Oh, Canada?

Illustration: ©iStockphoto.com / hjalmeida

When the upstart Canadian Council for the Americas hosted its first gala dinner in 2011 in Toronto, the event sold out in a few weeks, with over 400 people paying $500 per seat.  Attending Canadian media was astounded. Canadian business was not.

The relationship between Canada and Latin America & the Caribbean (LAC) dates back close to 300 years when Halifax ships brought cod and timber to Kingston in return for sugar and rum. Since 2005, however, the investment ties between the two have soared, propelled overwhelmingly by the mining industry. In most sectors, Canadian companies struggle to reach the global top 25 list. But in banking and mining, Canada is home to three and four entries on the top 25 lists respectively. Canadian miners have led the recent charge into Latin America, including some little-known mining jurisdictions: Ecuador, Guatemala, Dominican Republic, Argentina, Colombia, Panama and Suriname.

Canadian miners operate close to 80 mines in Latin America, most of which are located in Chile, Peru, Mexico, Brazil and Argentina. Leading the charge into the region are some of Canada’s largest miners: Barrick Gold, Yamana Gold, Goldcorp, Teck, Kinross Gold, Pan American Silver and Sherritt International. Combined, Canadian firms extract $18.7 billion per year from Latin American mines, and employ an estimated 150,000 people in the region.

By 2010, Canadian companies had invested close to $54 billion in the region, placing Canada fifth in the ranks, well ahead of China, which has captured most of the headlines in LAC over the last five years as the new investor on the block. Chinese investment stock in 2010 reached approximately $25 billion, ranking the country eighth on the same list. From 2005-2010, 20 percent of all outbound foreign direct investment from Canada went to LAC, more than all investments in Asia by Canadian firms.

The second leading sector of Canadian investment in LAC is financial services. Toronto-headquartered Scotiabank is now estimated to be the eighth largest bank in Latin America with significant market positions in Mexico, Peru, Colombia, Mexico, Trinidad & Tobago, Jamaica, and the Dominican Republic. A lesser known, but equally historic investor, is Brookfield, once known as Brascan, who built some of the first street lights in Brazil in the late 19th century. Today, Brookfield has over $18 billion of assets under management in South America.

Between Quebec, Ontario and Mexico flows the third great tranche of Canadian investment in Latin America, that of manufacturing. Canada’s highly competitive auto parts industry was first drawn to Mexico in the 90s as their U.S. assembler clients moved or expanded south of the Rio Grande. Having been forced, almost against their will, to invest in Mexico, some of the Canadian first-tier suppliers like Magna thrived in northern Mexico and found other assembler clients to service.

Though the impetus to invest in Latin American came from Canadian industry, Ottawa has been a supportive partner. Canada now has active free trade agreements with Chile, Mexico and Costa Rica and pending agreements with Colombia, Peru, Panama, Dominican Republic, four countries in Central America and Caricom. In 2007, the Harper government surprised many with its Americas Strategy, naming Latin America & the Caribbean as Canada’s top priority region for commercial development (outside of the U.S. – the de facto number one market), ahead of anywhere in Asia, Europe, Africa or Oceana.

Outside of mining, most Canadian companies have chosen a niche strategy in Latin America, either opting to service the needs of an established multinational customer or choosing the less traveled paths of small and mid-size markets. Investing in Peru, Colombia, and the Caribbean has proven highly profitable to Scotiabank. It lacks the economies of scale to compete in highly competitive investment banking and trade finance fields, and instead has entered the more risky, but profitable, realm of underserviced retail banking in smaller markets.

Keeping a low profile is indeed the Canadian way. It has been a crucial success factor for Canadian investors in Latin America. It is also one reason why the dramatic expansion of Canadian presence in the region has largely gone unnoticed by Latin Americans and Canadians alike.

John Price is the managing director of Americas Market Intelligence and a 20-year veteran of Latin American competitive intelligence and strategy consulting.
jprice@americasmi.com

 

Filed Under: John PriceOpinion

About the Author: John Price is the managing director of Americas Market Intelligence and a 20-year veteran of Latin American competitive intelligence and strategy consulting. jprice@americasmi.com.

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