LATAM e-News – September 2017
Interview: Daniel Melhem
Co-founder & Managing Partner, Knightsbridge Partners
1-How do international investors see the Latin American markets in the region?
Latin America remains divided into two large blocs, those that have policies open to foreign investment and those are closed, for various reasons, mainly to institutional investors. While the rise in commodities in the last decade was a major “boom” to catapult a number of emerging countries, especially large commodity producers, many instead of consolidating their economies creating clear and open rules of the game taking advantage of the moment continued with economic policies contrary to investments in general and today are paying for it. Not only Brazil is a clear example of this, but also countries like Chile, perhaps the most open country to foreign investors in the region, during the last four years has lost investments due to changing the direction of its economic policies.
2-What parameters are investors analyzing at the moment?
Before investing, investors first analyze the legal and fiscal framework, as well as the political predictability of each country. After this, analysis of returns follows. While we went through an unprecedented global economic crisis (2008-2009) in the last 70 years, there is a lot of investment capital. Latin America is an alternative, but we must always remember that it is not the only one. For this reason, clear and long-term rules must be put in place to remain attractive among other regions.
3-What initiatives in the region would you highlight that promote the flow of investment? Could you mention some funding opportunities available?
I think the country that is doing the deepest work to attract investment at the moment is Argentina. To a large extent because the country was with some delay in this matter. Chile should wait to see what happens in November elections as the current administration of President Bachelet not only questioned the good work Chile did for over two decades with respect to foreign investors, but also generated distrust among Chileans. Many of them have now gone out to look for investment opportunities in other countries.
Financing is always a direct consequence of good economic policies and a stable currency. Little by Little, Argentina is starting to get financing from abroad, for sectors such as energy and infrastructure to begin with. There is still a lack of funding for the middle class, for the real estate sector through mortgage loans and financing to small and medium enterprises.
4-What industries do you consider to have broad development potential for the next 5 years in Latin America?
The four key sectors for Latin America are the technology sector, the tourism sector, the energy sector and the infrastructure sector. Other key sectors that still have enormous potential for expansion are the food sector and the real estate sector.
5-How has the growth curve of investments in Latin America behaved in the years?
Again, investments have declined sharply from their peak in 2009-2012, more developed markets such as the United States and Europe were able to re-attract investments that during that period had been concentrated in BRIC countries and other emerging markets. The region has not yet been able to achieve these investment rates, just as they have not achieved growth rates in the order of 6%.
6-The region shifted from rates of 6 to 8 % growth to low or even negative growth rates (Argentina, Brazil). In your opinion, what would the region be lacking in order to be truly competitive in terms of attracting investments? What are the challenges to attract investors to the region?
Again, the great challenge is to achieve long-term predictability. Without trust there are no investments. Especially after 2008 crisis. Another big problem that we have not been able to solve in many countries is the large deficit of public spending. Brazil and Argentina are not the only countries with this problem. It is essential to close the deficit so that it can then lower taxes and make economies more competitive.
7-SAHIC South America 2017 is taking place in Buenos Aires, Argentina, a timely moment of clear reopening of the country to the world markets. Could you mention the main countries that are interested in Argentina and why?
Absolutely, Argentina is probably today the most interesting country to invest in the region. The combination of being the region’s third economy (after Brazil and Mexico) provides an interesting scale to any institutional investment. Secondly, the country comes from a very low base in terms of investment and market development, especially the capital market. If Argentina manages to overcome this stage of transition and return to the path, it would become the first investment destination in the region.
8-Do you consider that the development of the tourism and hotel industry could grow in the next 5 years? Why?
The tourism sector of Argentina is in a moment of enormous transformation, on the one hand, the number of domestic flights are being increased through an opening and deregulation of the air space. New airlines are close to starting operations in the country. As if this were not enough, the Ministry of Tourism has removed the costs of visas to foreigners, for example to North American tourists and is facilitating the entry of Chinese tourists into the country. The VAT of the hotels has also been eliminated for the foreign tourist. M & A activity in the sector started strongly with the sale of the Fen group, and transactions of multiple hotels. For example the Sheraton of Iguazu to Albawardi Investments and the Sheraton of Salta to a Chilean group.
Daniel Melhem is co-founder and Managing Partner of Knightsbridge Partners, a Merchant Bank with offices in London, New York and across Latin America.
In 2009, Mr. Melhem co-founded and became President of the Gulf Latin America Leaders Council (GLLC), a private members’ Council created to bridge the gap between the GCC and Latin America.
Its members include close to 100+ leading families from the Gulf countries and Latin America.
Mr. Melhem received a BS in Economics and International Business along with the Economics Achievement Award from Babson College. In 2008 he was bestowed an Honorary Membership from the World President Organization‘s U.S. Southeast Chapter. In early 2016, he created Argentina Day, a nonprofit organization established to promote Argentina as the No. 1 investment destination within Latin America.
To contact Daniel Melhem: firstname.lastname@example.org
To know more about Knightsbridge Partner visit: knightsbridgepartners.com