re: Investment in Peru and Ecuador
What Does the Future Hold?
resourceinvestor.com
By Stephen Clayson
02 Jun 2006 at 03:31 PM EDT
LONDON (ResourceInvestor.com) -- Several of the countries of Latin America are on the change; politically, socially and economically, and especially as regards their attitude to foreign investment in the business of exploiting natural resources. Peru is one of these countries, and Ecuador is another. Both countries are expected to shortly hold presidential elections, following which their investment climates could be affected. Here is a concise study of the outlook.
Peru
The final round of this year’s Peruvian presidential election is scheduled for June 4, and two main candidates have emerged, with one of them to be inaugurated by July 28. London based and resources focused investment bank Ambrian Partners, with the help of Guillermo Arbe, who heads a consultancy specialising in Peru, have produced a report summarising both candidates’ likely form should they win the election.
The first, and the one thought most likely to Prevail, is Alan Garcia. Garcia hails from the centre-left APRA party, and has been president before, from 1985-90. Then however his government was ‘notorious for its unorthodox economic politics and state mismanagement’, according to the Ambrian report.
Will he repeat past mistakes? Ambrian is optimistic, but it would be wise to prepare for some bumps in the road. There is definitely a chance that a Garcia led government would look to impose some sort of profit squeeze on mining companies while metal prices are elevated.
The second candidate is Ollanta Humala, and although he terms himself a nationalist, he is actually more of a hard-line socialist, at least where economic issues are concerned. Ollanta is a military man with little political track record aside from leading a smallish uprising against the government of Alberto Fujimori, who fled Peru a wanted man in 2000 and has not been allowed back since.
Ambrian’s report identifies a Humala led government as posing a significant risk to the rights of overseas investors, and as more likely to go after the profits of miners and oil & gas firms.
Mining companies including Newmont [NYSE:NEM], Xstrata [LSE:XTA], Barrick Gold [NYSE:ABX; TSX:ABX], Phelps Dodge [NYSE:PD], Pan American Silver [Nasdaq:PAAS; TSX:PAA] and Monterrico Metals [AIM:MNA] are investing or invested in Peru, some, such as Newmont, with world class projects like Yanacocha.
Ecuador
The world recently got a heads up on the situation in Ecuador when Occidental, a large U.S. oil & gas group, found itself being ejected from the country. Although this has not so far turned into a wholesale nationalisation of the Ecuadorian oil & gas sector, Occidental, or Oxy, was the biggest single investor in Ecuador and the company’s enforced exit was certainly attention grabbing. For more information, see here.
Ecuador figures less on investors’ radar screens than Peru, especially with Oxy, although there are foreign companies active in Peru, such as Cornerstone Capital [TSXv:CGP] of Canada.
Thankfully, the frontrunner to assume the presidency of Ecuador this year is Leon Roldos, a man expected to take a moderate stance on most issues and see foreign investment as not unwelcome. It therefore looks like Oxy’s rude surprise could be the exception rather than the rule for overseas investors in Ecuador.
The other two most likely candidates are a female from the centre left, who could be expected to follow the path carved out by Chile’s female president Michelle Bachelet and remain on good terms with foreign investors; and Ecuador’s richest man, who would most probably adopt a pro-business and pro-foreign investment posture.
Conclusion
The outcomes of the elections in Peru and Ecuador are clearly worth watching, given that investments of significant size could be affected by shifts in policy. The spectres of Hugo Chavez of Venezuela and Evo Morales of Peru loom large over the polity of Latin America, particularly given the recalcitrant attitudes of the gruesome twosome towards overseas investment. Hopefully, the victors of the Peruvian and Ecuadorian elections will adopt a more level headed approach. |
