Investors in Latin America displaying greater appetite for risk

Issues such as the Trump administration in the US, immigration and the Brexit issue in Europe, have shown investors that, despite such upheavals, business continues as usual

While political risk has long been a consideration for businesses investing in Latin America, investors in the region now seem to be displaying a much greater appetite for risk in general, attendees at an event organised by The Latin American Lawyer in New York heard. (Left to right pictured: Patricio Trad, Mijares Angoitia Cortes y Fuentes, Iván Sandoval, Colgate-Palmolive, Maurizio Levi-Minzi Debevoise & Plimpton).

Participants in the event – which was staged in collaboration with Debevoise & Plimpton and Affinitas – were told that while investment in Latin America is stymied by the high incidence of corruption, and geopolitical uncertainty, such problems are not a new phenomenon. However, what has changed is that people have learned to live with much more volatility.

Global political developments have had a role to play in this respect. Issues such as the Trump administration in the US, immigration and the Brexit issue in Europe, have to some extent shown investors that, despite such upheavals, business continues as usual, and this has led to a change in the way risk is perceived, panellists agreed.

What companies must do is acknowledge that, while they cannot combat geopolitics in the region, engaging with it is important. Companies can play a proactive role at a trade association level, for example, and try to influence, while also being reactive to any political or economic changes. Attendees were also told that companies have to fully understand their role – and the role of their client or business partner – especially if they are operating in a highly regulated industry such as telecommunications. This is vital if a business plans to remain in the market for the long-term, panellists heard.

Be aggressive
Companies were also urged to take an aggressive approach to the political environment. It is important that companies anticipate what is the future holds in terms of the politics, while lawyers and in-house counsel have to be agile, understanding the impact of regulatory changes, and finding ways to work with governments in order to achieve common goals.

The most important driver of investment in all Latin American countries is the growth of the middle class, panellists agreed. Investors are looking for market share and, in many countries, and particularly in Brazil, there is significant investment in infrastructure. In terms of M&A deals, there continues to be significant gaps between buyers and sellers valuations. An increase in projects and M&A deals in the region is coupled with growth in litigation and disputes in the region. Such cases need to addressed using more sophisticated strategies. Meanwhile, investment projects can sometimes be impacted by “inward-looking” governments in larger economies, panellists heard.