Latin America is rich in abundant and cheap renewable energy. It is one of the world’s largest food exporters. It is at peace, far from global conflicts and its nations are mostly strong democracies. It is close to the US, ideally placed to profit from moving production from China.
Yet Latin American presidents seem to have other priorities.
Instead of figuring out how Brazil can compete with India to assemble iPhones or win investment in microchips, President Luiz Inacio Lula da Silva wants to build oil refineries, revive shipbuilding and create a currency union with near-debt neighbor Argentina.
“There’s so much potential in Brazil to think about green hydrogen,” says Monica de Bolle of the Peterson Institute for International Economics in Washington. “And yet the government is not there at all.”
“There’s a kind of old-guard view of the world that’s getting in the way,” she added, calling it a kind of “industrial nostalgia.” “It’s a typical Brazilian story of missed opportunities”.
Lula’s apparent missteps come as Latin America struggles to manage surprisingly good economic growth. This shouldn’t be that difficult. Recent geopolitical trends have presented the region with some extraordinary advantages.
Chile’s leftist President Gabriel Boric last month outlined a strategy to tap the country’s abundant lithium reserves. It ticks many boxes: greater concern for the environment, consultation with local communities, a desire to use a rare opportunity to spur economic development.
One ingredient is missing: any incentives for mining companies to choose Chile over other competitors for lithium investment. The leftist president’s decision to put future lithium projects under state control has cut $5.7 billion from the value of two companies currently mining “white gold” in Chile.
“It was poorly designed and poorly released,” US-based lithium expert Joe Lowry said of Boric’s announcement. “This has created a huge amount of uncertainty.”
Mexico should be the best-placed Latin American nation to win so-called close shoring business given its proximity to the US and its free trade agreements.
Yet President Andrés Manuel López Obrador has abolished the investment promotion agency, attacked renewable energy companies, halted a large and largely built US brewery project and canceled a partially built international airport for Mexico City. Among his top priorities: a tourist train around the Mayan Peninsula and a new $14bn oil refinery.
Shannon O’Neill, an expert on Mexico at the Council on Foreign Relations in New York, says the result of López Obrador’s approach is “a flux. . . Closer to the shore, not a tsunami”.
“Politics and policies are holding it back,” she concludes. “As China has lost market share[in the US]. . . which mainly goes to South-East Asia.”
Argentina, the third largest regional economy, is nearly bankrupt. His Peronist government has imposed price and exchange controls that have failed to stem inflation of more than 100 percent a year, yet has shut down most foreign investment.
Buenos Aires has also created uncertainty about taxation and foreign exchange for agricultural exports, and imposed limits on the sale of grain abroad, curbing the huge potential of the agricultural sector. (The lithium industry, regulated by provincial governments, is a bright spot.)
In Colombia, President Gustavo Petro has opposed new projects in oil and mining, the mainstay of the economy. The former guerrilla revolutionary has also forced the resignation of his entire cabinet, including his respected finance minister, as part of a transition to an “emergency” government.
Reacting to what they see as an anti-trade environment, many of Latin America’s rich have been moving assets abroad over the past two or three years rather than investing at home.
Carlos Felipe Jaramillo, vice president for Latin America and the World Bank, concluded, “Many countries in the region are going through an inward-looking phase and may be at risk of missing out on opportunities in a changing global context.” Caribbean
When Boric announced his lithium plan, he told Chileans: “We cannot afford to waste this opportunity.” He would have done just that.