The spring 2011 edition of Valve Magazine contained a short article about international expert José Luis Vittor. Here’s a longer version of that article, in which Vittor discusses business conditions in Latin America and advises where the most fruitful opportunities exist.
At almost any event that executives with global interests have attended in the last couple of years, one of the hot topics of discussion has been Latin America. Such was the case at a VMA leadership meeting held earlier in 2011 when international expert José Luis Vittor took the podium to explain opportunities in that area of the world to attendees.
“Latin America fared much better during the recent economic crisis than many parts of the industrialized world,” says Vittor, a partner in the international law firm of Hogan Lovells US LLP in Houston. Vittor has more than 20 years of experience in the region. “That’s partly because it was insulated in certain markets from the events in Europe or the U.S.—and, after some tough times and better structural and fiscal policies, more used to relying on its own resources. In this case, this self sufficiency turned out to be a benefit,” Vittor adds.
Going forward, economic growth in the region is expected to be stronger than in most OECD countries. During his presentation, Vittor pointed to the United Nations Economic Commission for Latin America and the Caribbean, which predicted a 4.2% regional economic growth in 2011 following 6% growth in 2010, with such countries as Argentina, Brazil, Chile and Peru all expected to grow at even faster rates.
Add to that reality the strife that has been going on in other parts of the world such as Libya and Egypt, and it’s easy to see why the Southern half of the Americas, with its rich natural resources, blossoming markets and wealth of commodities, is attractive to business investors and partners.
“I’m not saying there are no problems at all or that there weren’t problems in certain areas from the recession. And I believe there is still much work to be done at the macro level or institutional level in most areas of Central and South America. But most of the countries are more careful in their fiscal policies (in some cases, more careful than the U.S.), and that means they are now in a much better position. Many of the countries, such as Brazil, experienced growth during the crisis,” Vittor adds.
An International Upbringing
Vittor was born and raised in Argentina, got his undergraduate degree in a German school and his JD at the University of Buenos Aires, then came to the United States to get an international postgraduate degree from the University of Texas at Dallas and a masters of law from the University of Houston Law Center. He worked for many years on various privatization projects, beginning in Latin America and including privatizing exploration and production company YPF, the biggest company in Argentina. He then became involved in a wide range of international legal work that focused on large corporate transactions, public and private partnerships and infrastructure development and international finance and foreign inbound and outbound investments. His Latin American efforts included representing international investor George Soros in Argentina, Brazil and Venezuela; Mexican oil giant Pemex; Chile's largest oil and gas company ENAP; and other water, infrastructure and international energy companies in the areas of LNG, renewable energy and project development and finance.
“All of this was a progressive process that slowly brought me towards the United States,” he says.
He was asked to speak at the VMA meeting because his background has put him in contact with so many of the end-user markets valves, actuators and controls affect.
The Hot Spots
When asked where the valve industry has the best chance of shining in Central or South America, Vittor points to oil and gas and water/wastewater as two of the brightest markets.
The oil and gas industry’s strengths include:
- A rich abundance of supply with new sources under exploration. For example, Vittor pointed out that drilling is expected to start soon in Trinidad and Tobago, Guyana, Suriname and Paraguay while non conventional gas sourcing is expected to grow in Colombia and Argentina.
- Strong international sector participation, especially in the countries of Colombia, Peru and Brazil.
- New government policies and models in countries such as Mexico, Ecuador, Bolivia and Venezuela.
- The focus from the rest of the world on the need to find sources of supply that don’t rely on the Middle East.
- A strong infrastructure already in place or being put in place in many parts of Latin America. Vittor said that $450 billion is slated for infrastructure projects between 2011 and 2015. That includes almost $44 billion in transportation and almost $13 billion in ports and logistics.
The water/waste industry will benefit from:
- The sheer size of demand from the entire area. The first priority, Vittor said, is distribution of potable water, but opportunities are arising all over for investment in wastewater treatment plants. For example, Chile has an attractive regulatory and business model for treatment plants and Peru offers opportunities under a concession model to support state-run service provides.
- Infrastructure growth: Vittor said that water and wastewater infrastructure investments will reach $17 billion by 2015.
- Vittor also points to power as an area of opportunity, noting that power demand is set to outstrip gross domestic products in many Latin American areas including Peru, Brazil and Chile.
Where Opportunity Lies
Geographically, “If you ask me where the greatest opportunities lie, I would point to Brazil, Colombia, Peru and Chile. But there are pockets of opportunity in many places, including certain areas of Central America.
“What you need to look at in considering a place to do business is the macro and institutional framework, how broad a country’s treaty network is and whether they have the standard provisions in terms of double taxation and investment protection,” he says.
For example, the government’s scale of involvement in the economic environment in Chile is minimum and appropriate and makes it one of Vittor’s favorite picks because of favorable free trade agreements with several nations and a well-run government. Brazil, on the other hand, is a more complex market for regulated industries and is still in negotiations with the U.S. on a tax treaty but “the size of its economy and natural resources makes them almost an inevitable option,” he says. Columbia has a clear legal framework that respects foreign investment as well as strong economic fundamentals and support for expanded infrastructure. Peru has oil and gas and general energy sectors that are expanding considerably at the same time substantial investments in infrastructure are occurring.
In his country of origin, Argentina, he points to many opportunities for U.S. exporters and investors—the U.S. is one of that country’s top trade partners. But Vittor warns that success there requires taking the time to develop close personal relationships with local representatives, agents or distributors. And in Mexico, the government recently announced an aggressive program to improve the country’s infrastructure, which includes new roads and investment in water and sanitation.
What to Consider
In general, Vittor says that companies considering doing business in Latin America have three levels of considerations.
“The first is the macro level, which is the institutional make up of the country,” Vittor explains. This includes the political climate, whether the government is set up to encourage foreign investment and any trade or economic barriers or the transparency of the system or political process.
The second level is project specific, he continues. “You may have a macro level that looks very good, but then you need to look at the issues that might impair your own particular project, such as what type of track record your company and the host country has in terms of foreign investments, how relevant your project is to local economies or what infrastructure is available to support the project,” he says.
The last level he called the implementation level, which is looking at what specific tools are available to help a project be viable and profitable, such as whether there is clear risk allocation, what payment mechanisms are available or whether acceptable market returns are possible, and what solid contractual regulations and agreements are in place.
“If you can check the boxes on these three levels and feel comfortable with what you see and you have conducted a thorough diligence and become familiar with the culture and business environment, you should seriously consider making an investment in the specific host jurisdiction,” Vittor advises.