800million in tax benefits.
benefits. People in these places never
received roads, schools, hospitals or
But if my answer at the beginning
drinking water systems and were left
sounded ambiguous it’s because clearly
with the contamination and disruption.
we are an oil country so we’re being
Unsurprisingly
hit hard by low oil prices. The low price
members began to oppose projects. It is
cost the state around $8billion in 2015.
vital to show a local community that the
The strong dollar also hurts because it
benefits of mining are real. The mining
makes us more expensive while other
law establishes that 60% of the royalty
commodity
Norway
must be invested in areas surrounding a
to Peru have all seen their currencies
project. We manage that fund to ensure
depreciate. This situation has served as
that it happens, through a programme
a strong reminder that Ecuador should
called Strategic Ecuador.
producers
from
11 | Q1 2016
many
community
LatAm INVESTOR
SECTOR SPECIAL
Ecuador,
Latin America’s Newest Mining Destination
T
WHY INVEST IN ECUADOR?
he eyes of the world are now on
12 P
OW
ER
GE
NE
Ecuador, which is determined to
show itself as the latest investment
The country is found on the west coast of
mountain range. These are precisely the
Operating across the whole country
5
geographic and geologic conditions that
become competitive advantages, along
with the diversity and abundance of
8,300 MW
ADVANTAGES
• Projects with high mineral
ore grades
• Access to water resources
• Currency stability
In the last decade the South American
$ 8.2 B
country has experienced a sustained rise,
not just in its economic indicators and
IN
the
national
TM
S
of
mining industry has the full support of
EN
PLACE IN ROAD
INFRASTRUCTURE
IN LATIN AMERICA
89%
VE
development
IN
its citizens, especially the most vulnerable.
1
ST
ON
the improvement of living standards for
OF CLEAN, LOW-COST
ENERGY
APPROVED INCENTIVES
• Tax stability
• Accelerated Depreciation
I LL I
GDP, but also in social development, with
From 2016 will provide
PORTS
Key for international
mining production
natural resources.
CTS
OJE
PR
AIRPORTS
South America and crossed by the Andes
The
Hydroelectric
plants
N
TIO
RA
9
15
destination on the region’s mining map.
T
of the country's
roads repaired
and improved
• Standardized windfall tax
• Tax credit for repatriating profits
• Use of NPV to calculate
sovereign adjustment
the national government. The political
decision in 2015 to create a ministry
specifically dedicated to the mining
The
sector reflects the will to advance along
government to investors came about
the right path. Moreover, key reforms
through the legal and tax reforms to
were made to the mining regulation
encourage the arrival of fresh capital for
Of course there is no doubt that the
and incentives were created to attract
the development of the industry. For
development of the mining industry is
investment through the Law of Public
example, the government introduced
linked to the operating costs and access
Private Partnerships, which guarantees
the return of VAT on exportations and
to resources. In this sense Ecuador has
not only an agile institutional structure
the signing of tax contracts for 15 years
an electricity price that’s lower than the
but also to serves businesspeople and
(renewable). Moreover the strong public
regional average. Indeed the country has
citizens.
investment
infrastructure
12 electricity generation projects, nine
commitment
made
of
in
the
national
have a high ore grade, which makes the
investment even more attractive.
(roads, ports, airports) in recent years has
of which are hydroelectric and provide
In this context Ecuador counts with at least
transformed the country into a leader in
8,300 MW of clean energy. So this means
three fundamental pillars, which position
Latin America, according to the World
there is an abundant supply of water,
it as the new destination for the mining
Economic Forum.
which you can even find in the areas of
industry in the region. 1) The commitment
the mining projects.
to the sector and the political stability of
Another factor is that Ecuador has
the national government, 2) The great
unbeatable geological conditions for the
At present Ecuador has five strategic
mining exploration potential, and, 3) The
current and future development of large-
mining projects: Mirador, Fruta del Norte,
competitive advantages that investment
scale mining projects. Especially when
San Carlos Panantza, Río Blanco y Loma
in the sector offers. This has generated
you take into account that only 5% of
Larga, which have a projected total
a climate of confidence for national and
the country’s territory has been explored.
investment of approximately $8billion
international investment.
Additionally, the current mining projects
between
LatAm INVESTOR
12 | Q1 2016
now
and
2023.
Thereby
in association with
strengthening the security environment
for investors, who, in the words of Ron
Hochstein (CEO of Lundin Gold) see in
Ecuador, “a land of opportunities for
mining.”
Mirador Launches LargeScale Mining
The
Mirador
copper
project
is
a
concession of the company EcuaCorriente
SA (ECSA) that signed its first contract of
mineral exploitation and investment with
the Ecuadorian state in 2012, with an
investment of approximately $1.5billion.
The deposit is located in the parish of
Tundayme, in the canton El Pangui, in
the province of Zamora Chinchipe. The
deposit has 6.5 billion pounds of copper,
26,000 ounces of silver and 3.2 million
ounces of gold. The mine will process
60,000 tonnes per day with an active life
of 30 years.
Mirador constitutes Ecuador’s first largescale, opencast, industrialised metals
mining project. It will generate more
than 3,000 direct jobs between the
construction and operation of the mine,
and more than 1,000 indirect jobs or
productive enterprises throughout all
of the development phases. Through
the concept of advance royalties this
project agreed to pay the Ecuadorian
state $100million, of which $70million
has already been delivered and invested
Signing of the agreement for the development of Fruta del Norte. From left to
right: Ron Hochstein (Executive President and General Manager of Lundin Gold),
Rafael Poveda (Co-ordinating Minister of Strategic Sectors), Marianick Tremblay
(Ambassador of Canada to Ecuador), Jorge Glas (Vice President of Ecuador), Lukas
Lundin (President of the Board of Lundin Gold), Javier Córdova (Minister of Mining).
in education, health, road transport
the Fruta del Norte Project, signed
and more works around the project
an agreement with the Ecuadorian
in the province of Zamora Chinchipe.
government in which it promised to
In
invest approximately $850 million until
December
2015,
ECSA,
officially
inaugurated the exploitation stage.
Fruta del Norte, the biggest
undeveloped gold deposit
in the region
2018 for the development of the deposit.
This confirms the growing confidence
among foreign investors in the Latin
American nation. At present 200 people
work in the project, which will generate
approximately 3000 new jobs in mine
Fruta
del
Norte
is
the
biggest
construction
undeveloped gold project in Ecuador and
benefiting
in the Latin American region. It is located
project.
and
those
operation,
living
directly
around
the
in the parish of Los Encuentros, in the
Canton of Yantzaza, in Zamora Chinchipe
Fruta del Norte will become an example
province, in the Ecuadorian Amazon. It
of reponsible mining now that the
has estimated reserves of 9.8 million
company has effectively linked various
ounces of gold and 15 million ounces of
segments of the local population in the
silver.
development of the project, whether
Lundin Gold, the company that operates
it’s through job offer or the provision
of services. And at the same time it has
started community projects with the
people of Los Encuentros in an intensive
inclusion process.
This will satisfy the local residents,
who, thanks to the public investment
stemming from the project’s royalties,
receive a boost from the generation
of direct employment and also have
transparent access to information about
the project development. All of which
minimises the possibility of social conflict
against the mining projects.
Mirador mining project, Zamora Chinchipe, Ecuador
13 | Q1 2016
LatAm INVESTOR
MARKET-MOVING EVENTS CALENDAR
January
February
March
Monday 1st
Wednesday 2nd
5:00 PM - Brazil - Balance of Trade
8:00 PM - Brazil - Balance of Trade
Wednesday 6th
Tuesday 2nd
Thursday 3rd
1:00 AM - Colombia - Inflation Rate YoY
11:00 AM - Brazil - Industrial Production YoY
9:00 PM - Colombia - Exports YoY
Thursday 4th
Friday 4th
2:00 PM - Mexico - Business Confidence
3:00 PM - Mexico - Interest Rate Decision
9:00 PM - Colombia - Exports YoY
11:05 PM - Brazil - Interest Rate Decision
Friday 5th
11:30 AM - Chile - Balance of Trade
11:30 AM - Chile - IMACEC Economic Activity YoY
12:00 PM - Brazil - Inflation Rate YoY
Monday 4th
5:00 PM - Brazil - Balance of Trade
9:00 pm - Colombia - Exports YoY
Thursday 7
th
11:00 AM - Brazil - Industrial Production YoY
11:00 AM - Chile - Balance of Trade
2:00 PM - Mexico - Inflation Rate YoY
11:00 AM - Brazil - Inflation Rate YoY
11:30 AM - Chile - IMACEC Economic Activity YoY
Friday 8th
Tuesday 8th
11:00 AM - Brazil - Inflation Rate YoY
11:00 AM - Chile - Inflation Rate YoY
Saturday 6th
Monday 11
11:00 AM - Colombia - Inflation Rate YoY
2:00 PM - Mexico - Industrial Production YoY
Monday 8th
Wednesday 13
11:00 AM - Chile - inflation Rate YoY
11:30 AM - Chile - Balance of Trade
th
th
11:00 AM - Brazil - Retail Sale YoY
Thursday 14
th
11:00 AM - Chile - Inflation Rate YoY
Wednesday 9th
2:00 PM - Mexico - Inflation Rate YoY
7:00 PM - Colombia - Industrial Production YoY
7:00 PM - Colombia - Retail Sales YoY
Tuesday 19th
9:00 PM - Colombia - Balance of Trade
Wednesday 20th
2:00 PM - Mexico - Industrial Production YoY
2:00 PM - Mexico - Inflation Rate YoY
Monday 14th
Thursday 11th
12:00 PM - Brazil - Retail Sales YoY
9:00 PM - Colombia - Retail Sales YoY
9:00 PM - Industrial Production YoY
2:00 PM - Mexico - Industrial Production YoY
7:00 PM - Argentina - Economic Activity YoY
7:00 PM - Argentina - Balance of Trade
7:00 PM - Argentina - Current Account
7:00 PM - Argentina - GDP Growth Rate YoY
7:00 PM - Argentina - Industrial Production YoY
9:00 PM - Chile -Interest Rate Decision
Tuesday 16th
3:00 PM - Colombia - Consumer Confidence
10:30 PM - Brazil - Interest Rate Decision
Monday 25th
2:00 PM - Mexico - Economic Activity YoY
Wednesday 17th
9:00 PM - Colombia - Retail Sales YoY
9:00 PM - Colombia - Industrial Production YoY
2:00 PM - Mexico - Unemployment Rate
Tuesday 26
th
Thursday 18th
2:00 PM - Mexico - Retail Sales YoY
Wednesday 27th
2:00 PM - Mexico - Balance of Trade
Thursday 28th
11:00 AM - Brazil - Unemployment Rate
Friday 29th
12:00 PM - Chile - Copper Production YoY
12:00 PM - Chile - Industrial Production YoY
LatAm INVESTOR
Tuesday 15th
3:00 PM - Colombia - Consumer Confidence
Thursday 17th
4:30 PM - Colombia - GDP Growth Rate YoY
9:00 PM - Colombia - Balance of Trade
9:00 PM - Colombia - Imports YoY
9:50 PM - Chile - Interest Rate Decision
Friday 18th
11:45 AM - Chile - GDP Growth Rate YoY
12:30 PM - Chile - Current Account
2:00 PM - Mexico - Private Spending YoY
7:00 PM Mexico - Interest Rate Decision
7:00 PM - Argentina - Unemployment Rate Q4
Monday 21st
12:30 PM - Brazil - Current Account
12:30 PM - Brazil - Foreign Direct Investment
Friday 11th
Tuesday 9th
9:00 PM - Chile - Interest Rate Decision
Monday 18th
Monday 7th
Friday 19th
6:30 PM - Colombia - Interest Rate Decision
6:50 PM - Colombia - Inrest Rate Decision
7:00 pm - Argentina - GDP Growth Rate YoY
Tuesday 23rd
Friday 25th
2:00 PM - Mexico - GDP Growth Rate YoY
2:00 PM - Mexico - Economic Activity YoY
12:00 PM - Brazil - Unemployment Rate
Wednesday 24th
1:30 PM - Brazil - Foreign Direct Investment
1:30 PM - Brazil - Current Account
7:00 PM - Argentina - Balance of Trade
8:30 PM - Paraguay - Interest Rate Decision
14 | Q1 2016
Monday 28th
2:00 PM - Mexico - Balance of Trade
Tuesday 29th
2:00 PM - Mexico - Economic Activity YoY
THE DOMINICAN REPUBLIC
REPORT
Aiming Up
Economic expansion in the DR
Face-to-Face: Ambassador Cuello highlights key growth areas
Cultivating Profits: The Dominican Republic’s agro-export boom
Location, Location, Location: Plans to create an international logistics hub
15 | Q1 2016
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
PANAMA
LatAm INVESTOR
16 | Q1 2016
REPUBLIC
Contents
DR Overview
16
Cultivating Profits
18
Interview with Ambassador Cuello
22
Caucedo Logistics Center
24
Location, Location, Location
26
KPMG
30
Sun, Sea and Investment
32
Interview with Ambassador Campbell 34
17 | Q1 2016
Opening Up
36
Generating Growth
38
Interview with Jean Alain Rodriguez
40
Final Word
42
LatAm INVESTOR
LatAm INVESTOR
18 | Q1 2016
The Dominican Republic’s
Number 1 Banana Exporter
Supplying the UK with premium, organic and fair-trade bananas.
Supporting the Dominican Republic with a growing export industry.
Hatillo Palma, Montecristi. Dominican Republic. Phones: 809-572-4211 y 809-572-4203 | Fax: 809-572-9384 | www.banamiel.com.do | [email protected]
19 | Q1 2016
LatAm INVESTOR
LatAm INVESTOR
20 | Q1 2016
over the next 20 years. It’s a long-term
rigorously checked”, says Cocco, “after
to the UK looks set to continue. In 2015
commitment to building reservoirs and
all, we specialise in premium produce
an outbreak of Mediterranean fruit-fly led
dams wherever possible. The size of the
so it makes sense for us. However, many
to the US installing a temporary import
investment means that the state has to
of the processes don’t seem logical. For
ban. It served as a stark reminder of the
be the one to make it happen.”
example we have invested heavily in a
dangers of the DR relying too heavily on
fleet of refrigerated trucks to ensure our
the North American market. But like any
want
produce reaches the airport in the best
challenge it also brought opportunity
infrastructure to be built. He believes
state. Once at the airport the cargo can
and
that attitudes also need to be changed.
be subject to all sorts of checks. That is
producers to target Britain. “As soon as
“We want to educate the farmer – JAD
fine but the process is inefficient because
the US took the decision we began to
wants to work with small farmers to help
they will pull out a whole load and leave
work with our members to help them
them change their model of agriculture.
it in the heat, while they check one box.”
access the UK”, says Benítez. We already
But
Benítez
doesn’t
just
Unfortunately the concept of water
encouraged
more
Dominican
have strong links in the British market
conservation isn’t very common. We
Moreover while companies like Banamiel
so it gives us something to build on. We
have farmers that waste water to the
and Tropifruit have cracked the British
managed to help some chilli, avocado
point where they damage crops. We also
market, it’s clear that other Dominican
and tomato producers although it’s at a
need a zoning system to stop inefficient
firms are still some way off the standard
very early stage.”
production – for example rice, which is
required. “The UK is a demanding market
a water-intensive crop, being grown in
with various checks on quality. We’re used
For British firms the opportunities are
dry areas. Finally we need farmers to use
to that now and it’s not a problem for us
clear. One option is to bring the capital,
modern, efficient systems of irrigation.
but I think the Dominican government
technology and know- how that the DR
Clearly this costs them a lot of money
could do more to help other suppliers
needs to boost productivity and output.
so the state should create a financing
reach those standards. It would also be
Or another is to look at commercialising
programme that gives them sufficient
a good idea to have testing laboratories
some
time, say a decade, to pay it back.”
here that can subject fruit and vegetables
excellent agricultural produce.
of
the
Dominican
Republic’s
to the same tests they would get in the
Another challenge is the cumbersome
UK. If there is a problem it is better to
As for the government, whoever wins the
bureaucratic
know here than find out once it’s been
election in May will need to make sure
sent over there.”
that the DR’s buoyant agricultural export
procedures
that
some
exporters have to pass through for their
produce enter new markets. “We support
the notion that standards should be
sector receives the support it needs to
The trend of Dominican firms exporting
21 | Q1 2016
push on to the next level.
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Interview with
Federico Cuello, Ambassador
of the Dominican Republic to the United Kingdom
LatAm INVESTOR: Can
you give an overview of the
relationship between the UK
and the DR.
Partnership Agreement with the EU. In
Ambassador Cuello:
record high. UK tourism to the DR is
The UK
was the second country to recognize
our independence. Its Consul General, Sir
Robert Schomburgk—one of the leading
geographers of the 19th Century—drew
the most accurate map of the island,
including our border with Haiti which he
helped us defend.
But our history dates back to well before
our independence. The most famous
early contact was Sir Francis Drake.
Here in England he is a hero, but for
Dominicans he was a pirate who installed
himself in our cathedral, the first of the
Americas.
Back then European powers fought
to control our strategic location, but
now we have a good relationship with
all of Europe thanks to our Economic
that context the relationship between
the two countries is very healthy.
Bilateral trade is booming and is at a
recovering fast, having grown 35% in
2014. UK consumers have taken a real
liking to Dominican produce. DR exports
of fresh produce, for instance, grew 18%
between 2011-2014.
The UK recognises—and pays for—top
quality produce, even if it takes years to
develop. Back in 1989, Fyffes had become
disappointed with Caribbean growers
who could not fulfil the quotas allocated
to them as traditional suppliers under the
so-called Lomé Agreement.
Since then we managed to become the
leading supplier of bananas in Africa,
the Caribbean and the Pacific (the ACP
group). Having met British standards we
dominated the organic and fair trade
niches of the market. That success is
being replicated in other products such
as avocados and mangoes.
Our quality may be up to UK standards but
it is essential to be reliable as well. Thanks
to our positioning as the main tourist
destination in the Caribbean, exporters
can rely on our daily air connections to
the UK, which allow them to ship to the
UK already-ripened products ready to
market. And our maritime connection
time to the UK is the shortest in Latin
America and the Caribbean: 9 days.
Federico Cuello, Ambassador of the
Dominican Republic to the United Kingdom
Connectivity is an essential element of
our reliability. It is thus an advantage we
have over any of our neighbours
LatAm INVESTOR
22 | Q1 2016
LAI: The DR’s strategic
location was clear to Cristóbal
Colón, who made it the
centrepiece of his Viceroyalty;
what are the plans to become
a regional hub?
AC: The example of the UK is clear: an
island nation which became a key hub for
global trade, thus enhancing its potential
as a prime location for manufacturing
and for sophisticated service industries.
The DR should do no less.
Of our 15 natural ports, 12 are operating,
including the Port of Caucedo. IDB traffic
data shows that trade between Central
American countries already use Caucedo
as their transhipment hub. It belongs to
the same DP-World network of London
Gateway.
Our ten international airports are also
key for our logistics potential, although
interestingly the main one isn’t in the
capital city but in the tourist destination
of Punta Cana. It has direct connections
to more than 40 cities in the world,
including several in the UK.
Many Latin American exporters rely on
our airports to connect with Britain. So
for example you get fresh-cut flowers
from Ecuador or fresh asparagus from
Peru. You can be sure they get here
on time because of our transhipment
services in Punta Cana.
We have the best road and telecoms
infrastructure of Central America and the
Caribbean, allowing thousands of firms
to produce for our domestic market—
we have increasingly in the DR. And its
What has been achieved is a major step
bucking Latin American trends with a
growth potential is enhanced by the
forward. Now, regularized migrants have
healthy 7% growth rate—and for our
multitude of trade agreements which
a legal basis to remain in the DR. They
main export markets. Many of those firms
gives us access to the world’s major
continue to enjoy free access to public
are located in export-processing zones,
economies—such as DR-CAFTA with the
services such as schools and hospitals
which provide for tax-free manufacturing
US and Central America, and our EPA with
as well as non-discriminatory access to
and service provision.
the Caribbean and the EU—which create
our courts. And, as documented workers,
the right conditions for a range of sectors,
they are now in stronger position to
It is clear however that what we have
from agriculture to manufacturing to
negotiate with employers.
is not enough. Our push for more will
services, thus reinforcing our potential as
create
a logistics hub.
investment
opportunities
for
In any country, undocumented workers
your readers so that we can enhance our
competitiveness as a logistics hub at the
very centre of the Western Hemisphere.
One of these opportunities is the urgent
need for an integrated rail network that
would improve island-wide logistics.
Such a network would help us improve
connections with Haiti, which relies on
the DR as their main supplier as well as
their main port of entry for imported
goods.
Of course at the moment Panama is the
main trade hub for the region. But we
don’t see Panama as a competitor. The
size of our populations is very different,
so Panama has a different potential as
a domestic market or as a source for
labour. The locational attributes are also
complementary rather than competitive.
The expansion of the canal will create
opportunities for everyone, especially
for the DR. It means more trade passing
through our neighbourhood, reinforcing
our advantages as the country with the
shortest sailing connection to Europe,
our connectivity with the east coast of the
US, our growing links with Latin America
and of course our thriving capacity as a
location of choice for export-oriented
manufacturing and services.
At the end of the day, the best
infrastructure in the world will not have a
developmental impact if it doesn’t have
a real economy behind it. That is what
normally
suffer
because
of
being
LAI: The DR’s new rules on
migration and nationality
proved controversial; can
you explain situation to our
readers?
forced to accept different employment
AC:
legally documented, thus benefiting
The DR has done something to
be proud of—it has put its house in
order. For too long, our borders were
lax. Immigrants could come and go
without documents and work without
being properly registered. This informal
situation hurt everyone.
political consensus around a new special
naturalization law, providing up to
18 months to all irregular migrants to
document their status—a period which
is significantly longer than what any
other country has given their population
of undocumented migrants to regularize
their status.
benefited.
peers—whether national or foreign—
face unfair competition. Even critical
voices in civil society would have to
admit that it is better for workers to be
society as a whole.
Of course the situation is not perfect.
The DR wants to overcome the many
gaps
separating
both
countries
sharing the island of Hispaniola. For
instance, business on both sides of
President Danilo Medina built a wide
Immigrants
conditions. As a result, their documented
the border have set up the Quisqueya
Binational Development Council (www.
cebquisqueya.org) to ensure bilateral
and international investment in the
key priority sectors for our deepened
economic integration.
The development strategy of President
Danilo Medina is attacking poverty at its
source by ensuring access to finance for
from
74%
116
of
nationalities
undocumented
immigrants were able to take advantage
of the new rules. Unfortunately, the
rest did not meet the deadline: a
minority of Haitian immigrants—and
the descendants they forgot to declare
in Haitian consulates—did not receive
the support of their own government
in getting the documents required to
complete the Dominican part of the
process.
SMEs in agriculture and industry. Now,
with a fully regular labour market, plus
targeted investments in the border zone
should help overcome inequality both
within the DR and between the DR and
Haiti.
This should help spread more evenly the
benefits of our fast-paced growth and
thus allowing us to realize the potential
of our island as one economicallyintegrated market of over 20 million of
consumers.
23 | Q1 2016
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
Caucedo Logistics Center
is close to the Western
Hemisphere’s major markets.
LatAm INVESTOR
24 | Q1 2016
REPUBLIC
in association with
The Americas’ ideal logistics
platform
E
fficiency has always been a key
DP World, one of the largest port
costs. By combining both port and
factor in supply chain engineering.
operators
understanding
warehousing operations in a single site,
Companies
look
this current trend in global logistics has
adding an adjacent proximity to a major
for ways to move their products from
begun to develop its newest project in
international airport, the Center creates
point A to point B in the shortest time
the Caribbean, the first air-sea logistics
an ideal logistics platform in the centre
possible, using the least amount of
center in the region. Located in the
of the Caribbean and Central American
resources,
compromising
Dominican Republic and in the epicenter
region. The first warehouse has already
quality; unceasingly looking for ways
of the Americas, the Logistics Center
been inaugurated and 100% leased, and
to reach their markets in a much more
is being developed within one of the
construction of the second warehouse
efficient manner, while structuring their
largest and most important ports in the
already on their way.
supply chain so to adjust quickly to any
Caribbean region, DP World Caucedo.
continuously
without
worldwide,
change in demand. The near-sourcing
The
concept has been a key element in
The first phase of the project consists of
strategic location in the hemisphere
Dominican
Republic,
with
its
this restructuring, revolutionizing how
14 warehouses of approximately 10,000
and one of the strongest economies in
operations are strategically located near
square meters and 10 meters height,
the region with a population of over 10
target markets allowing for considerable
all located within the port premises
million people, is undoubtedly becoming
lead time reductions and enhanced
and allowing for a seamless container
the preferred and most efficient logistics
supply chain flexibility.
transportation from quay to warehouse
destination in the region.
and unmatched savings on transportation
25 | Q1 2016
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Location, Location, Location
A vital new decree looks to unlock the Dominican Republic’s logistics
potential. We investigate the DR’s bid to become a key part of the global
trade network…
T
he first hospital in the Americas,
dropped. In accordance with existing
offers a guarantee of stability. It also
the first school in the Americas,
Dominican laws on free trade zones a
reassures the large consumer goods
the first paved road in the
3.5% tax is applied to the value of the
companies that will now be looking at
Americas, the first stone house in
services rendered to goods while in the
using the DR as a logistics hub.
the Americas… suffice to say that
centres. But crucially this just applies
the Dominican Republic is home to
to the value added to the good while
But it’s too early to crack open the
a lot of firsts. But it’s not just about
being processed – not the entire value
champagne just yet. The decree creates
historical precedents. More than 500
of the merchandise.
the legal conditions for the DR to build
years since the Spanish recognised the
a world-class logistics platform yet the
strategic value of the island’s location
“The new regulatory framework for the
actual procedures and policies still have
the Dominican Republic continues
distribution centres is the key”, says
to be implemented. At the moment
to enjoy a unique position astride
Alexander Schad, President of local
the private sector is working with
global trade routes. Now a powerful
freight forwarder, Frederic Schad . “We
government officials to create the most
combination of policymakers and local
already have firms offering ticketing,
efficient processes. “We are working on
and international business leaders,
bundling, packaging for goods heading
implementation of procedures”, explains
are working to turn the Dominican
to the local market, now they can
Conde. “We are taking a high-level
Republic into a fulcrum of the world
expand and do it for goods passing
minister to see the Dubai experience
trade system.
through to international markets.”
[headquarters of DP World, one of the
Late last year the Dominican Republic
For Samuel Conde, Chairman and CEO
efficient ports have electronic platforms
announced a move that could turn the
at Caucedo Development Corporation,
for the port community system which
country into a pre-eminent trading
which includes a DP World-operated
brings together all of the stakeholders
hub. In September it revealed a special
port that is the DR’s biggest, the recent
from customs, shipping lines, terminals,
regulatory framework dedicated to
decree was the culmination of a long-
brokers,
the logistics sector. It might have
held dream. “We have always believed
companies, regulatory agencies, and
a dry name but the Decree 262-15:
the
the
anyone else who is involved in the
Regulation for Logistics Centres and
potential to become a logistics hub,
passage of goods through the port.
Logistics Operators could revolutionise
but it’s not something that you achieve
A successful example of this is Dubai
the Dominican Republic. The decree
overnight. Fortunately this government
Trade, an organisation that maintains
enables
distribution
has had the vision to support the sector
the entire logistics ecosystem to ensure
centres to receive imports, add value
and create the regulatory conditions
that it is as efficient for all users as
to them and re-export them without
that it needs to grow.” Indeed having
possible.”
being subject to extra taxes. Previously
a specific decree doesn’t just help the
goods going through that process
economics of logistics projects – it
Unfulfilled potential
would have been subject to a 1.5% tax
also sends out a strong message to
In theory the size of the Dominican
on their entire value, which made it
the industry. For investors that want to
Republic’s economy should make it the
uneconomic in the face international
finance the new distribution centres
economic centre of Central America
competition - now that tax has been
that the country will need the decree
and the Caribbean. It is the biggest
planet’s largest port operators]. Modern
Dominican
LatAm INVESTOR
Dominican
Republic
26 | Q1 2016
has
truckers,
banks,
insurance
economy of both and has a network
America and Europe. It takes container
the motorway system means land travel
of free trade agreements that allow for
vessels just nine days sail to reach
around the island is fast and efficient.
the tariff-free movement of practically
Europe from the Dominican Republic.
Sea ports have also been expanded,
all goods within these two sub-regions.
Meanwhile the USA can be reached
with 12 now operating. But it’s not just
Yet in practice it is less straight forward.
within two days. Latin America’s two
about quantity. For example, Puerto
Sure, plenty of shipping lines use the
largest consumer markets, Mexico
Caucedo has spent hundreds of millions
Dominican Republic for transhipment
and Brazil, are also within short sailing
of dollars over the last decade to create
within the region – so boats are
distance from the DR. Clearly goods
a world-class port. It has a 400-metre
unloaded and containers placed onto
going direct from the UK to Brazil have
berth, dredged to a depth of 17 metres,
smaller feeder ships that visit the various
no need to stop off at the Dominican
that means it can take the super Post
Caribbean islands. But it has not become
Republic on the way. But where the
Panamax vessels that are even too
the distribution centre of choice for the
DR becomes useful is if goods need
large for the expanded Panama Canal.
large multinationals operating in the
to be repackaged or modified before
It has also built a breakwater berth that
region. Most still prefer to use Panama
travelling on to diverse different
boosted its capacity and cut waiting
as a platform to store, handle, repackage
markets. Its strategic location means
times for vessels. The air transport sector
and reship the goods passing through
that it can receive goods from across
is also in good shape, as the country
the region.
the Americas, add value to them and
boasts 10 international airports.
then send them on to their target
“When it comes to using the DR as a
Connectivity is another area where the
markets.
distribution centre, the truth is that here
DR scores well. Several major shipping
that business is still in its infancy”, says
The factors for success
lines serve the country’s ports, while a
Ángel Terrero, General Manager, Yobel
Strategic location is all very well
network of feeder vessels connect it
Logistics DR. “At the moment Panama
but on its own it’s not enough to
to the smaller, periphery destinations
is very dominant because it has the
turn a country into a major trade
in the Caribbean. The air connectivity
canal, a great airport and good logistics
hub, explains Conde. “To be a player
is even more impressive. The busiest
services. However, with the new logistics
in that game you have to offer
airport is Punta Cana, which accounts
centre at Caucedo, there is a real push to
connectivity, infrastructure, expedite
for 60% of Dominican air traffic and has
turn the DR into a distribution centre.”
procedures and a competitive cost.”
direct flights to more than 40 different
But the DR’s logistic ambitions are not
The decree will improve procedures
international destinations.
just regional. Part of its appeal is that its
but what about the other factors?The
positioning makes it a natural fulcrum
Dominican Republic scores well on
The DR’s strengths in infrastructure and
for trade between Latin America, North
infrastructure. Heavy investment in
connectivity stem from the fact that it’s
a relatively large and dynamic economy.
For example the excellent road system
is a feat that poorer countries in Central
America and the Caribbean have not
been able to match. Meanwhile the
impressive air traffic volume is driven by
the country’s buoyant tourism industry.
Tony Vasquez, President of Caribe Cargo,
one of the major air freight forwarders
in the DR, believes the island has already
become a major cargo air hub. “Look at
the amount of destinations from Punta
Cana airport. All of the major European
economies have direct flights, so too
do North and South America. Yes they
are mostly charter flights for tourism
but that leaves a big space for cargo in
Puerto Caucedo already plays a key role
the hold. Tourists travelling back from
27 | Q1 2016
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
The DR will become a vital pivot in the global trade network
their two-week dream holiday in the
other Caribbean islands, such as Cuba,
Panama and 4 million in Jamaica. Cuba is
Dominican Republic don’t realise that
Jamaica and Puerto Rico, who have all
around the same size as us but they will
they’re bringing home piles of fruit and
announced plans to boost their port
take time to develop what they need to
vegetables with them.”
facilities in a bid to become trading
do and they are way to the north.”
The amount
of flights and diversity of destinations
hubs.
means that Europe-bound exports from
The massive canal plans in Central
North and South America all end up in
But the mood in the DR logistics
America are not causing much disquiet
the Dominican Republic before being
industry is one of measured confidence.
either. “To be honest I don’t think that
forwarded on to different European
“Cuba, Jamaica and Puerto Rico all have
the Grand Nicaragua Canal is going to
markets. Cost is another crucial factor.
their own plans to become logistics
be built”, says Vasquez. Definitely not in
The fact that the tourist flights have
centres - and ultimately the market will
the timeframe that has been announced.
already been chartered brings down
decide which the best is – but I think
There are huge political, ecological and
the cost of the cargo, explains Vasquez.
the DR is in a really good position”, says
financial barriers in the way of that
“From Punta Cana you can send a kilo
Terreno. “Of course Puerto Rico has
project.” Meanwhile Vasquez sums up
of asparagus to Frankfurt for 90 cents;
some advantages for being so close
the mood in the industry when he views
if you did that normally for a nine-hour
to the USA, but they have other issues
the imminent Panama Canal expansion
flight it would cost three times as much.
such as the cost of the labour. Cuba
as an opportunity. “It will mean more
But ultimately the carriers prefer to do
is opening up but it will be a learning
traffic and larger ships heading through
it for cheap than have the space remain
process for the Cubans as they develop
this neighbourhood. That creates an
empty. If they get 10,000 kilos of that’s
their regulatory framework and open
opportunity
$9million, so it’s a good business for
up their customs processes. These are
feeder ships for smaller regional markets.
them too.”
things that give us a lot of confidence
Fending off the competition
for
transhipment
onto
to keep investing and betting on the DR
Business opportunities
as a hub.”
It’s clear that the Dominican Republic is
Of course the Dominican Republic isn’t
at the cusp of a major transformation.
the only Central American or Caribbean
Most industry insiders also think this
But LatAm INVESTOR readers will be
country trying to climb up the global
is a situation where size matters. “The
wondering how far this story will go and
logistics ladder. Panama, the undisputed
advantage we have is the big local
where the opportunities will arise.
logistics leader in the region, is currently
market”, says Schad. “Companies looking
expanding its canal to increase its share
for distribution centres prefer if the local
In the initial stage there are two main
of global trade flows. While Nicaragua
market has a critical mass to bring down
business opportunities, explains Schad.
has launched an ambitious – some say
costs. The population of the DR is 10
“The first is investment in the real estate
unrealistic – plan to build a counter
million, with 20 million consumers living
for the distribution centres. Generally
canal. Yet, the more direct competition
on the island when you include Haiti.
speaking the logistics operator is not
to the Dominican Republic comes from
That’s compared to around 3 million in
the owner of the land or building – as
LatAm INVESTOR
28 | Q1 2016
we prefer to invest our profits in our
operations – so real estate investors
could buy and develop sites to rent to the
logistics firms. The second opportunity
is for UK importers and exporters to take
advantage of the DR and use it as a base
for their international business.”
One player well placed to benefit is the
Caucedo
“The
Development
logistic
Corporation.
component
of
the
Caucedo enterprise was always there.
In fact our official name, Zona Franca
Multimodal
Caucedo,
shows
the
multimodal component has long been
part of the plan. The reason for that is
Samuel Conde, Chairman and CEO at the Caucedo Development Corporation
that we are located back-to-back with
Santo Domingo international airport so
we envisaged eventually seeing joint
operations between the two customs
territories. Indeed for customs purposes
Caucedo is a single customs territory, so
that’s been part of the vision from the
beginning.”
Now, under the new legislation, the
Caucedo Logistics Center can offer more
to its clients. This should help attract more
volume but also boost sales per client.
“The objectives of the logistics centre
is to convert part of pure transhipment
– where we have no opportunity to
add value because the goods go direct
from ship to yard to ship – to re-export.
That involves warehousing, distribution
centres, inventory management and
repackaging.
Essentially
it’s
about
creating efficiency for customers’ supply
chains.”
Of course it’s easy for insiders to talk up
the prospects for their own industry but
it’s notable that in the DR these business
is Latin American logistics specialist,
Ali in Dubai started out as a simple
Yobel. “Here we are developing systems
100-hectare distribution centre. Today
that we can offer to clients to manage
it is practically a city, spread over 50
multinational, complicated inventories
sq km. There are around 7000 entities
in a sophisticated way”, explains Terrero.
taking advantage of the site which has a
“We have systems for eco packing,
port and the world’s largest airport. I’ve
labelling and manufacture, and these
seen its growth over the last decade and
processes are very efficient yet we keep
it’s been very impressive. But it’s not just
investing in the operating capacity of
about size – the model itself is incredibly
the company. We are also creating a
extensive. There is an IT City, from
legal entity that can take advantage
where firms like HP, Microsoft and Dell,
of the new regulatory framework and
operate their regional distribution. But it
function in the logistics centres.”
involves more than just transport as you
have to train support staff and create
Changing the face of the DR
specialised software. You also have the
The transformation of the Dominican
Media City, where the likes of CNN, NBC
Republic into a world-class logistics
and Al Jazeera are creating content for
hub is a huge investment story. But it’s
goods that are being distributed.”
not just about profits. It will change the
Dominican Republic forever, creating a
Once you become a distribution hub,
new driver for development. On a recent
a diverse range of support services are
visit to the Dominican Republic, HE
needed. This means that the benefits
Sultan Ahmed Bin Sulayem, Chairman of
for the country are more extensive.
DP World, predicted that the DR could
Panama provides an inspiring model of
become ‘the Dubai of the Americas”.
how a simple canal can be leveraged
to build a sophisticated service-based
leaders are backing it up with investment
too. Caucedo, for example, has invested
Given
that
logistic-related
services
economy. Given the strategic location
hundreds of millions of dollars in
make up 25% of Dubai’s GDP it would
of the Dominican Republic, and its
securing land, improving berths and
be a fundamental shift in the economic
existing building blocks of connectivity
building warehouses that will enable it
makeup of the DR.
and infrastructure, the new legislation
should help it regain its role of global
to attract leading clients. Another firm
already reacting to the new legislation
Conde believes it can happen. “Jebel
29 | Q1 2016
significance.
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Delio Zúñiga, Senior Partner,
KPMG Dominican Republic
LatAm
INVESTOR: The
Dominican
Republic
has
ambitious plans to become a
logistics hub for the region; do
you think it will achieve it?
Delio Zúñiga: Yes I think the country
has some strong strategic advantages.
The main one is the geographical
location, after all that’s why this was the
first island that Christopher Colombus
arrived to from Europe. It wasn’t divine
providence, it was down to the fact that
it’s a great location, perfectly suited
to shipping between Europe and the
Americas. Another advantage is that
re-export them. Our multiple trade
agreements – for example we have FTAs
with Central America and the Caribbean,
while we have beneficial agreements
with Europe and the USA – means that
goods sent from the DR have preferential
access to many markets. So that is a big
advantage too. As a firm we are optimistic
about the opportunities in the sector and
are already helping some of the major
players develop their plans.
LAI: The DR’s agricultural
exports to the UK are booming;
is it a sector that our readers
should get excited about?
of a problem is corruption for
international businesses operating here?
DZ: There’s no doubt that it exists and
that it can be an issue. When it comes
to these international rankings I think
that most of the Latin American region
scores pretty badly. One point I think is
worth making is that the perception of
corruption can have some cultural bias. I
mean there are other parts of the world
that score much better in these rankings
yet they still engage in some political
and commercial tactics that are probably
not what most people would consider
honest. Certain types of dishonest
compared to other islands in the region,
we are relatively large and have a sizeable
DZ: It’s important to put the answer
practises have become legitimised as ‘a
population. That means we can develop
in the global context. There is rising
way of doing business’ whereas others
huge warehouse and logistic facilities
demand across the world for foodstuffs
are highlighted as cases of corruption.
and have a ready supply of productive,
and the Dominican Republic is well-
Let me put it this way, if you created an
reasonably-priced labour.
placed to provide extra food. On a local
‘honesty index’ I think that the Dominican
level, the traditional agriculture sector
Republic would score very well as the
Of course these factors have existed
is not that dynamic. However, in recent
business community here is, for the most
for a long time but what is interesting
years we have seen a trend of investors
part, very sincere and serious.
now is the government commitment to
creating farm projects dedicated to niche
help develop the Dominican Republic
export crops. There has been an increase
But despite that point, yes it is true that
as a hub. The most important step in
in the use of greenhouses and while
there is corruption here. Luckily it is
this process was the recent creation
this makes it a more capital intensive
being confronted by society.
of a dedicated regulatory framework
process, the recent successes show that
that gives incentives to businesses that
the investment pays off. In recent years
receive imports, process them and
the quality of Dominican agricultural
produce has improved and that has
made it possible for us to enter markets
such as the UK and the US. In turn this
has guaranteed a higher price from
consumers, which has made it a much
more profitable business.
Delio Zúñiga, Senior Partner, KPMG
Dominican Republic
LatAm INVESTOR
LAI: Transparency International ranks the DR 123rd
globally in its Perceptions of
Corruption Index; how much
30 | Q1 2016
LAI: New legislation is opening the DR’s capital markets
to international investors; are
you optimistic?
DZ: The first thing to recognise is that
at the moment our financial system is –
especially when compared to somewhere
like the UK – relatively conservative and
closed. Government paper dominates
the securities market, there are no
locally-listed shares and trading options
are limited. Essentially the banks provide
in association with
for most of the financing needs of local
by the push for more modern regulation,
players in the industry are negotiating
companies. However there are signs that
which is ensuring that local banks comply
the Pacto Electrico, it is hoped that
this is starting to change.
with the latest international rules.
this agreement will help improve the
efficiency of the system. The key thing
We have seen new legislation to open
up the securities markets and allow for
more investment instruments. Moreover
there is a new securities law in congress
waiting for approval. Another big push
factor is coming from the new pension
system,
which
is
generating
huge
amounts of liquidity, which will be able to
drive the market for new products when
they are created. Indeed the creation of
the social security system means that the
development of more financial vehicles
is inevitable because ultimately the
pension funds need a way to be able to
gain returns for the contributors.
Over
time,
however,
I
see
LAI: Electricity supply here is
plagued with cuts; what is
behind the problem and are
there opportunities for UK
firms that can fix it?
that needs to happen is a realisation
DZ: The problem at the moment is that
should pay something. Without that
there is a lot of disorder in the system.
Creating a reliable energy supply isn’t
just about putting up a turbine and
generating energy, you need to create
an efficient system from generation to
distribution. Here the system hasn’t been
planned or integrated sufficiently, which
creates challenges. The main one is that
more
international players becoming involved
in banking here, perhaps in partnership
with the local players. This will be driven
there is not enough control about the
distribution of energy and many people
don’t pay for what they use.
that electricity is a service that everyone
should pay for. Of course you can have
a system of differentiated tariffs, with
subsidies for the poor or preferential
rates for strategic industries but everyone
there is no incentive to use electricity
carefully and prevent waste.
On a technical level it would make sense
for more renewable energy. At present
there is a heavy reliance on fuel oil, which
is a relatively dirty fuel and is subject to
fluctuating oil prices. Given the DR’s
reliance on tourism it makes sense to
protect the natural beauty of the island
by using renewable energy. Whatever
the solution the country decides upon,
At present the government and key
we at KPMG are here to help.
Innovation:
the key to business
Conscious of the trends that force companies to
innovate, we work with our clients to grow and
prepare their business for the future, developing
their competitive advantages to exploit the most
disruptive ideas, which generates networks of
constant innovation.
Audit • Tax • Advisory
KPMG Dominicana
Torre Acropolis Suite 1500
Av. Winston Churchill, Código Postal 1467
Santo Domingo, Republica Dominicana.
Tel. 1+ (809) 566-9161
Fax. 1 + (809) 566-3468
www.kpmg.com.do
31 | Q1 2016
© 2016 KPMG Dominicana, una sociedad civil panameña y firma de la red de firmas
miembro independientes de KPMG, afiliadas a KPMG International (Cooperative “KPMG
International”), una entitad suiza. Derechos reservados.
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Sun, Sea and Investment
White sands, turquoise seas and sunny climes it’s not hard to see why
millions of tourists flock to the Dominican Republic every year. But the
DR is not just a tourist magnet. The rapid growth of the industry is also
attracting international investors…
T
he
Dominican
Republic
first
Creating destinations
run international airport, schools and
emerged as a tourist destination
Simon
president,
various foundations means that they can
Suarez,
vice
back in the 1970s. Back then it was
institutional relations and projects, for
literally build something out of nothing.
beachside bed and breakfasts along the
Punta Cana Group, a resort developer
Another significant player in this market
north-eastern coast. But Playa Dorada
that has been one of the major engines
is Central Romana Corporation, a major
(Golden Beach) soon lost its lustre as a
powering Dominican tourism, says his
sugar producer, whose Casa de Campo
massive development on the east coast
firm is investing heavily to cater for
development was the country’s first
of the DR heralded a new style of tourism.
future demand. “We consider ourselves
major tourism real estate developer.
In this second wave of the DR tourism
more than just a hotel or real estate
It too has ambitious growth plans.
boom Punta Cana’s all-inclusive model
company. Essentially we see ourselves
Meanwhile newer players, such as the
proved a world-beater, bringing tourists
as destination developers. We have
Cap Cana project, are also delivering
from around the globe and establishing
large-scale hospitality and tourism real
the DR as a premier destination. Now
estate projects.
Dominican tourism looks to be entering
a third stage with emerging niches
One would expect the imminent arrival
such as eco-tourism, mountain trekking,
of a glut of new supply to worry local
boutique colonial experiences and luxury
players, yet most are confident that it
real estate.
will be needed. “Really the Dominican
developers are not competing against
By any measure the Dominican tourist
each other”, explains Suarez, “we are
industry looks in strong shape. In 2014
competing as a country against other
visitor numbers grew by 12%, while in
global destinations.” Diego Torres, Casa
2015 they rose by 10%. It’s estimated
de Campo’s general manager, shares
that by 2020 annual visitor numbers
just acquired a 15 million square metre
Suarez’s view on local competition.
will increase by 80% to 10 million. Given
territory in Bani in the south of the
“Actually there are some synergies and
these bullish figures it is perhaps little
country. Punta Arena, as the project is
ways that we can work together. For
surprise that developers are bringing a
known, will have the same effect in the
example we are working with Cap Cana
number of projects online.
south west that Punta Cana had on the
to jointly hold the Polo World Cup. OK,
east. The first phase will be 3 million
there are some areas where we compete
square metres of seafront. It used to be
but I always think that it’s good to have
a testing ground for the Dominican Navy,
some competition as it drives you to
so it looks pretty barren at the moment,
innovate.” Torres also believes that the
but when it is ready it will become a
key to succeeding in this international
major part of the tourist industry here.”
competition is to create a world-class
product that can differentiate itself. “We
Simon Suarez, Grupo Punta Cana
Vice-President Institutional Relations
and Projects
LatAm INVESTOR
Major tourism players like Grupo Punta
were the pioneers in Dominican tourist
Cana are able to create destinations
real estate and hospitality and we’ve
because their size means that they
made Casa de Campo one of the most
can deliver all of the elements. Huge
desired locations. You need to develop
tranches of land, a dedicated, privately
the amenities to attract people. So we
32 | Q1 2016
have stables, golf courses, a marina and
forgotten origins in the country. “When
There is also a shift to other types of
we also have Altos de Chavón, a replica
the wave of investment in the east
tourism, says Suarez. “Of course sea and
of a 16th century Italian village.”
created the all-inclusive hotels in Punta
sand will remain the bedrock of tourism
Cana it hit Puerto Plata hard”, says Jean
in the country but we will see growth
Another factor that breeds confidence
Pereyra, Managing Director of Ocean
in other areas. For example, in historical
is that the Dominican tourism industry
World Marina in Puerto Plata. “The
tourism, using the incredible assets of
has shown that it’s resilient to crisis.
biggest hotels in Playa Dorada had
colonial Santo Domingo. There is also
The US and Europe are the two largest
around 400 rooms, in Punta Cana some
huge scope for eco-tourism projects
source markets for the DR, accounting
have thousands. Hotels with two themed
which have barely begun to take
for almost 90% of tourists. So when the
restaurants
outgunned
advantage of this incredible island. Finally
Great Financial Crisis hit both markets
by new, larger models that had 14.” As
I think we will see some developments
many expected the DR’s tourist industry
a result Puerto Plata endured a slow
in our mountain areas with all sorts of
to take a battering. Yet it defied the odds
decline during the 90s, while the rest of
adventure
and survived. Leonel Melo, founding
the island’s tourist industry boomed.
there.” Another trend is luxury tourism.
were
being
partner of OMG, a legal firm and think
and
trekking
possibilities
Over the last decade the Dominican
tank, believes that the DR’s excellent
But a transformation in the last decade is
Republic has begun to move up the
infrastructure development played a key
putting it at the forefront of the industry.
tourist value chain, with average spend
role. “The crisis hit us at a better time
In 2006 Ocean World opened a huge
per visitor creeping up. But there are still
than other jurisdictions because we
marina and entertainment complex.
less than ten truly luxurious hotels in the
had already built a lot of the supporting
The idea was to capture both the yachts
country, a figure which will grow rapidly
tourist infrastructure, in terms of airports
travelling the well-worn route from
over the next few years.
and roads. Even the basic infrastructure
Florida to the British Virgin Islands and
for real estate development was already
also appeal to the local tourist market.
there so it was not a case of hotels and
You
can
forgive
UK
investors
for
missing out on the first two waves of
developments being left half built. Sure
“Our
the
the Dominican tourist boom. Back in
tourism real estate slowed during the
marvellous beaches. We have developed
the 1970s it would have been hard
peak of the crisis but hospitality kept
entertainment attractions and also use
to imagine the country’s sparse coast
growing at double digits.”
the culture and history of the town of
becoming a tourist hotspot. But right
Puerto Plata.” Melo believes that the
now, the DR’s tourism sector is in a
Finding the opportunities
demand for attractions could reward
sweet spot. Its solid track record, great
LatAm
be
investors. “ I would say look at the
infrastructure and government support
wondering where the opportunities are
complimentary offers to tourism, such as
makes it a less risky sector to invest in.
going to arise over the next few years,
entertainment. It’s being demanded but
While the strong projected visitor figures
and perhaps one of the best indicators
we lack it. The few companies that have
demonstrate that there is plenty of
of DR tourism’s future lies with its past.
invested in that are doing well. Really
potential for further growth. It would be
For a long time a visit to Puerto Plata
the lack of entertainment is what still
harder to forgive if UK plc missed out on
was a haunting reminder of the sector’s
separates us from Las Vegas or Cancun.”
the third DR tourism boom.
INVESTOR
readers
will
emphasis
isn’t
just
on
The Dominican Republic is home to spectacular natural beauty
33 | Q1 2016
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Interview with
Chris Campbell, Ambassador
of the United Kingdom to the Dominican Republic
LatAm INVESTOR: Ambassador, you’re relatively
new in the post, how do you
plan to boost the relationship
between the UK and the DR?
Ambassador Campbell: My role here
is challenging because we already have
such a good relationship with the DR!
One exciting area that we are going to
work on together is the civil service. The
Ministry of Public Administration of the
Dominican Republic has asked the UK to
Fortunately we have a UKTI team based
here at the embassy that can help British
companies that operate in the DR.
There is also a strong chamber of British
Chamber of Commerce, which has been
here for 28 years. We work closely with
them to help support UK firms in the DR.
LAI: The DR scores poorly
in international corruption
rankings; how much of an
impediment is it for UK firms
operating here?
help the DR reform its civil service. They
Chris Campbell, Ambassador of the
United Kingdom to the Dominican
Republic
want a more quality-driven civil service
AC:
not
international firms have. Ultimately we
and we have a lot of expertise that we
expressed any specific concerns to me
all want to make this a level playing
can share with them.
about corruption and they have not told
field for all players in the market as that
me that they have experienced it. The
will benefit the Dominican Republic and
We are bringing over specialists from
UK has a strong Anti Bribery Act, which
foreign companies alike. The DR does a
the UK that will talk about the lessons
means that they are duty bound to
good job of promoting its investment
we have learned from our civil service
report corruption approaches. But that
opportunities but it also needs to look
reform. We’re looking at a wide range
is not to say that there are no challenges
after the international companies that
of issues, such as digital government,
in the business environment here. One
are already here. I am realistic, we’re
transparency and a civil service code.
area is judicial security and we have a
not going to solve all the problems
We’re happy to partner with the DR on
number of companies that have had
overnight but I do believe that will
this and pleased that they asked us.
difficulty with that.
improve. Moreover while challenges
British
companies
have
exist, it is definitely not the case that
Moreover we think it will have a positive
impact on the business environment in
We have flagged this to the government
I would tell someone not to export or
general.
here, as it’s a question of making these
invest here. There is strong continued
judicial processes more efficient for
economic growth, there is money here
As for the commercial side of the
international companies. It’s not just
and there is business to be done. What
relationship, one of the first things I
something that affects UK investors -
British companies need to do is get in
did when I arrived was meet all of the
some of our international friends have
touch with the UK trade team here in
British companies here and find out
similar difficulties. Indeed the DR’s
the embassy and find respected local
about their experiences in the DR. I
Foreign Minister recently convened
partners to do business with. And so I
know that there are some challenges,
a roundtable with EU ambassadors,
would encourage British firms to take
and I will be working with the UK firms
DR government ministers and senior
part in Dominican Week which is being
and the government of the Dominican
members of judicial system, where we
celebrated in the UK from June 6th to
Republic to see how we can solve them.
were able to discuss the issues that
10th.
LatAm INVESTOR
34 | Q1 2016
LAI: The DR’s macroeconomic
figures are outstanding; where
are the opportunities here for
British firms?
AC: There are a number of exciting
areas for British firms to get involved in.
Tourism is the obvious one as it’s already
a successful part of the Dominican
economy. Going forward there will
be a demand for a more niche tourist
offering than the current focus on sun
and beaches. Eco tourism, along the
Costa Rica model, is something with a
lot of potential, while the new cruise
port means that visitor numbers should
continue to grow.
Education is a key priority for the
Dominican
Government
and
the
embassy here, and we’re working hard
to develop greater education links with
the DR. We have identified it as an area
where the British institutions can offer a
lot. We’ve been helping UK universities
promote themselves here and recently
held a university fair, where nine British
universities came to the country. I’ve
also spoken to a number of local schools
that have exchange programmes with
the UK that they are keen to expand.
Traditionally,
aspirational
Dominican
students have focused on the US
education system, we’re working to help
them understand that Britain also has a
world-class offering.
Another area where UK firms can
excel here is through value-added
technology. For example there has been
a big growth in the agricultural sector.
companies will also find opportunities
the language. Traditionally UK firms
in the medical sector here. The DR has
have focused on the English-speaking
become a significant producer of high-
Caribbean for obvious reasons. A lot
end medical equipment and devices, so
of it is about promotion, making the
there is scope for R&D collaborations
companies aware of the opportunities
that could help that industry here grow
here. As an embassy that’s something we
to the next level.
take seriously and we work with other
key stakeholders to make it happen. Of
The final sector worth mentioning is the
course, as the old saying goes, you can
consumer opportunities that surround
take a horse to water but you can’t make
‘brand UK’. It’s something that is strong
it drink. Indeed the best way to convince
around the world and it’s particularly
companies is often for them to hear
noticeable here. In the DR you will see
about it from peers in the private sector.
people driving British cars, wearing
clothes with the Union Jack logo
From
my
experience
[Ambassador
and drinking British beverages, such
Campbell’s previous postings include
as whiskey. Several landmark, luxury
Venezuela and Nicaragua] the difficulty
brands, such as Land Rover and Johnnie
is getting the companies across the
Walker, are doing very well here. But
Atlantic. Once they are this side of the
there is scope for so much more. There
pond then it’s not so hard to persuade
are lots of segments in the consumer
them to look at opportunities in different
market here where UK firms could do
countries. So in the past we have worked
well. For the most part it’s not a question
closely with fellow UK embassies in
of competing on price but capitalising
Central America by sharing information
on the cultural cachet of the British
about the companies that come and the
brand and, of course, delivering the
sectors they are interested in. For many
high-quality that people here expect of
companies the key issue is scale, so if
UK goods.
they can link up an opportunity here
with something else nearby, it can help
LAI: The DR is full of
opportunities and British firms
are well-respected here; so why
has UK plc been slow to take
advantage of the situation?
to make a project commercially viable.
are more resistant to the conditions
AC:
tapping an integrated network with
created by climate change. High-tech UK
cultural barrier, which is the issue of
The government is working to boost
productivity, diversify output and add
value
by
developing
agro-industry.
British firms have lots of expertise
that can help with this, for example
developing new strains for crops that
I
think
there
is
35 | Q1 2016
an
obvious
To that end we have been working on
improving
communications
between
embassies and trade teams throughout
the region. Your readers should realise
that once they contact us they are
points throughout the region.
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Opening Up
In 2003 a local banking crisis wreaked havoc on the Dominican
Republic’s economy. More than a decade later a solid, well-regulated
financial system is now fuelling economic growth in the DR. Fresh
legislation, new investment vehicles and expanding capital markets all
point to investment opportunities…
T
he problem with financial crises is
terms of physical presence. If you look
This was a key moment because they
that they’re often caused by the
at our market it is dominated by a few
were physical bonds, which couldn’t
elite but paid for by the poor. That
local names, with a very limited foreign
be split for the secondary market. The
was definitely the case in 2003 when the
presence. The main reason is the size of
problems with that prompted a switch
government’s decision to cover Banco
the domestic banking market. It means
to electronic bonds in 2011, from which
Intercontinental‘s losses cost billions
that you have an operation that offers
point the size of the bond market has
of dollars and tipped the country into
more in terms of risk – there are a lot of
grown aggressively.”
recession. The crisis was a combination
money laundering concerns in this part
of weak regulation and corruption –
of the world – than it does in reward.
It’s a question of supply and demand,
and its impact hurt the whole country.
Local players can do it but it doesn’t
explains Leonel Melo, founding partner
Needless to say, finance doesn’t have
make sense for a large international bank
of OMG, a legal firm with an affiliated
to be like that. With the right balance
that would barely notice the revenue
research institute. “The Capital Markets
of regulation and innovation a modern
from a Dominican subsidiary.”
Law opened the market for products but
we also needed to create liquidity. That
financial system drives development
by channelling funds into productive
Yet there is more to this story than the DR’s
happened with the Social Security Law
projects that deliver economic growth
solid banks. Yes they form an essential
in 2001 [with later additions], which laid
and employment.
base for the financial sector, but some
the foundations of our current pension
of the most exciting developments are
system.”
With hindsight the painful crisis of
happening in the capital markets, where
2003 may have helped the Dominican
new legislation and investment vehicles
The Dominican social security system,
Republic avoid an even worse fate at a
are creating exciting opportunities. At
which is loosely based on an early version
later date. That’s because, to its credit,
present the DR’s capital markets would
of the Chilean model, is a mandatory
the country learned its lessons from the
not impress a UK-based reader. There is
contribution system which now has
episode. A wave of tough regulation
no equity market, while the bonds are
around
followed, which ensured that the DR’s
dominated by government issues that
management. It’s growing at roughly
well-capitalised banking sector was able
make up about 80% of the fixed income
25% a year, with around half coming from
to withstand the Great Financial Crisis in
market. Felipe Amador, former CEO of
contributions and the rest from returns
2008/9. Avoiding the catastrophe that
the Dominican Stock Exchange, believes
on investment. It is large for the size of
claimed much larger, and supposedly
that is about to change. He says that
the economy and represents a growing
more sophisticated, banking systems is
the gradual liberalisation of the DR’s
pot of money that could play a major role
no mean feat. But while the DR’s banking
capital markets since the turn of the
in the development of the DR’s capital
sector is robust it offers scant investment
century shows that change is afoot. “It’s
markets.
potential for LatAm INVESTOR readers,
important to look at the history. We had
says Alejandro Fernández, a former
the Capital Markets Law in 2000, followed
Unfortunately
banking regulator who is now one of the
up by the regulation in 2002 which led
products available for the pension funds.
most well-known financial commentators
to a functioning market. Yes the crisis
In recent years local corporations have
in the Dominican Republic. “I don’t really
in 2003/4 was bad but it meant that by
issued some debt yet they refuse to raise
think that the Dominican banking sector
2008 the government started issuing
money through equity. This leads to a
holds that much promise for UK firms in
bonds to pay for the bankrupt banks.
situation where the liquidity created by
LatAm INVESTOR
36 | Q1 2016
$8.5billion
there
of
assets
are
not
under
many
the social security system is fed back
equity market would work well for them.”
to the state, says Melo. “The liquidity
Another plus is that the era of cheap
of the social security system has been
global money seems to be coming to an
going to the government for the last six
end, which should force Dominican firms
years. Actually the social security system
to look for other funding options.
is working well as it is accumulating
money but the local capital markets
Indeed
don’t offer enough depth or range for
companies are already preparing for this
pension funds. So they end up putting
step. José María Cabral, founding partner
most of it into banks, which means that
of Cabral y Díaz, a legal firm that advised
local banks have excess liquidity and –
on the biggest UK investment in the DR
in the absence of projects to finance or
– Edrington’s £200million purchase of
market instruments to invest in – they
local rum producer Brugal – believes that
buy government bonds. That means the
local firms are upping their corporate
social security money ends up going
governance standards with view to
back to the government.”
being acquired or issuing debt. “Large
there
are
signs
that
local
Enmanuel Montás, MS Consultores
firms here realise that the local market is
and many already have some in other
Yet there are signs of a shift. “It has to
limited and are keen to expand abroad.
jurisdictions.” Of course a regulatory
change”, says Amador.“ In 2023 we will
That requires partners and capital so
framework can only go so far, the
start seeing the first major redemptions
they began to improve their corporate
private sector needs to commit to these
from the Dominican social security
governance. We have seen lots of deals
opportunities for change to happen. In
system. People will want their money
with international players and there
the case of trust funds that is happening.
which means that there is pressure on
have been no nasty surprises afterwards,
“These vehicles are an efficient way to
the pension funds to perform and get
which shows that the books of the large
fund real estate development, so there is
returns. Ultimately that means they
corporations here are in good shape.”
a lot of interest there”, explains Montas.
need more freedom to be able to invest
in a wider range of products.” Melo also
MS Consultores is also acting by creating
An area of the capital markets that
a spin off trust unit, but with a difference.
predicts a transformation. “In the last six
“Our main focus is foreign investment.
months I have seen serious efforts from
The vision we have is to create a trust
pension fund administrators to drive the
to serve as a holding vehicle for clients’
offer range in the market. We have to
investments anywhere in the world.”
push the private sector to activate the
capital markets.”
There
is
no
doubt
about
it. The
Dominican Republic’s capital markets
Clearly there are certain factors, such
are
as the post-Great Financial Crisis era
bonds have too large a share of the fixed
of cheap money, which have worked
income market, while equities remain
against
untouched. But beneath the service there
the
developments
of
local
capital markets. “Some of the big local
underdeveloped.
Government
are encouraging signs of development.
companies, that would have been natural
has already started to show growth
Investment funds are being formed,
constituents of a local equity market,
is investment funds, with Dominican
corporate governance standards are
have been acquired by multinationals
mutual funds, closed-end funds and trust
improving and local firms are starting
that have access to cheap capital. We’re
funds all springing up over the last few
to eye international expansion. Recent
talking about LIBOR [London Inter-Bank
years. One key piece of legislation on
history shows that the type of sustained
Overnight Rate] plus 30 basis points –
this front was the 2011 Trust Law, says
economic
there’s no way that a local stock market
Enmanuel Montás, founding partner
undergoing is normally accompanied
can compete with that.” But despite
of MS Consultores, a Dominican trust
by expansion of local capital markets. It
losing those opportunities Amador is
specialist. “It created the framework
won’t happen overnight but investors
optimistic. “There is a range of medium-
for trust industry. It’s got a natural
should
sized Dominican companies that need
market here because most Dominican
analysing the opportunities now to make
capital to expand internationally. A local
businesspeople
sure they’re well placed in the future.
understand
37 | Q1 2016
trusts
growth
start
that
making
the
DR
contacts
is
and
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Generating Growth
The Dominican Republic’s creaking electricity system is beset with
power cuts, political squabbles and financial difficulties. Fixing it would
provide a massive boost to the economy…
T
he
lights
air
General Manager of Ege Haina, the
– perhaps involving the social security
conditioning powers down and
biggest power generator on the island.
system – to find the money to pay the
your TV screen blinks. Instinctively
“The distribution companies lose around
generators.”
you know what’s happened… it’s just
35% of the electricity to theft so they
another power cut in the Dominican
mitigate the financial impact of this by
The brutal combination of unofficial
Republic. If you’re wealthy or work in a
cutting the service to the population.”
subsidies and theft put the distribution
modern building then the discomfort is
Electricity theft is common in many
companies under enormous pressure,
fleeting. Within seconds your building’s
emerging markets, yet there are plenty
says Amauris Vásquez Disla, founding
emergency generator will have kicked
of examples of developing countries that
partner of local law firm De Camps,
into life, turning electronic appliances
have reduced it to more manageable
Vásquez & Valera. “International prices
straight back on again. For the poor the
levels, say 10% to 15%. But most experts
of fuel have dropped but this has
effects are much more onerous – a long
believe that the Dominican Republic’s
not translated to a fall in the price
wait until electricity supply is resumed.
state-owned
companies
of Dominican electricity. The power
Power cuts are all too frequent in the
don’t confront theft because of the
generation companies have dropped
DR, a daily problem that shouldn’t occur
political cost for the government. “The
the price they charge to distribution
in one of the region’s richer economies.
government has shown it doesn’t have
companies but the distribution firms
Unfortunately solving the problem is
the willingness to face the issue of the
are not passing on the cuts, instead they
more complicated than just building
collection of electricity bills, certainly not
are using it as a chance to repair their
a power plant or two. Unlike other
before the election”, says Leonel Melo,
balance sheets.”
countries,
founding partner of OMG a law firm and
where
flicker,
electricity
the
outages
occur when supply can’t meet demand,
distribution
Aicardi believes it is fair that, after years
research institute.
of subsidising energy, the state-owned
the Dominican Republic has an abundant
distributors use the current low-price
supply of installed generating capacity.
Another
Instead the problem lies in a tangled
distribution companies is the tariff
environment
web of political interest and inefficient
system. During the years of high fuel
he believes that even the low fuel
business models.
prices – around 50% of the DR’s power
prices can’t fix the problem. “Even with
is generated from imported fuel oil –
distribution companies purchasing at 10
The power system in the DR is split into
the official tariff didn’t raise enough to
cents per kilowatt hour and selling it at
three parts: the generation companies,
compensate for the increased costs. It
17 cents per kilowatt hour they still lose
most of which are privately owned, the
meant that in effect the government was
money because of the massive losses.”
transmission network, which in common
subsidising electricity.
financial
problem
for
the
to
recover.
However,
Challenge or opportunity?
with many parts of the world is stateowned, and the distribution companies,
“That
economic
One of the biggest clichés in investment
that
an
burden on whole sector”, says Melo. “The
journalism is that challenge represents
unsuccessful spell of private ownership.
distribution companies were suffering
opportunity. It’s a well-worn trope yet
Most energy experts agree that the fault
but they transferred it to the generators
like most clichés it’s often true. For
lies with the distribution companies.
by delaying payments, this financial
example, if the government decided to
“The main problem is the lack of
stress is then transferred to the banking
re-privatise the distribution companies
operational efficiency of the distribution
community
it would create a series of huge tenders.
companies”, explains Marcelo Aicardi,
government uses some creative means
were
re-nationalised
LatAm INVESTOR
after
creates
enormous
before
eventually
38 | Q1 2016
the
“The climate for change is definitely here
as there is strong public feeling regarding
Zúñiga, Senior Partner, KPMG Dominican
current price of electricity”, says Vásquez.
Republic. “At present there is a heavy
That view is share by Aicardi. “Two to
reliance on fuel oil, which is a relatively
three years ago the private sector just
dirty fuel and is subject to fluctuating oil
wanted cheap electricity. With fuel prices
prices. Given the DR’s reliance on tourism
what they were, the only thing industrial
it makes sense to protect the natural
users wanted was a lower energy cost,
beauty of the island by using renewable
so they were not paying attention to
energy.”
the government energy policy – they
believed that more power generation
There
was the answer.”
businessmen that have been unable to
“But now the private sector is realising
that having more capacity and more
generation is not the real solution
because today we have very low fuel
prices and the distribution companies
continue to be in negative territory and
keep losing money… In this climate the
likelihood that they would be privatised
at some point seems more likely.”
If the Dominican government does
open up the distribution companies to
Marcelo Aicardi, General Manager
of Ege Haina
Another factor may have been the strong
growth of non-energy intensive sectors
such as tourism and finance. However it’s
clear that the DR’s fast-growing economy
will need more energy in the future. The
government response was to commission
two huge (relatively for the size of the
network) coal-fired plants, which will add
700MW of installed capacity.
is
also
frustration
among
get renewable projects of the ground. “It’s
almost impossible to launch a renewable
project”, says Marcos Cochón, General
Manager of Compañía de Electricidad
de Puerto Plata (CEPP), a company that
runs a fuel-oil plant on the north coast
of the Dominican Republic. “I have been
trying but the government doesn’t offer
renewable projects the PPAs [Purchase
Power Agreements] needed to get project
financing, so I don’t see how they expect
them to happen. ”One firm that has
international capital and expertise there
succeeded with renewable technology is
will be a lot of interest. However, Aicardi
Ege Haina, which has around 350 MW of
believes that certain key criteria, such as
wind farms. “The reason is that we were
a more robust attitude to electricity theft
able to build it on our balance sheet,
and more realistic tariffs, would need to
without a PPA”, explains Aicardi. “I can see
be established.
how someone looking to make it happen
through project finance would struggle.”
The carbon factor
Although you wouldn’t think it from the
Providing power solutions is a guaranteed
power cuts, generation companies in the
way for investors to gain exposure to
Dominican Republic have been investing
fast-growing emerging economies - and
heavily in updating their plants. “Over the
Like any huge project the $2.5billion
there are still a lot of ways for LatAm
last 15 years generators have invested
plan has its defenders and detractors.
INVESTOR readers to get involved.
$2.5billion
succeeded
No-one can deny that it will provide a
in improving the efficiency of the
cheap source of reliable energy supply,
However,
generation fleet from 14,000 btu [British
however, it seems an odd move to
for signs that conditions in the two
thermal units], to 8,500 btu, meaning the
commit the DR to coal at precisely the
major opportunities – distribution and
country has the generation capacity that
moment that the rest of the world is
renewable – will improve. At time of
it needs”, says Aicardi. Yet despite this
making more commitment to renewable
going to print, key stakeholders in the
investment the country’s power demand
energy technology. Combined with the
industry were debating a Pacto Eléctrico.
has stagnated. It consumes roughly the
existing fuel oil plants it will create a very
The fact that the private and public
same amount of electricity today that it
carbon-heavy generation system.
sector decided to work together to solve
dollars
and
most
would
be
looking
the sector’s challenges is an undoubted
did in 2003, which is staggering when you
consider that the economy has doubled
Many feel that the money would have
positive. Yet given that strong political
in that time. Aicardi believes that the
been better spent on incentives for the
leadership will be needed to execute any
main reason is the enforced rationing
renewable sector. “It would make sense
changes, investors will be waiting until
by inefficient distribution companies.
for more renewable energy”, says Delio
after the elections in May.
39 | Q1 2016
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Interview with CEI-RD Executive Director,
Jean Alain Rodriguez
LatAm INVESTOR: What role does the Centre of Exports and
Investments (CEI-RD) play in the development of the Dominican
Republic’s economy?
Jean Alain Rodriguez: The CEI-RD is fully committed to energising the economy,
by attracting foreign direct investment (FDI) and boosting exports, with the main
objective of creating more job opportunities for the Dominican people.
Moreover, CEI-RD has been proactively working on the creation of the country’s “Invest
in DR” campaign by organising several important investments summits that promote
specific regions of the country. For instance, this year’s efforts were focused on the relaunch of the Puerto Plata province as an attractive destination for foreign investment.
Initiatives like these aim to raise awareness of the country’s benefits as an investment
Jean Alain Rodriguez,
CEI-RD Executive Direcor
destination and boost the Dominican Republic’s competitiveness.
LAI: How can it help LatAm INVESTOR readers that want to
trade with, or invest in, the Dominican Republic?
JAR: As an agency committed to the attraction of FDI and the promotion of Dominican
exports, CEI-RD offers key services that allow for well-guided and more expedite
business processes. Our services include technical assistance, promotion, incentive
granting, commercial information, legal consulting, training and logistic support.
Furthermore, in order to make the process of investing in the Dominican Republic
more efficient, CEI-RD has created the One-Stop-Shop. The objective is to facilitate
The strategic location
of our island in
the centre of the
Caribbean is now
more significant
than ever.
the process for investors who want to develop operations in different sectors of our
economy. This represents a timely and cost-effective process for investors, as it offers
services related to all law-required licenses and permits in a single office.
JAR: The strategic location of our
island in the centre of the Caribbean
LAI: The Dominican Republic has the potential to become a key
trade hub for the region; how can British investors get involved
in the story?
is now more significant than ever, due
to the expansion of the Panama Canal,
scheduled for 2016. This project will
generate traffic like we have never
seen before, including post-panamax
and super-panamax mega ships that
will radically change the dynamics of
shipping. In addition, opportunities for
transshipment and new marine routes in
our locality will definitively emerge. The
Dominican Republic is ready for these
new business opportunities, especially
with regards to our exports.
The DR has a world-class tourist industry
To this effect, the CEI-RD, and the
LatAm INVESTOR
40 | Q1 2016
Dominican Government as a whole, has
climatic conditions and a favourable
producing exports of around $660million
designed a working plan to prepare and
legal
the
in 2014. Similarly, the medical devices
promote our country as the “Hub of the
Dominican Corporation of State Electric
industry has been growing steadily with
Caribbean”. The scope of this initiative has
Companies, the country’s energy matrix
exports of around $670 million in 2014.
created many investment opportunities,
is divided as follows: 40% fuel-based
This sector is a particularly interesting
mainly in the infrastructure and service
power generation, 31% natural gas, 14%
example for your readers as it reflects
sectors, that will be available to local
coal, 13% hydroelectric and 2% wind
the modernisation of our export basket
and foreign investors. This is a unique
power.
and the trend towards adding value. We
framework.
According
to
will keep supporting these industries
opportunity for those interested in
investing in a development project that
enjoys great support from the Dominican
Government.
LAI: The energy sector in
the Dominican Republic is
filled with both potential
and challenges; how will the
government attract more
international investors to the
sector?
JAR: The Dominican Republic is in the
process of restructuring the energy
sector, in order to find a definitive
solution to the challenges we currently
face in terms of energy generation and
distribution.
The country has great potential for the
development of numerous wind, solar
and biomass projects, due to existing
high demand for power generation,
The existing potential for developing
renewable
energy
projects
is
complemented by attractive incentives
granted by Law No. 57-07 on “Incentive
for Development of Renewable Sources
of Energy and its Special Regimes”, which
is administered by the National Energy
Commission, which is the institution
that regulates the application and the
incentives offered in the energy sector, as
well as concessions for the exploitation
of energy projects.
LAI: The Dominican Republic
is already globally competitive
in agro exports such as
bananas, cigars and rum; in
what other export industries
does it have the potential to be
a world leader?
to ensure the Dominican people get to
witness its growth and benefit from the
economic impact of a thriving exports
sector.
LAI: How will the composition
and character of the Dominican
Republic’s economy change
over the next decade?
JAR: The Dominican Republic’s economy
has
experienced
sustained
growth
and important diversification, creating
unique advantages that contrast with
other economies in the region. We
are currently well-regarded not only
for traditional sectors such as tourism,
agribusiness, mining and processing
zones, but also for important emerging
sectors, such as the film industry, contact
centres and renewable energy, which
represent areas of high potential for
JAR: Our textile industry is also important,
foreign investments in the country.
The DR’s textile industry is going strong
41 | Q1 2016
LatAm INVESTOR
COUNTRY REPORT | DOMINICAN
REPUBLIC
Final Word
New sectors are emerging in the Dominican Republic’s dynamic economy
and it’s time that UK plc joined the party…
F
or investors scouring Latin America
for
exciting
opportunities,
procedures needed to aid exports.
the
country. “British investors have a longestablished presence in the country”,
Dominican Republic immediately
But perhaps the biggest fear that
says José Rodriguez, President of the
stands out. Its macroeconomic statistics
British businesses might have about
British Chamber of Commerce in the
are among the best in the region,
the Dominican Republic is the business
Dominican Republic. “The UK was a
with strong growth, low inflation and
environment.
major investor in our power industry
controlled debt. But in this report we’ve
currently ranked 103rd in Transparency
with
gone under the headline figures to find
International’s Perceptions of Corruption
exiting those investments. More recently
out what investment opportunities are
Index, some firms may worry about the
we’ve seen a massive investment from
being created by this dynamic economy.
difficulty of doing clean business in the
Scottish whiskey producer, Edrington,
Some of the results, such as the growing
DR. But this report has found a different
which bought Brugal, a famous local rum
tourism industry, probably weren’t that
picture. We’ve interviewed several UK
maker.” Indeed the presence of an active
much of a surprise. But the expansion
businesses that are already operating in
chamber, which has held regular events
of the logistics, agriculture and finance
the country and the feedback has been
for almost 30 years, is a clear sign of the
sectors is generating a new set of options
positive.
strong commercial links between the UK
With
the
country
for British investors.
British
companies
successfully
and the Dominican Republic.
Marien Lamboglia, General Manager
The most dramatic change is taking place
of British health insurer Bupa in the
This report has helped to outline some of
in the logistics sector, where the new
Dominican Republic, says that corruption
the most exciting investment options in
regulatory framework, paves the way
isn’t a factor in day-to-day business.
the Dominican Republic. Many UK firms
for the Dominican Republic to convert
“I can only comment on what I have
are already taking advantage of the DR’s
itself into a major redistribution centre
experienced but it doesn’t impact our
rapid growth – more should follow suit.
for internationally-traded goods. The
business at all.” The view is shared by
If you want to investigate further then
country’s geographic position gives it a
Eric King, the Country Manager of UK
Dominican Week, which takes place
massive natural competitive advantage,
pharmaceutical giant GSK, who feels
in London in June 2016, is the perfect
which has been increased with sustained
that the private sector also has to play
opportunity to meet people and make
investment in transport infrastructure.
its part. “As a company, we recently made
contacts.
It’s a good start, but the final stage will
a very innovative move in the way we
be creating a streamlined, 21st-century
interact with the medical community.
procedural
persuades
We’re working hard to ensure that
global players to use the DR as a trading
platform
that
those who prescribe our products have
hub.
the information they need to ensure
patients’ interests are always put first. So
Despite being part of a totally different
we have phased out payments to doctors
industry, the situation of the Dominican
to speak on our behalf and changed
Republic’s agriculture sector has some
how we provide support to healthcare
parallels. Again the country has natural
professionals to attend conferences.”
attributes – a warm climate and varied
topography – that give it competitive
Indeed the continued presence of UK
advantages. However, challenges remain
plc in the Dominican Republic should
with the water infrastructure and the
encourage investors looking at the
LatAm INVESTOR
42 | Q1 2016
Useful contacts:
Katia McKenzie
Center for Exports and Investment (CEI-RD)
Tel: +44 (0) 207 727 7091
[email protected]
Leonora Dipp
UKTI Dominican Republic
Tel: +1 (809) 472 7111 ext 2054
[email protected]
Francesca Ortiz
Britcham DR
Tel: +1 (809) 616-2335
[email protected]
LatAm INVESTOR
thanks all of our partners
for their kind assistance.
Embassy of the Dominican Republic
To the United Kingdom of Great Britain and Northern Ireland
43 | Q1 2016
LatAm INVESTOR
PORTFOLIO MANAGER INTERVIEW
Interview with Peter Taylor,
Senior Investment Manager, Aberdeen
Asset Management
its peers in the fashion retailing segment
looked expensive before but are now
in Brazil. All the retailers are in the same
giving you an entry point.
economic situation but because Lojas
Renner has more firepower and is well
In general the downturn means that
managed it continues to do well in the
there is a tough backdrop for most
downturn. Moreover it will be placed
Brazilian companies, with the exception
particularly strongly when things do pick
of the exporters that will benefit from
up.
the weak currency. Another area that
looks interesting is the Brazilian financial
Peter Taylor, Senior Investment Manager,
Aberdeen Asset Management
The other key factor for us is valuation.
sector where the banks have sold off
I mean if you were to simply invest on
excessively.
the basis of next year’s GDP forecasts
have
you would have most of your money in
run banks trading on very attractive
Mexico and the ‘Andean 3’ – not Brazil.
valuations. Yes they deserved some de-
But markets are forward-looking so the
rating but it has been over done.
LatAm INVESTOR: The
economic situation in Brazil
looks dire; should investors
stay away?
impact of the economic downturn is
Peter Taylor: We are not top-down
at a discount, with some individual stocks
macro investors but obviously we have
and sectors trading at a deep discount.
to
economic
So the risk is leaving it too late, waiting
environment. Right now the outlook for
for everything to look rosy in Brazil and
Brazil is very negative without signs of
missing the bottom of the stock market.
recognise
the
macro
a turnaround. There is a lot of bearish
sentiment so we do not see light at the
end of the tunnel just yet. However, as
already in the valuations. The Mexican
market is, on average, trading at a
premium given the stable economic
output, while Brazil is trading, on average,
LAI: So is now a good time to
go bargain hunting in Brazil?
stock pickers we are not trying to catch
In Itau and Bradesco you
well-managed,
conservatively-
LAI: The Andean 3 are pretty
popular with investors; which
is your favourite?
PT: Chile, Colombia and Peru are all
performing better than the regional
average. The economic outlook for Peru
is probably brightest although all three
are commodity exporters so it depends
on. However, Peru is a small market, the
smallest of the three. Recently there was
talk of the Bolsa de Valores de Lima being
downgraded to frontier status. It might
the bottom of the macroeconomic cycle.
PT: Yes there are some interesting
not happen but the fact that it is even
Of course we need to analyse how the
valuations in Brazil at the moment but
being talked about shows how small
economic cycle impacts the prospects
I am wary of the term ‘bargain hunting’
that market is. It doesn’t actually affect
of a particular stock but if you try to
because I don’t see this as an opportunity
our opinion on company fundamentals
catch the bottom that you will miss the
to pick up really beaten up companies at
but it highlights the liquidity problem.
best opportunity because the market
super cheap prices. It’s more of a time
In fact we only have two Peruvian stocks
is forward looking. So for us, we are
to get good companies, that were a
at the moment, Pacasmayo and Graña
keeping invested in Brazil through the
bit expensive before, but now with the
y Montero, which are two firms linked
cycle. I guess it’s a conceptual point - it
sell off look reasonably priced. In this
to the construction sector with good
is our investing view. We tend to invest
situation, where you can’t see the light
fundamentals.
in companies with strong balance sheets
at the end of the tunnel, you don’t want
that can survive economic shocks. The
to jump into a very cheap company with
classic case would be Lojas Renner,
a weak balance sheet. Rather you want
which is doing pretty well in contrast to
to move into the quality companies that
LatAm INVESTOR
44 | Q1 2016
When you look at Chile, it has really
suffered with the commodity crisis
because it is very dependent on copper
Performance
(%) Fund Performance
Aberdeen Global Latin
American Equity
thus far then these reforms are not
La
un
ch
5Y
ea
rs
great. None of our stock picks play
3Y
ea
rs
on
th
s
1Y
ea
r
Benchmark
6m
3m
1m
on
th
s
on
th
Fund
benefited from entrenched monopolies
directly on those reforms but they will
all benefit from wider effects of positive
institutional reform and direction that
Mexico is taking.
-2.40
-4.19
Aside from the reforms the other big
-6.31 -6.15
-8.28
-11.16
-17.74
-21.36
advantages with Mexico are that it is
-9.99
-12.33
closely linked to the US and slightly
removed from the commodity downturn.
Okay, Mexico is a net oil exporter and the
government does receive revenues from
-16.47
the oil sector but generally speaking
Mexico
-22.28
is
much
less
commodity
dependent than South America. It has
a huge manufacturing base, which is
closely integrated with North America
so it’s avoiding some of the headaches
-33.12
affecting
other
Latin
American
economies. The puzzle with Mexico is
-34.54
that none of this has fed through to stellar
exports. However, it has shown resilience
I had to pick a favourite I would go for
growth just yet, but sometimes these
and demonstrated the advantages of
Chile.
institutional reforms take years rather
than months to take effect. Of course
being a well-managed economy. One of
the things I like about Chile is that it’s a
relatively deep market. That’s down to
historic reasons where its strong pension
fund system has bolstered local capital
markets. You have quite a few local firms
listed in Chile or with ADRs in New York.
Traditionally one of the challenges with
LAI: The two most exciting
LatAm investment stories are
the energy reform in Mexico
and the election of President
Macri in Argentina; are you
investing in them?
not everything in Mexico is perfect; it still
has significant challenges in terms of rule
of law and the terrible consequences of
drug trafficking.
Argentina presents a different practical
situation for us as investors because
unlike Mexico, which is a deep market
Chile was that the heavy investment
from local pension funds meant that it
PT: The energy reform in Mexico is very
with plenty of investable companies,
traded at a premium to the wider region.
positive for the entire Mexican economy
Argentina does not offer much. That
That premium has dropped now, which
so you don’t need to be directly
said we are looking much more closely.
makes it very attractive. We have four
invested. Indeed finding a direct play is
We’ve been meeting with Argentine
Chilean stocks in our portfolio. Fallabella
difficult anyway, given the monopoly
companies and examining our options.
[a
Chile,
that has existed to date. But it’s such
We’ve tended to steer clear of Argentina
Andina [a Coca Cola bottler] and Parque
a significant milestone that it is good
because despite being stock pickers
Arauco [a shopping centre operator].
for the entire economy, regardless of
we are wary of investing in countries
They’re well-run companies and, with
sector. There are also a number of other
where economic management is a big
the exception of Banco Santander Chile,
exciting reforms in Mexico, for example
challenge. So in that sense the new
they operate in neighbouring countries,
in telecommunications. They might not
government has changed our attitude.
giving you exposure to the wider region.
be as significant as energy but having
However, the other key factor for us is
reforms across a number of industries
valuation. The Argentine market ran up
definitely stirred things up. Of course
a lot in the last few years so even where
it’s not always positive for every stock.
there are good companies we need to
If you’ve invested in someone that
make sure that the price is right.
retailer],
Banco Santander
Colombia is somewhere between the
two in terms of size. And it’s been hit
hard recently with the fall in oil prices. If
45 | Q1 2016
LatAm INVESTOR
40
35
30
25
Corruption
20
Health
15
Education
10
Unemployment
5
0
2005-01-01
2006-01-01
LatAm INVESTOR
2007-01-01
2008-01-01
2009-01-01
2010-01-01
2011-01-01
2012-01-01
46 | Q1 2016
2013-01-01
2014-01-01
2015-01-01
in association with
but it was a political struggle.
your case analysed by the Supreme
would be protected at some stage. So
Court.
far with the Lava Jato we’ve had almost
Impact on Brazil
20 plea bargains because those involved
Political upheaval like this is dramatic but
Another institution in the spotlight
realise that they can’t be saved by a
in the long-term it is more important to
is the Federal Police, which is very
corrupt official.
look at how Brazil’s institutions will cope.
well-equipped,
One interesting trend in this regard has
independent. Some of the equipment
There is also a big impact on the people
been the ‘judicialisation’ of politics in
and training has come from the US
themselves. Traditionally crime, health,
Brazil. Congress in Brazil is very slow to
and Europe, who must think it’s in their
education and unemployment were the
deal with civil society’s issues so the
interest, but the result that the very top
four principal concerns of the Brazilian
Brazilian Supreme Court has had to step
level, the police with the technology and
people. Yet if you look at the chart
in and deal with those problems. So, if
security clearance, can remotely access
you see that corruption has suddenly
we take abortion as an example, in other
any suspect’s electronic communication.
appeared as a major worry. It’s not that
countries you’d hope that legislators
The combination of equipment, training
people have suddenly become aware of
would pass a law but here the Supreme
and
them
this – Brazilians always knew that their
Court made a ruling to settle it. However,
effective at finding those involved in the
political and economic elite were corrupt.
the Presidency and Congress do not
corruption scandals.
The difference with these scandals is
highly-trained
technology
has
made
and
that Brazilians have begun to associate
work together, which we are seeing
at the moment, then public policy
This has had a profound effect because
corruption with economic failure. In
stalls and the Supreme Court becomes
the private sector no longer believes that
2010 the economy was still growing,
overworked dealing with society’s issues.
the government can protect them. Brazil
commodities were high and inflation
At present the Supreme Court holds
has always had corruption but before,
was under control. Then suddenly the
the key to resolve the Lava Jato scandal
if you were a businessman corrupting
economic news starts getting worse just
but it has a heavy workload. This is also
a public official, you could expect
as the corruption scandals start breaking.
because, unlike the US Supreme Court,
some support if you were caught. But
People start to feel that this is affecting
Justices in Brazil can not chose which
when you have a team of independent
their lives.
issues they want to rule over but have to
investigators hunting you down with top
face everything that comes through the
technology, it is hard for a government
My generation had a shift from seeing
system to them. So, to give an extreme
official to squash that. If you look at the
the state as a benefactor that provides
example, in Brazil if you steal an apple
Mensalão vote-buying scandal, there
everything, to being proud to ‘go private’.
and have enough money, patience and
were only two plea bargains because
Maybe for this generation corruption will
determination, you will end up having
most of those involved thought that they
be the defining issue.
Become a Corporate Member of Canning House
Since 1943 – the UK’s leading forum for informed comment, contacts and
debate on Latin American politics, economy, and business.
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47 | Q1 2016
LatAm INVESTOR
COUNTRY ANALYSIS
Uncertainty Grows in
Guatemalan Mining
Guatemala’s struggling mining industry faces fresh challenges from new
president Jimmy Morales, writes Gavin Strong, Control Risks Senior Analyst
for Central America and the Guianas…
New
Jimmy
sized enterprises (SMEs) to join the formal
Morales, has pledged to review the
Guatemalan
president,
economy by lowering interest rates for
mining sector’s fiscal regime. This is a fresh
business loans.
blow for a sector which is struggling to
fully establish itself in the country despite
Another politically popular way to raise
the huge mineral deposits. Local miners
the tax take is to target the miners.
will have paid close attention to Morales’
The support for a royalty increase was
campaign trail, where he described the
demonstrated in December 2014 when
1% mining royalty as ‘ridiculous’. Morales
the ruling Patriotic Party (PP) and the
says he will commission an ‘economic
main opposition Renewed Democratic
study’ before deciding whether to draft
Liberty Party (LIDER) put aside previous
legislation proposing an increase to the
differences over tax policy to come to an
royalty.
agreement on the 2015 budget, including
is
the
uncertainty
increased
royalty.
Ultimately,
Control Risks Senior Analyst,
Gavin Strong
bleak.
The
ongoing
fomented
regulatory
by
Morales’
The move needs to be put in context.
however, the Constitutional Court (CC)
crusade to reform the sector will only
The prospective royalty increase is part
in September rejected a provision in
serve to exacerbate the existing chronic
of Morales’ broader efforts to increase the
the 2015 budget to increase the royalty
inefficiencies of regulatory institutions,
government’s tax take. His administration
to 10% on the grounds that national
such as the Ministry of Energy and Mines
is likely to focus its efforts in this respect on
budget legislation cannot amend the
(MEM). Companies in the mining sector
improving tax collection. One way it can
tax regimes of sectors that are subject to
have periodically called on the MEM to
do this is by reforming the Tax Authority
their own specific legislation. So Morales
expedite the process for reviewing and
(SAT ). Reforming the SAT will be a popular
would need to amend the mining regime
approving operating licences. According
move – particularly given its central role
directly.
to Regina Rivera, corporate relations
in the corruption scandals that plagued
manager at Compañia Guatemalteca de
the administration of former president
However, the drafting and approval of
Níquel (the Guatemalan subsidiary of
Otto Pérez Molina (2012-15). Moreover,
such an initiative will be protracted,
Cyprus-based Solway Investment Group),
at an estimated 11% of GDP, Guatemala
particularly given the weak position of
there is currently a backlog of at least
has one of the lowest tax takes in the
Morales’ National Convergence Front
100 applications, which she claims is
region, giving the government significant
(FCN) in the 158-member Congress
tantamount to a de facto moratorium on
scope to increase it through measures
(unicameral legislature). The FCN has just
mining activity.
promoting compliance, rather than tax
11 seats. This means that any change to
hikes. For example, another of Morales’
the royalties won’t happen quickly.
proposed measures is to encourage
informal workers and small-and-medium-
LatAm INVESTOR
Regulatory
uncertainty
is
also
compounded by the persistent risk of
Yet it’s clear that for miners the outlook
48 | Q1 2016
contract suspension. Companies subject
in association with
to
significant
levels
of
community
opposition will be the most vulnerable.
Santa Rosa department calling for the San
Rafael silver project to be suspended.
For example, in November 2015 the CC
Mining in Central America
Right now Nicaragua’s mining sector
upheld a legal complaint presented by
For the companies active in Guatemalan
looks the most attractive option in Central
local NGO, Centre for Environmental
mining the best option would appear to
America for foreign investors. That’s not
and Social Legal Action (CALAS), against
be to work with the new administration.
to say that Nicaragua is a paradise - like
Guatemalan mining company Mayaníquel,
The main mining companies operating
any country miners there face challenges.
suspending operations at its Sechol mine
in the country, including Vancouver-
For example its royalty rate of 3% is one of
(Alta Verapaz department). According to
based Tahoe Resources and Toronto-
the highest in Central America, compared
CALAS, the mine caused environmental
headquartered Firestone Ventures, have
to 1% and 2% in Guatemala and Panama.
damage while its operating licence
publicly expressed their willingness to
There can also be problems with unions
had
large-
work with the government to amend
and anti-mining unrest. Yet community
scale mining licences granted during
irregularities.
Meanwhile,
the fiscal regime in the sector. Some are
activism is less of an operational threat
the administration of former president
already compromising, for example, in
than in Guatemala or Panama.
Otto Pérez Molina (2012-15) will come
addition to the 1% tax Tahoe pays a 4%
under scrutiny, especially those issued
voluntary royalty to communities located
Another advantage is that Nicaragua’s
by government officials suspected of
in the vicinity of its Escobal silver mine in
security environment remains benign
corruption.
Santa Rosa department.
particularly
in
comparison
to
the
Northern Triangle countries of Guatemala,
The situation is tough, but not hopeless.
The mining sector in Guatemala will
El Salvador and Honduras. Moreover, the
One silver lining is that the suspensions
be beset by considerable regulatory
sector in Nicaragua is not subject to a
tend to be temporary. Irrevocable contract
uncertainty
year.
blanket moratorium, as in El Salvador, an
cancellations only occur in exceptional
Although a rise in the mining royalty is
outright ban on open-pit mining as in
circumstances, where there is irrefutable
unlikely in the first few months of 2016,
Costa Rica or restrictions to operating on
evidence of irreversible environmental
companies will be under increased
land allocated to indigenous communities
degradation or where companies are
pressure to ensure they comply with the
as in Panama.
deemed to have failed to fulfil their
fiscal terms of their operating licences.
throughout
the
contract obligations, such as making
Indeed the mining chamber in Panama
the required royalty payments. Another
This will be a key component of Morales’
is advocating a one-year suspension
plus is the CC, which acts as a safeguard
efforts to increase the government’s tax
of mining activities to allow for the
against
decision-making
take, without implementing broader tax
strengthening
by both the executive and regulatory
increases. Companies that are suspected
framework, while in Honduras the pro-
institutions, as well as unsubstantiated
of avoiding making royalty payments, and
mining stance of the government is
claims made by community activists.
those subject to high levels of community
undermined by regulatory inefficiencies
For example, in October the CC rejected
activism, will face the persistent risk of
and excessive bureaucratic red tape and
a legal complaint filed by residents of
having their contracts suspended.
a higher royalty rate (4.5%).
capricious
of
the
regulatory
The Minera Panama copper mine in Panama is one of the biggest mining projects in Central America.
49 | Q1 2016
LatAm INVESTOR
“you can't see,
but it exists”
TECHO, a youth-led NGO, present in 19 Latin American countries, engages
corporations with local communities, to overcome poverty in the region.
To find out more about TECHO’s construction of housing, about our social
development programmes or about how we are continuing efforts to overcome Latin American poverty from our new European office, write to our
European Director Sebastian Smart ([email protected]).
LatAm INVESTOR
50 | Q1 2016
INVESTMENT CONTACTS DIRECTORY
Argentina
Cuba
Nicaragua
Ignacio Pereyra
Olena Navas
Investment Development Officer
Economic & Commercial Section
Embassy of the Argentine Republic
in the UK
65 Brook Street, London W1K 4AH
Tel: +44 (0) 207 318 1300 / 1332
Fax: +44 (0) 207 318 1301
[email protected]
[email protected]
www.argentine-embassy-uk.org
Economic Counsellor
Cuban Economic- Commercial Office
in London
167 High Holborn, London WC1 6PA
Tel: +44 (0) 207 836 3606
Fax: +44 (0) 207 379 4303
[email protected]
www.cubaldn.com
Gabriela Urrutia
Ecuador
Panama
Chile
Francisco Mena Guarderas
Ana Cecelia Alvarado
Santiago Lecaros
Trade and Investment Office
Embassy of Chile
6th. Floor, 37-41 Old Queen Street, London
SW1H 9JA
Tel: +44 (0) 207 233 2500
[email protected]
www.foreigninvestment.cl
Brazil
Daniel Costa Fernandes
Head of Investment, Trade, Tourism and
Olympics
Embassy of Brazil
14-16 Cockspur Street, London SW1Y 5BL
Tel: +44 (0)207 747 4500
[email protected]
www.brazil.org.uk
Costa Rica
Jorge Zamora
Director & Trade Commissioner.
Embassy of Costa Rica,
Flat 1, 14 Lancaster Gate,
London W2 3LH
Tel: +44 (0) 2077068844
[email protected]
www.procomer.com
Colombia
Andres Sarmiento
Investment Specialist
ProColombia, London office
2 Conduit Street, London W1S 2XB
Tel: +44 (0) 207 491 3535
[email protected]
www.proexport.co
Dominican Republic
Katia McKenzie
Center for Exports and Investment (CEI-RD)
Embassy of the Dominican Republic
139 Inverness Terrace, London W2 6JF
Tel: +44 (0) 207 727 7091
[email protected]
www.investinthedr.com
Head of Ecuador Trade Office
PRO ECUADOR
Second Floor, 67-68, Jermyn Street
London, SW1Y 6NY
Tel: +44 (0) 2030788040
[email protected]
www.proecuador.gob.ec
First Secretay / Chargé d’Affaires a.i.
Embassy of Nicaragua to the United Kingdom
Suite 31, Vicarage House,
58 - 60 Kensington Church Street, London
W8 4DB
Tel: +44 (0) 207 938 2373
[email protected]
www.pronicaragua.org
Commercial Attaché to the United Kingdom
Embassy of Panama
40 Hertford Street, London W1J 7SH
Tel: +44 (0) 207 493 4646
Fax: +44 (0) 207 493 4333
[email protected]
www.proinvex.mici.gob.pa
El Salvador
Peru
Rosella Badía de Funes
Jaime Cárdenas
Minister Counsellor
Embassy of El Salvador
8 Dorset Square, London NW1 6PU
Tel: +44 (0) 207 224 9800
[email protected]
www.elsalvador.embassyhomepage.com
Head of Trade & Investment
Embassy of Peru in the UK
52 Sloane Street, London SW1X 9SP
Tel: +44 (0) 207 235 8340
[email protected]
www.peruembassy-uk.com
Guatemala
Bolivia
Lesther Ortega
Andrea Chacama
Minister Counsellor
Embassy of Guatemala
105a Westbourne Grove, London, W2 4UW
Tel: +44 (0) 207 221 1525
Mob: +44 (0) 789 621 0203
[email protected]
www.investinguatemala.org
Commercial Section
Bolivian Embassy
106 Eaton Square, London SW1W 9AD
Tel: +44 (0) 207 235 4248
Fax: +44 (0) 207 235 1286
[email protected]
www.bolivianembassy.co.uk
Honduras
Paraguay
Andrea Argueta-Scheib
Hugo Chaparro-González
Minister Counsellor, Economic Affairs
Embassy of Honduras
4th Floor, 136 Baker Street
London W1U 6UD
Tel: +44 (0) 207 486 4880
[email protected]
Embassy of Paraguay
Third Floor, 344 Kensington High Street London,
W14 8NS
Tel: +44 (0) 207 610 4180
[email protected]
Uruguay
Mexico
Mario Alberto Gonzalez Alvarez
First Secretary
ProMexico, United Kingdom
8 Halkin Street, London SW1X 7DW
Tel: +44 (0) 207 811 5040
[email protected]
[email protected]
www.promexico.gob.mx
51 | Q1 2016
Koichi Tanaka
Counsellor
Embassy of Uruguay
150 Brompton Road, London SW3 1HX
Tel: +44 (0) 207 584 4200
[email protected]
LatAm INVESTOR
PROPERTY
Elegance and exclusivity on the
shores of the Atlantic
Spacious grandeur
Set in an exclusive location, surrounded by mature trees and vegetation, this villa
was designed by the architect, Javier Gentile, and decorated by the interior designer,
Hassen Balut. It enjoys maximum privacy in a peaceful neighbourhood just a few
kilometres from the picturesque town of José Ignacio. Its rooms are bright and
spacious with ocean views. The property comprises four large suites, one with two
bedrooms, a large lounge, impressive dining room, well-equipped kitchen, various
outdoor areas for enjoying the stunning landscape and a private interior patio with
garden, BBQ and swimming pool. There is an independent staff area with caretaker’s
lodge and shed. The finca is both exclusive and elegant, yet at the same time friendly
and cosy.
This exclusive property is currently being offered for sale through Engel and Volkers
Punta del Este for $7.5million.
LatAm INVESTOR
52 | Q1 2016
Live in the heart of nature
This exquisite home is located in the Boyita area, one of the most
popular parts of the Uruguayan coast. Because it’s built on three
levels you’ll find that most rooms offer spectacular sea views,
from which you can appreciate the beautiful sunsets. It consists
of 5 bedrooms, 3 of which are en-suite, a modern kitchen, several
terraces, a gym, a laundry, a large living room with access to the
terrace for two rooms, a solarium and a deck with large pool in L
from which you can enjoy direct beach access. More than just a
house, it’s where nature and serenity let you get away from your
daily routine to live a unique lifestyle.
This exclusive property is currently being offered for sale through
Engel and Volkers Punta del Este for $3.8million.
For more information about these properties contact Engel &
Volkers Punta del Este
Ruta 10, 161 esquina Las Brisas - La Barra 20100
Phone: +59 842 771444
[email protected]
53 | Q1 2016
LatAm INVESTOR
LATIN AMERICA IN THE UK
A snapshot of the latest
Latin American events
in the UK
A busy quarter for Mexico
Ambassador Gomez-Pickering
addresses the Transmedia
Forum ‘Power to the Pixel’
ens Mexico’s
ez-Pickering (L) op
m
Go
or
ad
ss
ba
Am
land, appointing
e in Northern Ire
at
ul
ns
Co
er
ev
firstul
as Honorary Cons
Brendan McGinn
CEO of Mexican Association of Insurance
Institutions,
Recaredo Arias, highlighting opportunities
in the Mexican
insurance sector at Lloyds of London
LatAm INVESTOR
54 | Q1 2016
Argentine culture on full display
a display of
rente put on
Pa
ro
nd
ja
le
A
ez and
’s residence.
Marianela Nuñ
e Ambassador
tin
en
rg
A
e
llet at th
tango and ba
Former Argentine Ambassador, Alicia Castr
o, with Argentine
artists Marta Minujín and Delia Cancela, befor
e their Tate
Modern exhibition.
Exquisite Ecuador
ProEcuador UK Di
rector, Francisco M
ena, introducing
Maria Ruth Moren
Chefs
o and David Reye
s at L’Ateliers des
UK media.
Chefs to the
nal
aff, internatio
ProEcuador St
dor 2015.
Exquisite Ecua
e of
ia at the final
chefs and med
55 | Q1 2016
LatAm INVESTOR
­UPCOMING DEALS
Peru
Mexico
Brazil
Ecuador
Jalacoa Mining Project
Cuba
Colombia
Country: Peru
Location: Apurimac region, provinces of Antabamba and
Aymaraes
Estimated Award Date: Invitation to tender is scheduled for
Q2 2016
The Amazon Getaway - Second Call
The project involves mineral exploration to identify the
potential of the mining site and determine the economic
viability of its future exploitation. Jalaoca is a mining
prospect with potential deposits of copper, gold and
molybdenum.
Country: Peru
Project Location: Amazon region
Estimated Investment: $70million
Estimated Award Date: Q2 2016
The development of the Waterway River System of the
Peruvian Amazon project involves establishing a system
capable of developing and maintaining secure navigation allday and year-long without interruptions, in the scope of rivers
that compose this system, as the Huallaga, Marañón, Ucayali
and Amazon Rivers. To achieve this goal, the Concessionaire
shall prepare a Final Engineering Study, an Environmental
Impact Assessment and Environmental Management
Strategy, which prior to the commencement of works, must
be approved by the Grantor.
Thereby, the concessionaire shall render the “Standard
Service” that includes the following activities: Provision of a
navigation channel according to the conditions established
in the contract, through dredging missteps, provision of
information for navigation, through digital information
loadable in a GPS, provision of a navigation channel free
of logs, provision of information of water levels, through a
capture and recording system of water levels in a network
of automatic stations installed in the rivers of the Amazon
Waterway. The concession term is 20 years.
Project Contact: Luis del Carpio, tel: +511 200 1200 ext 1339,
e-mail: [email protected]
Contact: Jose Rogger Incio Sanchez, tel: +511 200 1200,
e-mail: [email protected]
Tula–Villa de Reyes Pipeline
Country: Mexico
Location: States of Hidalgo and San Luis Potosi
Estimated Investment: $948million
Estimated Award Date: Q2 2016
This project will be interconnected to the Tuxpan–Tula gas
pipeline, currently under bidding process, and the Villa de
Reyes–Aguascalientes–Guadalajara gas pipeline, which is
about to start its bidding process. This system will supply
natural gas to new power generation plants, as well as those
currently operating with fuel oil, which will be converted to
use natural gas as their base fuel.
The project involves engineering and procurement, the
acquisition of real estate rights, permits and governmental
approvals, funding, construction, operation and
maintenance of a pipeline with capacity of 886 million
standard cubic feet per day (MMSCFD). The pipeline will
have a length of 455 km and a 36-inch diameter.
Contact: Federal Electricity Commission, tel: +52 55522
94400
Line 4 of the Metro Network of Lima
and Callao
Hermosillo Gas Pipeline Branch
Country: Peru
Project Location: Lima
Country: Mexico
Estimated Investment: Unconfirmed
Location: State of Sonora
Estimated Award Date: Q1 2017
Estimated Investment: $68million
Line 4 of the Metro of Lima will be built on the East-West
corridor of the city and benefit citizens living in at least
ten districts of the surrounding area. The project consists
of the preparation of final engineering studies (design),
financing, construction, electromechanical equipment, and
procurement of rolling stock, operation and maintenance of
the metro line, approximately 30 Km long.
Estimated Award Date: Q2 2016
The process will be officially announced following the
publication of the Supreme Resolution that ratifies the
agreement of the Governing Council of PROINVERSION.
This project will transport natural gas from the Sásabe–
Guaymas gas pipeline to the Hermosillo combined-cycle
power plant, located in the state of Sonora. The project
involves engineering and procurement, the acquisition of real
estate rights, permits and governmental approvals, funding,
construction, operation and maintenance of a pipeline with
capacity of 100 million standard cubic feet per day (MMSCFD).
The pipeline will have a length of 48 km and a 16-inch
diameter.
Contact: Christy Garcia Godos Naveda, tel: +511 200 1200
ext 1221
Contact: Federal Electricity Commission, tel: +52 55522
94400 tel: +593 2 2260670
LatAm INVESTOR
56 | Q1 2016
Sur de Texas–Tupan (Marino) Gas Pipeline
Deputado Luis Eduardo Magalhães
International Airport
Country: Mexico | Location: States of Tamaulipas and Veracruz
Estimated Investment: $3.1billion | Estimated Award Date: Q2 2016
Country: Brazil
This project will be interconnected to the Nueces–Brownsville gas
pipeline, which is about to start its bidding process, and the Tuxpan–
Tula gas pipeline, currently under bidding process. This system
will supply natural gas to new power generation plants, as well
as those currently operating with fuel oil, which will be converted
to use natural gas as their base fuel. The project comprises the
engineering, procurement, acquisition of real estate rights, permits
and governmental approvals, funding, construction, operation and
maintenance of a pipeline with capacity of 2,600 million standard
cubic feet per day (MMSCFD). The pipeline will have a length of 800
kilometers (km) and a 42, 20 and 16-inch diameter.
Location: Salvador - Bahia
Contact: Federal Electricity Commission, tel: +52 55522 94400
Topolobampo Gas Pipeline Branch Chontal
Hydroelectric Project
Country: Mexico | Location: State of Sinaloa | Estimated Investment:
$55million | Estimated Award Date: Q3 2016
This project will transport natural gas from the El Encino–
Topolobampo gas pipeline to the Noroeste (Topolobampo II) and
Topolobampo III combined cycle power plants, located in the State
of Sinaloa. The project comprises engineering and procurement,
the acquisition of real estate rights, permits and governmental
approvals, funding, construction, operation and maintenance of
a pipeline with capacity of 248 million standard cubic feet per day
(MMSCFD). The pipeline will have a length of 32 km and a 24-inch
diameter.
Contact: Federal Electricity Commission, tel: +52 55522 94400
Estimated Investment: R$3billion
Estimated Award Date: Q2 2016
Located 24 km from the capital city of the State of Bahia, it is the
busiest airport in the northeast region and the 8th-busiest airport
in the country. The average growth in passenger traffic is 9.27% per
year, with 9.2 million passengers and 36.613 tonnes of cargo traffic in
2014. The project consists of building a new runway, the expansion of
the aircraft patio area, the expansion of the passenger/cargo terminal
and a new parking area.
Contact: [email protected]
Salgado Filho International Airport
Country: Brazil
Location: Porto Alegre - Rio Grande do Sul
Estimated Investment: R$2.5billion
Estimated Award Date: Q2 2016
Located 7 km from the city of Porto Alegre it is the busiest airport in
the southern region and the 9th-busiest airport in the country. The
average growth in passenger traffic is 10.2% per year, with 8.4million
passengers and 29,227 tonnes of cargo traffic in 2014. The project
consists of building a new runway, the expansion of the aircraft
patio area, the expansion of the passenger/cargo terminal and a new
parking area.
Contact: [email protected]
Pinto Martins International Airport
Generating Energy from Forestry Biomass
Country: Brazil
Country: Cuba | Location: Macurije, Mague Municipality, Pinar del
Rio Province. | Estimated Investment: $32.3million
To partner with Cuban firm, Empresas Forestales Integrales, to build
and set up biomass generation plants, with a capacity 7MWh using
forestry biomass obtained from agro-industrial waste associated
with exploitation of forest plantations, the industrial processing
of harvested wood and the shredding of the biomass from areas
infested with marabu scrub. The investment involves exploiting
and managing forests to guarantee stable and sustained supplies of
the forestry biomass in demand by generation plants, as well as the
acquisition of equipment and machinery for harvesting, shredding
and transporting the wood waste.
Contact: Direccion de Negocios y Desarrollo del GEAM, e-mail:
[email protected], tel: +537 884 7456
Location: Fortaleza - Ceará.
Estimated Investment: R$1.8billion
Estimated Award Date: Q2 2016
Located 9 km from the centre of Fortaleza, it is the 3rd-busiest airport
in the northeast region. The average growth in passenger traffic
is 12% per year, with 6.5 million passengers and 57,083 tonnes of
cargo traffic in 2014. The project consists of improving the runway
and taxiway systems, aircraft patio, passenger terminal and vehicle
parking.
Contact: [email protected]
Administrative concession of the Hotel
El Prado
Country: Colombia | Location: Barranquilla, Atlantico
Copper Smelting and Refining Plant
Estimated Investment: $20million | Estimated Award Date: Q1 2016
Country: Ecuador | Location: Posorja, Guayas | Estimated Investment:
$2 billion | Estimated Award Date: TBC
The construction of a plant for copper smelting and refining with a
production capacity of 280 kton/year of copper cathodes using 1000
kton of imported and/or local concentrate. The focus of exports is
for Asian markets, especially China. It has an ideal location to export
refined copper to China and import concentrated copper from Chile
and/or Peru.
The hotel was built in 1932 and has a republican neoclassic
architecture. The project consists of making a proposal to the
property management of the National Tourism Fund (FONTUR)
sponsored by the Ministry of Industry, Commerce and Tourism. In
order to develop the project, the concessionaire will commit to make
capital investments with the objective of rehabilitating, renovating,
remodelling, equipping, operating and performing physical and
architectural maintenance to the hotel.
Contact: Ministry Coordinator of Strategic Sectors, e-mail:
[email protected], tel: +593 22 260670
Contact: Andrés Sarmiento, tel:+44 207491 3535 ext 75704, e-mail:
[email protected]
57 | Q1 2016
LatAm INVESTOR
LatAm INVESTOR
58 | Q1 2016
59 | Q1 2016
LatAm INVESTOR
65
year heritage
$6bn
funds under
management*
10
offices
40
energy assets**
providing
15m
people
with electricity
9540 MW
of electricity**
*as of October 2013
| Q1 2016
**since 2002 to60
date
LatAm INVESTOR