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A silver lining in Latin America: trade, partnerships, and investment will be key for reactivation. Ricardo Ernst, Georgetown.

Ricardo Ernst | School of Business, Georgetown University
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“To succeed, jump as quickly at opportunities as you do to conclusions”. Benjamin Franklin was right, and Latin America should take his advice. The region is buried in the middle of a triple threat, one that could decimate public health systems and reverse twenty years of poverty reduction and inequality efforts. A pervasive Covid epidemic, struggling economies, and political unrest leave little space for optimism.  Through creative solutions, countries have begun to shed entrenched roadblocks and create their own framework for investment and growth.

As Latin America braces for a contraction of up to 10% this year, sound economic and regulatory management becomes the most important path to recovery for governments. Business must also be an engine for growth, as a joint commitment between public and private sectors to stimulate trade, partnerships, and investment will be key for reactivation, employment, and regional stability.

A recent, creative exercise is being developed in the Northern Triangle countries (Honduras, Guatemala, El Salvador), through the creation of a Joint Business Council aimed at identifying and promoting the area’s competitive advantage, in pursuit of new, foreign and domestic infrastructure investment, nearshoring opportunities, partnerships with US firms, and joint funding from Multilateral institutions. It is encouraging that countries that have been traditionally viewed through the lens of its crises are now the first to unite in a practical pursuit that has positive ramifications for jobs and prosperity, and for broader issues like immigration, poverty reduction, and stability. Building on the competitive advantage of a trade agreement (CAFTA) with the U.S., this initiative seeks to reactivate the relationship with the U.S., on board an active partner in increasing and diversifying trade. The rest of the region should take note.

Colombia, Perú, and Panama, all with free trade agreements with the U.S. should follow the Northern Triangle example. Collectively capitalizing on the nearshoring trend and the need for FDI in a Covid-challenged could be best achieved by identifying competitive advantages and pitching projects as a bloc.

To succeed in these endeavors, all of these countries’ governments need to strengthen their regulatory environment and reform judicial roadblocks. Even in Colombia and Peru, which call themselves investment friendly,  regulatory, and judicial instability has led to significant and costly lawsuits by investors in international arbitration courts. Investment attraction thus is too often dampened by complex regulatory structures, a lack of investor protections, outdated, insufficiently transparent judicial systems, and an absence of long-term planning.  Lawsuits and unstable rule of law become a cautionary tale for new companies wishing to enter or expand. In order for a serious investment platform to succeed, a sound business environment must be redesigned.

Open markets, regional Business Councils, and partnerships are not common in these days of neo-protectionism, but they are vital as a tool to stabilize and rebuild the wounded economies of Latin America. Through creative endeavors like the Northern Triangle Business Council, which other countries can emulate, and smart policies to attract and retain investment on the government side, which are urgently needed, these countries can rebuild, stabilize and build the road to recovery, prosperity, and growth.

*Ricardo Ernst Ph.D. Georgetown University School of Business. Managing director, Global Business Initiative, Latin American Board

 

 

 

 

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